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It’s January. It’s miserable outside. You need something for dinner, but the fridge is empty and there’s not even a can of baked beans in the cupboard.
You know you need to go shopping, but when you look out the window all you want to do is snuggle up under the blanket with some comfort food like your favourite stuffed crust pizza and gooey chocolate chip cookies…
What do you do?
Order your takeaway and promise yourself to go shopping first thing in the morning.
We’ve all done it. And no doubt will do so again in the not-so-distant future. I’m not here to judge, I’m just as guilty of this.
So, why do we do it? Choose something that’ll only make us feel good in the moment, over achieving our long-term goals?
It happens because our brains are wired for instant rewards. This tendency to choose smaller, immediate rewards over future, bigger rewards is a psychological bias referred to as hyperbolic discounting or the present bias.
You may or may have not heard about the famous marshmallow experiment, where a group of toddlers was placed in a room with a snack in front of them. The children were told they could either have the snack in front of them now - or have two if they resisted and waited until researchers went to get the other snack.
Follow-up studies later showed that those who waited to receive another snack did better in life as opposed to those that couldn’t resist and ate their snack while researchers weren’t in the room.
This Standford study is repeatedly used to demonstrate the importance of self-control, but marketers have long used the principle of hyperbolic discounting to make their messaging more appealing to the consumer.
Your customers are no different in this regard.
They too are tempted by immediate payoffs vs. future benefits. And you can tap into it by helping them to better evaluate short-term and long-term trade-offs will go a long way in encouraging them to take action.
There are two simple rules to applying the present bias to get more people to convert and increase your Average Order Value (AOV):
- Show customers the instant benefits of purchasing your product now and,
- Show customers how easy it is to purchase and start using your product.
Hyperbolic discounting proves a great conversion booster when it comes to optimising product pages and writing your ad copy. You already have their interest, now you just need to show them what’s in it for them - instantly.
How? By adding the Buy Now, Pay Later payment options.
Companies like Klarna, Kiva, Splitit, Afterpay and many others are making it easier for customers to buy from your stores, by offering them the ability to pay over time, and the best part is, you get your money upfront.
The results speak for themselves as well. According to Klarna, depending on which option you present you could see up to a 60% increase of order values, and a 20% increase in your conversion rate.
A while ago, I took the BNPL feature a step further and tested “Sleep Now, Pay Later” as the CTA (bedding retailer) and the conversion rate shot up by a modest 4%, not a huge increase on the control, but a good 10% better than the standard Buy Now, Pay Later message most brands use...
Ready to test hyperbolic discounting for your store?