Psychology of Discounts in eCommerce: How to get more profits, not losses!

Have you ever wondered how a modest 10% discount can affect your profit? As a store owner, you know the importance of using discounts for Black Friday. But here's the thing... Do you actually know how to pull it off successfully? 

In this blog, we will describe circumstantially the psychology behind discounts and how to apply these discounts most effectively based on the fact. Interested? Let's get started!

 

Table of contents

         1. What is a discount?

         2. Psychologies under discounts

                 2.1. The Rule of 100

                 2.2. Scarcity and Urgency

                 2.3. Protect perceived value

                 2.4. Reciprocity

         3. Using SMS Marketing to deliver your discounts

         4. Discounts to boost sales, not shrink gains

Have you ever wondered how a modest 10% discount can affect your profit? Imagine you sell a product and make a 30% profit. If you offer a 10% discount, you'd need to sell 50% more to maintain the same level of profit.

As a store owner, you know the importance of using discounts for Black Friday. But here's the thing... Do you actually know how to pull it off successfully? Or are you just thinking, "Well, let's see... I'll slash the prices by around 40%, and I should still make some profit. It'll be a killer deal for Black Friday!"

If that shows exactly what you did, you are in the right place! This is not a general blog that tells you how many types of discounts there are. Go ask ChatGPT, or simply search on Google, they know better than us!

In this blog, we will describe circumstantially the psychology behind discounts and how to apply these discounts most effectively based on the fact. Interested? Let's get started!

What is a discount?

Before you think: “Such a silly question! Discount means cutting down the price, the lower the better!” Let's think deeper. Why do we find it necessary to lower prices? Does it genuinely make our product a more appealing offer, or are we simply sacrificing our profit margin?

 What is a Discount?

My dear, you're operating a business, not a charitable fund! So please bear that in mind, and continue with the fun part!

What discount types are suitable for you? And why?

Psychology #1: The Rule of 100

What is this psychology about? Let's make it simple in a picture!

The Rule of 100 in Discount Psychology

What types of discounts can be applied?

Percentage discount and Dollar value discount would be the most ideal type of discount applying the Rule of 100.

Consider this example: without doing the math, which scenario would be the most appealing discount to you?

Percentage Discount vs Dollar Value Discount

In the first option, we got 20% off for a $30 purchase. Tempting, right? In fact, in this situation, you only got $6 off. Option 2 gives us a better deal with $7 off. Let’s take a deeper look:

20% of $30 = $30 * 0.20 = $6

However, customers feel more attracted to the first deal than the second option.


Percentage Discount vs Dollar Value Discount

The same pattern holds true in this scenario too. Surprisingly enough, a 15% discount in deal number 1 actually brings more value to customers than $20 off. Let’s do a quick calculation:

 15% of $150 = $150 * 0.15 = $22.50

$22.50 is obviously a better deal than $20 off. But hey, let's be honest, that $20 off sure knows how to grab our attention and make us think it's the superior deal. Sneaky, sneaky!

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Psychology #2: Scarcity and Urgency

When scarcity and urgency join forces, they form a dynamic duo that triggers FOMO in customers. Suddenly, they're hit with a fear of missing out and feel an irresistible urge to act fast or risk losing out on something exciting. It constantly nudges you to stay connected and keep up with what everyone else is doing.

Scarcity and Urgency in Discount

What types of discounts can be applied?

  • Flash Sales: Quick, time-limited discounts.
  • Low Stock/Limited Inventory: Discounts due to scarcity.
  • Doorbuster Deals: Heavily discounted offers available for a limited time
  • Early Bird Discount: Reduced prices for early purchasers.

 

Types of discount applying FOMO effect

Psychology #3: Protect Perceived Value

How do you position your product? Is it positioned as a luxury item or a product found in a drugstore? It's important to note that not all products benefit from discounts, particularly high-end ones, as it can diminish their perceived value and brand image. You may feel fearful: "Does this mean I can never, ever participate in Black Friday? Are we unable to reduce prices since we are a high-end brand?". In fact, many brands out there even raise their prices to the highest during Black Friday. But hey, if you're dead set on showering your beloved customers with discounts, fear not! There are plenty of clever ways to make it happen and keep those wallets happy!


The discount decrease the perceived value of the product

What types of discounts can be applied? 

  • Limited and Exclusive Discounts: Offer time-limited or exclusive discounts to selected customers, maintaining exclusivity and creating a sense of privilege.
  • Value-Added Offers: Provide complimentary accessories, extended warranties, personalized services, or exclusive events as incentives instead of direct price discounts, enhancing perceived value.
  • Upgrade Offers: Give customers the chance to upgrade to a higher-end model or version for a slightly higher price, tapping into the desire for premium options without heavy discounts.

Psychology #4: Reciprocity

On a delightful Saturday afternoon, while strolling down the street, you encounter a kind-hearted woman who eagerly offers you a complimentary sample of a new snack. The offer is so enticing! As a gesture of appreciation, it is probable that you will feel inclined to purchase a complete pack as a way to reciprocate the kindness she showed you.

This is Reciprocity! People are more likely to make purchases when they feel they are getting something in return.

What is Reciprocity?

What types of discounts can be applied?

  • Buy One, Get One (BOGO): Offer a free item when a customer purchases a specific item, creating a sense of reciprocity.
  • Free Gift with Purchase: Provide a free gift as a way to reciprocate the customer's purchase.

SMS Marketing: The Ultimate Discount Delivery

To fully capitalize on the power of reciprocity and ensure your discounts reach customers effectively, SMS Marketing is the way to go. With its high open rates and immediate impact, text messages capture attention instantly. Personalize your offers and create a sense of urgency that drives immediate action. Engage in real-time conversations to build stronger relationships. Incorporate SMS Marketing into your Black Friday strategy and unleash the potential of direct communication to make this year's event a remarkable success.

SMS Marketing is the best way to send discounts

Discounts to boost sales, not shrink gains

So, as a store owner, you're probably well aware of the most crucial aspect of Black Friday - discounts! If this upcoming Black Friday is your first attempt, let's make it truly spectacular. And if you've already experienced it before, you know the drill and can handle it with ease now!

Here's a great idea for store owners: give SMS Marketing a try as an extra way to boost your sales. Text messages can be a powerful tool to maximize the impact of discounts. Not sure where to start? No worries! This beginner's guide will provide you with the necessary guidance. Let's make this Black Friday a remarkable success!

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