Conversion Rate Optimization

Discounts and Customer Psychology: Here is What You Need to Know

Consumers now want to get more value for their money in the wake of rising inflation. Therefore, brands need to give out discounts to give customers more value for their purchases. They need to use relevant promotional strategies and tactics to gain the customers' attention. 

Why Do Customers Find Discounts Appealing? 

Online eCommerce has seen rapid growth in the last couple of years. Brands have looked for tactics, such as giving away discounts, to increase their customer loyalty. Today, most Americans consider themselves "deal seekers." It means that the price is the most critical factor when buying goods and services. 

Therefore, almost every other brand leverages the discount strategy to attract and retain more customers. They use psychology-backed discounts that will help them get new customers while retaining old ones. 

The Psychology of Discounts

Coca-Cola was the first brand to introduce the concept of discounts back in 1887. Since then, discounts have become an integral part of the retail industry. Most importantly, it brings down the cart abandonment rate. 

Impact of Discount Strategies on Customer Behavior

Discounts are a critical factor like the cost of goods sold, demand and supply, competitor's pricing, etc., that will impact consumers buying decisions. Marketers can use different kinds of discounts to get a competitive edge over others. 

Flash sales

This discount strategy focuses on giving customers discounts for a very short period. It focuses on taking advantage of the consumers' fear of missing out (FOMO), which means they'll have a sense of urgency to avail of the discount, which can lead to impulse buying. 

Buy One, Get One (BOGO)

The BOGO discount strategy operates on the premise of irrational consumers and their decision-making process. Behavioral economist Dan Ariely explains in his strategy how people in two groups were offered different options. They could either get a $10 gift card for free or get a $20 gift card at the price of $7. 

Most people chose the first option even though the second one offered more value. Brands can use the BOGO strategy creatively to incentivize their customers. Brands can either give consumers a Buy 1, Get 1 Free offer or offer more creative offers. 

First-time Customer Discounts

If you want to leave a lasting impression, then first-time customer discounts are the best way to do it. It allows new shoppers to stay on your website for a longer time, all while increasing your conversion rate. 

Tiered Discounts

In this discount model, the brands sell the goods and services in a specific price range. The buyers can reach certain tiers to enjoy different prices. This option is suitable for customers who spend a lot with your brand and can help you enhance the CLV (customer lifetime value)

You can also bundle up tiered discounts with first-time customer discounts. For instance, if a customer is new, you can offer them a discount on their first order, but only if the order is above $100. 

Issues with Discounts

eCommerce merchants understand how discount strategies can help them bring in customers and retain old ones. While it might motivate consumers to buy more, downplaying the disadvantage of discounts can negatively impact your brand. So, if you rely on excessive discounts, then it can lead to the following disadvantages: 

  • Weakens brand perception: Giving away regular discounts can weaken a brand's perception in the market. Consumers would believe that lower prices mean the quality and reliability of the product is not up to a certain standard. Moreover, it would create a perception that your regular price is inflated compared to the discounted price. 
  • Impacts profit: Discount pricing means that you will have to take a hit on your margins. As a result, your gross and net profit margins will decrease over time. 
  • No control over codes: While online retailers only offer discounts on particular items for a certain period, they can find it difficult to control their distribution. Coupons and cashback extensions are an ideal way for shoppers to find discounts. These extensions scrape codes from a website and make the discounts available to everyone. 

How to Combat the Dark Side of the Discounts

Discounts remain one of the best ways to capture your target audience's attention, but you cannot rely on them too often. Ideally, it is best to understand consumer buying habits in real-time and present them with 1:1 messages. It will increase your conversion rates and bring down the cart abandonment rates. 

It is also an optimal way to understand why customers are leaving your website. By having a better idea about your consumer's buying habits and building a 1:1 messaging strategy, you can easily increase your sales. 

That is where Conversion Guard's 1:1 messaging solution comes into play. It helps you find opportunities to increase your conversion rate and delivers an optimum message to your customers. With Conversion Guard, e-commerce stores can:

  • Compete with rival stores 
  • Manage customer expectations
  • Get more revenue from your current traffic 
  • Protect your margins

Discover a better way to increase E-commerce revenue