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There are six bags of rice in my pantry. Much as I love rice, I know it’s going to take us months to go through them. That’s OK — they’re “best before June 2024″.
Why would I buy six bags of rice, you ask? It’s pretty obvious: I “caught” a very good deal on them. I caught it, so it feels like I worked for it. That gave me more agency than my usual grocery shopping. It made me feel that, with a single purchase, I could make a significant difference in my spending (spoiler alert: I didn’t but it still made me feel good).
This is the first reason why discounts work like a charm.
Let’s look at a few others.
Why do discounts work so damn well? The psychology of discounts
FOMO (Fear Of Missing Out) is the main driver for our passion for discounts. If we see a discounted item, it’s hard to leave it on the shelf — it feels like we’re missing out on a great opportunity. No one wants to miss out on opportunities, right?
The Pleasure Principle states that people instinctively look for pleasure and avoid pain.
It is all about pleasure: the hedonic feeling of shopping (the pleasure we get when we buy things we like) is significantly enhanced when those products are discounted.
There are dozens of studies like this one that show the same thing: when shopping at a discount, our oxytocin (the hormone linked to happiness and love) spikes. It spikes even more than when we receive a gift.
Isn’t that weird? The gift is 100% free, yet we prefer discounts. That’s the sense of agency at play for you — we don’t have a say in picking a gift but we do have a say in finding a discount and acting upon it.
Since we are inherently pleasure chasers, it’s no wonder that:
- 67% of shoppers have made an unplanned purchase just because they got a discount.
- 4 in 5 consumers will try out a new brand if it offers them a discount.
- 69% of millennials always search for a discount or a coupon before they make a purchase. [Source]
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If everyone loves discounts so much, should we all start offering them as often as possible? Not so fast!
The dark side of discounts
The stats above are encouraging: give a discount to get people to try your brand or make an unplanned purchase because that seems to work for nearly everyone. True, but if you do that:
- You’ve anchored the buyers to your discounted price: this is the value they now perceive for your product.
- They won’t buy from you again until you offer another discount.
- Discount your products too often and you’ll be the Walmart of your industry. No one buys for the quality or value of the products but for the oxytocin spike they get because they got a good deal.
So how do you do discounts right? First, the technical aspects, then the nitty-gritty of when and how to do it:
This is how you create discounts for maximum impact
Not all discounts are created equal.
The rule of 100: choose whichever number is bigger
- A percentage discount is more attractive if the price is under $100. 10% off a $50 jacket is more appealing than $5 off, even if they’re essentially the same thing.
- A dollar-off discount is more attractive if the item is over $100. For a $1000 bag, shoppers prefer to save $200 than 20%.
Use price anchoring
Don’t just tell buyers something is 20% off. Show them the initial price, then the discounted one — the latter in smaller fonts. This is price anchoring; you build an anchor to the old, higher price and encourage buyers to take advantage of the discount. They need to see the higher price to better perceive the value of the discount.
FOMO is a powerful motivator
Most discount campaigns have a set duration. This encourages shoppers to take advantage of the price (and get their oxytocin hit) while it lasts. Phrases like:
- 24 hours left to enjoy 40% off everything
- Only 4 seats left at this price
- Offer expires tomorrow
- First 5 buyers get 15% off
are designed to speed up the decision-making process. We all buy primarily with emotions, not logic. When faced with FOMO-inducing verbiage, almost all the logic involved in buying decisions is gone.
So use this sparingly. Don’t abuse it!
Yes, buyers like oxytocin and dopamine hits BUT no one can live in a perpetual state of over-excitement.
More importantly, using FOMO every month or every week depletes its power. People catch on, you know. They catch on that your “once-in-a-lifetime opportunity” happens once a month. So they postpone the purchase until they’re fed up with the same lazy tactic.
The smart way to do discounts: dos and don’ts
How do you know if should offer a discount on your product or service? Well, it depends — this is the most common answer to any marketing question for a reason: we’re not dealing with an exact science. Also, context matters more than you think.
There are a few rules of thumb that can guide you to finding the answer to your question:
Why offer a discount in the first place?
No, seriously, have you asked yourself this before offering a discount? Do you have a reason that’s better than “people buy more when they see discounts”?
You should. It could be:
- You want to get rid of what you have in stock (for physical items)
- You need cash fast
- It’s Black Friday, when all bets (and all common sense) is off
- You want to reward loyal customers
- You want to attract new customers (be careful with this one!)
- The economic context: due to inflation, your audience doesn’t afford your products anymore (a couple of links at the end of this email support this reason).
