Sales promotions and discounts

A sales promotion can help drive immediate income. You can use sales promotions across the customer lifecycle - from attracting new customers to keeping existing customers loyal.

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Role of sales promotions

Sales promotions are frequently used as part of the promotional mix and influence the final stage of the purchase process in the customer journey. Focusing on the short term, sales promotions are designed to immediately:

  • increase exposure and capture attention
  • stimulate demand and encourage purchases
  • drive sales of your products and services.

Sales promotions are usually limited-time offers backed by a marketing campaign. They work best as part of an integrated program across your marketing channels.

Depending on your business model, marketing objectives and target segments, sales promotions can be directed at either:

  • customers – businesses and consumers
  • trade – distributors, resellers, and retailers.

Motivate your staff

Consider offering incentives for your sales staff to promote these special offers.

Benefits of sales promotions

In addition to increasing immediate sales, sales promotions can also help your business:

  • attract new customers
  • encourage loyalty and repeat purchases
  • get insights into customer behaviour
  • respond to opportunities in the market
  • control and move excess stock.

Before you start...

Types of sales promotions

Sales promotions typically emphasise a lower price or higher perceived value. It's important to consider your overall pricing strategy when you plan a sales promotion.

Effective sales promotions focus on the following customer behavioural drivers:

  • urgency – 'act right now'
  • availability – 'it won't last, so don't miss out'
  • exclusivity – 'this is an offer just for you'.

To spur your thinking, consider the following 8 techniques.

Short-term price discounts motivate potential customers to make an immediate purchase decision.

Depending on what will be most appealing, you can show discounts in:

  • percentage (e.g. 10% off all shoes)
  • money value (e.g. $20 off all polo shirts).

You can offer discounts in many ways, for example:

  • flash sales – discounts for a short period (e.g. for 24 hours)
  • location based offers – deals for specific locations (e.g. in a retail setting)
  • seasonal discounts – reduced pricing in periods of lower demand (e.g. outside school holidays)
  • discounts on perishables – end-of-day clearance prices (e.g. salads)
  • referrals – for example, where both the existing customer and the new customer are rewarded with a discount after a successful referral.

A well-known and popular sales promotion is buy one, get one (often referred to as BOGO).

There are many examples of 'buy one' sales promotions, including:

  • buy one, get one free (BOGOF)
  • buy one, get one for 50% off
  • buy 3, get the 4th free.

This works best where there's value in buying similar items in bulk items. For example, items that can be shared, or that fit together (e.g. for a set of new car tyres, buy 3, get the 4th free is a perfect offer).

Coupons and vouchers are a popular sales promotion because:

  • they're very versatile
  • the results of the sales promotion can be tracked as you'll know how many people took up the offer.

You can use them to:

  • attract new customers (e.g. first-purchase coupon)
  • thank your existing customers (e.g. a special birthday voucher).

Consider:

  • using a one-time-only coupon or an online code to encourage immediate action
  • launching a promotion through a coupon website
  • using digital or printed cards to encourage repeat purchases as part of your customer loyalty program. For example, a local coffee shop could offer every 10th coffee free of charge
  • working with another business to cross-promote your businesses or services. For example, you may offer your customers a coupon for another local business and vice versa.

An effective way to generate interest is through competitions with the chance to win prizes. To enter, customers often have to do something you're trying to encourage, for example:

  • buy a product
  • register their interest
  • take part in a survey
  • interact with your business on social media.

You can run many different types of competitions, for example:

  • in-store promotions (e.g. make a purchase to go into a draw)
  • social sharing (e.g. like or comment on a post for a chance to win).
  • interactive online game (e.g. take part in the challenge to find items on a website)
  • business event (e.g. sign up to an email newsletter at a trade show stand to stand a chance to win).

Before running a competition, make sure you understand the:

You can increase sales by bundling products and services together at a discounted rate. This:

  • makes your products or services more appealing
  • lets customers feel they're getting good value for money
  • enables you to upsell and cross-sell your products and services
  • reduces direct comparison with your competitors.

This works best when you have complementary products and services that naturally work together. For example, you could promote a coffee and muffin deal for $3 less that the total price for the individual items.

