Differentiating Discounts

Research in behavioral economics has shown that consumers don’t think of numbers, such as percentages and prices, in completely rational and linear terms. For example, people may think that a 50 percent increase in quantity is a better deal than getting a third (33 percent) off the regular price, even though the two are exactly the same. We also respond differently to a price reduction from $1 to $0 (free!) than from $2 to $1, despite the fact that both represent a one dollar decrease. This zero-price effect is partly due to the fact that we may have an emotional reaction to zero cost, evident in the word 'free.'

Regulatory focus theory provides an additional perspective to the psychology of discounts as marketing messages more generally. For example, research has shown that different motivational orientations make us respond differently to the wording “GET $1 OFF” versus “SAVE $1," even though both are objectively the same. A recent study we have conducted supports this idea and also provides more details about people’s choices of different kinds of products.

Let me explain.

It’s human nature to approach pleasure and avoid pain. According to regulatory focus theory, human motivation is rooted in needs for advancement (related to approach) and security (related to avoidance). This is reflected in different strategies for self-regulation: promotion and prevention focus. Promotion focus is characterized by eagerness, while prevention is characterized by vigilance. Being healthy, for instance, can be achieved by either exercising hard (promotion focus) or refraining from unhealthy habits (prevention focus). Regulatory focus depends on both our dispositions and our state of mind in different situations.

Research suggests that consumers respond more favorably to products if there is a fit between their regulatory focus and cues in the environment, such as marketing messages. This feeling of compatibility is referred to as regulatory fit. A sales promotion that is worded “Get $ Off” emphasizes achieving a gain, which is compatible with promotion focus. The wording “Save $," emphasizes avoiding a loss, which is in line with prevention focus. This means that a promotion focused consumer should be cued to buy more when exposed to “Get $ Off” than “Save $," with the opposite applying to prevention focused individuals. This is what Suresh Ramanathan and Sanjay Dhar found in a study published a couple of years ago.

We recently set up an experiment similar to that already conducted by Ramanathan and Dhar. In our study, we measured the chronic (dispositional) regulatory focus of 887 consumers by asking them to rate a number of statements like “I imagine frequently how I will achieve my hopes and aspirations” (promotion) or “I think frequently about how I can prevent failures in my life” (prevention). Participants also had to engage in a virtual shopping task online. In one experimental condition, some of the products were offered with the ‘gain’ frame (e.g., “Get $1 Off”), in another condition we used the ‘non-loss’ frame (e.g., “Save $1”).

Here’s what we found:

1. Sales promotion wording can motivate people to buy — beyond the products that are actually on sale. As established by previous research already, we found that messages like “Get $1 Off” versus “Save $1” are cues that subtly stimulate promotion- versus prevention-focused people to buy more in general, not just the products that are offered at a discount.

The graph below shows the average number of items chosen that were not offered at a discount, broken down by different groups. The lines represent people with a promotion versus prevention regulatory focus. The horizontal axis depicts averages for individuals who saw gain frames (“Get $ Off”) versus non-loss frames (“Save $”).

Regulatory fit, however, does not affect all consumer choices equally. For some products, it’s either just the message frame or people’s regulatory focus that makes a difference:

2. Getting money off works well for chocolates. Past research suggests that promotion-focused advertising claims nudge people to buy hedonic products, like chocolates. That’s also what we found: Regardless of whether people are promotion- or prevention-focused, they will put more chocolates in their virtual basket if they see a gain frame (“Get $ Off”) rather than a non-loss frame ("Save $"). In our study, however, this only seems to apply to consumers who don’t usually buy chocolates. This is not surprising if we consider that people are more susceptible to cues if they have a lack of established buying routines, expertise, etc.

3. Store brands are more likely to be chosen by promotion-focused consumers. Although store brands aren’t usually the coolest and most popular choice, we found that promotion-focused people select more of them on average. This is compatible with previous experiments indicating that prevention-focused people are more likely to opt for safe choices like familiar brands, while promotion-focused consumers tend to be variety seekers and risk takers.

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Our study is just one illustration of regulatory fit or compatibility, in this case between people’s regulatory focus and sales promotion messages. But the idea can be extended beyond this relationship. For example, promotion and prevention is evident in marketing messages when a sun lotion is advertised as either giving you a great tan (promotion) versus protect your skin (prevention). It can also be seen in different products or services, such as photo enhancement software (promotion) versus anti-virus software (prevention). Finally, you could even apply it to different retailers, such as Costco or Trader Joes’s (promotion) versus Wal-Mart (prevention). Research suggests that a fit between promotion- versus prevention-focused orientation, environments, products, brands or marketing messages can facilitate buying behavior non-consciously.

Do you think you are more a promotion- or a more prevention-focused person? You may want to keep your answer in mind the next time you go shopping.

Available from July 2014: The Behavioral Economics Guide 2014 on BehavioralEconomics.com (free download)

References and Further Reading

Higgins, E. T. (1998). Promotion and prevention: Regulatory focus as a motivational principle. In M. P. Zanna (Ed.), Advances in Experimental Psychology, Vol. 30 (pp. 1-46). San Diego, CA: Academic Press.

Lee, A. & Aaker, J. (2004). Bringing the frame into focus: The influence of regulatory fit on processing fluency and persuasion. Journal of Personality and Social Psychology, 86, 205-21.

Micu, C. C., & Chowdhury, T. G. (2010). The effect of message‘s regulatory focus and product type on persuasion. Journal of Marketing Theory and Practice, 18, 181-190.

Pham, M. T., & Higgins, E. T. (2005). Promotion and prevention in consumer decision making: The state of the art and theoretical propositions. In S. Ratneshwar & D. G. Mick (Eds.), Inside consumption: Consumer motives, goals, and desires (pp. 8-43). London: Routledge.

Ramanathan, S., & Dhar, S. K. (2010). The effect of sales promotions on the size and composition of the shopping basket: Regulatory compatibility from framing and temporal restrictions. Journal of Marketing Research, 47, 542-552.