This whitepaper written in 2009 regarding the consumer psychology behind coupon redemption has stood the test of time, still showing relevance today, and well into the future.
DirectMail.io’s Personalized-Gift-Card-Like Coupons Avoid Coupon Stigma
The DirectMail.io Platform sees higher-than-normal redemption rates because both its offline and online distribution methods avoid “coupon stigma”, a psychologically validated phenomenon that partially explains the generally low usage rates of coupons (e.g. less than 2 percent in the United States[1]). A 2008 Journal of Consumer Research study[2] demonstrated that coupon users are stigmatized by others as “cheap”. Surprisingly, they also found that the stigma is contagious. Anyone associated with the coupon user – from an actual friend to someone who merely happens to be standing nearby in the checkout line – was viewed as cheap as well. The study confirms longstanding common knowledge that coupons are in many cases not socially acceptable.
The DirectMail.io Platform avoids coupon stigma by completely changing the frame of reference: both physical and online coupons are reinvented as personalized gift cards. Gift cards are socially acceptable, as evidenced by the $97 billion in gift card sales in 2007, up nearly 17% from 2006.[3] Those who normally reject coupons because of their association with cheapness are more likely to accept DirectMail.io’s personalized gift cards, as they do not suffer from the same stigma.
Because DirectMail.io’s gift cards avoid coupon stigma, individuals are more likely to want to share them with friends. The DirectMail.io Platform enables and encourages online sharing of its gift cards. When a gift card is received from a friend rather than a company, both its acceptability and desirability are strongly reinforced by social proof. People have a strong psychological tendency – a genetic compulsion, in fact – to imitate others.[4] The more similar a person is to us, the more likely we are to imitate him or her.[5]
In his bestselling book Influence: The Psychology of Persuasion, psychologist Robert Cialdini reviews many psychology studies that demonstrate that we “view a behavior as more correct in a given situation to the degree that we see others performing it.”[6] When an individual receives a DirectMail.io coupon from a friend, not only will it better capture his or her attention, it will carry with it clear social proof that sends a strong subconscious message that sharing and using the coupon is the appropriate thing to do.
When a person shares a coupon with a friend through the DirectMail.io Platform, he or she is in a small way taking a public stand on behalf of the coupon and the retailer. Psychological research indicates that this small act of commitment can lead the individual to take larger follow-on actions in support of the coupon and retailer in order to stay consistent with the original commitment.[7] [8] Should the value of the coupon or retailer be questioned, for instance, he or she will feel compelled to defend it. The individual will also be more likely to use the coupon.
Psychologists attribute the binding power of small commitments to a transformation in the committer’s self-image that occurs during the act of commitment. In one of the many studies of this phenomenon[9], a volunteer asked residents of California to sign a generic petition that favored “keeping California beautiful”, and naturally nearly everyone did. Two weeks later, a different, unaffiliated volunteer asked these same people for permission to erect a huge, ugly sign that read “DRIVE CAREFULLY” on their lawns. Whereas people usually, and understandably, declined to put the sign on their lawns, those who had been asked to sign the simple petition two weeks earlier were three times more likely to accept, even though the two requests were completely unrelated. It turns out that the small, easy act of signing a civic-minded petition makes the signer think of him or herself as a more civic-minded person. When additional, greater acts of public service are requested, the person is much more likely to agree in order to stay consistent with this new self-image. This process happens subconsciously, as no residents in the study recognized any connection between the petition and the DRIVE CAREFULLY sign.
The commitment principle – that a small commitment compels a person to take larger actions – has been effectively used in a variety of commercial contexts, including telemarketing, door-to-door sales, and sweepstakes programs.[10] The DirectMail.io Platform leverages the commitment principle by enabling and encouraging individuals to take the easy action of sharing a coupon with a friend. Sharing a coupon plants a small seed of commitment, leading the sharer to identify more with both the retailer and the coupon without consciously realizing it.
A consumer infers value in an item that is perceived to be scarce.[11] One way to make an item seem scarcer is to increase its cost.[12] Coupons are known for being made freely and abundantly available, if not forced upon individuals. This lack of scarcity causes them to be perceived as cheap, which underlies the coupon stigma discussed earlier. As already mentioned, DirectMail.io avoids coupon stigma by reinventing its coupons as gift cards. But it’s not simply a visual re-invention. Rather than giving its coupons away, DirectMail.io requires the individual to earn a coupon by answering a few questions of the retailer’s choosing. This further reinforces the perceived value of the coupon: not only does it appear like a gift card; it is, like a gift card, decidedly not free. From a psychological standpoint, individuals are more likely to desire DirectMail.io coupons, which have to be earned, than traditional free coupons.
The ability to earn coupons on the DirectMail.io Platform is well-designed to activate the individual’s “seeking system”, which neuroscientist Jaak Panksepp calls “the granddaddy of [neural] systems”[13]. The seeking system is the mammalian motivational engine that gets us out of bed and drives us to earn and discover. When this system is destroyed in the brains of lab rats, the rats starve to death even while food is right in front of them because they have lost the will to go get it. The fuel of the seeking system is the neurotransmitter dopamine, whose neural circuits “promote states of directed purpose.”[14] In other words, the seeking system is stimulated by the clear possibility of earning or finding something. And, as it turns out, the system is more powerful than the reward system that kicks in when the actual earning or finding occurs.[15] Because of this, when a reward is obtained people are often not satiated but instead driven to continue seeking more. From an evolutionary standpoint, the fact that we are wired to constantly seek rather than settle for the first reward makes sense.
