Should you offer a price discount or a bonus to your customers? Discounts and bonuses are sales strategies used by many businesses to help them compete in the market, especially if they operate in a crowded space.
In this video, I make distinctions between a discount and a bonus, and explain why experts say one is better than the other.
Discounts and bonuses are sales tactics used to encourage a sale. It’s important to make a distinction: A bonus is something you give for free with purchase, such as product samples or free shipping. A discount is a price deduction.
Experts say offering bonuses are better than discounts to your customers for the following reasons:
A discount is a “bonus in advance.”
A discount is essentially a price concession extended to the customer before they even make a purchase. What this means is that you are already placing yourself at a disadvantage by offering a lower price even before you make any sale.
Most marketing professionals advise against discount pricing strategies. While it seems like a great idea to help businesses compete in the market or to encourage sales because it affects profit margins, this comes at the expense of your profit margins.
Remember that the market also perceives the price as an indicator of quality. Discounts may NOT work to your advantage if your products are in the luxury or high-value category.
Bonuses make people feel good.
Behavioural science also says that bonuses are better than discounts, specifically through a cognitive bias that the behavioural economist Dan Ariely calls the power of FREE, as explained in his book, Predictably Irrational. His study showed that getting something for free motivates people to spend.
This explains why some people are likely to spend a certain amount in e-commerce shops just so they get free shipping. It also explains why some people purchase product bundles, especially when the bundle includes a free product.
This happens because customers love getting things for free. A bonus, in this case, is a form of goodwill to customers. Behavioral science says FREE is an emotional trigger that makes people spend more because they feel good about it.
A product bonus can be used as a “new product” launch strategy.
When introducing a new product, offer to bundle or give product samples as bonuses instead of offering discounts seems like a better strategy over a discount.
Remember that when launching a product, the primary objective is to get people to try the product. People are usually hesitant to try something new because they don’t want to risk wasting money on something they have not tested before. Brands work on lowering the barrier for people to buy the product. It seems intuitive to offer a price discount. Recall, however, that for some customers, price indicates product quality. You don’t want to inadvertently create a disadvantage for your product just as you are launching it.
Instead, offer it as a bonus. Bundle it with your existing products. Offer sample sizes of the product with every purchase, if possible. It’s easier to convince people to try something new when it is offered for free, because there is no risk for customers. The other advantage is that customers try it before they know the price—the only thing they will remember after consuming it is whether they like it.
Is a bonus always better than a discount?
Here are interesting findings on a study that aimed to determine whether customers prefer discounts or bonuses:
The first finding is that in general, consumers prefer bonus packs over price discounts. It’s easier for customers to visualise a free product than a discount. With bonuses, they see it as its, while discounts forces them to compute and do the math, which takes more effort.
By giving a discount, you end up making your prospective clients do the mathematics for your product when they should be thinking about your product and not solving mathematical equations in their brains. It’s not fun to do that for many people.
It’s an interesting way to think about it. Do you want your customers to associate your product with math or the pleasant experience of using your product?
The second finding is that finding #1 is true EXCEPT for when it pertains to vice products (cigarettes, beer, etc). Why? Because a price discount serves as a guilt-mitigating mechanism. Furthermore, the study found out that consumers don’t want a bonus pack because this would mean consuming more of the vice. Bonuses were more indulgent.
What does this tell us? Whether we offer a bonus or a discount depends entirely on one person: our customer. Experts say that for most types of products and services, customers prefer receiving a bonus over a discount.
How about you? What has been your experience with offering bonuses versus discounts?