The Psychology of Price Promotion: How to apply Promotions more effectively

The Psychology of Price Promotion: How to apply Promotions more effectively

This blog post will teach you how to get more out of your price promotions without spending more.

It may not come as a surprise to you that price promotion makes us buy more. However, what most marketers are not aware of is that price promotion can be more or less effective depending on the type of product it is applied to. Aydinli and her colleagues found that while price promotion makes us purchase more, it also makes us think less. As a consequence, price promotion has more impact on purchase intentions for products which are fun, exciting and enjoyable than products which are more practical, functional and helpful. To better understand these findings we will now dive into the essence of behavioral economics: our mind. 

The two Systems that guide our Decisions

As Tversky and Kahneman described in their groundbreaking book Thinking fast and slow, the decisions we make are formed by two different thought systems, which are referred to as system 1 and system 2. System 1 is fast, emotional and automatic. When decisions are made with this system, we put little or no effort into reflecting on our decisions and lack a sense of voluntary control. System 2, on the other hand, is a slow, controlled and deliberate way of thinking. It makes us allocate attention to effortful mental activities (such as complex computations). 

How Price Promotion changes the Way We Think

Price PromotionEvery product first evokes a response from system 1, meaning a quick, effortless and emotional response. Following this automatic reaction, system 2 intervenes on these impressions with a deliberate reflection on whether or not this product really is worth to be purchased. The use of price promotion changes the way we think in an important way: when a product is cheaper than it usually is, the loss of purchasing it also becomes smaller. Since higher costs normally increase our motivation to carefully process the product information, price promotion decreases this motivation. In other words, system 2 is less likely to intervene in the emotional and automatic reaction of system 1 towards the product. As a consequence, consumers are much more affected by the emotional aspects of a product. Therefore, they are more likely to purchase products on promotion which are fun and enjoyable (also called hedonic products) rather than functional and practical (also called utilitarian products). Let me clarify this effect by presenting an experiment performed by Aydinli and her colleagues.

Snickers and Granola bars on Promotion

In one of their experiments, the researchers presented participants with a Snickers bar and a Granola bar which either had their original price (£.80) or were on promotion (£.40). The Snickers bar represents the hedonic product, as it is more enjoyable. On the other hand, the Granola bar represents the utilitarian product as it is a healthy snack and therefore more functional. The researchers found that the Snickers bar was purchased a lot more than the Granola bar when both bars were on promotion compared to when both bars had the original price. The choice share for the Snickers bar rose from 44.73% when purchased at the original price, to 54.05% when on promotion. 

Based on these findings, we can conclude that price promotion increases the tendency of consumers to purchase hedonic products compared to utilitarian products. The researchers also found that the larger the promotion, the larger the preference for hedonic products. 

Key Takeaways on How to use Promotions 

The above insights provide some promising takeaways for marketers. The most important message taken from these findings is that you get more out of your promotion when the promoted product is a fun and enjoyable product (e.g. chocolate, clothes and luxury goods) compared to when it is a functional and practical product (e.g. healthy food, products for cleaning or repairing). 

However, while certain products represent significantly more emotional (or practical) aspects than others, many products also entail both of these characteristics. For example, a smartphone is on the one hand functional due to its many features (megapixel, screen size, storage, etc.), but on the other hand also has some emotional aspects (e.g. how it feels in your hands, how you experience it or its beautiful design). Consequently, when such products are on promotion, stressing especially their emotional aspect will increase sales.

However, some products also have a very strong functional purpose (e.g. cleaning products, repairing tools, etc.). The reported findings emphasize the disadvantage of functional and practical products and imply that marketers need to put more effort into promoting these products to reach the same results.  

3 practical Tips on Price Promotion 

Overall, the discussed findings point to three tips on how to use price promotion most effectively:

  • Apply price promotion more to fun and enjoyable products than to functional and practical products
  • When applying promotion to products with a emotional and functional purpose, stress their emotional aspects more
  • Promote practical and functional products more, for example by positioning them where people can see them more easily

Apply scientific Knowledge to make more effective Decisions

Overall, Aydinli and her colleagues teach us that price promotion is not only a simple monetary incentive. It changes the way consumers think. Additionally, next to its practical insights on how to use price promotion, it also emphasizes the benefits of applying psychological research on marketing activities for companies. At Online Dialogue we combine data on consumer behavior with knowledge from behavioral science to gain evidence based as well as practical insights on our clients’ customers.

PS: If you contact us now, you can get €100,- off our fun and exciting in-company training! 🙂

References

Aydinli, A., Bertini, M., & Lambrecht, A. (2014). Price promotion for emotional impact. Journal of Marketing, 78(4), 80–96.

Tversky, A., & Kahneman, D. (2011). Thinking, fast and slow. New York: Farrar, Straus and Giroux.

Fabienne Krywuczky

Fabienne is een psychologie student uit Duitsland die stage loopt bij Online Dialogue om meer te leren over het praktisch toepassen van psychologie in het werkveld.
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