looking at discount

15 ways discounts cause irrational shopping behavior

Everybody loves a bargain – or rather, the feeling and perception that they’re getting a bargain. Smart discounting doesn’t automatically mean “deep” discounting.  It takes understanding shopping behavior. Changing the presentation of an offer changes how shoppers perceive its value and respond – often in irrational ways. Big retailers and suppliers use these insights about shopper behavior to their advantage. To compete, you must be just as skillful.Otherwise shoppers may miss your unique value because your product presentation is unappealing.

In the last few years, psychological analysis of shopping behavior has gotten popular. Authors such as Dan Arieli (Predictably Irrational), Daniel Khaneman (Thinking Fast and Slow), and partners Richard Thaler and Cass Sunstein (Nudge) present academic research about shopping behavior in easily readable books for general audiences.

Here are some of those insights about shopper behavior and discounts. If you are a retailer, these can help you grow sales and ecommerce with discounts without cutting deeply into your bottom line. If you are a shopper, understanding how marketers take advantage of these patterns of shopping behavior could help you make more conscious purchasing decisions.

1. Use the Pleasure Principle: The pleasure principle is simple. People seek pleasure and avoid pain. Knowing that you missed out on a discount is usually a pain you want to avoid. We’re afraid of making mistakes, being at a disadvantage, or having less than others, says Emory University professor of psychology Drew Westen.

We also want to gain advantages. Our brains are programmed for behavior that gives us an edge, says Westen. When we make shopping decisions that we perceive as beneficial – such as getting a big discount on something we want – dopamine is released in our brains. And dopamine makes us feel good.

2. Create a sense of urgency. One reason discounts change shopping behavior is the sense of urgency. Discounts expire. This urges us to act fast or feel the pain of missing out. Avoiding loss motivates us more than the possibility of achieving gains, according to Nobel Prize-winning psychologist Daniel Khaneman. We feel the pain of losing much more than the joy of winning. Thus, the fear of missing out on a sale increases the impulse to buy.

In his book “Influence,” social psychologist Robert Cialdini describes a study of the effect of time limits on shopping behavior. Researchers found that when the length of a sale was limited, participants bought three times as much as they did when there was no time limit. Telling participants that only a few people knew about the sale increased this effect on shopping behavior. Limiting how long the deal was available, and how many people knew about it, caused shoppers to buy six times as much.

3. Avoid inviting customers to comparison-shop. We see it all the time: “Compare our prices to the name brand.” But this can easily backfire. Shoppers can decide that the no-name brand is riskier and the name brand is safer. In a 2005 study, Itmar Simonson, Sebastian S. Kresge Professor of Marketing at Stanford GSB, found that negatives weigh more heavily on shopping behavior than positive advantages. In one of Simonson’s examples, a camera retailer asked shoppers to compare low-end, mid-range and high-end cameras. The shoppers  chose the mid-range camera. The study also reported that asking shoppers to compare in online auctions caused them to deliberate more, wait longer and make fewer bids.

4. Offer more product for the same price. People prefer getting 50 percent more of something for the same price than saving 33 percent – even though the unit price is exactly the same. Most consumers perceive a 33 percent price discount and 33 percent more quantity as the same value proposition, according to one study by the Journal of Marketing. But the discount price is the better value. This is a textbook example of irrational shopping behavior, because more quantity has a higher price-per-unit.

5. Give multiple discounts. People are more likely to buy when you offer an additional 25 percent off on top of a 20 percent discount, instead of a single 40 percent discount – even though both add up to the same dollar amount.

6. Give percent discounts instead of dollar discounts. A larger percentage discount influences shopping behavior more than an absolute dollar discount. For example, 10 percent off a $100 product will be perceived as more valuable than $10 off a $20 product.

7. Take advantage of ‘Free.’ Shoppers are more likely to respond to a price reduction from $1 to free, than from $2 to $1 – even though the dollar decrease is exactly the same, according to behavioral economist Dan Ariely.

Discount8. Use “Get” for promotion-focused shoppers, and “Save” for prevention-focused shoppers. Research shows that words used in a promotion – “get” vs. “save” – affects shopping behavior differently. Some shoppers are more focused on avoiding loss – prevention-focused – while others focus on gaining advantage – promotion-focused – reports Psychology Today blogger Alain Samson. This is called ‘regulatory focus.” Shoppers are more likely to respond to an offer when the message matches their regulatory focus. When there’s a fit, shoppers buy more in general – not just the discounted items.

