Segmenting by Discount Sensitivity: The Buyers Who Only Move on a Coupon
You sent a 20 percent code to your whole list. Seventy percent of the people who used it would have bought at full price.
Some of your buyers only move on a coupon, and some of them would have bought anyway. The discount segment is the group that needs the coupon to buy, and the trick is to find them without training everyone else to wait for one.
The coupon that cost you margin
Up to 70 percent of discount codes go to customers who would have bought anyway, according to GrowthSuite's analysis. The codes are given to people who did not need them, and the margin is lost for no reason. A 20 percent code sent to the whole list is a 20 percent margin cut on 70 percent of the orders it touches, and the 30 percent it actually influences is the only part that was worth the cost.
The problem is not the discount. The problem is the segment. A discount sent to everyone is a discount sent to the people who would have bought at full price, and the business pays for the sales it already had. A discount sent to the discount-sensitive segment is a discount sent to the people who need it to buy, and the business pays only for the sales it would not have had.
The distinction is second-degree price discrimination, which is the practice of charging different prices to different customers based on their willingness to pay. The business wants to charge full price to the customers who will pay it, and a discount to the customers who will not. The segment is how it tells them apart.
Who the discount-sensitive buyers are
Discount-sensitive buyers self-segment. They are the promo-code users, the sale-event signups, and the customers who only buy during sales. They are telling you, by what they do, that they are discount-sensitive, and the segment can be built from that behavior. A customer who has only ever bought with a code is a discount-sensitive buyer. A customer who buys at full price and never uses a code is not.
The dedicated buyer is the one who buys at full price, or who buys without waiting for a sale. The window shopper is the one who browses, waits for a discount, and buys only when the price drops. The dedicated buyer is the one to protect, because they are the margin. The window shopper is the one to convert, because they are the volume. The two need different treatment, and the treatment starts with the segment.
The trading-down effect is the cost of getting this wrong. A customer who would have bought at full price buys at a discount instead, so the business loses margin without gaining a sale. The new-customer effect is the benefit of getting it right: a discount brings in a customer who would not have bought at all. A good discount has more of the second and less of the first, and the segment is what decides which one you get.
How to use the segment without training everyone to wait
The main cost of discounting is that it trains customers to wait. Customers who get a discount every time they buy learn to wait for the discount, and they stop buying at full price. The business trains them to wait, and then it has to keep discounting to get them to buy. The segment is the defense against this, because the discount goes only to the segment that needs it, and the rest of the customers never see it.
The discount should be targeted, not broadcast. A discount sent to the discount-sensitive segment, by email or by SMS, reaches the people who need it and does not reach the people who do not. A discount posted on the homepage reaches everyone, including the dedicated buyers who would have paid full price, and it teaches them to wait for the next one.
The discount should also be time-limited and specific. A code that works for a week, for a specific product, for a specific segment, is a discount that does its job and then stops. A code that works forever, for everything, for everyone, is a price cut, and a price cut is not a promotion. It is a new price.
What to do with the segment
The discount-sensitive segment should get discounts, but only the discounts they need, and only when they need them. A win-back discount for a lapsed discount-sensitive buyer is worth sending. A discount for a discount-sensitive buyer who just bought at full price is not, because they just proved they will buy without one.
The dedicated buyer segment should not get discounts at all. They should get early access, new products, and recognition, because those are the things they value, and those are the things that do not cost margin. A dedicated buyer who gets a discount learns to wait for the next one, and the business loses a dedicated buyer.
The segment is the tool that lets the business discount without discounting everyone. Use it, and the margin stays where it belongs: with the business, not with the customers who would have paid full price anyway.
Keep reading
Related guides on this site: how behavioral segments read browse, cart, and purchase intent engagement segments from openers to ghosts to sunset how VIP thresholds define your best buyers More from AI customer segmentation for e-commerce.
Frequently asked questions
What is a discount-sensitive buyer?
A discount-sensitive buyer is one who only buys when there is a discount, or who buys more when there is a discount. The segment is built from purchase behavior: customers who have only ever bought with a code, or who buy more during sales than outside them.
How many discount codes are wasted?
Up to 70 percent of discount codes go to customers who would have bought anyway, according to GrowthSuite's analysis. The codes are given to people who did not need them, and the margin is lost for no reason.
What is the trading-down effect?
The trading-down effect is when a customer who would have bought at full price buys at a discount instead, so the business loses margin without gaining a sale. The new-customer effect is when a discount brings in a customer who would not have bought at all. A good discount has more of the second and less of the first.
What is the difference between a dedicated buyer and a window shopper?
A dedicated buyer is one who buys at full price, or who buys without waiting for a sale. A window shopper is one who browses, waits for a discount, and buys only when the price drops. The dedicated buyer is the one to protect. The window shopper is the one to convert.
How do I identify discount-sensitive buyers?
By their behavior: promo-code users, sale-event signups, and customers who only buy during sales are self-segmenting. They are telling you, by what they do, that they are discount-sensitive, and the segment can be built from that behavior.
Does discounting train customers to wait for discounts?
Yes, and it is the main cost of discounting. Customers who get a discount every time they buy learn to wait for the discount, and they stop buying at full price. The business trains them to wait, and then it has to keep discounting to get them to buy.