👚 How to discount for your #fashion brand to maximize profits and minimize risks
Most brands I work with initially offer sitewide discounts when it comes to sales.
But what if there was a better method that allowed you to:
- Maximize profit by offering tiered discounts based on purchasing signals;
- Clear unsold stock to raise capital;
- Avoid offering discounts to those who would have bought anyway, thus preserving profit.
Enter RFM Segmentation, a powerful method that helps you tailor discount strategies by analyzing three key customer behaviors:
- Recency (R): How recently a customer made a purchase. Recent buyers are more likely to respond to promotions.
- Frequency (F): How often a customer makes a purchase. Frequent buyers are more engaged and loyal.
- Monetary (M): How much a customer spends. High spenders are valuable and may need special attention.
Here's a common scenario that backfires: offering a 30% discount to a top customer who already spends a lot and frequently.
This customer doesn't need a big discount to buy again, so you just lost 30% in profit.
By scoring customers on these three dimensions, you can segment them into specific groups and target each with the right discount offers.
Here’s how it works:
- Top Performers: High Recency, High Frequency, High Monetary. Offer exclusive perks or early access to new collections to maintain loyalty without cutting margins.
- Loyal Customers: High Frequency, Moderate Recency, Moderate Monetary. Use moderate discounts or loyalty rewards to keep them engaged.
- Big Spenders: High Monetary, Moderate Frequency, Moderate Recency. Offer special incentives or personalized experiences rather than large discounts.
- Promising Customers: Moderate Recency, Moderate Frequency, High Monetary. Use small, targeted promotions to encourage more frequent purchases.
- At-Risk Customers: Low Recency, High Frequency, High Monetary. Use compelling, well-timed offers to re-engage them.
- Need Attention: Low Recency, Low Frequency, Low Monetary. Use deeper discounts strategically to try to convert them into regular buyers.
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In the coming days, I’ll write an article on how to implement this, with real-life examples using Klaviyo and Shopify for a fashion brand I’m working on at Grapefox.
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