Discounting and customer retention

A retention discount adds contribution when it changes purchasing enough to cover its cost. A redeemed code or a rise in orders during a sale does not establish that: some customers would have bought anyway, while others may bring a later purchase forward.

Define the customer problem, set an offer limit and compare outcomes with a group that did not receive the targeted offer.

Decide what the discount is meant to solve

A price incentive may help a customer who still wants the product but faces a temporary price barrier. It is a poor response to an unresolved delivery problem, a product that fell short of its description or a complaint awaiting a remedy.

Address the underlying issue first. In Australia, check applicable consumer guarantee rights and obligations when a product issue is involved.

Check what the available evidence can tell you. Has the customer bought the category at its regular price? Did purchasing slow after a service issue? Is the product normally bought infrequently?

A quiet period means different things for a consumable and a durable item. Where the reason is unknown, a service check or useful product information may be a better first contact than a price cut.

Give the offer a narrow role

Specify the eligible customer group, products, offer value, expiry and exclusions. Avoid sending a code every time someone reaches an arbitrary inactivity threshold. Repeated offers may give regular buyers a reason to wait for another promotion.

Do not assume that every sale purchase shows dependence on discounts. A promotion may coincide with a customer's normal need. Review earlier buying opportunities and later behaviour before changing how that customer is treated.

Set a contribution limit

Estimate sales value after the proposed incentive and expected refunds. Subtract product cost and relevant variable costs, including fulfilment, payment and any extra cost created by the offer. Check whether free delivery, loyalty credit or another code can combine with it.

Positive contribution on a discounted order is only a first screen: an unnecessary incentive reduces contribution from a purchase that would have happened at the regular price.

Use product and order data on a consistent basis. Shopify's gross profit by product report displays gross profit for the selected date range and only considers variants with product cost information at the time of sale. This is not a complete contribution calculation for every order.

Identify any other costs required for the decision. Set a ceiling for each eligible product or basket before launch, and exclude offers whose costs cannot be estimated reliably.

Compare outcomes fairly

Choose the outcome and follow-up period before launch. Where practical, randomly assign comparable eligible customers to an offer group and a no-offer group. Count all assigned customers and all relevant purchases, including orders placed without redeeming the code.

Use the same eligibility rules and observation period for both groups. Redemptions show use of the incentive, not its incremental effect.

You can also compare a smaller discount, a service improvement or a useful reminder. Ask which option produces more contribution per eligible customer after its costs. Observe through a plausible buying cycle so an order brought forward is less likely to be mistaken for an additional order. Examine regular-price purchasing after the offer ends.

Prepare the profit data

In Shopify, add a cost per item by opening Products in the admin, selecting the product, and entering a dollar value in the Cost field under Price > Cost per item. Shopify says a resold item’s cost can be based on the amount paid to the manufacturer, excluding taxes, shipping and other costs; for a product made in-house, it can be based on labour and material costs. Save the entry.

For a broader view, Shopify’s Average profit margin by market report groups profit metrics by market. It includes customer charges for products, shipping, duties and import taxes, alongside the store’s costs for products, shipping, duties and import taxes. This can show whether a campaign’s economics differ between domestic and international markets.

The market report can also be drilled down to orders: select a market in the data table and choose View market report by order. Shopify says this opens a report filtered to orders from that market, with margin information per order. Use that view to inspect variation hidden by a market-level average.

Make the promotion clear

When reviewing an Australian campaign, check the displayed price and advertising message for accuracy and clarity.

After the follow-up period, decide whether the offer group produced more contribution per eligible customer and review complaints and later regular-price orders. If the evidence is weak, narrow the audience, reduce the incentive or address the customer problem another way.

Keep records that support the factual claims in a campaign. The ACCC says it can require businesses to back up claims about products or services. A clear comparison and retained evidence of the prices used can help the business check whether its advertised description is accurate.

The ACCC accepts reports about possible misleading claims and price-display issues, and uses reports to inform education, compliance and enforcement work. It may investigate a suspected breach of price-display law and take compliance or enforcement action.

Key Australian Regulatory Guidelines for Pricing and Promotions