Art of Smart Discounting: Principles and Strategies
Art of Smart Discounting: Principles and Strategies
Price Psychology (Part 7) - Mastering the Art of Smart Discounting: Principles and Strategies
In the ever-changing world of business, discounting is a fundamental tactic used by companies to attract customers, create demand, and increase revenue. But discounting is more than just lowering prices; it involves a deep understanding of psychology, perception, and consumer behaviour. This in-depth investigation will examine the complex realm of discounting, analyzing different psychological concepts and tactical approaches used to maximize the efficiency of discounts and their influence on consumer choice.
1. The Subtraction Principle:
The subtraction principle, a fundamental strategy that directs how prices are presented to maximize their perceived value, is at the core of discounting.
This principle's main idea is to put the original price ahead of the sale price, which is usually positioned on after. By taking advantage of the natural human inclination to see bigger numbers first and smaller ones next, this arrangement increases the perceived size of the discount.
Example: First mentioning the original price of a laptop to be $100 and then mentioning the sale price of $50, highlights the $50 discount more and gives it a feeling of importance, attraction and noticeable effect, emphasizing the size of the reduction and encouraging customers to buy.
This principle however works only for moderate discounts, in case of very low or very high discounts the purchase likelihood increases if the sale price is shown before the original price.
2. The Ease of Computation Principle:
When it comes to discounting, consumer perception and response are significantly influenced by computation ease. Simplifying the computation procedure raises the discount's perceived value and improves customer perception.
Example:
The price difference between the original and the sale fits neatly into a round number, like $50, it's easy to understand and increases the perceived savings. On the other hand, in calculations involving complex numbers such as $47.65, the perceived difference might seem smaller, which could potentially undermine the discount's perceived value.
Another example, lets say in scenario 1, the price of product A is $34.99 and product B is $45.00, here its easier for the customers to calculate the difference and hence they choose product A. However, in scenario 2, the price of product A is $34.99 and product B is $45.68, here its difficult for the customers to calculate the difference and the perceived value hence they end up choosing product B.
Discounts can, therefore, be presented in a way that makes them easy to calculate, which helps businesses increase their attractiveness and effectiveness.
3. Percentage vs. Numeric Discounts:
The manner in which discounts are expressed—whether in percentage terms or numeric values—plays a crucial role in shaping consumer perception and understanding.
For lower-priced products, articulating discounts in percentage terms proves particularly effective, as it highlights the proportion of savings relative to the original price. This approach not only simplifies comparison across different price points but also underscores the value proposition inherent in the discount.
Example: Giving a discount of $10 on a product priced at $30 gives a higher percentage of discount (33.3%) when compared with giving a $10 discount on a product priced at $300 (3%). Hence, in this case percentage should be used as a hook to attract customers.
Conversely, for higher-priced items, conveying discounts in numeric terms resonates more profoundly with consumers, as it provides a tangible representation of the actual amount saved, thereby facilitating clearer comprehension and evaluation.
Example: For higher prices like $300, promoting the offer to be “$30 off” would attract more customers than promoting an offer of “10% off”. Even though both are of same value, customers have a higher likelihood to purchase of the in the first case.
4. Relative Size and Verbal Matching Effects:
Visual cues wield considerable influence over consumer perception, and leveraging them strategically can significantly enhance the perceived value of discounts. The relative size effect entails rendering the sale price visually smaller than the original price, often achieved through adjustments in font size. By visually diminishing the sale price, businesses accentuate the magnitude of the discount, instilling a sense of value and appeal. This comes from the congruency principle where “Small” means “Low price”.
Example: Let $199 be the sale price and $299 be the original price. So, $199 should be displayed smaller in size than the original price of $299. This gives the perception of better value and has a greater likelihood of purchase.
Similarly, the verbal matching effect emphasizes the importance of linguistic cues in reinforcing the perception of discounts. By associating the sale price with words connoting smallness or low value—such as "discounted," "savings," “low”, or "value"—businesses can further reinforce the notion of a compelling offer, thereby augmenting its allure and desirability.