Table of Contents
Introduction
Offering price discounts has become a common pricing strategy for digital product sellers to boost sales, build their brand, create loyal customers, and stay competitive — especially in a market with many high-quality digital goods. But as a seller, determining the optimal discount rate and pricing strategy can be challenging. So we created this updated guide, based on our own research, analysis, and extensive SendOwl data.
In this guide, we delve deeper into the world of digital product discounts, building on our previous findings and exploring new insights. From understanding ideal discount percentages to choosing between percentage and fixed-price discounts, we’ll cover it all — to help you use sale prices to maximize your profits and build your business.
The Best Discounts to Provide
Our initial research identified three price discount “sweet spots”: 50%, 20%, and 33%, which work well with messages regarding the fleeting nature of the discount — such as “This sale won’t last, so get this product while you can at this price!” These discount percentages resulted in higher numbers of orders than others, with 50% being the most popular discount price. Our research shows that offering a 50% discount can be a win-win situation for both sellers and customers, especially in the realm of digital products.
In employing any discounts, your main focus as a business owner will be to increase conversion rates, spur brand loyalty, and up that profit margin in the long run.
Why 50% works — even better than deeper discounts
Customers perceive a 50% discount as a tremendous deal — at the same time, most digital products’ very high profit margins mean that sellers won’t too negatively impact their bottom line with a temporary half-off sale. The sense of urgency created by time-limited promotions further enhances a discount’s effectiveness, driving sales volume.
However, our data also shows that there are diminishing returns beyond the 50% mark, emphasizing the importance of not signaling a devaluation of your product.
If your product is marked 75% off, for example, customers might think that the product isn’t worth its full price or that you’re trying to get rid of inventory, so to speak. Digital products are intangible and rely on sellers communicating their value effectively to their customers (who can’t hold the product in their hand, drive it, or try it on). If you discount a product too deeply, you might drive customers away.
On the flip side, customers perceive 50% as generous and reasonable for a product during a special occasion, like a holiday sale.
Navigating the 20% realm
Coming in at close second, a discount rate of 20% also resonates with customers as a good deal. It strikes a balance between being a substantial discount and not overly generous. Customers can easily calculate their savings — anything with quick mental math is good when it comes to percentages — making it an attractive option. The lower number also signals the value of the product and the deal the buyer is getting on it.
A 20% discount also creates a sense of urgency without pressuring customers excessively. This encourages them to make a decision and take advantage of the savings, especially when combined with time-limited promotions, while not stressing them out too much.
The middle ground: 33%
While slightly less popular than 20%, a 33% discount holds its own in terms of effectiveness. First, as with 20%, the discount is easy for customers to calculate. This simplicity contributes to a positive perception. Second, a 33% discount strikes a balance between a substantial saving and a reasonable price for the customer. It’s a tempting offer that is clearly more generous than a 20% discount but not as extreme as a 50% discount. This middle ground allows customers to feel that they’re getting a significant deal without calling the product’s value or the seller’s pricing strategy into question.
Percentage Discounts vs. Fixed-Price Discounts
Our data overwhelmingly indicates that sellers are more successful with percentage discounts, with 61% of orders opting for this strategy compared to 39% from fixed-price discounts. This is because the more you spend, the more you save, which makes sense to buyers.
These findings back the approach of Wharton Marketing Professor Jonah Berger, who shared in a Business Insider article that savvy retailers will use “the rule of 100” when figuring out discounts: This rule states that for products priced under $100, percentage discounts seem larger than price-fixed ones. But for products priced over $100, fixed-price discounts seem larger.
The idea is that a $20 shirt is more appealing at 25 percent off than $5 off, but something like a $2,000 laptop is more attractive with a $500 discount than a 25% one.
The goal of discounts is to pique consumer interest and increase demand. When they are implemented well, discounts can lead people to buy more or buy more often than they would have otherwise.
