Discounts vs Free Gifts: Which Converts Better?
Free gifts convert better than discounts of the same value for most stores. In an MIT study, demand for a chocolate jumped from 27% to 69% the moment its price dropped from 1 cent to free, and a gift leaves your listed price alone. A discount still wins for first-time buyers and for clearing stock.
Short answer: Give a free gift to the customers you already have and save the discount for shoppers who have never bought from you.
Discounts vs Free Gifts at a Glance
| What you care about | Discount | Free gift |
|---|---|---|
| Conversion lift | Strong, and it fades as shoppers get used to it | Strong, and the word free does most of the work |
| Cost to you | The full discount on every order | The unit cost of the gift, usually far less |
| Effect on your price | Teaches shoppers the sale price is the real price | Listed price stays intact |
| Best for | New customers, stock clearance, price shoppers | Existing customers, bigger carts, launches |
| Easiest setup | Automatic amount off or percentage off | Buy X Get Y with the gift set to Free |
What a Discount Does
A discount removes the price objection for a shopper who is comparing you against another store. It works fast, it needs no explanation, and every shopper on earth understands 20% off. The problem is the cost hides in your future orders, not in this one.
McKinsey looked at trade promotions across consumer brands and found 59% of them lose money, and 72% lose money in the US. The math on a store is the same. At a 50% margin, a 20% discount means you need two-thirds more orders just to make the profit you made last month at full price.
On top of that, a discount trains your list. If the same customers only buy during sales, the discount stopped being a promotion and became your price. I see this most on stores that lean on coupon popups for every visitor, and it is one of the reasons those stores end up renting their customers instead of owning them.
What a Free Gift Does
A free gift adds value to the order without touching the price: the shopper gets more, and your product still costs what the page says it costs. The Zero as a Special Price study from MIT is the clearest proof. When a Hershey’s Kiss cost 1 cent next to a 15-cent Lindt truffle, 27% of buyers took the Kiss. When both dropped by a penny so the Kiss was free, 69% took it. The price gap never changed, and the choice flipped.
The same paper describes Amazon’s shipping promotion in Europe. Free shipping lifted orders in every country except France, where a rounding error made shipping cost one franc, about 10 cents. Orders in France barely moved. Free is a category in a buyer’s head, not a number, and a $10 gift feels bigger than $10 off.
That feeling carries into your margins. A gift that retails for $15 might cost you $4, while a 15% discount on a $100 order costs you $15 every time. The pull of the word free is the same force behind free shipping offers, and it works on a gift for a fraction of the cost.
Give New Customers the Discount
New customers respond better to a discount than to a free gift. A field study by Eric Anderson and Duncan Simester, published in Marketing Science, found deeper discounts increased future purchases by first-time customers. New customers in the promotion group went on to order 1.82 units from later catalogs against 1.59 for the control group in one test, and 1.33 against 0.99 in another.
The reason is that a new customer has never tried your product. The discount lowers the risk of the first order, and once they like what showed up, they come back at full price. A gift cannot lower that first risk in the same way, since the shopper does not yet trust the main product enough to care about the bonus.
So on your welcome flow, run the discount. Keep it modest and tie it to the first order only, so the customer learns that new-buyer pricing is a one-time welcome rather than the way your store works.
Give Your Existing List the Gift
Your existing list responds better to a free gift than to a discount. The same Anderson and Simester study found the opposite effect on established customers: the group that got the deeper discount went on to order 6.89 units against 7.67 for the control, and spent $584.68 in later catalogs against $733.50. The discount cost the company future revenue from the people who liked it most.
Your repeat buyers already trust the product, so the price was never their objection. What they need is a reason to come back this month instead of next month, and a gift at a spend threshold does that while your full price stays put. A 2025 study of 342 shoppers found free gift framing beat discount framing for the same bundle, and the gift even made an odd product pairing feel like a smart buy while the discount did not.
Just know the gift has to feel worth something. A sample nobody asked for reads as clutter, while a travel size of the product you want them to buy next reads as a favor and seeds the next order.
A gift that creates the next order beats a gift that only sweetens this one.
Can You Use Both?
You can run a discount and a free gift together as long as each one has its own audience and its own end date. Send the first-order discount to visitors who have never bought, and the gift-with-purchase to your customer list, and the two never meet on the same shopper.
Shopify makes the gift side easy. A Buy X Get Y discount lets you set the “get” item to Free, cap it at one use per order, and choose which other discounts it can combine with. One thing trips stores up: Shopify never adds the gift to the cart on its own, so the shopper has to add it, and your banner has to tell them to.
Also, keep the discount machinery out of sight for full-price buyers. Baymard’s checkout research recommends collapsing the promo code field behind a link and auto-applying codes where you can, so a customer who was ready to pay is not reminded to go hunting for a coupon. That same open code field is one of the quiet reasons shoppers add to cart but never check out.
Which Should You Pick?
Pick a free gift for most of your offers, since repeat customers and full-price shoppers are where a store’s profit lives. The discount is the tool you reach for on purpose, for one job, with an end date.
- Pick a discount if you are trying to win first orders, clear seasonal stock, or you sell something shoppers compare on price across stores.
- Pick a free gift if most of your orders come from repeat customers, your margins are under 50%, or you are launching a new product to your list.
With the pick made, set the gift threshold 20% to 30% above your average order value, name the gift’s dollar value on the banner, and end the offer on a real date. Test one offer at a time so you know which one moved the number, and give a change this big a full cycle before you judge it. That is one of the few tests worth running with low traffic.
If you want the offer built into the store so it stops leaking margin, that is part of my CRO services for Shopify.
Want Offers That Grow Margin, Not Just Orders?
Discounts win first orders and clear stock, but they bleed margin and teach your best customers to wait. Free gifts turn the pull of the word free into bigger orders at a fraction of the cost. Most stores should gift their list and discount their strangers.
Book a call and I’ll pull your last 90 days of orders, split them into first-time and repeat, and show you where a gift threshold would beat the discount you are running now.
Sources:
- Shampanier, Mazar, Ariely: Zero as a Special Price (MIT)
- McKinsey: How analytics can drive growth in consumer packaged goods trade promotions
- Anderson and Simester: Long-Run Effects of Promotion Depth on New Versus Established Customers (Marketing Science)
- Framing the Unlikely Pair: Free Gifts Heuristic in Product Bundles (PMC)
- Shopify Help Center: Buy X Get Y discounts
- Baymard Institute: Checkout usability and Apply buttons
