Do discount and coupon codes motivate consumers to spend more money?

Who can resist the allure of a good deal? With inflation and economic uncertainty causing shoppers to tighten their purse strings, price reduction tactics have become powerful tools.

Understanding the link between consumer psychology and purchasing behavior

Discounts and coupons do more than just reduce prices. They play into key marketing and consumer psychology triggers that can influence shoppers' behavior.

For example, incentives can:

• Create a sense of urgency and scarcity. Limited-time offers compel consumers to act quickly to secure a deal.
• Tap into the principle of loss aversion. FOMO (which stands for “fear of missing out”) tactics drive consumers to take action.
• Enhance perceived value. Discounts can make consumers feel they are getting more for their buck, potentially encouraging them to spend more.

Perceived value of discount and coupon codes

Discounts and coupon codes can alter the perceived value of products or services by making shoppers feel like they're getting more for their money. One study found that consumers are approximately twice as likely to purchase a product that’s 20% off compared to one at full price.¹

Here are some ways discounts and coupons can support your business objectives.

Drive traffic to your website

By offering exclusive discount coupons, businesses can attract both new and returning visitors, especially if they leverage social media or email marketing to amplify reach.

Ability to attract new customers

For first-time buyers hesitant about trying a new product or service, discounts and coupons can lower the financial risk, pushing them to take the plunge.

Meet sales goals and objectives

Coupons and discount codes can stimulate demand during slow periods, clear out inventory, and encourage bulk purchases. By strategically timing these offers, businesses can drive sales to meet specific goals and objectives, whether it’s boosting revenue or promoting a new product line.

Retain and engage with existing customers

Discounts and coupon codes aren’t just for attracting new customers. They’re also crucial for retaining existing ones.

Boost your brand reputation

Launch discount and coupon campaigns to position your brand as generous and customer focused.

Understanding the differences between customer acquisition and customer retention

Using discounts strategically can serve two purposes: acquiring new customers and retaining existing ones.

For customer acquisition, discounts act as incentives to attract first-time buyers, lowering the barrier to entry and introducing them to the brand. Meanwhile, discounts are also a valuable customer retention tactic. Exclusive deals for repeat customers can enhance loyalty, creating a sense of appreciation that encourages sustained engagement with your brand.

The significance of managing consumer expectations

As shoppers continue to face rising prices at restaurants and grocery stores, customer expectations around discounts and coupons have evolved significantly.² One survey revealed that about 70% of global consumers expected more discounts on essential items amidst a cost-of-living crisis.³

In industries where price sensitivity is high, such as retail or fast-moving consumer goods, frequent discounts can help businesses meet these expectations and strongly position themselves in the market.

But this doesn’t mean all retailers should immediately slash their prices. In luxury or high-end markets, constant discounting may devalue the product and erode brand prestige.

What are the most common discount strategies?

Given the unique audiences and objectives across industries, there is no one-size-fits-all discount strategy. Here's a closer look at some common options.

Loyalty programs

Loyalty programs incentivize repeat business by rewarding customers for their continued patronage — they’re a mainstay among retailers, hospitality providers, and airlines. From exclusive offers to redeemable points, loyalty programs can support customer retention strategies.

Seasonal discounts

Seasonal discounts capitalize on consumer shopping patterns, like Black Friday or back-to-school season, to boost sales. Retail and e-commerce industries particularly benefit from the urgency of seasonal discounts, especially if clearing inventory is a priority.

Referral programs

Referral programs encourage existing customers to recommend a business to their friends and family, often rewarding both parties. Commonly used by subscription services, telecom, and financial services, this strategy relies on word-of-mouth marketing to find new customers.

Bundles

Bundling involves offering several products or services together at a reduced price compared to purchasing them separately. Whether it’s a spa gift box or a software package, the effectiveness of bundling lies in its ability to increase perceived value.

Personalized discounts

Personalized discounts are tailored to individual consumer behaviors and preferences, often based on past purchases or browsing history. By ensuring offers are relevant, personalized discounts can be useful for driving desired behavior, such as recovering abandoned carts.

That said, implementing personalized discounts often requires sophisticated data analysis and may raise privacy concerns.

Common mistakes when launching a discount strategy

While customer acquisition and retention are at the forefront of every retailer’s mind, nobody wants to do so at the expense of their bottom lines.

Beware of these common mistakes:

• Overusing discounts. Frequent discounts can devalue your product or service, making customers reluctant to pay full price.
• Misaligned target audience. Discounts that don’t resonate with your intended audience may fail to drive desired actions.
• Ignoring timing. Poorly timed discounts, like those outside of shopping seasons, may see lower engagement.

Understanding the link between discounts and consumer spending

Discounts and coupon codes aren't just a win for consumers' wallets. They're also powerful tools for boosting your business's sales and engagement. By strategically implementing these incentives, you can track how they influence spending patterns, draw in more customers, and encourage repeat purchases.

Ready to leverage the power of discounts and transform casual browsers into loyal customers? Learn how to acquire, convert, and retain customers with PayPal and why finding the right payment solution is key.