Ah, discounts. Few things hit the brain’s dopamine button quite like seeing a price drop.
Whether it’s a flash sale, a coupon code, or the beloved “Buy One, Get One Free,” discounts aren’t just a way to sell more stuff – they’re psychological gold mines.
If you’re not using them strategically, you’re leaving money (and maybe your brand’s reputation) on the table.
The Psychology of Discounting: We’re All Suckers for a Deal
Humans love saving money. It feels good. But here’s the kicker: it’s not the actual amount you save that gets us excited—it’s the feeling of saving that does the trick.
Neuromarketing studies have proven that discounts activate pleasure centres in the brain. You know, the same area that lights up when you eat a donut or check off a task on your to-do list.
Studies have found that people who received a discount weren’t just happier, they were also 11% less stressed, their heart rates dropped, and they actually started breathing more calmly.
Discounts are, quite literally, soothing.
But Not All Discounts Are Equal
Here’s where it gets tricky. Throwing discounts at your customers like candy at a parade can backfire. You can accidentally train people to never pay full price for anything.
Just ask any retailer who got too addicted to their own sale cycle and ended up in what experts call the “race to the bottom” – slashing prices until their profit margins went poof.
Luxury brands know this too well. When Gucci starts handing out coupons like a supermarket, the brand stops feeling premium. Consumers mentally downgrade anything they perceive as constantly on sale. Once the prestige is gone, so is the loyalty.
How Discounts Work on Your Brain
Here’s a cool trick: ever wonder why you’d rather see “20% off” than “Save $5,” even if they’re the same deal? That’s a little psychological hack marketers call “the Rule of 100.”
Jonah Berger, author of Contagious: Why Things Catch On, explains it like this: for items under $100, percentage discounts feel bigger. But for higher-ticket items, a flat dollar amount seems like the better deal.
So, next time you’re discounting that $50 hoodie, a 20% cut sounds way more attractive than telling customers they’ll save $10. On the flip side, if you’re selling a $1,000 laptop, a “Save $200” sign will get people more excited than 20% off. It’s all about framing the deal.
The FOMO Factor: Scarcity + Urgency = More Sales
If you’ve ever rushed to buy something because “only 3 left in stock,” you’ve fallen victim to the scarcity principle. It’s the reason behind every “limited edition” product, every “while supplies last” deal.
We hate missing out (hello, FOMO). This taps into something deeper than our love of saving—it’s the fear of being left behind.
Scarcity paired with urgency (i.e., “50% off today only”) creates a psychological one-two punch. People stop thinking logically. They rush to the checkout because what if the deal is gone tomorrow?
FOMO is a powerful thing, and brands that leverage it well can boost their conversion rates without major price cuts.
Free: The Magic Word That Always Works
Marketers have been exploiting the allure of “free” for decades, and for good reason—it works, even when it doesn’t make logical sense.
In a famous experiment, Dan Ariely, a behavioural economist, found that when consumers were offered a Lindt truffle for 26 cents or a Hershey’s Kiss for 1 cent, the group split 40/40. But when he dropped the price of both by just 1 cent, making the Hershey’s Kiss free, a whopping 90% of participants went for the Kiss.
People love free stuff so much that it overrides our ability to calculate value. That’s why you’ll see e-commerce brands offering free shipping, free samples, or buy-one-get-one-free deals—they know it’s irresistible. But here’s the warning: overdo the “free,” and your brand starts to feel cheap. So use it sparingly, like the secret weapon it is.
When Discounts Hurt: The “Race to the Bottom”
Retailers like Sears and 99 Cents Only Stores learned the hard way that you can’t win by constantly undercutting prices. When you get trapped in a discounting loop, your margins vanish, and soon, so does your business.
Once customers expect a discount, they’ll wait for it. And if they don’t get it? They’ll bounce over to your competitor.
Amazon and big-box stores can play the volume game because they have endless inventory and scale. But for smaller brands, steep, constant discounts can erode the very thing that keeps them afloat: profit.
So, how do you offer discounts without destroying your brand?
Discount Strategically, Not Desperately
This is where intent-based promotions come in. AI-driven models can track which customers are on the fence, ready to buy but just need a nudge. By targeting those buyers with tailored discounts, you don’t waste promotions on people who would have paid full price.
For example, new customers might need a small incentive to convert, like free shipping or a welcome discount. But your regulars? They might just want a reminder that they’re getting something special for being loyal. Intent-based promotions help you deliver the right offer to the right person at the right time, without slashing your margins across the board.
Why the .99 Trick Still Works
You know that feeling when something is priced at $9.99 instead of $10? It’s irrational, but our brains think it’s cheaper—even though we’re only talking about a penny difference. This is called charm pricing, and it’s been used for decades to trick consumers into thinking they’re getting a better deal.
Studies have shown that people are more likely to buy something that ends in .99 than .00. It’s a tiny, almost imperceptible change, but it can have a big impact on conversion rates. Just one more way psychology plays a role in your buying decisions.
Smart Discounting in the Long Game
If you’ve ever wondered why gyms offer monthly payment options rather than annual memberships, here’s why: when people pay monthly, they’re more likely to keep using the service because they feel the ongoing value of what they’re paying for. Research shows that monthly payments lead to higher retention rates compared to annual fees.
The same concept applies to subscriptions in general. Customers feel more connected when they’re paying in smaller increments, and they’re less likely to churn because they want to “get their money’s worth.”
How to Use Discounts Without Destroying Your Brand
Frame discounts carefully: Use percentages for smaller ticket items, dollar-off for high-ticket ones.
Leverage FOMO: Create scarcity and urgency to push hesitant customers over the edge.
Play the long game: Avoid getting stuck in a discounting loop where your margins disappear.
Use charm pricing: Ending prices in .99 is a simple psychological trick that still works.
Use intent-based promotions: Personalise your offers to avoid over-discounting and protect your brand.
Discounts, when done right, are more than just a way to sell stuff—they’re a psychological tool.
The challenge is to use them strategically, pulling the right levers at the right time. And when you do? You won’t just boost sales—you’ll build a brand that people can’t resist.