When businesses need to increase sales, there are a few ways to do it. Demand generation, marketing and advertising, and competitive pricing are all viable models. But since discount management encourages larger order volumes and higher customer retention, it is one of the most effective strategies.
What is Discount Management?
Put simply, discount management is the process of managing discounts and incentives to optimize revenue growth.
Through discounting, businesses can increase customer loyalty, encourage higher volume orders, get paid faster, and boost sales targets. This helps them improve the bottom line while also maintaining customer satisfaction.
But discounting also poses risks for businesses—discounting too much can lead to low profit margins, reduced customer loyalty, and undervaluing of their products. That’s why having a well-thought-out discount management strategy is critical.
Discount management works by developing different levels of discounts or incentives available to customers, depending on their needs. These discounts might be offered on specific products or services, and the terms of each discount may vary from customer to customer.
- Manage Discounted Pricing – In sales management, this term refers to the pricing decision-making process for offering discounts on products or services.
- Price Negotiation – This involves negotiations with customers over the price of a product or service. It can include both standard and discounted prices, depending on customer needs.
- Coupon Management – This refers to the process of creating, distributing, and managing coupons or other discounts for customers.
- Sales Promotion Management – This is similar to coupon management, but refers more specifically to the process of creating and managing promotions for customers.
Discount Management to Prevent Revenue Leaks
Revenue leakage describes the loss of revenue caused by discounts and incentives. This can be due to a number of factors, such as customers taking advantage of discounts they’re not supposed to have or businesses offering discounts that are too generous.
Revenue leakage can be a significant problem for businesses, as it can reduce profits and affect the bottom line. To combat this, businesses need to ensure that their discounts and incentives are well-managed and that they offer the correct discounts to the customers who deserve them.
A few ways companies can do this include:
- Establishing clear discount policies, outlining when and how discounts can be offered.
- Creating different levels of discounts for different customer segments.
- Analyzing customer data to understand their purchase patterns and tailor discounts accordingly.
- Regularly monitoring discounts and incentives to ensure that revenue leakage is not happening.
Types of Discounted Pricing
There are a few types of price discounting, each with its own purpose and use cases.
1. Volume Discounts
Volume discounts are price breaks that customers receive when purchasing a certain amount of goods or services (e.g., bulk orders). This encourages larger orders, which can result in increased revenue for businesses.
Companies that use the subscription business model also utilize volume discounts by giving customers who purchase annual plans a lower price than those who purchase monthly ones.
2. Early Payment Discounts
This type of discount is offered to customers who pay their invoices early. Companies can offer a fixed discount, such as 2%, or a sliding scale, where the more quickly a customer pays their invoice, the higher the discount they receive. This helps companies get paid faster and avoid unpaid invoices.
3. Loyalty Discounts
These discounts are offered to customers who have made a certain number of purchases from the business or have been a customer for a certain amount of time. The purpose is to reward repeat customers and encourage loyalty, which can lead to more consistent sales over the long term.
4. Promotional Discounts
Promotional discounts offer customers discounts on products and/or services to increase sales by creating urgency. For example, offering 50% off on a product for the next 24 hours can help businesses boost sales quickly.
5. Seasonal Discounts
A form of promotional discounting, seasonal discounts are offered to customers in certain seasons (e.g., Christmas, Black Friday). These discounting strategies can help businesses generate more sales during the slower times of the year or when more people are inclined to make purchases.
Discount Management Software
Discount management software is a type of Software-as-a-Service (SaaS) that helps businesses manage their discounts and promotions. This type of software typically includes features such as coupon creation, discount tracking, customer segmentation, and analytics.
By using this type of software, businesses can more efficiently manage their discounts and save time by automating certain processes.
Do I Need a Discount Management System?
Not every business needs a discount management system. However, if discounts are an important part of your business strategy, and you want to ensure that your promotions are properly managed, then it can be beneficial to invest in a discount management system.
If you’re unsure about whether a discount management system would be beneficial to your business, ask yourself the following questions:
- Do I frequently offer discounts on my products and services?
- Do I have issues tracking the performance of my discounts?
- Do I want to be able to segment customers based on their discount preferences?
- Do I already know whether discounting is profitable for my business?
If you answered yes to any of these, a discount management system is probably a good fit for your business.
Choosing a Discount Management System
If discount management software is something your business is interested in, there are a few things you should consider when selecting one.
- Pricing: Of course, budgeting is an essential factor to consider when selecting a discount management system. The cost of these systems ranges from free to several thousand dollars, and finding one that fits within your budget is crucial. Determine how much you are willing to pay, but also consider the ROI of investing in one for your business.
- Features: Some discount management software comes with more features than others, so it’s important to evaluate each system’s features and capabilities before making a purchase. Consider which features are essential to your business, and look for a system that fits those needs.
- Ease of Use: Sales onboarding and contract management are tricky enough—you don’t want your new system to add to the complexity. Look for a simple and intuitive system, and ensure it can be easily implemented into your existing workflow.
- Integrations: If you already have software systems in place, you’ll want to ensure that the discount management system integrates with them. Ask your potential vendor about any existing integrations they have with other software tools and if custom integration is possible.
Considering these factors, you can find a discount management system that fits your business’s needs and budget.
Discount Management Software Integrations
Several software integrations are available for discount management systems. Here are a few of the most popular:
- CRM: Customers can receive personalized offers based on their data stored within your CRM system. CRM integration also allows for customer segmentation, targeting the right discounts to the right customers.
- ERP: This integration allows you to track discounts at the transactional level, so you can get an accurate picture of their profitability.
- Ecommerce Platforms: Discounts and promotions can be managed from your ecommerce platform, including coupon codes, loyalty programs, and more.
- Marketing Automation Software: Leverage marketing automation software to personalize discounts and ensure they are sent to the right customers.
- CPQ: Configure, price, quote (CPQ) software helps you streamline sales and discounting with accurately priced quotes and discounts and automated workflows.
- Payment Processors: This integration helps ensure that discounts are applied correctly at the checkout.
Depending on your tech stack, you can use a combination of these integrations to manage discounts and promotions.
People Also Ask
What is the most common type of discount used by customers?
The most effective discounting strategy may vary by industry. But across the board, customers tend to respond best to percentage-off discounts. However, research has shown that customers may actually be more responsive to a fixed-dollar discount since it feels like they are getting bigger savings.
What are the 4 different types of discount pricing?
The four main types of discount pricing are:
1. Quantity Discounts: Discounts given when customers purchase a certain amount of items.
2. Seasonal Discounts: Temporary discounts available for a limited time and often coincide with a holiday or other special event.
3. Loyalty Discounts: Special discounts only available to existing customers as an incentive for loyalty.
4. Promotional Discounts: Discounts offered to boost sales and increase brand visibility.
What is the best method to provide discounts?
A few of the best strategies for sales discounting include:
1. Giving new site visitors a first-time offer.
2. Offering discounts for reaching a certain order value.
3. Providing customers who abandon their cart with special offers.
4. Creating loyalty programs to reward frequent shoppers.
5. Post-purchase follow-ups.
6. Early-bird discounts for upcoming products