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Price elasticity states that as price goes down demand goes up.
And this is why discounts improve conversions. To a point.
A full price item discounted 20% should generate a 20% lift in unit sales. At least that’s the expectation.
Increase discount by another 20% (on top of the original 20%) and expect to see a corresponding ~20% lift.
But this logic doesn’t continue for deep discounting.
Why? Because buyer psychology starts shifting.
First, let’s understand what’s going on:
Consumers are used to seeing a 20% discount.
We’re not used to seeing 80% discounts. So when we see those some of us start to wonder,
“Wait, why am I getting this insane discount, what don’t I know?”
We start considering scenarios:
- Is this item about to be phased out?
- Is there a defect with the item I’m not aware of?
- Is this company about to shut down? Inventory liquidation? If so, will I be able to make a return?
As you can see, a lot of chatter happens in the mind of the shopper.
So, what is a marketer to do?
The solution is to add a message right next to the incredible discount with this phrasing: “why the heck is this item discounted [x]%??”
Here [x] is dynamic and reflects the actual discount being offered.
On click, show a popup and tell your story.
Here is an example:
Running retail stores is expensive. There are staff costs. Rent. Inventory costs. With multiple locations, those costs add up.
By eliminating those you end up saving.
But here’s the thing, only 7% of people in the US know about us❗
Instead of spending more on advertising, our strategy is to pass even more savings onto you. Why? Our hope (fingers crossed) is you’ll tell your 5 closest friends about us. Think of this as a bribe 🙂