Managing Margins Without Resorting to Deep Discounts This Holiday Season

With the 2023 holiday shopping season quickly approaching, retailers find themselves navigating uncertain terrain. Consumers face continued high prices and economic uncertainty, as well as the end of the student loan repayment moratorium which will further reduce disposable income. After depleting pandemic-era savings, shoppers will likely be more discount-driven than ever. In fact, Salesforce’s back-to-school shopping trends report indicated 57 percent of shoppers “traded down” and considered lowest price the most important purchase decision factor — a trend expected to continue through the holidays.

With consumers laser-focused on value, brands could struggle to maintain profits and move from the red to the black this quarter. However, resorting to deep discounts to engage customers and boost sales isn't the answer. Here are three alternative “margin management” tactics to employ this holiday season.

1. Emphasize value.

Despite the prediction that consumers are going to trade-down this season to purchase the lowest-priced items, brands should consider promoting their mission, values and other elements to emphasize their value beyond simply offering low-price products. Instead, connect products to positive social or environmental movements or a more equitable manufacturing process. Mission-driven messaging and an emotional connection to a product or brand’s history can counter the notion that low cost equals true worth.

For example, an apparel company could highlight its sustainable materials, ethical supply chain and manufacturing process. A jewelry brand may share stories of how its pieces reflect time-honored craftsmanship and support artisans, while a toy company could remind shoppers of its commitment to educational, screen-free playtime. The key is identifying the pillars beyond price that make a brand special, and then weaving those meaningful narratives into messaging.

2. Bundle products and cross-sell to grow AOV.

Next, consider bundling products to increase average order value (AOV). Retailers can curate gift sets catering to specific recipients, including teens, grandparents, couples, or even based on interests and hobbies. Consider strategically reducing prices on these bundles, steering clear of sitewide promotions that eat into margins.

Retailers can also cross-sell relevant items, such as lower-priced accessories, service warranties, and other add-ons relevant to the in-cart items, to increase the total transaction amount.

Applicable extras tailored to the primary products being purchased can also boost revenues. For example, a consumer electronics retailer could recommend phone cases, screen protectors, and extended warranties to complement high-ticket items already in the shopping cart. A clothing store may prompt shoppers to add belts, scarves, or sunglasses to complete the look for the gift recipient.

3. Find a way to offer free shipping. 

An ace in the hole will always be offering free shipping. Eighty-two percent of consumers in a recent Digital Commerce 360 survey agreed that free shipping was the most important shipping and delivery consideration for online retailer selection. Retailers should implement higher cart thresholds needed for free shipping to encourage consumers to add more items in order to earn it. Retailers should also consider strategically reducing shipping minimums, or removing shipping fees entirely, for certain high-volume shopping days. Overall, 38 percent of respondents in the Digital Commerce 360 study cited reasonable shipping fees as one of the most important factors in retailer selection.

And don’t forget about free return shipping — it's becoming a differentiating customer perk, with the same survey noting that 52 percent of respondents cited free return shipping as a consideration when choosing where to shop online.

Conclusion

Rather than reacting to competitors’ discounts this season and following suit, lead with these creative strategies that protect margins. While consumers demand affordability, they also crave unique holiday offerings aligned with their values. Meet shoppers where they are, but avoid shortsighted discounting approaches that could sink profits. With some innovation and strategic messaging, retailers can strike the right balance between consumer savings and business priorities this holiday season.

Michelle Wood oversees the merchant network side of the Wildfire Systems platform, which helps companies monetize their users with white-label cashback and coupon services.