Someone recently asked me:
This article is a copy of my response.
The underlying economic idea is known as the price elasticity of demand ().
The amount of product purchased can have a very interesting response as we increase or lower prices.
If the listed price (or price minus the discount you're giving) is far below what your consumer expects, their chance of purchasing will skyrocket.
This concept complements targeted advertising very well when you have a solid understanding of both your target consumers and their price expectations.
Consider a case where you run an ad for a 10% discount, but your consumers expect the price to be in the +/-15% range. Your advertised discount will fail to motivate significant sales and give away 10% of your revenue.
Add in the fact that you paid real $$$ to acquire each customer through the ad, and you could be making sales that are losing you money.
One of my clients was in such a situation when they came on board and we were able to right the ship by changing their advertising strategy and optimizing their ads. You can read a brief case study on it here () and a more in-depth version of the economic solution here ( )
Intelligent discounting and targeting is one way to hit a home run with a flash sale. Doing the math to find the right balance of discount and margin can allow you to mount large campaigns with an obscenely high total conversion rate.
Blogs like YesWeCoupon () regularly churn out sales volumes in the range of 10,000 units.
I hope that was informative!