In economics, hyperbolic discounting is a time-inconsistent model of delay discounting. It is one of the cornerstones of behavioural economics.
Researchers often run the following experiment to prove hyperbolic discounting: imagine you’re given 2 choices; get a £100 today or £120 in a week. Most participants choose £100 today.
But when the same question is asked with the same 1-week interval, but a year in the future, participants largely choose the bigger reward.
Simply put, shoppers prefer immediate rewards over delayed gratification.
- Have it now – if you run any sort of free gift or instant reward scheme for your brand, shout it from the rooftops - the hyperbolic discounting theory will have consumers falling at your knees.
- Rungs up the ladder – you can run schemes where shoppers are rewarded over time (think coffee cup stamps and a free cup after so many). These work better if you give shoppers a couple of free stamps to start them off, then they are proven to be more likely to continue the journey to the end of the process.
- Fine-tuned promotions – recognise that you can give away less in terms of added value if shoppers can ‘cash in’ now and that longer-term offers may need to be bigger, but not every shopper will get to the gold at the end of the rainbow.
Acknowledging that hyperbolic discounting exists and evaluating trade-offs between now and the future will help you do the right thing for your brand.
