Everyone is drawn to a business, no matter how big or small. By incorporating coupons and discounts into your overall marketing and pricing strategies, you’re already capturing the attention of shoppers. But offering discounts to stay competitive without considering customer behavior and the impact on your business will only result in lower returns.
To take your strategy to the next level, you need to consider how your customers view discounts and offers at a higher level. Read on to learn more about how your willingness to offer discounts affects customer behavior, the most common types of discounts, and how to best use them for your business.
How discounts affect consumer behavior
Not only are discounts an incentive to help shoppers save money, they also impact how consumers interact with your products and brand. Here are some ways lower prices can impact your customers and their actions:
Discounts make you happy
In a simple, broad sense, saving money makes people happier — a concept supported by a study at Claremont Graduate University conducted with Coupons.com. Whenever you offer your customers the opportunity to save more money than the perceived value of a product, they experience an increase in oxytocin levels. This, in turn, can evoke a positive association with your brand when customers later recall it, as they themselves associate the positive feeling they experienced with your company.
Discounts require consumers to trust you
The vast majority of consumers trust that any discount offered by a company represents a legitimate reduction in the original price. In other words, you could technically increase the price of an item by 20% and then turn around and offer a 20% discount, but consumers rarely consider that possibility. This perceived trust in your company and the discounts offered gives you a feeling of excitement about what you are offering. However, be careful not to take advantage of this trust by making shady offers to boost your profits.
Discounts reduce the propensity to buy
Studies show that offering a coupon or discount can discourage consumers from looking elsewhere for the same product . This is because discounts create a sense of urgency when making a purchase, which discourages shoppers from looking for other options. The impact of the lack of incentives to seek outside stores is particularly important for the online business industry, where price comparisons are rampant due to the wide availability of competitors in the digital space.
Discounts create a sense of urgency
Discounts entice shoppers to shop earlier. This can be attributed in part to the idea of scarcity, where consumers understand that discounts aren’t always available to help them save money. Additionally, Psychology Today points out that “anticipatory regret” (regret for missing the deal) is also a big factor of urgency when it comes to promotions. Urgency is a crucial element in moving customers beyond the purchase threshold and can be supported by specific wording in your marketing communications.
Discounts are expected from your brand
One downside of coupons and discounts is that they teach consumers to expect them when they shop with you. This expectation often discourages shoppers from buying regular-priced items from your business and encourages them to look for discounts from the competition. In the field of e-commerce, this expectation is increasingly becoming a reality thanks to free shipping campaigns. To prevent customers from buying only with a discount, it’s a good idea to be strategic about the nature and timing of your discount campaigns.
How discounts are presented changes the perceived value
In general, the success of discounts hinges on a common theme: shoppers don’t like to count . Instead of calculating numbers, they focus on specific numbers in a discount or promotion and base their conclusions on that amount.
Consider this example: Without doing any calculations, which of the following do you think represents the largest percentage discount?
- $200 off a $999 TV
- A pair of sunglasses for $35, reduced from $50
- Buy one shirt for $60 and get a 50% discount on the second one
If you chose B, congratulations – you’ve successfully run through some cleverly worded discounts to find the best deal. If you chose a different answer, don’t worry – most of your customers do the same. In fact, smart marketers depend on this consumer behavior to drive sales.
With Option C, most consumers will focus on the 50% off figure rather than doing a simple calculation to see that they are actually saving only 25% of the total purchase price. Because of this, buyers feel they are getting a better deal than they are actually getting.
The key takeaway is that while the basic rule of economics is that consumers act in the most rational and beneficial way, how discounts are given has a major impact on purchasing behavior.
Different types of discounts
Now that you understand the impact of discounts on customer behavior, you can start planning how to use that behavior to your advantage. However, before experimenting with different tactics, it is worth familiarizing yourself with the most common types of discounts, which are summarized below:
- Dollar or percentage discount: This standard discount type is the most commonly used and simply offers a reduction from the original price, e.g. B. $25 off or 20% off. These discounts can be applied to specific products or to an entire order.
- BOGO: This discount type is short for “Buy One, Get One” and encourages customers to purchase additional items to qualify for the offer. Examples of BOGO are “buy one get one free” or “buy one get 50% off next item”.
- Tiered discounts: These discounts encourage shoppers to increase their order value to a certain threshold in order to receive a discount – for example, “Buy 4 items, get the 5th free” or “Get 15% off your purchase when you spend $150 .”
- Rebates: A rebate is an amount given back or refunded to customers after their first purchase. The most common form, often used for large items, is return by post. An example of this would be specifying a price as “$349.99 after discount”.
- Free Shipping: Free shipping is gaining popularity among online business owners and saves customers completely from the shipping cost associated with each order. To help offset the cost, many retailers offer free shipping on orders above a certain amount, such as $49.
- Bundling: These discounts exist when companies offer a discounted price for purchasing certain items together — for example, “Save $10 when you add a canvas larger than 16 inches to your order for a custom paint set.”
- Free gift with purchase: This offer is usually offered at a certain price threshold for an order and incentivizes customers to make a purchase by offering them a predetermined item for free. This item can be anything from a sample of one of your products to a branded coffee mug.
This is how you benefit from discounts for your company
You’ve thought about the psychology behind discounts and the type(s) of discounts you want to offer. Now is the time to plan your discount, offer or promotion from start to finish. Make sure to include these action items in your workflow as you prepare for rollout:
- Have one goal in mind: offering a coupon or discount without a purpose is guaranteed to end badly. Are you trying to increase sales in a slow month? Promote a new product? Get excited about a less popular product category? The more specific your purpose for offering a discount, the more strategic you can be about how you offer it.
- Examine Costs: Remember that discounts can easily eat into your profit margin. Therefore, analyze the numbers internally before you start or test a discount campaign so that you know what you can comfortably afford and how much you are willing to pay for it.
- Consider any necessary restrictions: Make sure all the details of your offer – including any exceptions to your offer – are easily visible to customers. Restrictions can include expiration dates, dollar amount thresholds, excluded products, and more. Adding more details will help you avoid potential conflicts later.
- Test your offer against others: The easiest way to find out which discounts work best for your business is to test different types against each other. A/B testing will show you if Variant A – your first deal type – is performing better than Variant B – your second deal type – so you can plan future discounts based on relevant data.
- Analyzing results: When your offer window is closed, it’s important to look back at the success. How many customers used the discount code? How many products within a discounted category have you sold? In some cases, you hit the mark and see a lot of sales; In other cases, you need to examine factors that may have contributed to underperformance, such as inadequate marketing or simple disinterest.
Now that you have a better understanding of how discounts affect your specific audience, you can plan your campaigns much better to increase sales and customer retention. All you need is a little math and a greater understanding of the power discounts have on the minds of your customers.