Discounting Services
Discounting a digital product is one thing, but maybe you offer a virtual service that takes much more time and effort than creating and automating multiple sales of a digital asset. So you might be less inclined to offer discounts — which makes sense. But you can still provide more value to your customers — one way is to bundle similar services: for instance, offering a free e-book (read our guide to creating and selling e-books) and/or access to video tutorials for customers who sign up for your one-on-one coaching service. While price discounts are great, combining products to provide customers with incredible deals can also do wonders for your brand loyalty and referrals!
Promotional and Discount Codes
Giving promotional discount codes to certain customers can help build your following in multiple ways. For example, you can offer people a discount code for signing up to receive your e-newsletter. That means they can save on a product of yours and be kept updated about your stock! You can also make a promotional code valid only for a second order, provided to buyers after they complete their first purchase, or you could offer a free gift with any sale over a certain amount.
Promotional codes can be used for discounts, but you can also use them to offer things like free shipping (if you’re providing physical goods). And promo codes offer valuable data insights — they allow businesses to track the success of specific campaigns, measure customer response, and refine future marketing strategies. For example, maybe you have a Black Friday promo code — sales data will tell you how well it resonated with users, how many people it reached, and whether a similar campaign is worth pursuing in the future.
Determining the Frequency
While we haven’t done research into the optimal frequency for offering discounts, we caution sellers to consider the long-term impact of frequent sales. Engaging customers solely through discounts may diminish the perceived value of your product. You also want to make sure that sales align with your company’s goals by gathering data about your discounts and promotional campaigns so you can improve your discount pricing strategies in the future.
There is definitely a way to strike a balance between attracting customers through discounts and maintaining the perceived value of your digital products over the long term. And there are some times when it makes sense to implement a discount strategy:
Business Anniversaries
It’s your six-month or one-year mark as a business — so celebrate! Thank your customers with a promotional code or storewide lower prices to mark the event and share your appreciation for their business.
Holidays
Holidays and seasonal discounts are obvious opportunities to celebrate — and they’re helpful when it comes to running unique campaigns and capitalizing on your unique products. Maybe it’s Valentine’s Day or the 4th of July — offer a fun holiday-themed discount that will help customers get into the holiday spirit and encourage them to associate you with the fun of that holiday.
Milestones
Reaching your first few hundred or thousand followers on a social media platform account should be acknowledged and celebrated as a milestone — especially for content creators and small businesses. Thank your loyal customers with promotional pricing!
Other Things to Consider
What’s My Competition Like?
When you’re figuring out how to price your products, it’s wise to do a little research into similar products and their price ranges — and the same goes for determining discount rates. Check out sellers you like and see how they go about changing up their prices. You might choose to make your discount competitive — maybe 5% more than a competitor’s discount for a similar product — to offer an even slightly better deal to new customers. A slightly better price than what buyers are used to paying for a particular item is a good way to increase sales!
Where to Share Your Discounts
Discount strategies can really blossom anywhere — emails, social media posts, or even printed flyers. We recommend making sure that your discount strategy messaging is consistent across all the platforms where a buyer might hear about you. You never want a customer to come to you and say they saw you advertise lower prices somewhere else by accident — breaking down customer trust — so keep all your discounts straight!
New or Old Products?
While you might have some tried-and-true products, you always want to be leading buyers to your new offerings. That said, when it comes to discounts, it often makes sense to offer discounts on only older products or only newer products — not both at the same time.
Offering discounts on older products can remind customers why they need to keep coming back to your store, while discounts on your most recent products can help get the word out about what’s new.
To Discount or Not to Discount?
Price discounts clearly provide many benefits, and as the landscape of digital commerce continues to evolve, mastering the art of digital product discounts will be essential for sellers. We hope these updated insights and strategies help you navigate the nuanced world of discounting. Whether you’re aiming for a sweet spot percentage or deciding between percentage and fixed-price discounts, understanding the psychology behind these choices is key to achieving sustainable success in the competitive digital goods marketplace.
If you’re eager to put your new discount pricing strategy to work, you can start selling digital goods today with a SendOwl free trial.
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