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The Psychology of Discounts and Increasing Profits

Psychology of discounts

Foremost, it is important to note that any person wants to increase the benefit received, regardless of the amount in question. Would you pay if you could get the same thing for less money?

Incorporate coupons and discounts into your overall marketing and pricing strategy, and you’ll get immediate attention from shoppers. But to turn that attention into a desire to check out, it’s important to understand: Customers don’t like low prices.

Potential buyers pay attention to specific numbers in the offer. Based on these data, conclusions can be drawn. When seeing an offer, most buyers will notice a -50% discount tag, with simple calculations it is easy to understand that the total discount will actually be only 25%. But in the first (and often the only) approximation, it seems to buyers that they are got offer at the best price, but this is not always the case.

Conclusion: based on the assumption that the consumer is a reasonable person, he must choose the most rational solution. So discounts can have a significant impact on his behavior in the process of purchasing something

Main types of discounts.

1. Cash or percentage discount.
Such discounts are used most typically and imply a simple price reduction by any amount or percentage of the initial cost. This discount can be applied to individual products or to the entire order. "Buy one, get one" - "you buy one thing, you get the second with some kind of bonus." Such a discount encourages the buyer to purchase additional goods. Possible options: “buy one, get one free”, or “buy one, get one with a 50% discount”.

2. Quantity discount.
Such a discount induces the customer to increase some quantitative parameter of the purchase up to a certain threshold value. For example, "Buy four items and get the fifth free" or "Get 15% off purchases of $500 or more."

3. Cashback.
Rebate some part of the cost of the order after its payment. Usually used for large orders, the most common is a refund based on a special coupon sent by the buyer, supplied with the purchased goods.

4. Free shipping.
It is becoming more and more popular on the Internet. Many sellers offer free shipping after a certain amount is reached, such as "free shipping on orders over $1500".

How Discounts Affect Consumer.

Behavior In addition to saving money, discounts also affect how customers feel about your product and store.

Discounts inspire confidence.

Consumers implicitly believe that the discount being offered is a fair price reduction. That is, you can simply increase the price by 20%, and then drop the same 20%, and indicate the old and new prices on the site. Buyers rarely look for a catch in such moments. Confidence in discounts is an additional incentive to buy. Discounts discourage the desire to look for goods elsewhere.

Modern research confirms that the presence of a coupon or discount can make the buyer refuse to look for a similar product elsewhere.

Discounts make it feel like the offer is limited.

This is especially important for online businesses, where it is much easier to compare prices between competitors. Discounts create a sense of urgency. Discounts encourage the customer to make a purchase faster. Buyers understand that this will not always be the case, and they need to act. Urgency is a key factor in helping a client make a decision.

You can complement the offer with phrases like "Just one day", or "Last opportunity!", Which will help eliminate the last hesitation before buying.

Consumers get used to discounts!

One of the downsides of coupons and discounts is the fact that over time, shoppers expect to see a price drop on any order. This expectation often results in customers not ordering at the regular price, but instead looking for discounts from competitors. The absence of any bonus can be considered as a hostile action on the part of the seller. To prevent such situations, take the issue seriously and carefully consider the types and duration of discounts applied each time.

It is very important to find out which discounts contribute more than others to increase sales. To do this, you should test several variations of discounts. For example, you can divide the list of addresses for e-mail distribution into two parts. Send information about discounts in percentage terms to the first group of recipients, and in monetary terms to the second group. After studying the results, you will understand what is best for your audience.

Important: Remember that discounts can easily rob you of profits, so always consider your potential profit/loss before launching or testing any discount campaigns. Once you have a better understanding of how discounts affect your audience, you can effectively use them to increase sales and attract new customers. All you need is some math and an understanding of the power discounts have over the minds of your customers.
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