Everyone is attracted to a deal, no matter the size. By integrating coupons and discounts into your overall marketing and pricing strategies, you are already capturing the minds of shoppers. But offering discounts to stay competitive without considering customer behavior, as well as the effect on your business, will only expose you to diminished returns.
To take your strategy to the next level, you need to think about how your customers perceive discounts and offers at a higher level. Read on to learn more about how your customers’ behavior is influenced by your willingness to offer discounts, as well as the most common types of discounts, and how you can make them work best For Your Business.
How Discounts Affect Consumer Behavior
Beyond just helping shoppers save money, discounts also impact how consumers interact with your products and brand. Here are some ways lower prices can impact your customers and their actions:
Discounts create happiness
In a simple and broad sense, saving money makes people happier – a concept supported by Studies at Claremont Graduate University made with Coupons.com. Any time you can offer your customers the opportunity to save more money than the perceived value of a product, they see an increase in their oxytocin levels. This in turn can create a positive association with your brand when customers remember it later, as they will associate the positive feeling they experienced with your business itself.
Discounts assume consumers trust you
Consumers are mostly convinced that any discount offered by a company constitutes a legitimate reduction in the original price. In other words, you could technically raise the price of an item by 20%, then turn around and offer a 20% discount, but consumers rarely consider this possibility. This assumed confidence in your business and the discounts it offers creates a feeling of enthusiasm for your offer. Be careful, however, not to exploit this feeling of trust by offering shady offers to increase your results.
Discounts reduce the propensity to shop
Studies show that offering a coupon or discount can discourage consumers from looking for the same product elsewhere. This is because discounts create a sense of urgency to purchase, which distracts shoppers from looking for other options. The impact of disincentivizing external transaction seeking is particularly important for the e-commerce sector, in which price comparisons are commonplace thanks to the wide availability of competitors in the digital space.
Discounts create a sense of urgency
Discounts encourage shoppers to buy sooner. This can be attributed in part to the idea of scarcity, whereby consumers understand that there are not always discounts available to help them save money. Additionally, Psychology Today points out that “regret of anticipation” (regret of having missed the deal) is also a major urgency factor when it comes to promotions. Urgency is an essential element in getting customers beyond the purchasing threshold and can be facilitated by specific wording in your marketing communications.
Discounts become expected from your brand
One of the downsides of coupons and discounts is that they train consumers to expect them when making a purchase from you. This expectation often prevents shoppers from purchasing regular-priced items from your business and encourages them to seek out competitors’ discounts. In e-commerce, this expectation is becoming more and more true with free shipping promotions. To avoid customers buying only at a discount, it is recommended to be strategic about the type and timing of your discount campaigns.
How discounts are presented Changing the perceived value
Generally speaking, the success of discounts is based on a common theme: buyers don’t like doing math. Instead of doing calculations, they will focus on particular numbers of a discount or promotion and draw their conclusions based on that amount.
Let’s take this example: without doing the math, which of the following do you think represents the largest discount percentage?
- $200 off a $999 TV
- A pair of sunglasses for $35, instead of $50
- Buy One Shirt For $60, Get Second For 50% Off
If you selected B, congratulations, you’ve successfully navigated through cleverly worded discounts to find the best deal. If you chose another answer, don’t worry: most of your customers do the same thing. In fact, smart marketers depend on this consumer behavior to increase sales.
When it comes to option C, most consumers will focus on the 50% off figure, instead of doing a basic calculation to see that they are actually only saving 25% on the total purchase . Because of this, buyers feel like they’re getting a better deal than they actually are.
The main takeaway is this: Although the fundamental rule of economics states that consumers will act in a way that is most rational and beneficial to themselves, the way discounts are presented has a major effect on purchasing behavior.
Different types of discounts
Now that you understand the effects of discounts on customer behavior, you can start planning how to leverage these behaviors to your advantage. However, before you start experimenting with different tactics, you should familiarize yourself with the most common types of discounts, summarized below:
- Dollar or percentage discount: This standard type of discount is the most widely used, simply offering a discount off the original price, such as $25 off or 20% off. These discounts can be applied to specific products or applied to an entire order.
- BOGO: Short for “Buy One, Get One,” this type of discount encourages customers to purchase additional items to qualify for the deal. Examples of BOGOs include “Buy one, get one free” or “Buy one, get 50% off the next item.”
- Staggered threshold discounts: These discounts encourage shoppers to increase their order value up to a specific threshold to receive a discount, for example: “Buy 4 items, get the 5th free” or “Get 15% off your purchase when you spend $150.
- Discounts: A rebate is an amount returned or refunded to customers after their initial purchase. Often used for big-ticket items, the most common form is a mail-in rebate. An example of this would be listing a price like “$349.99 after rebate.”
- Free delivery: Increasingly popular among online business owners, free shipping completely removes shipping costs associated with any customer order. To offset costs, many merchants offer free shipping over a certain order amount, such as $49.
- Grouping: These discounts occur when companies offer a reduced price for purchasing specific items together, for example: “Save $10 when you add a canvas larger than 16 inches to your custom painting set order.” »
- Free gift with purchase: Typically offered at a certain price threshold for an order, this offer encourages customers to purchase by offering a predetermined item for free. This item could range from a sample of one of your products to a branded coffee mug.
Making discounts benefit your business
You’ve thought about the psychology behind discounts and the type(s) of discounts you’d like to offer. Now is the time to plan your discount, offer or promotion from start to finish. Be sure to include these action items in your workflow as you prepare for launch:
- Have a goal in mind: Offering a coupon or discount without a purpose is sure to end badly. Are you trying to increase your sales during a slow month? Promote a new product? Generate excitement around a less popular product category? The more specific your goal in offering a discount, the more strategic you can be about how you offer it.
- Consider the cost: Remember that discounts can easily eat into your profit margins. For this reason, analyze the numbers internally before launching or testing any type of discount campaign so you know what you can comfortably afford to offer or how much share you are willing to accept.
- Consider all necessary restrictions: Make sure all details of your offer, including any exceptions to your offer, are easy for customers to identify. Restrictions may include expiration dates, dollar amount thresholds, excluded products, and more. Adding more details will help you avoid possible conflicts later.
- Test your offer against others: The easiest way to determine which discounts will work best for your business is to test different types against each other. A/B testing will show you if variation A (your first offer type) performs better than variation B (your second offer type) so you can plan future discounts with relevant data.
- Analyze the results: Once your offer window is over, be sure to look back on its success. How many customers used the discount code? How many products in a discounted category have you sold? In some cases, you will hit the target and see lots of sales; in others, you’ll need to examine factors that may have contributed to poor performance, such as insufficient marketing or simple disinterest.
In conclusion
Now that you better understand the impact of discounts on your specific audience, you’ll be in a much better position to plan your campaigns to drive sales and customer engagement. All it takes is a little math and a better appreciation of the power discounts have over the minds of your customers.