Discounts are everywhere. They’re used by practically every business, regardless of whether they’re selling services, goods or commodities.
They’re the most common form of promotion and they’ve been around since humans started trading goods. But a deeper look at the psychology behind discounts reveals some interesting insights which can be valuable for your business today.
Fundamentally, discounts and other promotions exploit basic human psychology to encourage spending.
Discounts play on the brain’s reward system, which is powered by dopamine.
Dopamine is usually triggered when we achieve something, or experience something new or exciting. It’s also released when we avoid stressful situations.
This is how most discounts work:
It’s the fear of missing out on a good deal which drives discounts as a sales mechanism. That’s why most discounts are time-dependent.
Instead of the typical, time-dependent discounts that are applied to products, you also have discounts for certain customer profiles. Take a 20% student discount for example. This type of discount relies less on ‘fear of missing out’. Instead, it encourages a particular customer segment to purchase by giving them special treatment.
Brands put a lot of thought into their communications because they have a big impact on the way they’re perceived by clients and customers. This includes things like marketing & sales materials, website copy and company statements.
The same principles actually apply to discounts too, albeit to a lesser extent. Take a look at these two promotion examples:
These examples show two of the most common discount types:
Which one any given customer chooses tends to be a matter of personal preference. Both options work out as exactly the same price per gram. But certain customer segments generally prefer one over the other.
For example, students may prefer the cheaper option (33% off), while families may choose the option which gives more of the product (50% extra free).
Seeing both options next to each other, you might not be able to guess which is more popular. But ‘X amount extra free’ is generally preferred by most consumers.
We’re so used to seeing prices ending or beginning in ‘9’ that it’s easy to forget why they’re so common. Back when cash transactions were more prevalent, this pricing strategy was a much more obvious annoyance.
Every shop would leave you with a handful of small change, which was also an inconvenience for the employees behind the till. But, just like discounts, the $9.99 pricing strategy exploits the natural quirks of the human mind to increase sales.
A similar phenomenon actually applies to prices that end in other numbers. Seemingly random prices, e.g. $23.63, are immediately obvious and start to raise questions in the customer's mind. They may wonder how such a price was calculated and assume that it is a reflection of the item's quality or trustworthiness.
While discounts are the most simple form of promotion, the way they play on the human mind is more complex than many people realize. Talon.One's Promotion Engine allows you to set up all sorts of promotions, so you can put some of these theories to practice with your own business.