15 March 2018
Incentives that persuade us to buy are all around us, and none more obvious than price promotions. If a brand wants to get a certain product more attention on the shelf, then working with retailers to offer discounts is the obvious tactic.
But it has its drawbacks. Not every brand is content with attracting serial bargain-hunters over long-term customers. Or with the prospect of customers coming to expect the discounted price permanently.
So what are the pros and cons of using price to entice? And how do they stack up against those of other promotional tactics?
So what are the key advantages and disadvantages of lowering prices to attract shoppers?
PRO: Impulse buying
On average, people spend one minute in a supermarket aisle interacting with six categories and forty brands. That’s 0.4 seconds of consideration on each brand – barely time to read a can of beans!
So there needs to be something that puts one brand over another obviously and quickly, especially as 50%-80% of sales are made up of impulse purchases. That little yellow discount sticker can make all the difference…
It makes sense to focus promotions on those few seconds of consideration, as that is where people finally decide what goes in the basket and what stays on the shelves. This behaviour is the result of stimulus-response. Consumers see a lower price and respond to it by buying that brand over another.
That chocolate bar is 50% off? Sold!
PRO: Manipulation mathematics
Consumers don’t like doing the maths to work out what the better deal is, and you can’t blame them. Because of this, wording is especially important. Studies have shown that people prefer offers such as ‘33% extra free’ over ‘33% off’, even if the latter is the better deal.
This is a chance for discounts to be framed in a different way and appear more appealing to shoppers. Discounts aren’t limited to one way of working and can manipulate the consumer’s way of thinking.
CON: Short-term gain, long-term pain
The fact is that many discount promotions are followed by a dip or plateau. When consumers return to a supermarket and face the same decisions to buy again, they’re hit with ‘sticker shock’ They expect to find an item on discount and end up disappointed when it’s back at regular price.
Apart from the need to shift surplus stock, the decision to discount on price is typically taken to drive an uplift in sales. But as Mark Ritson points out:
“…when you cut your prices by 10%, while you might increase sales volumes by 20%, you probably reduce your net profit by around 40%.“
Coupons are another way to stand out in an overwhelming array of products. They instantly give an incentive to buy as well as bringing awareness to a brand. But are they just another form of discounting?
PRO: Smiley happy people
Coupons make people happy. No, really. Studies in the US show that those who received a $10 coupon had a 38% rise in oxytocin, compared to those who didn’t. Whether they cash it in or not, consumers will make a mental connection between the two concepts: positive feeling and brand.
After that interaction, 91% of coupon users say they visit the relevant retailer again after they were offered the coupon.
There’s evidence that suggests people will even pay more if they’ve used a coupon to do it. It comes down to power. By redeeming the coupon, they’ve had control over their discount, nurturing the ‘smart shopper feelings’. The excitement of using it and getting a better deal than fellow shoppers outweighs the actual savings.
PRO: Try before you buy (at full price)
80% of consumers will try a new brand if they have a coupon for it. If a consumer doesn’t recognise a brand, it’s a risk for them as they have no real idea whether it’s good or not.
A coupon gives them the chance to try a product, as they want to make use of the coupon and can therefore justify the purchase to themselves.
PRO: Going mobile
With growing technology and the constant use of smart phones, coupons can be employed even more easily. Rather than flicking through various newspapers and magazines for hours on end, people can directly search for one type of coupon in-store.
31 billion eCoupons will be redeemed worldwide in 2019. That’s a whole lot of cashing in. If it’s even easier to make people happy, then it makes sense to do it. Boost those oxytocin levels!
CON: The price of loyalty
It’s not all sunshine and oxytocin, though. The problems with coupons arises with when they’re directed at loyal customers. Sending a coupon to a regular buyer suggests that the product they usually pay full price for has a lower value. When the price inevitably returns to full price, they’ll feel as if the lowered price is the new acceptable price.
It’s also largely pointless as many would probably have paid full price anyway.
Coupons can create a new loyal customer base, but they need to be executed appropriately with existing buyers. Or not at all.
