The Psychology of Discounts: Top 5 Studies on How to Discount CORRECTLY

If you're reading this post, I'm going to assume 3 things about you:

1. You might not be a giant psychology nerd like me, 😂 but I bet you dabble in marketing, advertising, or sales.
2. If you dabble in marketing, advertising, or sales, you probably run discounts.
3. And if you run discounts I'm assuming they usually end in a 7 or a 9 because that's what works...right?

If I'm on the right track here, good news - you're gonna love today's newsletter! Because today I'm going to show you what science has to say about discounting correctly and how to use psychology within your discounts so you can sell more with science.

How to Properly Build a $.99 Discount

Almost every brand I've ever worked with runs their discounts with a $.99 ending (or sometimes $.97)...but is that really the best way to do it? Should you use a $.99 discount? Or is there a better, more effective way to communicate the value you're offering?

​There's a ton of research behind the neuroscience of 7 and 9 (I can do a newsletter on this if you guys are interested), but according to the science, there's one simple hack that can boost the performance of any discount ending in $.99:

​$.99 discounts are actually more effective when displayed next to the original price.​

This works because people need context to decide what's worth spending energy on..and it's crazy easy to implement (especially in your ads).

Whenever you run a discount with a $.99 ending, just slap the original price next to the discount and you're good to go.

Keep Your Discount Endings Consistent

Humans are weird, and numbers affect us in strange ways...which is why this next discount hack has me like 🤯.

I see a lot of brands dropping their prices by 20-, 30-, or 40%, but very few brands seem to spend much time on the psychological effect of the resulting number.

For example: discounting an $82.94 product by 40% = $49.76

Not a bad deal, but unfortunately there's some heavy cognitive load going on here.

It's incredibly difficult for the brain to do the mental math between these two numbers which makes this discount much less likely to be easily accepted during the checkout process.

If the mental math is too hard for customers to calculate, it creates a high amount of a cognitive load during checkout. High cognitive load = one stressed out customer.

And a stressed customer is a lost customer.

To fix this and make this price drop even more effective:

​Keep your endings consistent with the ending of the original price. This will boost efficiency of your discounts and get people to buy more.

• Instead of displaying: $82.94 - NOW $49.76!
• Try displaying: $82.94 - NOW $49.94!

Customers can do this mental math easily which makes the resulting discount much easier to process, and much easier to accept.

When to NOT Use $.99 in Your Discount

Oddly enough, it's not just the number that affects the performance of your discount. The type of product you're discounting comes heavily into play here as well.

Knowing when to use whole numbers (like $20) instead of complex numbers (like $19.99) when discounting is key.

Marketing gurus will teach you that a $42.99 discount will probably sell better than a $43 one...but this is not always the case (depending on your product).

Luckily there's a simple way to remember when to use whole numbers and when to use complex ones:

​According to science, whole number discounts - like $20 - work best for "hedonic" products (products built for pleasure like candles, blankets, or chocolates).
​
Non-rounded discounts - like $19.99 - work better for utilitarian products (like shampoo, supplements, or headphones.)

This works because "hedonic" (pleasure-focused) products tend to be purchased as a treat/reward, so simple pricing isn't a deterrent and usually works best. Utilitarian products tend to be purchased often and in bulk however, which makes complex pricing expected.

When to Use % Off Versus $ Off

Wanna boost your sales by up to 42.3%? Easy.

Just use this next discount hack...

When it comes to discounts, maximizing profit while giving customers the deal they want is the entire game. It's a delicate balance to try and create, but if you really want to build your offers for maximum profit + maximum customer satisfaction, here's what you should do:

​Use a % off discount when it can be applied to every product in your store. Use a $ off discount when dropping the price of specific products.​

For example:

• If you're discounting site-wide, use a % discount: Get 40% Off Site-wide!
• If you're discounting individual products, use a $ discount: Get $40 Off!

The science is clear here - the easier the information is to process, the faster/easier the discount will work. It's a win for both us and our customers.

Stop Saying "Get 20% Off"... Do This Instead

I got a ton of comments when I posted this hack on Twitter last week (both positive and negative 😅) but alas, the science still stands...

If you want your discounts to work and work well, you MUST frame them correctly. According to the research:

​Discounts appear larger when framing them from the discount up (i.e.: "Was 20% higher!") than from the original price down (i.e.:"Get 20$ off!)​

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There's quite a lot of good discussion around this one if you want to read the tweet comments.

And if one of you wants to test this and report back to the group, let me know!

TLDR; While there will always be some nuance to discounting, there are science-backed ways to properly structure your discounts so customers will not only understand them better, but accept them more readily and be more satisfied after purchase.

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