Imagine this...

John buys a lottery ticket each week with the hope of winning big one day.

Against all odds, his luck shines through, and he wins the 1st prize of $5 million dollars!

After celebrating and receiving warm embraces, John heads to the lottery office to get his reward.

There, the lottery director gives him a choice: he can either get the $5 million right away or receive $250,000 annually for the rest of his life.

Since John is just 35 years old, a quick mental calculation indicates that the second option would give him more money if he lives past 55 (which he planned on).

However, John imagines having a bank account with seven digits and the many things he could buy immediately.

In the end, John opts for the first choice, even though it means he'll receive less money from it overall in the long-run.

In this week’s edition of Mindful Marketing, we’re diving into the Hyperbolic Discounting - How we prefer immediate rewards over long-term rewards.

🧠 The Psychology of Hyperbolic Discounting

Hyperbolic discounting was first teased in Richard Herrnstein’s “matching law” in 1961.

People value the immediacy of time over the higher value of money.

Expressed another way:

We like Certainty 💯

Decision makers are usually risk averse, meaning we're often willing to accept a small but certain reward over a larger, potentially uncertain reward.

The interesting part is that nothing specifies that the delayed reward is uncertain, but because we can’t see and evaluate the future, we tend to associate waiting with the opportunity for barriers to arise, thus rendering the reward irretrievable.

Therefore, we feel more secure when the rewards are already in our hands.

Waiting is Hard 😩

If there's something you really want, the draw and temptation is sometimes difficult to withstand. For many, it requires a level of self-discipline that they just don't have.

A similar phenomenon can be seen in the world of health and fitness.

We're all aware that committing to a long-term healthy lifestyle that includes sensible food choices and regular exercise will help us drop those extra pounds (and keep them off) but we fail to commit to long-term changes, opting instead for the 'quick-fix' diets, only to find ourselves in the same place a year later!

Procrastination 😬

You’ve actually encountered this bias way more often than you think. It happens every new year when you dream of your beach body. You decide to cook your own meals and eat healthy from now on.

But what happens a couple of weeks down the road when you arrive home from work exhausted, itching to watch Netflix and just chill for a while? Pizza it is!

It happens every time you procrastinate.

One of the most common manifestations of hyperbolic discounting is procrastination. 

We choose to avoid our responsibilities and opt for much more pleasant activities instead.

One more task to finish today so you can breathe easier tomorrow? Nah, that’s a future you problem now.

In both of these cases, you just chose immediate gratification, even when delaying it would have been better for you.

Ancient Instinct 🧬

There are multiple reasons why this happens. The first, as usual, is evolution.

Our brains were never wired to make rational choices. No, they evolved to survive. And that, for the longest time, meant making quick decisions.

Unfortunately for today’s us, our cavemen ancestors never had to choose between eating a whole antelope at once versus investing in retirement funds.

The best decision they could make was to eat the whole thing, as there was no certainty another meal was coming for a while.

Immediate sure things = survival.

That has influenced the evolution of our nervous system.

The reward causes a quick rush of the feel-good neurotransmitter, dopamine.

The feeling of satisfaction we get after this reward ensures we will opt for the same choice again next time.

💡How it works inside your Buyer’s mind

When your buyers are faced with choices, their decisions are influenced by the immediacy of rewards.

If we give you $100 today or $120 next week, which option will you choose?

It is very likely that you will take $100. It is not just you; most of us will choose the first option.

Now, let us tweak the timeline; what if we give you $100 after a year or $120 after a year & a week.

Chances are high that in this case, you will choose the second option.

What has changed? Although the time difference in both cases is the same, we choose differently.

Reward realization drops steeply as we move away from “NOW”. We consider instant as a premium & ready to pay more.

Delaying gratification means opting for an uncertain outcome 🤔

The future feels distant, and who knows what's gonna happen then?

If we choose $120 a week from now instead of grabbing $100 today, something might happen before then.

There's this big cloud of uncertainty, and man, do we hate uncertainty!

It makes us feel like we’re not in control, which indicates a survival risk from an evolutionary perspective.

That's why we usually avoid such situations.

And let me tell you, uncertainty is one of the top sales killers that stops customers from hitting that 'buy' button.

It also pushes us to go for things that are guaranteed – things we can get right now. Not tomorrow, not next year – NOW!

🤑 How to Apply Hyperbolic Discounting

Alright, so how can you apply Hyperbolic Discounting right now to boost your sales?

1. Time-Limited Offers ⏰

Limited time offers create a sense of urgency for the consumer. It makes them think, "If I don't buy now, the price will never be this low again. I'll have missed a great opportunity."

