Author: Jen Pollard, Data Analyst

With two big dates coming up, first Prime Big Deal Days, and of course Black Friday and Cyber Monday, it’s worth looking at how people react to discounts and sales.With two big dates coming up, first Prime Big Deal Days, and of course Black Friday and Cyber Monday, it’s worth looking at how people react to discounts and sales.

For the most part, discounts seem simple. People like the feeling of getting what they deem to be good value for money. When people feel like they have scored a major discount, this can lead to an increase in oxytocin (the feel-good hormone) making them feel happiness, pleasure, excitement etc. It can also lead to a feeling of less stress. Discounts can sway people into purchasing where they were previously on the fence about the purchase.

Here are a few starters on how to make your deals more appealing to shoppers: 

The rule of 100

At a price under £100, a percentage off is perceived as a bigger discount than a specified amount, even if you’re offering the same discount. However, when it comes to big ticket items the buyer perceives the discount to be better if they see something like £200 off when you spend over £1000. When setting up a sale, take these into consideration, and this will hopefully help you see more conversion on your products.

Protecting perceived value

Not every brand or product category responds well to discounts. Sometimes discounting can hurt the perceived value of a product, or a brand.

Designer items for example, can be perceived as inferior or out of season or unpopular if they’re discounted. Based on this, luxury items should be more cautious when offering discounts, as it can reduce the perceived value of an item. A Rolls Royce with a big red sale sticker on the bonnet doesn’t feel right. 

When looking at items purchased more often, the original price is commonly used as an indicator of high or low quality items. Thinking of a pair of jeans, a pair originally priced at over £100 is perceived as better quality than a pair at under £50. On this item, a discount can help convert as people feel like they’re getting better value for money.

The message here is that customer intent should be considered when looking at offering discounts. Are you decreasing the value of your brand for the sake of a few more sales?

Scarcity vs urgency mindset

Most people have heard of FOMO, or the fear of missing out. The idea behind this is simple, people don’t want to miss out on something perceived to be limited, or amazing. This could be a discount promotion that won’t last long, or a limited edition item on sale. FOMO is real.

To avoid FOMO pain most people will act sooner rather than later, which is where scarcity and urgency tactics come into their own. 

• Flash sales create a sense of urgency. When it’s known a deal will only last a fixed amount of time (think lightning deals) they will often take action right away instead of waiting.
  
• Low-stock or limited-inventory sales. This creates a scarcity mindset, creating urgency around pushing that buy button or missing out.

Doubling down on both of these can cause the ultimate FOMO causing people to buy, but be careful you don’t alienate people if they miss out, it can leave a bad taste in shoppers’ brands.

Font size - Bigger isn’t always better.

Font sizes have a big impact on whether a discount looks appealing enough to buy or not. Font size has the power to make a deal feel bigger or smaller in the eyes of shoppers. 

Andy Luttrell, a social psychologist and expert in price psychology, shared a study where roller skates were advertised for $239 and on sale down to $199.

When A/B testing the price, half the study participants saw a slightly smaller sale price tag than the original. The other half of participants saw a slightly larger sale price compared to the original price.

As it turns out, those who saw the smaller sale price believed the skates were not as expensive. They admitted that they’d be more likely to buy them as a result.

Based on this, it would seem that showing the original price larger than the discounted price helps people feel like they are getting a good deal, and should lead to better conversion. Of course A/B testing this for yourself can show if this works for your brand and products, or not.

Remove the requirement for math

Consumers don’t like being forced to do complex calculations to see if they are getting a deal. Easy to calculate discounts can be perceived as bigger. Also the simpler you make it to discount, the more likely people are to buy after working out if it’s a good deal or not. A simple discount of £15 down to £10 shows an easy to calculate £5 off. Even though it’s better, a discount from £19.99 to £14.92 is harder to see, so it puts people off. They’re both essentially the same discount, (one is a few more pence off) but the easy-to-calculate option gives people a quick and easy to see discount, over the larger, but harder to see discount.

Price rounding, or not

Despite a price tag of £30, being practically the same as £29.99, the price of £29.99 is more appealing, as consumers feel like they’re not spending £30. Any price similar to this, also has the same effect, so discounting something to .98, .97, .96 etc also brings the feeling of getting a better deal, as they are perceived as lower.

Offer monthly and annual payment options

So this is more aimed at subscription services, but by offering two options for payment, one a monthly payment, and often a discounted annual option gives an interesting insight into consumer-perceived value. Paying upfront gives a discount, which gives an initial good feeling, but shoppers often quickly lose sight of the perceived value of an item. Paying monthly they see the money going out each month and are reminded to use the service to get a feeling of value.

Does this matter if you get paid both ways? Yes. When it comes to renewing, the person who pays monthly often feels a sense of worth of the product. They’ve been reminded every month they’re paying for it and to use it. The person who pays yearly often loses the sense of worth as they forget to use it, and when renewal comes round, don’t feel like there’s value in it.

So yes, capturing the revenue early is good, with the discounted yearly option, however you may find your renewals are bad as people lose sight of the value.

Don’t underestimate free

Freebies are a double-edged sword. They can attract and engage customers, but they can lower brand value perception and cause negative profit margins. Offering free welcome gifts, free shipping, free returns or free samples can be excellent motivators in encouraging people to purchase, but  you should carefully consider if this is sustainable for your business.

Conclusion

Before you start offering discounts and sales, take a couple of things into consideration:

• Excessive discounts reduce profitability.
• Too many discounts or sales can ruin brand perception.

Often the best way to use discounts is to offer different promotions to different customer profiles based on intent. An abandoned basket discount could sway a sale, but doesn’t discourage people who were intending to buy and checked out without abandoning. It also doesn’t offer discounts to people who didn’t even get to the point of adding an item to the basket.

New customers may need an incentive to buy, where repeat customers already have some loyalty to your brand. A larger discount to a new customer may well sway them to your company and brand, where a smaller discount is all that’s needed to encourage a repeat purchase.