Not keen to drop your prices to acquire new customers? Sampling can be an effective way to get consumer to switch brands. They may be reluctant to pay to try something new, but when it’s free then the risk is all but eliminated.
PRO: No commitment
One of the top factors in the perceptions of a risk is trust. A relationship is created by handing out the sample, people are now open and willing to try the new brand as they have established trust towards them.
Taking a sample and trying it doesn’t take any commitment or investment on the consumers behalf so they don’t feel pressured.
PRO: Positive vibes
So, yes, free items are financially a good idea for the consumer, but there’s a deeper level of emotion which makes people so susceptible to free things. Everything tastes better when it’s free, right? This is because here people’s brains go into an ‘affect heuristic’, a mental shortcut for making small decisions where they’re influenced by emotions.
Not only does it encourage people to try a new brand, it promotes that brand over its competitors. Even with numerous choices it seems people will almost always gravitate towards the free option, regardless of its actual worth.
PRO: Reciprocal psychology
One thing that follows the ‘magical spell of free’ concept is reciprocity. This is the basic human principle that if we get something, we give something back. The evolutionary aspect explains this as that when we give, nothing is lost. Society has formed from this through trading and respect. Evolution has taught us that when we’re given something, we return the offer.
If a brand gives a sample, evidence shows that consumers feel an obligation to reciprocate the nicety and buy their product. They are indebted to whoever gave them the free item. So, sampling can definitely be an effective way to boost sales. Costco, the American wholesale shop, says their notorious free samples can boost sales by 2000%.
CON: Modern cynicism
One problem that arises with sampling is that consumers today are more cynical than they used to be. Brands need to be particularly cautious when handing out samples in exchange for details, as this can be seen to negate the ‘free’ element of the activity.
We have overcome this hurdle for our clients by using their samples as prizes in game-based competitions. Participants complete a challenge and win a free product, then they submit their details for it to be mailed out. There are fulfilment costs to be considered here, but if the objective is to obtain good quality data on engaged consumers then this is an effective option.
Impulse buying isn’t all about discounts. Consumers can be swayed at the shelf by a compelling on-pack offer.
PRO: Persuade without price-dropping
Discounts are over-done, and they have certain negative impacts as we’ve discussed. The point of purchase is clearly an important factor in the decision-making process, however. To stand out amongst competitors, brands need something that sets them apart and on-pack promotions can do this. They give an incentive to pick one product over another.
This can make them a powerful tool in breaking a consumer’s usual brand loyalty. Something they wouldn’t do without that on-pack encouragement.
CON: The wrong crowd?
One problem with on-pack promotions is that consumers aren’t buying based on the value of the product, but rather the value of the incentive. Often they appeal to people who like free stuff or competitions, rather than those interested in trying a new product.
Therefore the tactic relies heavily on consumers buying the product as a one-off and then liking it so much that they’ll switch to that brand. But if they’re driven by the promotional incentive, will they simply choose a different brand next time if that brand is running a similar promotion? Probably.
CON: The winner takes it all
‘Win a trip to New York!’
‘Win your own private Caribbean island!’
The drawback with such competition-based promotions is that the majority of those who enter won’t win. False hope and disappointment are hardly the kinds of sentiment that brands should be looking to elicit amongst consumers, especially the less savvy ones who might feel they’ve been hoodwinked into buying your product under false pretences.
Offering a series of smaller prizes with a better chance of winning is the logical way to run on-pack competitions. Or simply offering a free gift. But whatever is offered must have a tangible link to the product and its benefits, otherwise the consumer is simply being bribed to buy it. And where’s the long-term value in that?
TO SUM UP…
So, for a quick and attention-grabbing way to influence a consumer, price promotions clearly work. But they aren’t necessarily a good option for long-term customer growth.
Other tactics like sampling, coupons and on-pack promotions offer value in ways that can better establish a relationship with a consumer. But they have their drawbacks too.
Each one has its set of pros and cons, but understanding why they work and fail can help to create better campaigns.