If you are a marketer, you should know more about hyperbolic discounting and make it an integral part of your marketing strategy.
Hyperbolic discounting is a cognitive bias, wherein people are ready to take a small reward in the present rather than a big reward in the future. For instance, if a person is asked to choose between a plate of cookies today and two plates of cookies next week, they will always opt for the former than the latter due to hyperbolic discounting.
On the other hand, if a person has to choose between a plate of cookies after one year and two plates of cookies after 1 year 1 day, they will always go for the latter. It is prudent to note here that the reward is still the same but the person’s behavior has altered. And, that is what hyperbolic discounting is – when a person perceives that they will get both rewards in the distant future, the time difference between the two rewards becomes insignificant.
Importance of Hyperbolic Discounting in Marketing
If you are not using hyperbolic discounting in your marketing strategy, your marketing messages will not be able to increase conversions as you anticipated. Remember, your target audience wants instant gratification. So, while it is a good thing to create landing pages and run ad campaigns, make sure you provide value to them today rather than tomorrow. This is because prospects require time to become paying customers and you need to build trust and brand awareness with the help of hyperbolic discounting.
Hyperbolic discounting can also be used to provide value to prospects who are at the top of the funnel and nearly ready to begin their product-buying journey. Many people start their buying journey with information search. Once their research is over, they are more or less ready to buy. To grab the attention of this category of prospects, you should provide what they are seeking rather than going all out to forcefully push them down the funnel. Rather than focusing your efforts on informational seekers, who may or may not be ready to buy in the near future, you should concentrate on those who have done their research and could become buying customers very soon.
Making Hyperbolic Discounting a Part of Your Marketing Strategy
Here are five different ways you can make hyperbolic discounting an integral part of your marketing strategy.
When your target audience gets a limited-time offer, it creates a sense of urgency. Research has shown that the click-to-open rate increases by 14% while the transaction-to-click rate jumps by 59%. So, when you are targeting people through email marketing, create the right-now experience and you will enjoy better results.
Whether you want to acknowledge it or not, people like to save money on their purchases. So, it makes sense to have a point system in place that enables them to get reward points that can be used to discount purchases. It can be euphoric to watch those points increase. The hyperbolic discounting principle comes into play here. People rather take the reward they are being offered today than allow their money to stagnate in their bank accounts in the future.
Many times when people are shopping, they fall short of the order size to avail of the free shopping that the online site is offering. As a result, they will go back and buy something else to benefit from the free shipping. Hyperbolic discounting governs this buying behavior. People want to enjoy the experience of not having to pay for shipping today rather than enjoy the benefit of saving tomorrow.
A potential buyer is more likely to become a paying buyer if they are allowed to defer their payments. The reward here is not paying today and that is more attractive than the reward of not having to pay in the future. It is this premise that many large retailers are using to keep buyers coming back. If your target audience gets an opportunity to delay their payments, it will attract them to check out their shopping cart.
When you make the life of your prospects easier and offer a reward today, they will stick with you and buy from you. So, in your quest to increase conversion, you should be looking to provide your audience with multiple choices so that they can choose one that is right for them. When feasible, let your target audience enjoy an at-home free trial that will provide instant gratification and that will boost conversion rates.
The Bottom Line
Now you know how to use hyperbolic discounting in your marketing strategy. Get back to the drawing board and take a close look at how your target audience thinks and behaves. That will enable you to come up with the right hyperbolic discounting strategy, one that offers immediate solutions and gratification.