Ashesh Mukherjee, Associate Professor of Marketing at McGill University, ran a simple experiment. He set up a table on campus to raise money for the Canadian Red Cross. When patrons donated a dollar, they received a free chocolate. The chocolate was of a brand that typically costs more in stores, so the donation essentially amounted to a discount. Passers-by could take advantage of this deal at any time.
Then, on a different day, Mukherjee set up the table again. This time, he introduced a time limit. Patrons could only receive the chocolate if they donated within the next hour. Then 30 minutes. Then 10 minutes. There was a countdown clock at the table to remind people of the deadline.
At first, the countdown seemed to appeal to people’s sense of scarcity—better get that free chocolate before it’s too late! But at the 30-minute mark, engagement dropped off.
“People thought this was some kind of rip-off,” said Mukherjee.
Conventional wisdom tells us that, as the clock ticks closer to zero, customers’ sense of urgency would increase. And yet, as Mukherjee found, that doesn’t always happen. So, what’s going on here?
This was the first of five studies in a research paper authored by Mukherjee, Seung Yun Lee (Konkuk University), and Andrew Gershoff (University of Texas at Austin). They investigated the effects of limited-time offers and found they can have a surprisingly negative effect on sales. Their findings add nuance to a well-established sales tactic and unlock new insights into consumer psychology.
Under pressure
Price discounts typically co-occur with one of three kinds of restrictions, said Mukherjee. First: limited quantities per customer. We see this a lot on Black Friday or Boxing Day, in part to prevent resellers from buying all the discounted inventory only to resell it online later. Then, there are limited quantities of products. Only five pairs of shoes are available at this price; buy now before it’s too late! And finally, and most commonly used by marketers, we have limited-time discounts—act now or miss out on this sweet deal.
Each of these restrictions appeals to people’s sense of scarcity, he said. As a species, humans evolved to survive when food, shelter, and safety were in short supply. So we learned to capitalize on resources when they became available.
“It’s hardwired in us,” said Mukherjee. “That’s the most common theory for why time limits work.”
By that logic, demand should increase as the clock ticks down. But as we saw with Mukherjee’s chocolate experiment, that’s not always the case.
He attributes this unexpected behaviour to reactance theory. Reactance theory holds that people respond negatively when they feel their freedom of choice is being threatened. In this case, countdowns can place unwelcome pressure on consumers to make a purchase, giving them less time to decide and, therefore, less flexibility to exercise their free will.
“If you restrict people’s flexibility of action, that can actually reduce the effectiveness of a limited-time offer,” he said.
Land of the free(bies)
To boost the effectiveness of time-limited offers, Mukherjee recommends finding new ways to increase people’s sense of agency. Tactics will vary depending on why consumers feel restricted, but he offered a couple of examples.
First of all, if your time-limited discount is only available on weekdays, a working parent may be less inclined to consider your product between meetings, school pickup/drop-off, packing lunches, etc. Their daily commitments amplify the restrictions already imposed by the time limit.
“They don’t have flexibility in their daily life; they’re not going to accept inflexibility here,” said Mukherjee.
The solution? Time your discount differently. For example, run it on Friday evening through the weekend, when parents may have a bit more bandwidth for purchase decisions.
Second, consider the commitment involved in a purchase. Many limited-time sales don’t offer a return policy, raising the stakes for consumers. But if they don’t have time to research the product and make an informed decision, they may move on. To counteract this, a simple solution would be to allow returns for a short time, even on deeply discounted items, which are often labelled “all sales are final.”
Mukherjee’s findings add nuance to the practice of time-limited discounts. This tactic is meant to introduce scarcity to encourage sales. But that only works up to a limit; otherwise, it can backfire. People who feel unduly pressured to make a purchase are prone to move on.
“At some point, they’re even less effective than having no time limitation at all,” said Mukherjee.
This article was written by Eric Dicaire, Managing Editor of McGill Delve. Based on the research paper “Consumer flexibility and the effectiveness of limited time offers: the role of psychological reactance,” by Ashesh Mukherjee, Seung Yun Lee, and Andrew Gershoff.
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