Small retailers can’t always compete with big-box stores. However, they might be able to compete on one key issue for every customer: pricing. This is especially true during a period of inflation. One study reported that three-quarters of shoppers are spending more time researching the lowest possible prices these days.

Discounts do more than give your brand the edge in the pricing wars or attract attention from big-box chains. A strategic discount can raise awareness of a new campaign to attract new customers, increase your average order value, or clear out old inventory. 

The Most Popular Discount Types

Depending on your goals, the style of discounting you choose should change. Let’s look at some of the more popular discount types.

Percentage-Based Discounts

When should you use percentage-based discounts? It depends on your objectives:

  • Highlight a low-cost item. Marketing expert Jonah Berger came up with what he called the “Rule of 100.” If your product is under $100, highlighting the percentage makes it sound like a steeper discount. 25% off a candy bar might only be a few cents, but it sounds like a major opportunity to buyers.

  • Inspire customer loyalty. Percentages offer instant impact without knowing what the customer is going to buy. Percentages can also highlight long-term business value with each company by moving higher in tiers. Around 93% of U.S. consumers say they’ll make repeat purchases from a brand with good discounts.

  • Attract new awareness. Percentage-based discounts are universal math terms, highlighting the value people get regardless of which brand they choose. That’s why it works well for first-time buyer promotions or seasonal sales for small retailers. 

Dollar-Based Discounts

Following the “Rule of 100,” dollar-based discounts should kick in when products and customer carts exceed $100. Saving $99 can sound much better than saving 50%, even if we know the math behind it. 

Dollar-based discount types can also incentivize more specific customer behaviors. For example, $10 off an order over $50 can incentivize customers to increase their cart size. Customers may browse for add-on products to save money. Ideally, you’ll drive higher average order values (AOV) while maintaining profit margins.

Bundling Discounts

This is the classic “Buy One, Get One 50% Off” deal. It potentially increases AOV but also helps you when you need to move inventory or introduce a complementary product. 

You’ll see bundling discounts around the holidays quite often. Stocking stuffer bundles, for example, can be quick ways for retailers to move smaller items out of their inventory. Gift-giving guides attract customer attention while bundling many gifts in the guide contributes to higher-order values.

Seasonal and Limited-Time Offers

Few things create urgency in customers like an expiring discount. Nowhere is this more obvious than in Black Friday sales. Yes, Black Friday coincides well with the holiday shopping season, but shoppers also know it only happens once per year. That may be why ecommerce retailers took in almost $10 billion on Black Friday last year.

Loyalty and Referral-Based Discounts

You don’t inspire loyalty without trading something for it. Customer service, product quality, and brand recognition all have major effects, true. But if you need to inspire more loyalty while you build up your smaller retailer’s reputation, you might consider offering discounts for loyalty programs and referrals. One study found that loyalty program members will be responsible for up to 18% of your revenue growth each year.

These discounts have the added benefit of improving the quality of your customer relationships, potentially increasing each customer’s lifetime value (LTV). With more customer retention, smaller retailers can count on more consistent annual income, which gives them the confidence to grow.

How to Choose the Right Discount Type

First, identify your business goals. What is it you want to do?

  • Drive traffic? Then a percentage-based discount or limited-time offer can make a great attention-grabber.

  • Clear inventory? Bundle your items to get more customers to add those products to your cart.

  • Boost retention? Incentivize loyalty with loyalty programs and referral-based discounts.

Remember: every small retailer has unique customers. You’ll want to watch their unique price sensitivities and behaviors based on each discount campaign you run. To match your discounts to your customers, consider using historical purchasing data and tools like Bizrate Insights to refine your strategy.

Using Discounts to Drive Major Growth in Small Retailers

Discounting isn’t “one size fits all.” Nor do all discounts land with customers the way you’d hope they would. You’ll need to pair your specific offering with the psychological needs of your customers. Different goals will call for different SMB discount ideas.

Fortunately, the right retail discounting strategies are great equalizers. Small businesses can compete with larger competitors by matching their discounts to their objectives, creating well-timed offers that pique customers’ curiosity.

Remember to use tools like Bizrate Insights to understand what motivates your customers. You’ll soon become a master of small retail promotion.