Consumer Psychology: How Cash Discount Programs Affect Buying Behavior

When you own a business, you are likely always looking for ways to have a competitive advantage over competitors. With online advertising and social media – attracting new customers or patients is more competitive than ever. Especially with larger companies acquiring smaller businesses and rolling them up into a larger entity. The beauty of small businesses is that you can enact changes at lightning speed compared to larger companies where approvals must go through multiple people. In this blog post, we’ll explore consumer psychology and how cash discounts affect buying behavior.

The reason why consumers choose a certain business over another is an interesting thought to consider. However, there are certainly reasons. Some consumers are driven by financial incentives. Others will want the absolute best product, service, or surgeon without regard for pricing. Finally, some want something in the middle; great value at a fair price. No matter which demographic, it is safe to say everyone loves options. In fact, a research paper co-authored by Ralph Bayer from the University of Adelaide showed that a discount can dissuade an individual from comparison shopping or shopping around. Say goodbye to comparison shoppers!

A Few Psychological Benefits of the Cash Discount Program

One clear psychological benefit of offering a cash discount program will be the sense of urgency created by the discounted price. The higher the discount, the larger the sense of urgency. So rather than a 3.5% discount, offering a 4% discount has the perception to seem more much aggressive. That is because we’re talking almost 5% off of the price.

Want to attract new customers? RetailMeNot ran a survey and realized that 80% of respondents would try a new brand if they offered them a discount. Are you spending money on attracting customers or patients to go to your website? If so, showcasing a cash discount program could make the difference in them reaching out to you. In short, it is an amazing lead-generation tool that offers you the ability to try a new call to action to increase sales or leads generated

Customer retention and loyalty is another benefit that is hard to ignore. It is much easier (cheaper too!) to keep a customer or patient than it is to find a new one. It shouldn’t come as a surprise that offering an innovative payment option where your customer or patient can save money is frowned upon. Only good can happen when you offer a way for someone to utilize your products or services to save some extra money.

Lastly, word of mouth. When we get a deal, we tell friends. We tell loved ones. These are the best types of referrals. The data strongly suggests this to be true. Nielsen found that consumers were 77% more likely to buy a product if their friends recommended it. Want some stronger data? BCG found that word of mouth was 2x to 10x more effective than paid ads! When you’re the only business in your immediate area running a cash discount program, word will get around quickly.

Ethical Considerations When Offering Cash Discount Programs

Always be honest with your customers and patients. For instance, increasing your pricing by 4% only to offer a 4% cash discount isn’t really a discount. This can tarnish your image and it is unethical to try and trick customers or patients.

When you choose, you’ll have cash discount program signage to display all relevant information. Transparency is critical. This makes your program easy to understand for all of your customers or patients.

There is a reason why you’ll be able to offer a cash discount program. You’ll be subsidizing the cash discount program with savings from those who elect to pay with their credit cards. Currently, if you charge $100.00 and someone pays with a credit card, you might receive $96.00. So you are passing the fees that would’ve gone to the processing companies as savings to your customer. So your customer saves that $4.00 instead of it going towards a fee.

Wrapping it Up

As you can see there are plenty of reasons why a cash discount program can affect buying behavior. If you’re interested in implementing a cash discount program for your business give us a call, fill out our form, or chat with a live agent!

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