The DirectMail.io Platform activates the seeking system by giving the individual a clear and easy path to earn a succession of small rewards, which provides the sense of “directed purpose” that releases dopamine in the brain. The seeking system is maximally activated when the rewards are small and recurring, as opposed to one large reward that is achieved only after sustained, long-term effort.[16] This fact has been used to explain the addictiveness of email, Facebook feeds, Twitter, texts and Google searches.[17] The DirectMail.io coupon activation process is similar to these addictively fun web activities in that it offers the individual small, recurring awards as he or she earns coupon after coupon. Because the seeking system is more powerful than the reward system, individuals will have a psychological tendency to earn more coupons rather than become satiated by those they have already earned.
Loss aversion refers to people’s tendency to strongly prefer avoiding losses to acquiring gains. Some studies suggest that losses are twice as powerful, psychologically, than gains.[18] The individual who has received a DirectMail.io coupon, then, will have a strong psychological compulsion to use it rather than lose it.
In Predictably Irrational, Dan Ariely demonstrates loss aversion through the behavior of MIT students playing a simply computer game.[19] The game presents players with three doors, each of which can be clicked to earn a random reward of between one and ten cents. The students are given 100 clicks and are told to earn as much money as possible. Although the rewards are random, one door tends to pay lower rewards than the other two. After exploring all three doors for a bit, the MIT students quickly identify the low-payoff door and avoid clicking it for the rest of the game. After establishing this result, Ariely tweaked the game to make a door slowly disappear if it is not clicked. In this version of the game, when the neglected low-payoff door begins to disappear, the players click it simply to keep it available. This reduced their earnings by 15% on average: they would have made more money if they could just let the door disappear.
Ariely tried several different approaches to train the players to ignore the disappearing, low-payoff door. He told players the exact monetary payoff of the doors. He told them that they could “reincarnate” a disappeared door with one click. In all cases the students continued to click the disappearing door in order to keep it available, even though doing so led to a lower payoff. As Ariely explains, “players just couldn't tolerate the idea of the loss, and so they did whatever was necessary to prevent their doors from closing, even though disappearance had no real consequences and could be easily reversed.”[20]
Loss aversion is partially what compels people to overeat at buffets, go to a pre-paid show that they no longer care to see, or use gift cards to buy something they don’t really want. In all cases, an action is taken not because it is desirable but because forgoing that action implies losing something. In these examples the power of loss aversion is magnified by the sunk cost effect: not only is something being lost, but the investment (in this case, money) to obtain the item is lost too.[21] So while any coupon with an expiration date can benefit from loss aversion, DirectMail.io’s coupons benefit significantly more because they carry a sunk cost: the individual had to answer questions in order to activate them. He or she will be doubly psychologically driven to use DirectMail.io coupons in order to avoid both losing the coupon themselves and wasting the time and effort invested in earning them.
[1] http://www.eurekalert.org/pub_releases/2008-09/uocp-acr091508.php
[2] Jennifer J. Argo and Kelley J. Main. "Stigma-by-Association in Coupon Redemption: Looking Cheap Because of Others" Journal of Consumer Research: December 2008.
[3] “Gift Card Sales Near $100 Billion in 2007”, eMarketer, January 2008. http://www.emarketer.com/Article.aspx?R=1005802
[4] Richerson, P.J. and R. Boyd. 2005. Not by Genes Alone. Chicago: University of Chicago Press.
[5] Hornstein, H.A., E. Fisch, and M. Holmes. “Influence of a Model’s Feeling About His Behavior and His Relevance as a Comparison Other on Observers’ Helping Behavior.” Journal of Personality and Social Psychology 10 (1968): 222-26.
[6] Cialdini, Robert B. 2007. Influence: The Psychology of Persuasion. New York: HarperCollins Publishers.
[7] Moriarty, T. “Crime, Commitment, and the Responsive Bystander.” Journal of Personality and Social Psychology 31 (1975): 370-76.
[8] Sherman, S.J. “On the Self-Erasing Nature of Errors of Prediction.” Journal of Personality and Social Psychology 39 (1980): 211-21.
[9] Freedman, J.L and S.C. Fraser. “Compliance Without Pressure: The Foot-in-the-Door Technique.” Journal of Personality and Social Psychology 4 (1966): 195-203
[10] Cialdini, Robert B. 2007. Influence: The Psychology of Persuasion. Chapter 3. New York: HarperCollins Publishers.
[11] Cialdini, R. B. (1993). Influence: Science and practice. New York: Harper Collins.
[12] Weinschenk, Susan M. 2009. Neuro Web Design: What Makes Them Click? New Riders Press.
[13] Yoffe, Emily. “Seeking: How the brain hard-wires us to love Google, Twitter, and texting. And why that’s dangerous.” Slate August 12, 2009.
[14] Panksepp, Jaak. 1998. Affective Neuroscience: The Foundations of Human and Animal Emotions. Oxford University Press
[15] Zweig, Jason. “Your money and your brain: Humankind evolved to seek rewards and avoid risks but not to invest wisely.” CNNMoney August 23 2007
[16] Berridge, Kent C. and Robinson, Terry E. “What is the role of dopamine in reward: hedonic impact, reward learning, or incentive salience?” Brain Research Reviews 28 (1998): 309-369.
[17] Yoffe, Emily. “Seeking: How the brain hard-wires us to love Google, Twitter, and texting. And why that’s dangerous.” Slate August 12, 2009.
[18] http://en.wikipedia.org/wiki/Loss_aversion
[19] Ariely, Dan. 2009. Predictably Irrational. Chapter 8. Harper.
[20] Ariely, Dan. 2009. Predictably Irrational. Chapter 8. Harper.
[21] http://en.wikipedia.org/wiki/Loss_aversion