Discounts and Promotions by Form of Presentation: Understanding Their Differences and Impact on Customers

Discounts and promotions can vary by type, purpose, and method of execution.

This article will present the differences between discounts and promotions by form of presentation, including their pros and cons.

Discounts and Promotions by Form of Presentation:

Percentage Discount

A percentage discount is a reduction in price by a certain percentage (e.g., 10%, 20% discount).

Percentage discounts are easily understood by customers (for example, “20% off” is more comprehensible than “20 CHF, USD, or EUR”). They create a sense of significant benefit, especially for high-priced items.

This type of discount can be applied to any category of goods and services, and it is easy to adjust the discount size (e.g., from 5% to 50%). Percentage discounts are effective in motivating customers, particularly at higher percentages, as customers feel they are saving a significant amount. They often encourage larger purchases if the discount depends on the order value. Large percentages (e.g., 50% or 70%) work well in advertising and attract attention. This type of discount can be used for different customer segments, including both new and returning customers.

However, some customers may struggle with calculations and not fully understand how much they are saving, especially with small percentages. A percentage discount may seem less significant for low-priced items (e.g., 10% off of 10 CHF, USD, or EUR is only 1 CHF, USD, or EUR).

If the percentage is too high, it can lead to a loss of profit, particularly if the product is in demand even without discounts. Constant percentage discounts reduce the perceived value of the product. Customers may come to expect that the product will always be sold at a discount. For inexpensive items, a percentage discount is often perceived as insignificant. Frequent promotions with percentage discounts can create an impression that the brand is cheap or that the products are of poor quality.

Percentage discounts are effective for high-priced items (e.g., electronics, furniture), during seasonal sales (to attract attention), in cases where urgent sales stimulation is needed, or to promote new products (e.g., 20% off on a new item).

Beautier recommends using percentage discounts wisely, monitoring customer perception, and ensuring that they do not become a long-term standard.

Fixed Amount Discount

A fixed amount discount is a price reduction by a specific sum (e.g., 20 CHF, USD, or EUR off).

Customers easily understand the benefit, such as “20 CHF, USD, or EUR discount” or “Minus 10 CHF, USD, or EUR.” This appears more concrete than percentage discounts.

Fixed amount discounts can be more noticeable for inexpensive items (e.g., “20 CHF, USD, or EUR discount” is perceived better than 5%).
Such discounts are easy to forecast and calculate the exact loss for the seller on each sale, unlike percentage discounts, which depend on the item’s price.

Customers often perceive fixed amount discounts as temporary or exclusive offers, prompting them to make a purchase sooner.

A fixed discount is used to encourage larger purchases, for example, “100 CHF, USD, or EUR off with an order of 500 CHF, USD, or EUR.”

However, fixed discounts have some downsides. For high-priced items, a fixed amount discount can seem insignificant. For example, “5 CHF, USD, or EUR off” on an item worth 1000 CHF, USD, or EUR seems unattractive. A fixed amount may seem small compared to a percentage discount; for instance, “10% discount” is often perceived as more beneficial than “10 CHF, USD, or EUR off.”

It is also difficult to use for promotions covering a wide range of items with varying prices, as a fixed discount may be inadequate for more expensive items. It is harder to adapt fixed discounts to different product categories in a way that makes them look fair and appealing. For inexpensive products, a fixed amount discount may consume a significant portion of the margin.

Fixed discounts are best applied for promoting products with low or medium prices, ensuring ease of understanding for customers, increasing the average order value (e.g., “20 CHF, USD, or EUR discount for purchases of 300 CHF, USD, or EUR”), or encouraging quick purchases.

A fixed amount discount is an effective tool. Beautier recommends selecting the right conditions for its use and considering the specifics of the products and target audience.

Bonuses

Bonuses are reward points earned with purchases that can be used for future payments.

Bonus programs (e.g., earning points) encourage customers to return for more purchases to use the accrued bonuses. Customers may be inclined to spend more to earn more bonuses or use accumulated points to buy more expensive items.

Bonuses can be adapted to various campaigns, such as double bonuses on specific days or product categories. Bonuses often have an expiry period, motivating customers to return to the store sooner to use them.

Unlike discounts, bonuses do not require an immediate price reduction and encourage customers to return for a repeat purchase. Loyalty programs with bonuses help form a positive brand image, showing that the brand cares about its customers, especially loyal ones.

Bonus systems have their drawbacks. Customers may not understand how many bonuses they will receive or how to use them, which reduces the attractiveness of the offer.

Creating, managing, and supporting bonus programs requires costs for CRM systems, staff training, and marketing.

If the conditions for using bonuses are too complex, customers may not take advantage of them, reducing the program’s effectiveness. If bonuses can only be used within a particular company or a limited range of products, it can frustrate customers.

Bonuses do not offer immediate savings, which may reduce interest in the program compared to discounts. Not all customers are willing to participate in long-term loyalty programs; some prefer instant discounts.

Bonus programs are recommended for attracting loyal customers, encouraging repeat purchases, aiming to increase the average order value and long-term loyalty, in loyalty programs, or for promotions with deferred benefits or promoting new products or services by offering additional bonuses for purchases.

Bonuses are effective if they are clear to customers. Beautier recommends making the conditions for using bonuses transparent and making the benefit of participating in the program evident.

