Discounting in Cannabis: How to Leverage Price to Your Advantage

by Mary Briggs,

Discounting must be informed by real-world data to be effective.

Discounts are a powerful psychological motivator for customers. The idea of getting a valuable product or service for less than what it usually costs has long proven itself a powerful sales strategy.

According to a RetailMeNot survey, nearly three out of every four Americans report that promotional offers play a role in their online purchase decisions. Coupons, discounts, and bargains give customers a significant psychological push to strike while the iron is hot.

While the cannabis retail industry is unique in many ways, in other aspects, it is just like any other retail industry. Consumers still value a great location, accessible products, and a good bargain. The consumer’s perception of what makes up a “good bargain” has its roots in consumer psychology, which is why discounts work so well across almost every industry in every market.

Discounts are more complex than they seem, however. Arbitrarily slashing prices throughout your cannabis store will not generate the profits you are looking for. It takes discipline and planning to create and implement a solid discount strategy in the cannabis environment.

Identify Your Ultimate Objective First

Like every other kind of retailer, cannabis dispensary owners are not going to see tangible results from discounting products without establishing a clear objective beforehand. Identifying your ultimate goal will help you decide which products to discount, how heavy a discount to place, and how your brand communicates that discount to customers.

Here are some examples of retail objectives that discounts can help retailers achieve:

  • Increasing Brand Loyalty. Discounts can help consolidate customers who may be on the fence about going to your dispensary or a competitor’s. This is particularly true when both you and your competitors’ carry the same exact products. In this case, you can use a discount to offer the lowest price for that specific product.
  • Increasing Per-Customer Profits. Some discount initiatives can help convince customers to add more products to their shopping carts with every order. Increasing the average transaction size will boost the profitability of every transaction. Focus on non-essential, complementary products that are easy for customers to justify buying.
  • Compensating for Low Traffic Hours. You can use timed discounts to boost foot traffic during slow hours. Digital inventory solutions will let you automate the price changes whenever you wish, incentivizing customers to come in during off-peak hours.
  • Sell Off Slow-moving Inventory. This is a common objective for stores that sell perishable items. Dry cannabis will expire in time, so you may want to sell old stock at a steep discount rather than write off expired surplus inventory as a loss.
  • Promote New Products or Partnerships. Discounts are a great way to introduce new products to existing customers. If you are about to start carrying a new product, you can use a one-time discount to generate consumer interest in it and hopefully establish a dedicated customer following.
  • Boost Sales During a Specific Time Period. Holidays, long weekends, and social events are all excellent times to boost sales with discounts. Any period of time that is likely to generate increased interest in cannabis is a good opportunity to increase your sales volume.

Three Discount Tactics Cannabis Retailers Use Most Often

While the basic formula of the discount is simple, there are subtle ways you can use discounting to advance your particular objective. Most cannabis dispensary discounts fall into one of three broad categories:

1. Buy Something, Get Something (BOGO)

The BOGO tactic is one of the cannabis industry’s go-to solutions for boosting sales and profits while getting rid of excess stock. The mechanics are right in the name – whenever a customer buys a certain product, they get an additional product at a discount price.

This allows you to tie products to one another in advantageous ways. For instance, you could offer an eighth of a soon-to-expire dry flower along with every purchase of your best-selling product. Alternately, you could incentivize hash oil purchasers to try a new type of concentrate in partnership with a new provider.

2. Cart Discounts

Cart discounts are even simpler than BOGO discounts. Under this tactic, you simply slash a percentage off of your customers’ entire purchase. Many retailers offer cart discounts to seniors, veterans, first-time buyers, and other customer groups they wish to reward for their business. Dispensaries in tourist-heavy areas can even give locals a special discount.

Whereas BOGO discounts are good for clearing stock, cart discounts are generally better suited to building customer loyalty. They can also incentivize specific behaviors, like making orders online or using a particular payment method.

3. Event-Related Specials

Event-related discounts are the most specific type. Coupon codes and one-time percentage discounts are both examples of events you may wish to accompany with a retail discount. Just about anything can be an event – from your grand opening to a landmark deal with a new vendor.

Coupons are particularly useful for these types of discounts because they can be included with advertising materials intended for a wide audience. Coupons and coupon codes are easy to track, making it possible for you to measure the return on investment your discount ultimately generates.

How Much Should I Discount From the Full Price?

Cannabis retailers need to pay close attention to the amount they shave off of their own profits by offering discounts. Since every state has its own, independent cannabis industry and community, these numbers will vary from state-to-state, and can even differ widely between individual cities.

According to our industry-wide benchmarks, as of Q2 2020, California’s discount average is 10.20%, with an average transaction size of $65.70 and 2.55 products sold per transaction.

But these figures can vary widely: in Alaska, the discount average is 8.48%, with an average transaction size of $43.90 and 2.67 items sold per transaction. Oklahoma had the highest discount average of 18.65%, with an average transaction size of $62.84 and 6.06 items per transaction.

Massachusetts has a high discount average of 15.08%, along with a high average transaction size of $157.29, spread over an average of 4.05 items per transaction. You can assess the appropriate discount size for your store’s size by comparing your own averages to the averages of the state you operate in. Implement a comprehensive sales and inventory solution to gain access to this kind of data and use it to inform your business decisions.