Thus far, I only offered discounts on my products once, on my birthday, which coincided with the newsletter’s 6-month anniversary. My “why” was celebrating these milestones with my subscribers.
Borrow a page from retailers’ manual
Retail is THE industry that nails discounts. If you zoom out, you’ll see that, aside from huge shopping events like Black Friday, they have a few good reasons to offer discounts, as well as perfect timing:
- New collections are rarely discounted (think of this if you plan to launch a product with a massive discount)
- Discounts are most common at the end of the season or when products are obsolete (i.e. Christmas decorations are much cheaper after December 25th, summer clothing is cheaper at the end of summer, not at the beginning)
- New clients get discounts off the entire order, not specific items, precisely because retailers know better than to cheapen their newly-launched products/collections.
- If something nears its expiration date, it gets discounted.
- Premium products rarely get discounts but occasionally get bundled up with other items.
With this in mind, let’s look at online products and services:
Don’t: offer a discount on a digital product when you launch it
It’s new, it’s exciting, it’s valuable — that should be enough to get sales for a brand-new digital product (PDFs, guidebooks, eBooks, pre-recorded courses). Leave the discounts for later on, when you’ve already reached most of your potential buyers.
More importantly, if a digital product gets a discount right at launch, the discounted price will be the new anchor.
The initial anchor was $50, now it’s $25 in perpetuity — or at least until you discount it again.
Exception 1: you want to have a massive 5- or 6- figure launch to brag about and you understand that sales will decline massively as soon as the discount is no longer available.
Exception 2: you’re reasonably confident you can attract brand-new audiences to your product i.e. audiences that haven’t seen your discounted launch and, thus, aren’t anchored to the lower price.
If you want a one-and-done, do a launch discount. If you want an evergreen product that will sell for years, don’t.
Another word of caution: I’ve seen people launch $50 products, slash the price at $25 AND offer a few bonuses on top, like a 1:1 consult, an Amazon coupon, a Starbucks coupon, and a few other irrelevant things.
Seriously, don’t! It screams lack of confidence in your own product.
Do: offer a launch discount for live events
Webinars, cohort-based programs, workshops, in-person or offline events are great candidates for launch discounts. What makes them different from digital products?
You want to fill the first seats FAST. This way, you’ll have proof of how in-demand your event is and you can use that proof to sell the rest of the seats.
Plus, your audience is accustomed to this type of discount thanks to the concert industry.
Don’t: overdo the bundles and bonuses
$100 course with $3,000 worth of bonuses — I’m sure you’ve seen them in the wild.
Why?
Why not sell the $3,000 bonuses if they’re so great?
Also: who valued those bonuses at $3,000?
You’ll often find that these bonuses are nowhere else to be found, so they don’t have an objective value. Since no one paid $3000 for them, are they really worth $3,000?
This approach is incredibly common in the course industry and it used to work like a charm. These days, customers got smarter and more accustomed to the tactic. So they ask the same questions I did.
A better approach:
- Keep offering bonuses (they’re attractive!) but keep their value under that of the initial offer — i.e. $100 course with $80 bonuses.
- Want to offer more expensive bonuses? Cool, but explain how you calculate that value.
- Avoid overwhelm: don’t send hundreds of pages of “bonus” items for a 2-hour long course. They’re not going to use them.
Don’t: discount your services too often
Buyers understand digital products have high margins, so you can afford to discount them, especially if they’ve already brought in decent revenue. Services imply your ongoing work. When you discount them, you discount your own value.
So do it sparingly and with good reason:
- No more than thrice a year
- Ideally for loyal customers only, as a bonus. Personal example: I promised to never share discount codes outside of my email list. No one other than you, my subscribers has access to them.
- Beware of your margins!
If you want to increase the perceived value of your services, you can always add a tiny bonus.
Finally, please remember that discounts are like a powerful weapon: used wrongly or in the wrong hands, they can do more harm than good.
I know you want more sales (we all do!) but turning your brand into the Walmart of your industry is not the way to go about it. The reverse is true as well: don’t hold on to your prices for dear life. Even premium brands offer discounts every once in a while so don’t worry too much about cheapening your brand.
That’s it from me today!
Until next week,
Cheers to finding that elusive balance!
Here to make you think,
Adriana
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Adriana’s Picks
- Google Chrome can now summarize entire articles for you with built-in generative AI.
- Are you rich 🤑? 25% of Americans making at least $175K/year said they were “very poor”, “poor”, or “getting by but things are hard”.
- 92% of mid-income US consumers cut back on spending due to inflation. Europeans, too.
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