Mastering the Psychology Behind Limited Time Offers
Background
We have long heard about unbeatable Boxing Day deals and witnessed scenes of consumers battling for the last item whose Black Friday discount, or other Limited Time Offer, is just too great to miss. In more recent years, we have seen this phenomenon take the digital world by storm, with UK retailers all vying for their slice of the £25.9 billion spent online over the festive period (Adobe, 2024).
However, there is more to these flash sales than meets the eye. The psychology of why these tactics work is deeply rooted in human behaviour. We know that when people perceive discounts as limited or timebound, they are much more likely to leap into action. And when coupled with effective digital marketing strategies, businesses can benefit from a significant increase in orders and revenue.
Roots found in psychology
Understanding the psychological mechanisms that make limited time offers so effective provides a fascinating insight into how we make decisions subconsciously. We will unpick three core behavioural economics principles at play over the festive period and how they contribute to some of retail’s busiest days.
How the perception of supply increases demand
We can all relate to that luxurious feeling of seeing something labelled a limited edition. People tend to value things more when they are in restricted supply. This is the essence of the scarcity principle. This powerful idea has been repeatedly shown to work in psychology. One example of this showed that purchase intent was improved by +37% through experiments on wristwatch ads that promoted scarcity messaging over abundance. (Yun Lee & Seidle, 2012).
Day-to-day, businesses will carefully balance supply and demand by controlling their pricing. However, this balance can also be exploited during promotions, to create a false sense of limited supply to increase demand. One of the best examples of the scarcity principle is at Starbucks. We have all seen the infamous Pumpkin Spiced Latte taking the nation by storm (including the UK now!) every autumn. Manufacturing scarcity in this way, underpinned by a loyal customer base uploading pictures to their stories, has helped Starbucks contribute to a $500m+ a year industry (Iacurci, 2022).
Unlocking the fear of missing out with limited time offers
The fear of missing out is such a universal truth that it has been given its own abbreviation: FOMO. More typically applied to social situations, we can see exhausted workers desperate to have a restful night in, yet they somehow summon the energy to make it out to after-work drinks every week. And why do they do this? The thought of returning to work after the weekend to find everyone discussing the same salacious event they missed is unbearable.
However, we have all seen countless examples of companies using this fundamental principle to jump-start their transactions. Airlines commonly promote 24-hour flash sales. Retailers don their sites with countdown clocks, presenting a constant reminder to act fast or lose out. Couple this with user-generated content showcasing other happy customers, and you have created the perfect storm for success.
Why do humans hate to lose?
Humans are more motivated by the fear of loss than the desire for gain. This would make sense when considering that humans feel losses almost twice as strongly as gains (Kahneman & Tversky, 1979 – note: behind academic paywall).
But how does this apply to e-commerce? This can be particularly useful for brands not wanting to (or not having the headroom to) heavily reduce their pricing. Luxury retailers wanting to avoid devaluing their brands may opt for free add-ons, extras or personalisation to create a sense of future loss. Another common strategy is introducing minimum-spend thresholds, counting down to free delivery or a gift. Maximise spending by setting thresholds at tactical limits to encourage one more item into a user’s basket.
How to build this in your Conversion Rate Optimisation strategy
Now we understand the theory of limited time offers and promotions better, we can move on to practice. Here are a few strategies you might consider using the next time you have a sale planned.
Countdown timers
Inherently, timers create a sense of urgency. Be it the kitchen timer alerting you that your dinner is perfectly cooked or a digital clock counting down the seconds until the promotion ends, visually representing time remaining is a common way to encourage purchases. There is countless evidence showing how this element can contribute to increased purchases. For example, a CXL study showed a sales uplift exceeding +300% after trialling these tactics (CXL, 2023).
Urgency messages
We can see that positioning is everything when cultivating the perfect way to promote your offer. Leading with strong and action-orientated language to nudge us into action. Phrases such as “last chance”, “limited time only” and “don’t miss out” could be all it takes to boost your online performance. Experimentation platform Dynamic Yield has found messages such as these have improved revenue by +2.5% (Dynamic Yield, 2024).
Loss aversion through scarcity promotion
Stock is running out and fast! No, it doesn’t have to be over the top, but advertising stock levels works and can take many forms. Take Amazon, for example, who regularly hold Lightning Deals, clearly showing the percentage of each product already sold. Fashion retailers show which sizes are running low on stock, and hotels show which rooms are booking up – everybody is doing it. Just ensure you are truthfully representing your availability, so as not to risk brand damage.
Conclusion on how to use limited time offers in CRO programmes
We have covered several strategies that marketers have at their disposal around limited time offers. Understanding the theory behind these will empower you to craft the best creatives for your site. The key to promotional campaigns is using them strategically and ethically whilst preventing overuse will avoid fatigue and brand damage.
As a closing remark, choosing the strategies and execution that work best for you will ultimately come down to how well you know your consumers. Getting a deep understanding of what best motivates them will help you elicit the biggest response. This will unlock the full potential of this powerful toolset, which will help you craft online campaigns with the greatest chance of success.