Dispensary tips

Discounting in cannabis: how to leverage price to your advantage

By
Dutchie
September 30, 2021
January 18, 2022

Retail strategy is not easy for anyone, and it’s especially tough for the first-time retailer. We know that only a small segment of dispensary owners come from a retail background, so we’re here to help break it down—starting with pricing discounts. Why? Pricing strategy can be one of the most impactful components of a successful retail operation, determining whether you earn profits or suffer losses. This also makes it one of the most daunting.

From regulatory costs to competitive price cuts and everything in between, pricing is a much deeper subject than most first-time retailers realize.

Retail pricing is complex.

At first glance, pricing seems like simple math. You purchase some volume of wholesale goods—in this case, dry bud, edibles, or other cannabis products—for a certain cost. You then add a comfortable margin and sell it at retail shops for a higher price. The margin becomes your profit, and that’s the end of the story.

In reality, however, things are rarely so simple. Some areas to consider include:

Regulation:

  • Cannabis is part of a highly regulated industry associated with high taxes. Many dispensaries choose to support these costs by passing them on to their customers via retail prices.
  • Certain items cannot be sold below their wholesale cost in several states. Pricing discounts in this environment may have to begin at the vendor level, as the retail price cannot be further reduced.

Competition:

  • Your dispensary has competitors with pricing strategies that will affect your pricing strategy. Competitors include other legitimate, licensed dispensaries and black-market cannabis dealers.
  • Many retailers across more mature industries sell popular items at a loss in order to draw in customers. The cannabis industry is no different. Maintaining your competitive edge is key to running a successful dispensary and attracting new customers.

Packaging:

  • The proper packaging can create a memorable experience for your customers— but that experience can also come with hefty production costs and additional labor for each order that must be factored into the pricing equation.
  • Some cannabis dispensaries must also adhere to local regulations outlining specific packaging requirements (weighing & sealing flower, childproofing, etc.) regardless of the experience they’re looking to create. This often adds to costs.

Finally, pricing psychology adds a whole new world of complexity to what is already a tricky science.

So how important is pricing? A 1% improvement in price optimization results in an average profit boost of 11.1%. Pricing is one of only a few opportunities to earn such large returns from such subtle changes in the world of retail.

Identify your ultimate objective.

Like every other kind of retailer, cannabis dispensary owners will not see tangible results from lowering product prices 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 should communicate that discount to your customers.

Some examples of retail objectives that smart discounts can help you achieve include:

  • Drive off-peak order volume. You can use timed promotions to boost foot traffic during slow hours. Digital inventory solutions will let you automate price changes to your optimal windows, incentivizing customers to come in during off-peak hours.
  • Minimize inventory loss. This is a common objective for stores that sell perishable items. Dry cannabis will expire, so you may want to sell old stock at a steep discount to avoid writing off expired surplus inventory as a loss. This sales tactic can also benefit your inventory management operations.
  • 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 highlight the item or line, generate consumer interest, and begin to establish a dedicated customer following.
  • Increased customer conversion. Discounts can help convince customers who may be on the fence when selecting where to shop. This is particularly true when both you and your competitors carry the same products. A discount in this scenario can give you the lowest-price advantage for that specific product and convert that price-conscious customer.
  • Increased cart size (& revenue potential). 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 revenue of every transaction. Quick tip: Focus on paraphernalia and complementary products that are easy for customers to justify buying.
  • Boost holiday sales. Holidays, long weekends, and social events are all excellent times to boost sales with promotions. Any period of time that is likely to generate increased interest in cannabis is a perfect opportunity to increase your sales volume.

Be thoughtful about your approach to cannabis discounts.

Discounts can be an effective way of temporarily impacting cannabis pricing to earn benefits. Some experts are rightfully wary of discounting — it can backfire and end up reducing sales for specific products. However, this outcome is rare.

Dispensary owners must face other obstacles, as well. In some US states and Canada, cannabis discounts and promotions are strictly illegal. But if you can legally discount cannabis products in your market, and know your customers well enough to see that it would be valuable to them, you may be able to use discounts to your advantage.

Effective discounting requires knowing your customers’ expectations—and protecting your own brand reputation. Discounts can harm retailers whose brand messaging relies on luxury products and premium service. This is why most retailers concentrate on discounting low-cost items.

Discounts can have a powerful impact on the perceived value of a product. Many retailers follow what Jonah Berger calls the “Rule of 100,” which says:

  • If a product costs less than $100, retailers should promote discounts as a percentage (10% off for a limited time only!).
  • If a product costs more than $100, retailers should promote discounts as an absolute amount (save $25 when you spend $250 or more!).

Berger’s reasoning is simple. Following the rule ensures that the number used to refer to the discounted sum is as high as possible. This leads to greater perceived value on the customers’ part.

Real-world data must inform discounting 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. The numbers speak for themselves:

“81% of Americans say finding a great offer or discount is on their mind throughout the entire purchase journey. Nearly all consumers (94%) search for a deal or offer when shopping online.”

Coupons, discounts, and offers give customers a significant psychological push to strike while the iron is hot.

Consider the discounts you can list on your online menu.

Dutchie offers a myriad of promotion types that are built right into your ecommerce menu. Remember, Dutchie has seen a 41% increase in the amount spent per order when they include an Offer. Incentivize shoppers by using any or all of the following types of discounts:

  • Customers can view all promotions on the dedicated Specials page. When they click on each offer, all eligible products that correspond to that promotion appear.
  • You can position a discount as either a Sale or an Offer (like BOGO 50% off).
  • Offers include both percentage and dollar amount discounts.
  • Coupons are limited-time promotions that customers confirm with a unique code.
  • The card designs, carousels, brands, and conditions are all customizable in your Dutchie Ecommerce admin dashboard.
About the author
Dutchie
The Dutchie Squad