What Are Promotional Codes and How Do They Work?

Promotional codes are an excellent way for ecommerce sellers to increase sales by incentivizing customers to buy and spend more.

When reflecting upon your shopping habits, it may not come as a surprise to learn that promotional codes and discounts have substantial influence over customer acquisition and loyalty, especially in ecommerce.

A survey by coupon company RetailMeNot found that 80% of shoppers made their first purchase with a brand because of an offer or discount. Two-thirds of consumers have made purchases that they weren't originally planning to make "solely based on finding a coupon or discount" – this means that you can potentially convince over 66% of on-the-fence shoppers to commit to a purchase by offering a promo code.

That's because consumer behavior and psychology are at play here. Promotional codes and discounts give consumers the impression that they've found a 'good deal', create a sense of urgency or scarcity to incentivize bigger purchases, and can even trigger physical responses in the brain that lead to improved overall shopping experiences.

What are promotional codes?

Promotional codes are a string of alphanumeric characters that shoppers usually enter during the checkout stage to enjoy a benefit, such as a discount or free gift. The ecommerce platform will need to verify that all conditions of the promotion are met before applying the benefit. 59% of consumers consistently search for promo codes online before making any purchases.

Promo and discount codes generally fall into three groups:

  1. Public codes: These are available to any and all customers but are typically limited to one-time use only. The most common use of public promo codes is to attract new shoppers to make their first purchase.
  2. Private codes: Private promo codes are tailored to specific groups of people, such as customers who use particular bank cards, customers who have not made a purchase in a while, or as a birthday treat to customers born during that month.
  3. Restricted codes: Restricted codes are only meant for use by the specific customer they are sent to. One of the most common use cases for restricted codes is when businesses issue an apology voucher to compensate for a poor delivery or sales experience.

How do I use promotional codes for my ecommerce store?

There are several types of promotional codes you can use for your ecommerce business. Some of the most popular include:

From the business or growth strategy point of view, you can use promo and discount codes to:

  • Acquire new customers: As mentioned earlier, 80% of shoppers have made their first purchases with a brand because of an offer or discount. This makes promotional codes a powerful tool for expanding your customer base.
  • Grow your marketing list: Want to encourage more people to sign up for your marketing email newsletters or follow your social media accounts? Try offering exclusive promo codes or discounts that are only available to subscribers or followers.
  • Reward loyal customers: There's nothing more delightful to a customer than receiving a surprise voucher to thank them for a year of being with you or for being one of your top spenders. Promotional codes can be a powerful tool to personalize your customer engagement and increase customer loyalty.
  • Encourage customers to return: Target shoppers who haven’t stopped by your store in a while with an enticing offer using a restricted promo code that was specifically generated for them. This way, you’ll be able to increase customer lifetime value by getting ‘dormant’ customers to come back and shop at your store.
  • Build a referral program: Referral programs are one of the most powerful tools for ecommerce businesses to generate organic growth and strengthen word-of-mouth marketing. You can use promotional codes to offer store credit to both referrer and referee, incentivizing both to make additional purchases.
  • Boost seasonal sales: With fierce competition for shopper attention during peak shopping periods like Black Friday Cyber Monday (BFCM), promo codes and discounts may be critical to ensuring you meet your sales goals.
  • Track influencer marketing: Rather than evaluate the success of your influencer marketing campaigns based on metrics such as post views or engagement, try using influencer-specific promotional codes instead. This way, you'll be able to track the dollar value of each influencer to decide which campaigns to double down on and which to let go of.

Frequently asked questions about promotional codes

What are promotional codes?

Promotional codes are a string of numbers and letters that shoppers can use to enjoy certain benefits, such as discounts on their purchases, free shipping, or gifts. Depending on the purpose of the promo code, access can range from publicly available to restricted to a specific customer.

How do I use promo codes for my ecommerce store?

Strategic use of promotional codes and discounts will help boost customer acquisition, customer loyalty, and customer spend on your ecommerce store. In addition to encouraging shoppers to spend more and more frequently, promo codes can also be a valuable tool for helping you grow your marketing list, build your referral program, and track influencer marketing for your store.

How do I create a promo code or discount code on Shopify?

It’s easy to create a discount code on Shopify. You'll simply have to decide certain details like the duration of your promotion, the conditions that need to be met for the code to be valid, the number of times a customer can use the code, and which products the code can be applied to.

Using promotional codes is a breeze with Shopify

Promotional codes are a great way to acquire new shoppers, increase customer loyalty, and deliver better marketing ROI for your ecommerce business. In addition to using them to grow day-to-day sales, you can also deploy them strategically during peak shopping seasons such as Christmas or Valentine's or use them to target and move old stock for improved inventory turnover. One thing’s for sure: whether you’re generating them yourself or using one of our partner apps from the Shopify App Store, using promo codes has never been easier with Shopify.


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