Gifts

Gifts are free items or services provided with a purchase (e.g., “Buy two, get the third free” or “Spend 100 CHF, USD, or EUR and get a gift for only 1 CHF, USD, or EUR”).

A free gift gives customers a sense of additional value, even if the gift is inexpensive. Gifts are associated with pleasant emotions, which strengthens the customer’s positive attitude towards the brand. If the gift is branded, it can also serve as a means of promoting the company (e.g., a mug or t-shirt with the logo).

The “gift with purchase” offer motivates customers to spend more to receive an extra item. Customers often strive to meet the promotion conditions (e.g., making a certain purchase amount) to receive the gift.

Gifts help to get rid of unsold inventory without reducing the product’s perceived value in the customer’s eyes. Free gifts leave a positive impression, encouraging customers to return.
The downsides of gifts include that even inexpensive gifts require investment, especially if they are of high quality. If the gift seems useless or cheap to the customer, it can lead to disappointment and negatively impact the brand’s perception. Gifts may not always stimulate sales if the customers are not interested in the gift itself.

Organizing a gift promotion can be challenging due to the need to track gift availability, shipping, and packaging. Customers or employees may attempt to obtain gifts without meeting the requirements of the promotion.

If the gift is intended only for a certain category of customers, it may cause dissatisfaction among others. After the promotion ends, customers may lose interest in the brand if their main motivation was the gift.

Gift promotions can be used to attract new customers, launch new products (e.g., “Try our new product for free!”), encourage purchases of a certain amount or volume, strengthen loyalty among loyal customers (e.g., birthday gifts), or increase brand recognition through branded gifts.

Beautier recommends choosing good gifts that will be valuable to your target audience. Ensure that the gifts look high quality and are related to your brand, so they not only attract customers but also increase loyalty.

Coupons and Promo Codes

Coupons and promo codes are special codes that provide discounts or free items/services.

Coupons and promo codes are easy to distribute (via email, social media, printed materials) and use, simplifying the process for customers. Promotions with promo codes often attract new users, especially if the code offers a unique discount or gift. Customers are more likely to make purchases if they have a time-limited promo code, creating a sense of urgency. Coupons can be offered for a specific purchase amount (e.g., “10 CHF, USD, or EUR discount for orders of 100 CHF, USD, or EUR”), motivating customers to spend more.

Promo codes are easy to track, allowing you to measure campaign effectiveness, assess return on investment, and optimize marketing. Promo codes can be personalized for specific customer segments (e.g., new customers, birthdays, loyal buyers). They are particularly effective for online stores, where promo codes can be integrated into the shopping cart.

However, it is important to consider the downsides of coupons and promo codes. Excessive use of coupons and promo codes can reduce margins and make customers accustomed to constant discounts. Customers can use the same promo code multiple times by creating fake accounts or finding outdated coupons through search engines.

Constant use of coupons can create the impression that the company’s products or services are not worth their full price. If a promo code campaign becomes too popular, it may lead to unexpected losses or logistical problems.

Customers may forget to apply the promo code or lose the coupon, reducing the campaign’s effectiveness. Promo codes often stimulate one-time purchases but do not guarantee long-term customer loyalty. Distributing coupons through partners or third parties can lead to uncontrolled usage.

Coupons and promo codes are best used for boosting online sales, especially during low-demand periods, launching new products or services, attracting new customers through affiliate programs or referral links, rewarding loyal customers or audience segmentation (e.g., VIP customers), or clearing inventory of old collections.

Beautier recommends making the terms of use for coupons and promo codes transparent and limiting their validity. This helps avoid misuse and encourages customers to make quick decisions.

Discounts on Next Purchase

Discounts on the next purchase are discounts where the buyer receives a coupon or bonus for their next purchase.

Providing a discount on the next purchase motivates the customer to return, creating long-term loyalty to the brand. Customers feel that the company cares about them by offering additional benefits for their current purchase.

Such a discount is not given immediately but in the future, which helps distribute costs better and maintain current profit. Customers who make their first purchase are more likely to return to use the discount.

Discounts can be adapted to different customer segments (e.g., a higher percentage for larger purchases or new customers).

Customers may increase their current order value to receive a discount on their next purchase. Retaining a customer through a discount on the next purchase helps build long-term relationships with the audience.

However, this discount system also has its downsides. Not all customers return to use the discount, especially if it is insignificant or the conditions are too complicated. Customers do not feel the immediate benefit, unlike with a direct discount, which may reduce motivation for the current purchase.

If a customer returns for a discount, it can reduce the margin on the next sale, especially if the product has a low markup. It requires tracking whether the customer used their discount, complicating accounting.

These discounts are effective only for customers who plan to return for another purchase. One-time buyers may ignore the offer. Customers may be confused by the conditions of the discount or miss the opportunity to use it before it expires. Customers may start seeing discounts as the only reason for making a purchase, reducing the core product’s value.

Discounts on the next purchase should be used to retain new customers after their first purchase, in loyalty programs to reward regular customers, promote seasonal items (e.g., a discount on the next collection), or during periods of low demand to ensure customer return in the future.
Beautier recommends setting clear and understandable conditions for using the discount (e.g., expiration date, minimum order value) and making it significant for your audience to increase the likelihood of customer return.

Use discounts and promotions wisely to make your business profitable, and take into account the needs, desires, and capabilities of your customers!