Oftentimes, they'll buy the product on the spot, choosing the short-term reward.

According to Business2Community, an Experian report found that promotional emails “conveying a sense of urgency” drive 14% higher click-to-open rates, 59% higher transaction-to-click rates, and 100% higher transaction rates.

The lesson: urgency sells.

Communicate to your prospects that right now is the time to purchase whatever you’re selling.

A headline as simple as “Last Chance: Order Today for Free Shipping” is enough to activate the drive for immediacy.

2. Reward Programs 🎉

As the basic principle of hyperbolic discounting is that people love immediate rewards even if they are not that big, this can easily be used in loyalty programs.

If your customers collect points for every purchase, make sure it doesn’t take them forever to collect enough points to get their reward. Instead, you can make the prizes smaller, but reward them more often.

This leads to more frequent rewards, which consequently will make your customer buy more often, as they will anticipate their reward.

If we apply this to Starbucks, it means the company has 29 million members who will recommend Starbucks and its rewards program to other people: their family, friends, roommates, and co-workers.

3. Free Shipping 🚚

When coupled with a minimum purchase threshold, free shipping is actually one of the most effective uses of hyperbolic discounting.

The reward of eliminating the “penalty” of shipping costs from your order is so strong that many people are willing to spend more than they would pay for shipping to get free shipping.

Why? Well, shipping is a sunk cost. You don’t get anything for it. If you buy an extra item or two to get free shipping, you get something for that extra money—even if you spend more money overall.

And that’s the power of hyperbolic discounting. Instead of saving money by only getting what they want and paying for shipping, people will buy things they don’t necessarily want just to make sure they don’t have to pay the shipping “penalty”.

4. Buy Now, Pay Later 💸

As customers underestimate costs at later stages, they have a smaller impact on their purchase decision. Simply put – buy now, pay later.

Zalora is a great example of this. It’s an online fashion store that uses a method called Atome. Customers can simply buy their clothes now, pay a portion of the price upfront, and the rest in installments.

People who delay payment are interested in the short-term reward of purchasing the product when they want it. The almost immediate satisfaction they get from buying the product outweighs the financial cost they need to address in the future.

As every purchase usually comes with the pain of paying, you postpone this pain to later but allow your customer to enjoy the product immediately.

PayPal’s famous “Bill Me Later” method was also built on the whole psychological principle of hyperbolic discounting.

5. Immediate Gifts 🎁

With hyperbolic discounting, timing is everything. That’s why some people refer to it as temporal discounting.

Immediacy is key.

The time element is the most important factor for buyers. Rather than wait for any length of time for a reward, they prefer benefits that are available immediately.

In many cases, a simple and inexpensive gift will suffice. Sometimes, users will convert based on the promise of an immediate result, even if the full product is not available until later.

EA Access gives gamers the ability to join a program where the big results aren’t available until later. Gamers are likely to convert, however, because they get immediate access to the parts of the game.

6. Charge a Higher Price for a Shorter Term💲

Have you ever noticed that some websites offer payment plans that don’t make financial sense?

Here’s the type of thing they offer:

Buy 1 month: $9.99

Buy 1 year: $39.99

Most people can do the math. They know that there are twelve months in a year. If one year costs $39.99, then one month at the yearly rate is only $3.33. Why would anyone pay $9.99 for one month?

Hyperbolic discounting, that’s why. The user wants to pay less now. They don’t want to pay more, even if it results in a discount over the long term.

They consider the issue from a hyperbolic discounting perspective, not a true value perspective.

I was recently looking to purchase Gleam - a marketing app to run giveaway campaigns for a client.

If I paid monthly, it would cost me $97 per month for 2 users. If I paid yearly, it would cost cost me $79 per month for 4 users.

Obviously, I chose to pay $79 per month.

7. Use Short & Long Term Framing 🔄

I covered in detail how you can use both Short-Term and Long-Term framing to boost conversions in The Framing Effect.

In a Nutshell 🥜

Hyperbolic Discounting causes customers to prioritize instant rewards over long-term gains.

This bias shapes decision-making, favoring immediate gratification over future consequences.

Businesses can leverage this bias by tailoring strategies to trigger swift action.

Aligning promotions with the desire for instant gains creates urgency, appealing to impulsive tendencies.

Marketers can use Hyperbolic Discounting to design messages emphasizing immediate benefits.

Such messages sway purchasing choices by spotlighting instant gratification and downplaying delayed results.

By catering to the craving for instant rewards, brands prompt action and increase sales.

So, be more Mindful of Hyperbolic Discounting and use it to fuel customer engagement and boost your conversions. 🚀

See you next Thursday,

Razy Shah

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