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Cognitive bias

7 Powerful Cognitive Biases in Discounts to Quadruple your sales (The last one will blow your mind)
(8 min read)

Why every company provides discounts? A discount campaign can bring a lot of profit, but do you know why some discounts work better than others? The answer: Marketing Psychology principles aka "cognitive biases".

Marketers use a lot of tricks to attract their customers. Discounts are one of them. How to use them effectively? Let's have a look, shall we?

1. Zero Price Effect

When customers pay for something, they calculate the risks of any dissatisfaction they might get from that product.

They have no expectations of free products and can even value them higher, compared to more expensive goods.

There was an experiment in 2007 showing how the $0 price effect customer choices. Participants were divided into two groups:

  1. one would have to choose between a bar of chocolate that cost 1c and a 14c truffle. 
  2. The other group decided between the same products but the low-quality one was offered free and the truffle was for 13c.
  1. The first group chose a higher-quality product over the cheap one.
  2. The second group chose free, low-quality product over the higher-quality truffle.

60% of e-commerce companies cite “free shipping with conditions” as their most successful marketing tool, finding that many customers would rather get free shipping (e.g., a $6.99 value) over a discount that saves them $10 on their purchase.

2. Anchoring Bias

Anchoring bias is a cognitive bias that causes us to rely too heavily on the first piece of information we are given about a topic.

When we are setting plans or making estimates about something, we interpret newer information from the reference point of our anchor, instead of seeing it objectively.


For example, to apply the anchoring bias, give the original price of a product/service, and then cross it out. The customers will see how much they gain with that particular discount.
 
For example: “Yesterday: $500. Now: $250” (by the way, mind it that “now” is more dynamic than “today”, too).
 
Giving the new, smaller price right next to the old, bigger one makes it look more attractive.

3. Motivating-Uncertainty Effect

Motivating-Uncertainty Effect says that we are more motivated to reach a goal with an uncertain reward than the one with a fixed reward.

Its variation is also known as "variable rewards" (the concept created by Nir Eyal).

When rewards are highly variable, our brains are overtaken by dopamine and relentlessly search for their next reward.

There was a research that showed that people are much more likely to be stimulated by the unknown prize, tha by the known one.
This is how it looked:
A task: Drink a large amount of water within 2 minutes

2 groups:

  • Group A was told to receive $2 if they completed the task
  • Group B was told to receive either $1 or $2 randomly
  • Group A: 43% completed
  • Group B: 70% completed

That's the 63% increase in the uncertain reward!

Instead of offering a certain discount (e.g. 30% OFF at the checkout), give an uncertain price cut (e.g. 20% - 40% OFF at the checkout).

4. Scarcity

Scarcity in marketing means using the fear of limited supply to sell more.

Scarcity can also increase the perceived value of the item or service you're providing.

There was a research done on a group of 200 female undergraduates. They rated the attractiveness of cookies as abundant or scarce supply.

  • In scarce supply, cookies were considered more desirable than in the abundant supply condition. 
  • They were also considered more valuable when they went from abundant to scarce, than when they were constantly scarce.
  • The cookies scarce due to high demand were rated higher than when they were scarce accidentally.


Flash sales
Flash sales with a limited amount of discounted stock work like magic.

Stepping stones pricing
When launching, create scarcity, providing a few stepping stones price layers.

Example:

  • $39 - 17/50 left in stock
  • $49 - 100/100 left in stock
  • $69 - 100/100 left in stock

5. Foot-In-The-Door Technique

The foot-in-the-door technique assumes that agreeing to a small request increases the likelihood of agreeing to a second, larger request.

Initially, you make a small request and once the person agrees to this they find it more difficult to refuse a bigger one.


There was a study in which researchers asked participants to put a small sticker promoting safe driving on their car window or a small sticker on their house about keeping California clean.

Two weeks later, they were asked to put a large safe-driving sign on their car or a large "keep California clean" sign in front of their house. Many people who agreed to the first request, agreed to the second one. Even though it was far more intrusive.

Up-sells

  • Offer completentary products before and during the checkout.
  • After the person already purchased, on the "Thank you" page include the information of another product that might be of interest of your customer.
  • Because the person has already invested in your product she/he will be more likely to buy again.

6. Bottom-Dollar Effect

We are less satisfied with our purchases if it causes a strain on our finances.

The bottom-dollar effect occurs for purchases that deplete our remaining budget. That can be for any purchase made near the end of our paycheque funds but can also occur when a purchase diminishes our allocated budget for a particular type of activity or product.

Timing
Reach out to your potential customers at the beginning of the month, when the consumer's budget is less likely to be exhausted.


Discounts
Offer discounts at the end of the month when the consumer's budget is more likely to be exhausted.


Offer geolocated discounts
Not everyone earns a US salary.
Offer your customers a discount based on their location and enable everyone a fair chance online.

7. Inaction Inertia Effect

Missing an offer once means you're less likely to buy from the same or similar offer in the future.

Constant discounts suggest that in fact, your product isn't as valuable as you tend to tell people.

People that have missed your discounts several times have probably a different perspective on your product value than you.

To prevent that from happening be specific to whom you're offering a discount. Don't send the same discount twice or more to the same group of people within the short span of time (a month).

Strategize your discounts
Short term gains are cool, but have you ever implemented a long-term pricing strategy?

You don't want to lose your potential clients due toyour SPAM.


Customized discounts
Every person is different. The same offer won't work for everyone.

Create an email sequence that will split your contacts into specific groups. Then create a specific offer for every group.

? There’s more…

Those were only some of the most popular biases useful in discounts. There are many more of such phenomena out there. It is good to have that knowledge to make yourself more successful in the market. Making your products attractive is important for business, so it’s good to have such tools at your disposal.

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