The Psychology of Discounting: When and How to Use Price Promotions

4 May 2025

Ever found yourself walking into a store for one item but leaving with five just because of a "Buy One, Get One Free" offer? You're not alone. We humans love a good deal, and businesses know it. But there's more to discounting than just slapping a sale sign on a product and hoping for a rush of customers.

Understanding the psychology behind price promotions can be the difference between boosting sales and devaluing your brand. So, let’s dive into the world of pricing psychology and uncover when and how to use discounts effectively.

Why Do Discounts Work?

Before we get into the nitty-gritty of when and how to use price promotions, it’s important to understand why discounting works. Humans love feeling like they’re getting a steal. Discounts tap into basic psychological triggers that make us more likely to buy.

Here’s what’s happening in the brain when we see a sale:

1. The Fear of Missing Out (FOMO)

Limited-time discounts create urgency. When we see “50% Off – Today Only!” we get a sudden rush of anxiety. What if we miss out? Better grab it while we can!

2. The Power of Perceived Value

When an item is discounted, our brains perceive it as a better deal—whether it actually is or not. A $100 product marked down to $70 feels like we’re “saving” $30, even though we might not have needed it in the first place.

3. The Reward System

Buying at a discount activates the brain’s reward center. That little shot of dopamine makes us feel good about our purchase. Translation? Discounts can actually make shopping more enjoyable.

The Right Time to Use Discounts

Okay, so discounts clearly work—but if you overdo it, they can backfire. You don’t want customers expecting sales all the time, or worse, assuming your regular prices aren’t worth paying.

Here are some of the best times to roll out a price promotion:

1. Clearing Out Old Inventory

Got products that aren’t moving? Instead of letting them collect dust, offer a discount to free up space for newer stock.

2. Attracting New Customers

A well-placed discount can lure in first-time buyers. A promo like “Get 10% Off Your First Order” is a great way to reduce hesitation and encourage people to give your brand a shot.

3. Encouraging Bulk Purchases

Ever notice how stores price things like “Buy 2, Get 1 Free”? That’s because discounts can encourage customers to spend more, not less. Strategic bundling can increase the overall cart value.

4. Boosting Seasonal or Holiday Sales

Black Friday, Christmas, Back-to-School—these are prime times for discounts. Customers expect deals during these periods, so don’t miss out on the action.

5. Winning Back Inactive Customers

A customer who hasn’t shopped with you in a while might just need a little nudge. A well-timed “We Miss You! Here’s 15% Off” email can re-engage past buyers.

Types of Discounts & When to Use Them

Not all discounts are created equal. Choosing the right type matters just as much as choosing the right timing.

1. Percentage-Based Discounts

- Example: “20% Off All Shoes”
- Best For: Encouraging impulse purchases, clearing stock, or rewarding loyal customers.
- Watch Out: If used too often, customers may never buy at full price.

2. Dollar-Based Discounts

- Example: “$10 Off Orders Over $50”
- Best For: Increasing average order value while still offering a deal.
- Watch Out: A small discount on a high-priced item may not feel like much of a bargain.

3. Buy One, Get One (BOGO) Deals

- Example: “Buy 1, Get 1 Free”
- Best For: Moving inventory quickly and increasing order size.
- Watch Out: Only works if customers actually want two items instead of one.

4. Limited-Time Discounts

- Example: “Flash Sale – 24 Hours Only!”
- Best For: Creating urgency and driving fast action.
- Watch Out: If used too frequently, urgency loses its impact.

5. Loyalty Discounts

- Example: “Exclusive 10% Off for VIP Members”
- Best For: Rewarding repeat customers and encouraging long-term brand loyalty.
- Watch Out: If the loyalty program isn’t valuable enough, customers may not engage.

The Danger of Too Many Discounts

Discounting can be a powerful tool, but it’s a double-edged sword. If used incorrectly, it can do more harm than good.

1. Devalues Your Brand

If your customers always expect a discount, they’ll never pay full price. This can make your brand seem cheap and hurt your long-term profitability.

2. Cuts Into Your Profit Margins

If your margins are already tight, constant discounting can quickly turn into a race to the bottom. You don’t want to be giving away your products for free.

3. Trains Customers to Wait for Sales

Ever notice how people hold off on buying things until Black Friday? If you overdo discounts, customers may stop buying at regular prices and just wait for the next big sale.

4. Attracts the Wrong Audience

Some customers hop from brand to brand just looking for the best deal. If they’re only buying because of a discount, they might not stick around when prices go back to normal.

Alternative Strategies to Discounts

If you want to boost sales without constantly cutting prices, try these alternatives:

1. Add Value Instead of Discounting

Instead of slashing prices, offer free shipping, free gifts, or bonus items. Customers feel like they’re getting more without you taking a hit on your margins.

2. Create a Sense of Exclusivity

People love feeling like they’re getting a VIP experience. Offering early access to new products or exclusive member-only deals can drive purchases without massive discounts.

3. Use Payment Plans

For higher-priced products, offering “Buy Now, Pay Later” options can help customers afford items without needing a discount.

4. Focus on Great Customer Service

Sometimes the best way to drive sales isn’t through price cuts—it’s through an amazing customer experience. Give people a reason to stay loyal beyond just discounts.

Final Thoughts

Discounting is a powerful psychological tool—but like any tool, it’s all about how you use it. Done right, price promotions can drive sales, attract new customers, and boost your revenue. Done wrong, they can devalue your brand and hurt your profits.

So, before slashing prices, ask yourself: What’s the goal? Are you clearing inventory, boosting loyalty, or creating urgency? If you discount with purpose, you’ll get the rewards—without the risks.

And remember, customers love a good deal—but they love value even more.