Why discounts work
In 1869, the first price tag appeared on merchandise at the Paris department store Le Bon Marche. Consumers flocked to the store for their bargains and the idea of the discount was established. (https://www.blinkist.com/page19/this-is-your-brain-on-discounts-the-science-of-why-were-slaves-to-a-sale)
Hard-wired for bargains
Lifelong learning programs are no exceptions to discounts. There are frequent-participant discounts, early bird discounts, multi-person discounts, bring-a-friend discounts, first-timer discounts, and more. The idea in lifelong learning is the same as in the consumer world. People like to believe they are getting a deal and they feel good about it. Making a smart decision gives their brains a neurochemical reward and creates a sense of well-being. Drew Westin, in his book, The Political Brain: The Role of Emotion in Deciding the Fate of the Nation (2011), describes how the brain is not a cool calculator that makes decisions based on evidence, but rather functions based on some deeply “hardwired” and primitive emotional responses.
Westin writes that we as humans deeply fear making mistakes, being at a disadvantage, or having fewer resources than others. We are also driven to seek advantages for ourselves and our families. The brain; he says, is wired to help us make decisions that will enhance our competitive success. Thus, when we make a decision that we are wired to interpret as beneficial like getting a good deal on something, our brain rewards us with a little shot of dopamine — making us feel very good about what we have done.
While Westin is writing about the behavior related to making policy decisions, the same factors are at play in any other kind of decision making, including purchase decisions. If a cost is seen as high, it creates “price pain.” If a high price is lowered or discounted, assuming there is good value and high quality, then pain is reduced, the brain is happy, it rewards the individual with dopamine, and the outcome is positive. Discounts are a prime example of an opportunity we are wired to exploit and subsequently feel good about. Many retailers intentionally set high prices, then “reduce” them to create the impression for the consumer that he or she is getting a bargain when; in fact, the reduced price is structured to make sure the seller gets the income desired. This may not be an appropriate strategy in lifelong learning, but it does help explain the effectiveness of discounts.
How to Use Discounts Effectively
Using discounts has been beneficial to lifelong learning programs. One question is whether it is more beneficial to provide a set price for “everyone,” and then provide a discount for a segment of participants, such as residents or senior citizens or whether it is more beneficial to offer two separate prices. Will residents of a school or park district; for example, be more likely to sign up for a class if they see that they get a discount on the price or if they see two prices — resident and non-resident?
The answer to this question lies partly in the concept of “anchor pricing.” An anchor price is a base price that customers use as a basis of comparison. An anchor price is used to make other prices seem like bargains. Thus, if the anchor price for a course is $50, but residents receive it for $40, then the resident price seems like a great value. The resident is getting full value for less money. This is a similar concept to tiered pricing where there is a base price, a lower price for a category of participants (e.g. seniors), and a further tiered price for families. Each of the lower tiers delivers greater value for the price.
The same concept holds true for providing discounts on conferences or seminars. One person pays the “anchor price,” but with additional registrations, prices are lowered; thus, delivering more value to an organization for a lower cost.
LERN would recommend framing prices in this way: rather than saying a course costs $50, but residents get a 10% discount, provide two comparable prices. One of which is clearly a high value. Derek Thompson, writing for The Atlantic, is one of many analysts who point out that consumers just don’t understand the mathematics of discounts, so it is easy to confuse them (http://www.theatlantic.com/business/archive/2012/07/the-11-ways-that-consumers-are-hopeless-at-math/259479/).
LERN; for example, offers a third-person FREE discount on event attendance. This value is much easier to understand than saying “the price of the event is $100, but if you send three people, you will get a 33% discount.” Getting one person free sounds much better.
It is the understanding that a lower price is more concrete than calculating a percentage discount. A great deal of research has been done on price perception and we are providing links to some interesting articles and resources.
Another informative article in The Economist also points out how consumers are hopeless at math and often do not understand the mathematics of a discount. (http://www.theatlantic.com/business/archive/2012/07/the-11-ways-that-consumers-are-hopeless-at-math/259479/)
A 2011 Neilson survey found that fully, 61 percent of global online consumers rated “good value” over “low price.” (http://www.nielsen.com/us/en/insights/news/2011/consumers-around-the-world-favor-value-over-price.html.) Thus, part of your pricing strategy should be to boost your value, delight your customers, and create lasting relationships.
The bottom line on discounting is twofold:
- Be upfront and transparent. Don’t engage in deceptive discounting. Retailers will take advantage of consumers in this way, but customer-centric organizations providing lifelong learning programs are best served by being transparent with discounts and creating value and trust. Provide more value at a lower cost.
- Make sure you are delivering value before you discount. Customers consistently say they prefer greater value over lower prices and this has been documented in many consumer surveys.