The phrase “animal spirits” evokes several images. It could be the name of an edgy, experimental band playing a marathon concert in your friend Kyle’s basement, or perhaps the label of his future whiskey brand. However, in this context, “animal spirits” refers to the term coined by John Maynard Keynes to describe the frequently illogical impulses that govern our actions.
Economics’ equivalent of Santa Claus. Hyperbolic discounting embodies one such impulse. Despite sounding intricate, this instinct is surprisingly straightforward to grasp and incorporate into your marketing approach. Let’s explore how.
Decoding Hyperbolic Discounting
Hyperbolic discounting falls under the category of cognitive biases in psychology. Essentially, we favor a small reward today over a larger one next week. The interesting part is that our preference for the immediate reward weakens as it becomes more distant in time. To illustrate, imagine a genie presents you with a choice: a plate of oatmeal raisin cookies tonight or two plates next Thursday. (Feel free to voice your disdain for oatmeal raisin cookies in the comments if you’re feeling particularly contrarian today.) Most people, influenced by hyperbolic discounting, would choose one plate tonight over two next week. However, there’s a twist. Given the option of one plate in exactly one year or two plates in one year and one week, most would choose the latter. The time between rewards remains the same, but our behavior shifts.
Image via Neil Patel. This illustrates the hyperbolic nature of this bias. When both rewards are distant, the time gap matters less.
The Significance of Hyperbolic Discounting
It’s crucial because integrating it into your marketing strategy can boost conversions. Immediacy reigns supreme. When crafting ad copy, designing landing pages, or structuring pricing, emphasize the value you deliver to prospects right now—or at least very soon. A quick reminder before we proceed: keep search intent in mind. While hyperbolic discounting is a universal cognitive bias, many prospects are not conversion-ready. Marketing to everyone as if they’re at the bottom of the funnel is counterproductive. It leads to missed opportunities to build brand awareness and trust with those not yet prepared to buy.
Informational search queries like “what is PPC” come from information seekers. Target these with top-of-funnel content: blog posts, infographics, etc. Offering an immediate reward (e.g., a free software trial) through a PPC ad to information seekers will only lower your click-through rates and tank your Quality Scores. Transactional search queries, however, usually come from individuals ready to take action. “PPC management software trial” clearly signals the searcher is ready to experiment after some research. It’s primarily with these queries that you can leverage hyperbolic discounting. Since your prospect has shown interest in your product, presenting an offer makes sense.
Integrating Hyperbolic Discounting into Your Marketing Strategy
There are numerous and varied approaches to achieving this. As previously mentioned, there’s scope to cater to your prospects’ desire for immediate rewards in everything from Google Ads to your pricing page. Let’s delve into the strategies.
1. Implement a Limited-Time Offer
A classic, straightforward strategy? Definitely. A highly effective way to capitalize on hyperbolic discounting? Absolutely.
Image via CrazyEgg. According to Business2Community, an Experian study revealed that promotional emails “conveying a sense of urgency” achieve 14% higher open rates, 59% higher click-to-transaction rates, and a remarkable 100% increase in transaction rates. The takeaway: urgency drives sales. Communicate to your prospects that now is the opportune time to purchase. A simple headline like “Last Chance: Order Today for Free Shipping” is enough to trigger that impulse for immediacy.
2. Develop a Point System
I’m trying to become a home-coffee aficionado. Considering the potential savings, it’s a no-brainer. The main obstacle? Point systems. Fellow Starbucks app users know the feeling. Buying coffee or food through the app earns you instant points.
Image via Starbucks. Let’s be real, the thrill of seeing my points increase rivals the caffeine high. This makes resisting Starbucks nearly impossible. Such a system works wonders for e-commerce businesses. Entice prospects by offering points for every purchase. Due to hyperbolic discounting, most people prefer the immediate reward of points over the future reward of more money in their accounts.
3. Offer Free Shipping on Orders Above a Certain Amount
We’ve all been there. You’ve selected your items, reached checkout, and realized you’re just shy of the free shipping threshold. Though utterly illogical, I’ll invariably add another unnecessary item to avoid shipping costs.
Why? Because the immediate satisfaction of free shipping today trumps the delayed satisfaction of greater savings tomorrow. Setting a free shipping threshold offers customers something today. If they’re anything like me (and they probably are), they’ll take the bait.
4. Enable Delayed Payment Options
You’ve grasped the concept by now. Hyperbolic discounting suggests that someone is more likely to convert if offered delayed payment. The reward of not paying today outweighs the reward of not paying later. This sounds familiar because it’s the foundation of credit card companies. Some retailers even offer their own credit cards to amplify this strategy. Kohl’s, Target, Costco, and TJX are prime examples of stores enabling loyal customers to buy now and pay later.
Image via Credit Karma. However, you don’t need your own credit system to implement delayed payment. Simply allowing customers to finance purchases and make incremental payments effectively maximizes their immediate net benefit. Moreover, offering delayed payment allows you to increase prices without alienating potential customers.
5. Provide Multiple Pricing Options
Subscription services are ubiquitous. From streaming music and TV shows to optimizing paid search and social media campaigns, everything operates on a recurring payment model. If you sell through subscriptions—or are considering it—you can exploit hyperbolic discounting through your pricing structure. Consider Chegg, an all-in-one education platform, as a case study. Among other services, Chegg offers an online tutoring service. Those opting for a weekly plan can choose between $15/week for 30 minutes or $48/week for 120 minutes. But wait. The first plan costs 50 cents per minute, while the second costs only 40. Why would anyone choose to pay more for less tutoring? Because the first plan has a lower upfront cost. I sound like a broken record, but people prioritize the immediate gratification of paying less today over the long-term benefit of saving money. Interestingly, on Chegg’s pricing page, the $15/week for 30 minutes plan is the only one advertised. You have to click “View Additional Plans” to see the more economical options. Sneaky!
Image via Chegg.
6. Offer At-Home Product Trials
I desperately need new glasses. I’ve worn my current pair for three years, and they’ve seen better days. They’re bent, scratched, and probably don’t even improve my vision anymore. I’m procrastinating on this easily fixable problem. However, I’m certain my next pair will be from Warby Parker. Their brilliance lies in their simplicity: they let you try on five pairs of glasses before you commit to a purchase. They understand that buying new frames is a significant decision and tap into their prospects’ desire for instant gratification by offering a free home trial.
Image via Warby Parker. Giving potential customers this freedom before purchase leads to a measurable increase in conversions. I choose Warby Parker because they understand how to simplify my life. They give me what I want now. Think of it this way: a free home trial transforms homes into dressing rooms. It’s a simple step towards merging the convenience of e-commerce with the immediate satisfaction of traditional shopping. And it works.
Deliver What People Crave, Now
Successful marketing hinges on understanding human thought processes and behaviors. You can’t sell without understanding how and why people buy. Hyperbolic discounting is another piece of that puzzle. It sounds complex, but it’s not. Consumers want things now. It’s that simple. This doesn’t mean every retailer needs to issue credit cards or every e-commerce business should halve shipping times. It does mean finding ways to satisfy the consumer’s desire for a swift solution can drive more conversions. While implementation will vary across businesses and marketing strategies, the underlying principle remains universal: give people what they want, and most importantly, give it to them now.