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The Science Of Bargains: Know Your Customer

– Contributed content –

29 May 2017. When you are just beginning in business, it can be difficult to see why you would ever lower the price or run a sale event. After all, you have meticulously priced these products; you know exactly what to charge to ensure you make a profit. The strategy is the same whether you have a small Etsy store online that you run in your spare time or if you have huge retail premises: you do your costs, and you charge people what you need to.

So given how laborious it can be to finally settle on a price point – why would you ever want to give a discount?

There are, of course, multiple answers to that question – or are there? At the root of it, there’s really only one reason you would run a sale.

Sales and bargains attract customers

Urban crowd

(Usplash, Pixabay)

The idea of using sales and bargains to attract customers is not a new explanation, but do you really know why it works? Understanding the science behind this established business ‘fact’ can ensure you make the most of any price reductions that you do offer.

There are several components to this, so we’ll break it down into why customers swarm to the idea of saving money – even on products they didn’t even know they wanted.

Factor 1: Exclusivity

Last chance

(Judith E. Bell, Flickr)

Despite the fact that most of us should know better, there is something in the mind of a customer that associates sales with exclusivity. If something is on sale, they reason, it might be being discontinued. This might be their last chance to get hold of an item.

This taps into one of our most primary psychological components: the desire to hunt and gather. It’s pure Id; the desire overwhelms the superego (to use Freudian terminology). The constraints, the arguments, the “but do I really need this…?” thoughts are easily brushed to one side by the sheer desire to possess something.

Factor 2: Cost

Of course, some of the factors behind why people love bargains are simple: it’s cost reduction. They want to pay less for items, so they immediately buzz with excitement at the idea of doing so.

What is worth remembering is that people will buy things for the sake of buying them if they are told they are on sale. There is a powerful sense of control that comes, psychologically, from getting an item on sale. The customer is no longer the target; they are the ones demanding the price they will actually pay, not you.

This is nonsense, of course; you still set the price! But they will feel as if they have got one up on you by beating your usual retailing price. Essentially: bargains are an appeal to the ego.

Factor 3: Victory

Winner graphic

(HypnoArt, Pixabay)

Never underestimate the feeling of victory that drives those who bargain shop. Not only do they claim the aforementioned victory over you, the retailer, but also over all the other shoppers. They got the deal. They won. They denied someone else a wanted product. And that is quite the potent feeling; the dopamine rush when we feel victorious is addictive.

So how do you make this work for you?

Understanding why people want to bargain hunt should give you some hints as to how to use price reductions, discount codes, and sales to keep your business booming.

1) Have a minimum spend

If you issue a discount code, a minimum spend to use it is one of the most powerful ways to appeal to the ego. It gives the impression that you, the retailer, don’t really want to be offering this sale – that’s why there’s the threshold, to discourage people from buying!

Thus, if a customer reaches that spend and uses their code, you will still make a bigger profit than you would without the threshold spend – and the customer gets that feeling of having ‘won’.

2) Battle for bargains

If you have a retail store, then you have probably seen some of the media coverage of ‘Black Friday’ and other sales events. Did you know that the idea of battling other people for a product that’s on sale is a great tactic for retailers? That’s why those stories get leaked.

What better way to show your products are desirable and offer a tangible sense of ‘victory’ to those who manage to buy something? It’s perfect.

You can create the same kind of buzz – without the huge crowds – during your own sales.

First, make the shop floor more cramped, so it seems like there are more people in the space than there actually are. To do this, it helps to install ball bearing casters onto displays, so you can move them with ease as you switch between regular and seasonal sales.

Couple this with another ‘win’; perhaps something along the lines of the first 20 customers get a 5% discount code for future purchases. This will bring out the competitive nature in your customers even if they don’t know it – but it will be your store that is ultimately victorious.

3) Make it limited – very limited

You want to attract more customers, so you’re going to run a sale. You might not make the profit margin you usually want, but you know you’re still going to make decent with the prices you have chosen.

When you have got to the above point, all that’s left is to decide when your sale is going to be and – crucially – its duration. As a general rule, the shorter the duration of the sale, the better.

You don’t want to take the risk of a week-long sale that gives customers time to wait. You want them to be gripped by that feeling of exclusivity, the desire to grab something right now. However, you need to balance this with practicality. For example, some people won’t have access to funds to make purchases immediately.

A sale duration of two to four days is the perfect blend of enough time, but not so much you don’t pinpoint that urgency.

Finally, it is better to host many short sales than several long ones. Space them through the year and ideally at the end of each season. That way you can offload outdated stock and capture the psychology of your shoppers’ – it’s perfect!

Sale pricetags

(Coffeebean Works, Pixabay)

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