Lots of businesses use conditional sales promotions (CSPs) such as “Spend at least $500 and get 20 per cent off” or “Buy 3 products and get the fourth product free” to try to move stock or to get customers to spend more.
While this seems to work in the short term, conditional discounts are bad for business.
Why? Well, in the first example for instance, customers who spend exactly $500 dollars and get a 20 per cent discount will be very happy. They’ll probably even brag about it to their friends. There’s a problem though: some customers won’t spend $500 and won’t get a discount. These customers leave the store feeling angry, bitter, and unsatisfied.
When a customer stomps out of a store in a rotten mood, they’re less likely to return in the future and they might even vent about their bad experience to family and friends. This ends up hurting business in the long run.
It seems strange, but studies show that when conditional discounts are present, customers get tunnel vision. They focus so strongly on whether or not they get the discount that they end up ignoring, well, everything else.
This means that even if a business has amazing customer service and amazing products—even if they sell t-shirts with pictures of puppies riding unicorns pooping rainbows—customers will still feel angry if they miss out on a discount because they didn’t spend enough.
happy feeling crappy ceiling.
Everyone loves getting a good deal.
In the “Buy 3 products and get the fourth one free” example, a customer gets the very best deal when they buy 4 thingamabobs. It wasn't surprising then, that, in our research, customers buying exactly 4 items accounted for 45 per cent of all sales. Because of this though, most customers won’t buy a fifth thingamajig. And buying a sixth doohickey? Forget about it.
Conditional discounts put a ceiling on sales, and businesses lose money as a result.
The beatings will continue until morale improves.
Even if a customer does buy a fifth thingamajig, our studies show that they’ll feel less happy than a customer who buys exactly four.
To understand why, let’s examine what it really means to “Buy 3 products and get the fourth product free.”
Assuming that all products cost about the same, a customer who buys 4 products gets a discount of 25 per cent off, while a customer who buys 5 products gets a discount of only 20 per cent. The customer who buys more is literally being punished, so it’s no wonder that they feel less satisfied.
The same idea holds true for “Spend at least $500 and get 20 per cent off.” As you can see in the above graph, customers are happiest when their total is exactly $500. A penny more than $500 and happiness starts to go down again.
The customers (mathematical geniuses, no doubt) who spend exactly $500 dollars tend to be a small minority … and even they’re not happy!
As it turns out, many shoppers—in a moment of panic and fear—will buy more than they need to or can even afford just so that they can hit that magical $500 mark. The regret sets in, of course, when they get home and realize that they’ll be eating Kraft Dinner for the rest of the month now that they’ve blown their paycheck.
The bottom line: CSPs don’t make anyone happy.
The eternal sunshine of a spotless mind.
The main problem with CSPs comes from the fact that people are being given an ideal outcome (i.e. getting the deal) against which to compare their own personal situation.
This means that as soon as a customer is told about a great deal, they will never be 100 per cent happy unless they get it. Nobody likes to settle for second best.
This is the same reason why people try to keep up with the Joneses: seeing how life “can be” better makes people dissatisfied with how things are.
Comparing “what is” to “what could be” is called counterfactual thinking in psychology. While this kind of “what if” thinking makes a lot of people sad, it can be used to make customers happy too.
3 better ways to make customers happy (We can fix them. We have the technology.)
So if conditional discounts just make customers mad, what can a business do to make customers happy? Here are 3 suggestions:
- Offer discounts with no strings attached (“30 per cent off all stock!”) This way, everyone gets the best deal, nobody feels the need to under- or overspend, and everyone is happy.
- Reassure customers that they’ll always get the best deal if they shop at your store (This is where taglines like “Where the lowest price is the law” come from.) Mind you, this only works if your store truly has the lowest prices.
- Show customers how things “could have” been worse (Have price tags that say Regular price: $45.99, Sale price $20.) Customers will always be thrilled to find out that they didn’t have to pay the regular price.
Showing customers how things could have been worse works INSANELY well. Just as people are sad when they find out that things could have been better, they’re happy when they know that things could have been worse.
It’s just like back in elementary school when you were grateful not to be the last kid picked for a team (unless you were that kid, in which case: I’m glad I wasn’t you.)
More and more companies are catching onto this and some businesses will even tell customers right on the bottom of their receipts how much money that they saved (i.e. how things “could have” been worse). By giving their customers this message at the very end of every transaction, these companies create happy feelings that their customers associate with their shopping experience and remember all the way home.