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Promotions: offering bonuses vs. discounts

Running occasional "special offer" promotions is a great way to increase sales of your products and services.

Most businesses offer discounts to their customers during the period. However, a more successful approach may be to offer bonuses rather than discounts.

Advantages of bonuses over discounts

Offering bonuses over discounts has several advantages:

  • There is no perception of old products: Consumers may associate discount offers with old product lines even during a "Store-Wide Sale". This may create a negative perception of your products. Offering a bonus to customers rather than a discount, however, gives customers the impression that you are still selling current, up-to-date products.
  • Greater profits: The cost of items you could offer as a bonus is often less than the discount you might provide to customers. For example, a 20% discount on a $100 sale will result in you making a $80 profit (not taking into account taxes and expenses). If you are able to offer customers a bonus that costs you less than $20 (ie: the amount of the 20% discount) instead of the discount, you will make a greater profit. In addition, the customer will consider the promotion to be the same, or perhaps even a higher value. If you sell your software online for example, you could offer one of your other software products valued at $50 as a bonus. Even though the customer is receiving $150 worth of software for the price of $100, presuming there is very little cost in providing the $50 bonus software, your actual profits with the bonus will be almost $100 compared to profits of only $80 if you would have offered a discount.
  • Pre-sale customers:If you tell customers about a sale too early they might wait until the sale commences before making their purchase, resulting in reduced profits for you in the lead-up to the sale period. In contrast, waiting to tell customers about a sale on the day it starts may result in unhappy customers who purchased products at full-price from you in the days leading up to the sale. However, if you offer bonuses instead of discounts, provided you know your customer's contact details (eg: if you sell products online), you will be able to send the bonus to all customers who made a purchase from you in the days before the promotion period commenced, helping to prevent unhappy customers.

Selecting a bonus

Selecting which bonus to offer to customers is an important decision. The bonus you select will need to be relevant and have value for your target market. For example, offering PDF creation software as a bonus when you sell word processing applications aimed at corporate users may have value for customers, while offering a card game with the word processing application may not.

Bundled product discounts

If you want to conduct an ongoing promotion, a method which is often very successful is to give customers the option of purchasing additional products at a discount when they buy them at the same time. For example, if you sell games online for $20 each, you might offer customers the option of purchasing additional games for $10 each if they add them to the checkout at the time of ordering. With this method, customers may purchase additional products from you than they would have otherwise.

In summary

In summary, the best type of promotions are those that result in customers spending the same amount of money that they usually would, yet provide the customer with more value.

As a final note, some countries have laws governing how certain sales, bonuses and promotions are conducted. If you reside in a country where such laws apply, you should always seek expert legal advice prior to planning your promotion.

Author

This article was published by Multimedia Australia (http://www.mmaus.com) for the Software Industry Professionals Group. Copyright © 2006 Multimedia Australia Pty. Ltd.

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