Promotion-focused shoppers are more likely to respond to an opportunity to “Get $1.” The opportunity to “Save $1″ appeals to prevention-focused shoppers. Regulatory focus can change depending on the situation and a person’s state of mind.

chocolate9. Use “Get $ off” for indulgences such as chocolate. When the product is a treat instead of a necessity –  ‘hedonic’ products – offering dollars-off has a more positive effect on shopping behavior.

10. Use “get” or “buy” for new customers. Samson also reports that using “get” or “buy” is most persuasive to shoppers without established buying routines.

canstockphoto954263911. Sell “time.” A 2009 Stanford research study found that shoppers appreciate time — sometimes more than money. This is because time is a scarcer resource than money, and “time says so much more about who we are.” Messages that empahsize the value of time significantly affected shopping behavior — attracting more engagement and favorable opinions on the product than an emphasis on money.

12. Place expensive products next to discounted ones. When Williams-Sonoma showed a $279 breadmaker next to $429 appliance, sales of the cheaper model doubled – even though practically nobody bought the higher priced item. Positioning a product next to a nearly identical but twice-as-expensive one makes the cheaper item look like a gotta-have-it bargain, says author William Poundstone in his book “Priceless.” Because we often don’t know the real cost or value of many things, we look for cues that will tell us. Differences in price tell the story – the cheaper breadmaker is 40 percent less than the other model – and provide a basis for buying – it was a great deal!

13. Take 1-cent off whole number prices. We’ve all seen these prices: $9.99, $19.99, $199.99. But why? Those 1-cent off prices are called “charm pricing.” We perceive the lower number and round down to the next unit rather than up to the closer one. Thus, you perceive the price of a $1.99 pack of pencils as $1, not $2, even though the price closer to $2. We’ll go out of our way for perceived “deals” like this to get the dopamine reward I spoke about earlier.

In “Priceless” psychologist William Poundstone dissects eight different studies on the effect of charm prices on shopping behavior. He found that, on average, they increased sales by 24 percent over their nearby items at a ’round’ price point.

However, shopping behavior changes when sale prices emphasize the undiscounted ones. Then buyers are more likely to choose the “round’ sale price over the ‘9’ price in a split test,  In the image below, the $40 reduced price won over the undiscounted $39:

reduced price

In this case an even number has more impact on shopping behavior even though it’s the higher price. However, combining $39 with a price reduction beats an undiscounted $39:

discount with 9

14. Don’t Let Discounts Become the “Real” Price. Unless your business is discounting, too many discounts may let customers get used to not paying full price for anything in your store. Your price integrity will erode. Unconsciously, a sale price is a statement of what  shoppers should really pay for something. So why would shoppers believe your full price if they know there will always be a big sale?

15. Don’t Compete Just on Price: Is price really your only advantage? Even retailers that are synonymous with discounting promote other features such as selection, style, or special services. The original designer outlet, Loehmann’s had good insight into irrational shopping behavior. The store cut the labels off its heavily discounted designer clothing. That made a trip to Loehmann’s into a competitive adventure. Shoppers not only got deals that they could brag about. They also took home the feeling of superiority that comes from the ability to distinguish between a $1,000 Chanel suit with a $100 price tag and a $200 suit selling for $100.

Don’t let your differentiation and positioning have a negative effect on shopping behavior. Your product’s perceived effectiveness will be reduced. This is especially true for cosmetics, prescription drugs, and over-the-counter health products. This Nielsen survey shows that shoppers actually favor value – bigger, higher quality – over price.

In summary, there’s no shortage of research in the psychology of pricing and discounting on shopping behavior. I’ve just skimmed the surface here. Of course, as with any marketing tool, the foundation is clarity about your target customer and your value proposition.

If you’re a discount supermarket, your customers expect to see a prominent list of weekly specials. Even if those discounts are only a few cents, as we saw, shoppers are more likely to buy and buy more – two loaves of artisan bread for $6.79, instead of 1 for $3.49.

If you’re a high-end specialty grocer, your shoppers expect an experience – not just artisan bread, but getting to know about the baker who made it, the recipe she uses, and her special technique. Your discounting strategy is “this week only” it’s on sale for $6.79 – instead of $6.95 – a loaf.

What discounting strategies have you tried? How have they affected shopping bahavior?