Does Offering a First Time Order Discount Make Good Business Sense?

I see many work at home moms using the promotional technique of offering 20% (or 10% or 25% or whatever the promotion may be) off the first order. Many use it to bring new business to their site. This is primarily a tactic I see used for those with web-based businesses.

But this tactic also brings about some interesting questions. What about when the customer wants to re-order. She could be miffed when she goes back to your site, remembering the great pricing she received, then sees she was only able to get that great pricing for a FIRST order. Repeat orders (which are the ones that traditional offline businesses tend to reward with discounts or lower pricing) are instead priced higher. She could decide to shop elsewhere - and find a similar business that has what she wants at a lower price (maybe not as low as with the first order discount, but still lower than the prices without the discount) and order from them instead.

What is the reasoning for offering this first order discount? To be honest, some businesses are suffering major cash flow issues, and NEED to have money coming in, and that discount is the only way they see to do it. Others are looking to build up a new customer base. But these reasons can actually backfire on your business.

Then you have to look at your business accounting. What percentage of your business comes from repeat orders? An established business with a consumable product should aim for repeat orders of 50% If yours is quite a bit lower (say 10 or 20%), this first order only discount could be the reason. But perhaps you are able to dazzle them with your service and product, and that first order discount isn't as important to them - but to many of your customers, particularly those on a budget, that could make the difference for them to shop elsewhere.

And also take a look at what your competitors offer, particularly those with a larger market share. Do they offer a first time discount? Do they offer freebies or coupons? If you wonder, place an order yourself (or have a friend place one for you) so you can see. If it is consumable, do they follow up with previous customers in a couple months time to remind them of their products and see if it is time to reorder? Or what about the even bigger online businesses, what do they do? Amazon doesn't offer first time buyer discounts, but they instead offer discounts on their products regardless of whether you are a first time customer or someone who has placed fifty previous orders.

How can you combat this? Some offer coupons with those first orders to keep them coming back. But such a small percentage of coupons are ever redeemed, so you are not neccessarily providing something of worth to a repeat customer. And this is especially true if your product is something that your customer might only order twice a year - will she still remember where that coupon is after six months?

What the smart thing to do is to nix this first order discount, or offer discounts on REPEAT orders, something as an incentive to keep the customers you have. It is much easier (and cost effective) to keep repeat customers than it is to find new ones.

Or you can lower your prices all around, so everyone benefits. This is what Amazon does.

Offer free shipping on all orders over a certain percentage. This is another trick Amazon uses. Think of their super saver shipping. And how many times have you decided to order an extra book or two (or three or four!) just to get that free shipping? We all have, and it works well for them.

Or instead of a first order discount, offer a limited time freebie with ALL orders - an added incentive, but something that will not tick off your repeat business, which really are your most important customers of all. Chances are you have something already that could be used as a freebie - something inexpensive that you have overstock in, company supplied samples, or even little sample packs you create yourself.

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