By adding a free giveaway when someone buys a specific product or spends a minimum amount, you can increase the apparent value of the purchase at little extra cost. It's a relatively low risk and flexible option that can improve customer satisfaction.

Some examples of add-ons are:

  • a gift bag when a customer spends at least $50 on a beauty package
  • bonus features when someone buys an online subscription.

The cost of shipping may be a reason why customers don't proceed with an online order. You must take shipping costs into account when you make decisions about pricing and taking payments online.

Running a short-term sales promotion with free shipping can increase the:

For example, you may run an online bookstore and offer free shipping in Australia on orders over $100 for the month of June.

More and more, customers want to deal with businesses that are ethical and sustainable.

By donating a portion of your sales or profits to a charity or cause:

  • customers can feel even better about their purchase and about doing business with you
  • your business can become known as socially responsible.

This could be for a defined period (e.g. for the month of May).

Choose a charity or cause that matters to your business and your customers.

Risks of sales promotions

Sales promotions must be well thought through. Set specific goals and be aware of the risks. Make sure you don't:

  • depend too much on sales promotions to drive purchases. You might end up having to consistently offer discounts to maintain your sales volume
  • condition consumers to wait for specials before they buy
  • devalue your brand and your reputation by running sales promotions too often
  • ignore your existing valued customers when you offer discounts or special deals to attract new customers
  • run sales promotions so regularly that they lose impact
  • make your business less profitable by reducing your profit margin too much or too often.

Calculate the ROI of your sales promotion

Use our return-on-investment (ROI) calculator to help you decide if a sales promotion will deliver, or has delivered, enough return on your investment to be worthwhile.

This calculator focuses on marketing activities aimed at increasing the short-term sales of a specific product or service. It's not suitable for analysing other marketing activities, such as brand building, raising awareness or lead generation.

Don't rely solely on this calculator to make investment decisions. As there's a very wide variety of sales-promotion activities, the calculator may not offer all the data-entry options you need.

Interpreting your results

  • A positive ROI number (above 0%) means you've generated a profit on the activity.
  • A 0% ROI outcome means you've covered the costs of the activity (break-even) but not generated any profit.
  • A negative ROI number (below 0%) means you've made a loss on the activity.

Hints

  • If you adjust the daily volume of units forecast to be sold until the ROI figure is 0%, it will tell you the average number of units you need to sell each day to cover the costs of the activity.
  • You can also compare this number of daily sales forecast to the number of units you normally sell per day to assess how achievable this volume uplift is.
  • You can adjust discount levels and sales volumes to see how this affects the predicted ROI, your revenue, and profit levels.
  • As well as looking at the ROI of the promotional activity, also compare the profit and revenue you'd make with the promotion to what you'd make with your normal pricing.

ROI calculator for promotional activities

$$\text{Promotional ROI} = \frac{\text{Promotional net profit}}{\text{Promotional costs}} \times 100$$

Enter these values for your product or service to check whether your marketing activity will deliver a worthwhile ROI.

Your baseline

Enter a number

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units/day

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During the promotion

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units/day

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days

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(e.g. design of promotional materials)

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(e.g. advertising for the marketing activity)

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The return on investment for your promotion is:

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Compare the profit and revenue from your promotion with what you'd make with your normal pricing.

From your promotion

Your baseline

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Normal net profit

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Promotional revenue

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Normal revenue

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You can also review other calculations related to your promotion.

Promotional costs

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Promotional price

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Normal price

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Promotional unit profit

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Top 10 tips for effective sales promotions

  1. Base your promotion on the needs of both your business and your target customer segments.
  2. Remember to trade on urgency, availability and/or exclusivity.
  3. Connect your sales promotion with your preferred sales process.
  4. Prepare your staff so they can take full advantage of the opportunity.
  5. Keep it short-term, based on a set period or allocated supply.
  6. Strengthen your sales promotion by making it part of an integrated marketing campaign.
  7. Ensure you have the stock, systems and support to meet the demand.
  8. Reward the loyalty of your existing customers. Don't only focus on attracting new customers.
  9. Test, test, test. The results will help improve future initiatives.
  10. Make sure that you stick to the terms and conditions.

Also consider...