They did it in ancient bazaars beside the Euphrates and they do it in the massive Internet emporiums of today: Discounting.

It’s probably the oldest trick in the world of retailing: offer a discount on the price of whatever it is you’re selling. Yet when I talk to online retailers today I get the feeling that few things worry them more than the fear they’re giving too much discount to too many people.

In the old-fashioned world of face-to-face retail, controlling the amount and number of discounts or offers was something merchants did themselves. You could mentally assess each customer and decide–on a case-by-case basis–who got offered what. Ironically, opening a store on the World Wide Web makes offers harder to control because, unless you’re careful, you’re extending offers to just about everyone. Inevitably that includes some people who would have bought without a discount (and as the traders in the bazaar will tell you, that’s like giving money away).

The answer is to do just what canny traders in the markets of old used to do: Segment your site’s visitors and extend offers selectively. To get a clearer picture of how this strategy works in practice, I want to share a case study involving the difference between offering a blanket discount of “10 percent off” to all site visitors and restricting the offer to a specific group of visitors.

We recently encountered the following situation: About 30 percent of the traffic to one of our client’s sites was seen to consist of first time visitors coming from a specific set of referring sites. Unfortunately, these visitors were converting at a disappointing rate. So we wondered: Would offering a 10 percent discount lift the numbers enough to pay for itself?

Our first thought was “Probably not, if every visitor gets a discount.” So, we created a campaign that offered first time visitors 10% off on their first purchase IF they were coming from that specific set of under-performing sites. We excluded sub-segments of higher converting visitors.

Here’s what we found: When measured against a control group, this campaign produced a 34 percent improvement in conversion and boosted revenue by 28 percent. Bear in mind that these visitors accounted for 30 percent of the site’s total traffic. So the campaign created a sizeable increase in overall site revenue, and yes, it was more than enough to pay for the cost of the discount.

In addition, the offer generated a 34 percent increase in the customer acquisition rate and had a positive impact on Cost per Customer Acquisition (which dropped by 29 percent for one ad source).

Clearly, the ability to segment the audience for discounts greatly improves their efficiency while decreasing their cost. That said, a discount does not have to be the first line of attack when you find an under-performing segment of site traffic.

For any given visitor persona, a simple but motivational message or “hook” might be enough to do the trick, and that’s where the ancient art of retailing comes in. Is there something can you say to this persona to trigger the sale? How about one of these:

  • “Only 4 in stock, order now”
  • “This season’s hottest item”
  • “Yes, we ship to your location”
  • “Best price anywhere”
  • “Get it before noon tomorrow with our express shipping option”

These hooks may not be original or elegant, and there’s a trick to choosing the right one, but they can be very effective. The point is, if you combine the art of the hook or the selective discount with the science of personalization, you can focus, test, and hone that art in ways that would truly astound the bazaar traders of yore.