Academic research is often dismissed as … well, ‘academic’. But sometimes it’s really interesting to look at what it has to say. For instance, psychologists have done quite a lot of research into how buyers respond to discounts. They’ve designed experiments that test different discount strategies. That’s just the same as an e-commerce seller doing A/B testing, except that they publish their results.
So let’s look at some of the things they’ve found out. One interesting area is the split between “the same, but cheaper” and “more for the same money”. Existing customers are more likely to be encouraged to buy more if you offer a bundled deal or a multi buy, such as buy two, get one free. On the other hand new customers will be motivated more by a discount; 80 percent of shoppers will try a new brand if there’s a discount.
So discounts are by far your best way of attracting new customers, but you might use other strategies for existing customers. The effect on your margins will be the same, but you’re presenting the deal in a different way.
Different generations also have different attitudes. Boomers are less motivated by discounts, but 70 percent of millennials will look for a deal before buying.
When you’re offering a discount, the exact way you present it matters. The ‘Rule of 100’ says that if you’re selling an item below $100, presenting the discount as a percentage is generally more efficient; “20% off!” rather than “save $2” on a $10 sale, for instance. But above $100, the dollar saving looks a lot chunkier and will generally net you more sales.
Customers don’t always do the math. For instance, if you sell one pair of sunglasses for $50 and let the customer order a second pair at half price, the “half price” message will stick in the mind, even though the actual math is that the customer’s only getting a 25% discount on the order as a whole. Take care to present your discounts the most favorable way for your sales!
Two particular factors can really hook buyers. First, everyone’s a sucker for a discount on top of a discount. For instance, when you’re at the sales and you see the special red marker of an extra 20% off on an item that’s already been discounted 50%, it’s a clincher.
The other thing that really hooks people is urgency. Limited inventories, limited time, flash sales, make people feel they really need to buy now. You’re using FOMO, fear of missing out. That’s very powerful; it works for limited edition luxury goods and Kickstarter, and it also works for discounts.
It’s particularly useful for discounts because the element of urgency can stop buyers feeling that your goods are always going to sell at a discount. All of us know shops that have a special sale every single week of the year; would we ever pay full price there? Whereas a top brand retailer dropping prices for just a single weekend is a huge incentive to go out and bag a bargain.
The other thing that a discount coupled with a sense of urgency does is to stop customers looking elsewhere. They don’t want to miss the saving because they were too busy comparing prices! That’s why if you use Vipon to promote your discounts, customers aren’t going to click around Amazon trying to find a better deal!
And getting a discount makes customers feel happy. Psychologists have found that their oxytocin levels increase, which gives them a great feeling!
