The psychology behind promotions – WHY do they work?

POSTED: 21 August 2019

Since the first-ever coupon was distributed by Coca-Cola in 1887, promotions have become a standardized and expected part of our shopping trip. It is reported that two-thirds of consumers have made a purchase they weren't originally planning to make based solely on finding a coupon or discount. And four out of five Americans say finding a great offer or discount is on their mind throughout the entire purchase journey.  Promotions are powerful things.

In this first of five articles we delve in to the psychology behind promotions and look at why they work. What is it about promotions that appeals to us as humans and what drives our purchasing behavior?

This article forms part of a five-part series looking at the Who, Why, What, When and Where of promotions. Read the rest of the series ‘The psychology behind promotions’ here [LINK coming soon]

 Why do promotions work?

Reciprocity principle

When customers receive a free gift, it triggers in them a feeling of reciprocity. The recipient of the gift feels an obligation to respond in kind and will feel an increased sense of loyalty to the brand or retailer that issued the gift. The norm of reciprocity is part of our anthropological make up as humans - what in everyday life we think of as ‘give and take’ – and retailers or brands that give gifts to customers are triggering this natural impulse to their advantage.

Positive brand associations in new relationships

The reciprocity principle can be utilized further by retailers to start off new customer relationships on the right foot. By offering a free gift or something specific for new customers, the retailer is viewed by the customer in a light of generosity which will go on to shape the customer’s opinion of the retailer and leads to long-term positive brand associations.

A sense of urgency

Promotions that are run with a time limit create a sense of urgency. Humans are driven to seek out pleasure and to avoid pain. The pain associated with missing out on a special promotion will drive us to snap up the offer. We don’t want to miss out. To encourage this impulse, retailers use signs to indicate that stock is running low or time is running out. In a study of online shopping, adding a simple banner showing a promotion time limit increased conversion to 300% when compared to the same offer with no banner. For bricks and mortar retailers the equivalent would be signs next to the promotion advertising ‘last few remaining’ and suchlike. The potential threat of missing out is enough to get many shoppers to add the item to their cart.

The now or never message is repeated multiple times - see the face-out sign and garment label

The novelty effect

When experiencing something new our brains release a hit of dopamine. And darn, do our bodies love a hit of dopamine. Essentially, new things make us feel good. Temporarily at least. And then we go searching for the next new thing that will give us the feel-good factor. Promotions, especially those run along gaming lines such as McDonalds’ Monopoly game, help retain and excite our interest in an otherwise fairly standardized product. We get a thrill out of the chance to win, and the monopoly promotion continues to raise sales for McDonalds year after year. Promotions provide a way for retailers to create the novelty effect that their customers crave.

Bundling reduces pain points

We mentioned above that humans seek out pleasure and avoid pain. Bundling together additional extras reduces the pain points that a shopper would go through if trying to justify purchasing each item individually. According to research by Neuroeconomics expert George Loewenstein, the significant reduction in pain points when extra purchases are bundled together increases the likelihood of a customer purchasing the bundle. 

A great saving in this example. The second item is less than half price

Reframing value

The way retailers present a promotion makes a difference. There is more about this in our second article [LINK coming soon] but to summarize – forget the math, shoppers want promotions that sound like a good deal.

So, if you are offering a yearly subscription service, break the annual cost down and publicize the monthly cost. The lower cost you are promoting of $X per month feels less commitment and a much better deal than advertising $XX per year.

Consumers love free products, rather than getting something cheaper – even if amounts to the exact same deal. The power of free means we perceive the value of free products higher than their actual worth.  In one study, researchers sold 73 percent more hand lotion when it was offered in a bonus pack than when it carried an equivalent discount. Similarly, people prefer deals where for example they get 50 percent more of a product, than to save 33 percent on the price. These are the same deal but how we perceive them is different.

Key takeaway

When we feel we have got a good deal, we feel good. It’s really that simple. A study found a 38 percent rise in oxytocin levels for recipients of a $10 voucher, compared to those that did not receive the voucher. Their respiration rates dropped by 32 percent and they were 11 percent happier.

Finding a promotion, receiving a coupon or being invited to take up an exclusive offer, these things release dopamine and increase our oxytocin levels, and make us feel happy. And because the effects are temporary, we continuously search out these promotions that we know give us this feeling our bodies enjoy.

You need to buy both items, the offer should make this compelling for the shopper

Retailers can utilize tools such as Reflex sign holders to promote and draw attention to offers. By changing these signs as one promotion finishes and another begins helps keep the store layout fresh and customers alert when they are in the store. For more tips read our FREE guide ‘How to maximize sales from your existing footfall’

Read more about the types of promotions that work best in the second article of this series [LINK coming soon]

This article forms part of a five-part series looking at the Who, Why, What, When and Where of promotions. Read the rest of the series ‘The psychology behind promotions’ here [LINK coming soon]