How do you combine the psychology of discounts to maximise your ecommerce sales?
How do you combine the psychology of discounts to maximise your ecommerce sales? There is actually a whole psychological approach to discounts and pricing, but is discounting hurting your business? Like really hurting your hip pocket and profit margin? Do your customers think that you are constantly having a sale, and, as a result, they’re not prepared to pay full price? It’s time you re-evaluated your discounting strategy.
Certain pricing strategies motivate people to buy, while others actually ruin your chances of converting them into paying customers.
Why do people love discounts?
Who doesn’t love saving money? A discount may seem simple enough, (or like the cherry on top) to get your customers to make that purchase, but your customer is actually going through a process before deciding to make that final decision.
Neuromarketing researchers have been studying this phenomenon for decades. Behavioural psychologists use neuroscience in order to figure out the subconscious decision-making processes consumers use when deciding to buy.
Pricing psychology goes much deeper than just looking for a good deal, a bundle discount or free shipping. Researchers have uncovered specific psychological motivators that draw shoppers to certain types of promotions and encourage them to buy. Because when consumers find a good offer, it actually changes the way they think and feel.
Studies show, consumers that received a discount, led to feelings of excitement, pleasure, happiness, and increased their levels of the “feel good” hormone known as oxytocin.
This spike in positive feelings was higher after receiving a discount, than when they received an outright gift. That’s why you must use the right pricing strategies, at the right time, for the right customers.
Try these 8 Proven Discount Psychology Principles To Drive eCommerce Sales
1. Use The Rule Of 100 ($ Off Vs % Discount)
Have you recently gone to the supermarket and noticed all the specials have a % off promotion sticker, or has your favourite online store sent you a % off code? It’s all to do with the rule of 100.
Let us explain, based on how a price is presented, will determine whether it is a ‘% off’ or ‘$100 off’
The rule is, use a percentage off on a small-ticket item (under $100) as it appears like a bigger discount than a few dollars. Bigger-ticket items (over $100) need to see a larger amount of money come off that higher price immediately in order to seem more appealing.
Example: 10% off a $50 sweater sounds better to buyers than giving them $5 off, even if they’re the same discount.
On a $1,000 computer, people were more likely to buy it when they received $200 off versus a 20% discount, despite the deal being the same.
2. Your Brands Perceived Value
Not every brand, product, or customer segment responds to discounts.
In some cases, discounting can hurt the perceived value of the product and brand. Think high – end, luxurious items. A brand’s perceived value is defined as what a consumer feels the value or individual worth of a product is, and it’s subject to influence by discounting.
When luxury items are discounted, they can be seen as inferior, due to already being out-of-season or less popular styles, making them less sought after and less appealing.
If you sell a high-end product, the original price should serve as the anchor price for whether the item is of high-quality or not.
Luxury ecommerce retailers should tread lightly when offering too many discounts, as this can reduce the perceived value of the product and your brand.
The rule of thumb here is, when determining your pricing strategies, don’t just offer any discount or deal for the sake of driving more traffic and sales if it could lead to a lower perceived value long term.
3. Using Scarcity Versus Urgency Mindset
You have heard of FOMO. Well, this is a real thing when it comes to consumables.
The psychology behind this is that people don’t want to miss out on something awesome. Whether that’s a discount, promotion or a free-gift that won’t be available for a long time. FOMO is real!
In order to avoid that FOMO, most people will act sooner rather than later, so they can get in on the action. Just look at social media, and influencers promoting a particular limited product. And that’s exactly what scarcity and urgency sales tactics focus on.
-Flash sales create a sense of urgency.
-Limited stock items create a scarcity mindset.
Try combining both tactics if you’re looking to clear out old stock — Have a flash sale, with limited stock and let the FOMO effect boost your conversions. Buyers won’t want to miss out on a deal or lose their chance to buy something they have had their eye on.
This strategy is not something you want to do all the time, FOMO will wear off, and you will end up with annoyed customers.
4. Change Your Font Size – Bigger is not always better
Believe it or not, your font sizes can have a significant impact on whether your sale looks enticing to customers. Your font size has the magic power to make a discount feel bigger in the eyes of your customers.
But this may not be the way you would have guessed. Your sale price should be in a smaller font, whereas your discount should be advertised using a larger one.
Next time you go into a brick and mortar store, see what they are using. You will most likely notice A3 posters with a % discount and an A4 size with a price discount.
Try replicating this on your ecommerce site with a large header banner above the fold, and a smaller placeholder further down.
5. The Psychology of .99 Instead of .00 – It sells more
Which one would you prefer, $9.99 or $10.00? They’re practically the same right? Studies show that consumers are more likely to buy when the price tag ends in .99 than they do when it ends in .00
I know what you’re thinking, it seems illogical as it’s only one cent, but, psychologically speaking, prices look lower when they’re under the .00 mark. EG .99, .98, .97, and .96. That’s why prices like this work so well.
Here in Australia, you will notice that this system is used more for full – priced items, whereas .00 is reserved for discounts and marked down items. EG $19.99 is more appealing than $20.00 and $197 is more attractive than $200.00.
Consider how your prices are listed, and test your full priced items vs discount prices and see which method works for you. You may find that a simple change of going below that .00 price leads to more sales.
6.The Word FREE – Don’t Underestimate The Power
Who doesn’t love a FREEBIE? Although it can be a double-edged sword for ecommerce, it can attract and engage new customers. It can also lower your brand perception and have a negative effect on your profit margin if you’re not careful.
Once again, psychology plays a part in this, shoppers don’t think in a rational and linear way when presented with percentages and prices. They view getting 50% more of something, better than saving 33%, even though the deal works out to about the same amount.
There’s something about getting more for free that drives people, versus saving the same amount in dollars.
Studies show that the zero – price effect causes people to have a more emotional reaction to the free discount, encouraging them to want more.
Now we are not saying throw around free items like lollies on Halloween, but consider offering something for free in your ecommerce store. Whether it is free shipping, free returns, a free sample or a free welcome gift. This can be a great motivator to get people to buy from you, especially if it’s a customer’s first time.
Using your Discounts Strategically, and Effectively
While discounts have the amazing power to motivate customers to buy, they can also cause some bigger problems, as we have already mentioned throughout.
Before discounting, consider the potential issues:
Constant Discounts Reduce eCommerce Profitability. If you’re using these psychological tactics without considering your margins, you may reduce your profitability so much that it doesn’t make sense to run a promotion. It may also harm your brand, so always know what your margins are.
Constant Discounts Can Ruin Your Brands Perception. If you are simply throwing discounts at customers week after week, you are training your customers to expect a discount. This is a fast way to devalue your brand! Avoid this, and use discounts strategically and with purpose.
The best way to capitalise on the psychology of discounts is to offer different promotions to each customer depending on their specific intent.
With this route, you can send discounts to customers on the fence about making a purchase and not to everyone. This ensures you don’t lose out on customers who would have happily paid full price, or provide discounts to shoppers who have no intention of purchasing, thereby risking brand value degradation and price sensitivity.
Don’t sell yourself short, get help with your pricing strategy before the New Year. Book your FREE discovery call today