Retail promotions are a familiar part of the modern shopping experience. Consumers are constantly presented with offers, from coupons in the mail to discount codes in their email inboxes. These deals often fall into one of two categories: a straightforward discount on any purchase, or a discount that only applies after a customer spends a certain amount of money.
Common sense suggests an unrestricted offer, one with no strings attached, would always be more appealing to a potential customer. Yet, new research suggests this intuition is not always correct. An investigation into how consumers perceive these deals reveals that adding a minimum spending requirement can, under specific conditions, make a promotion seem more valuable and increase a person’s intention to shop. The findings were published in the Journal of Marketing Research.
The Psychology of a Price Tag
The central question behind the research was why a restricted discount could ever be more attractive than an unrestricted one. The inquiry was led by Guanzhong Du, an assistant professor at Nanyang Technological University, and David J. Hardisty, an associate professor at the University of British Columbia. They proposed that the answer lies in how people mentally calculate the value of a discount.
To understand their approach, it is helpful to consider two concepts from behavioral science: internal and external reference points. An Internal Reference Point, or IRP, is a benchmark that exists in a person’s memory. It is based on past experience, like the amount a person typically spends during a weekly trip to the grocery store. In the absence of other information, people tend to use this internal number to judge a deal.
An External Reference Point, or ERP, is a number or piece of information present in the immediate environment. A classic example is a price tag showing a “regular price” next to a “sale price.” The regular price acts as an external benchmark that makes the sale price seem more attractive. Du and Hardisty suggested that a purchase precondition, such as “Save $5 on a purchase of $10 or more,” acts as a powerful new ERP.
The researchers theorized that when a discount has no minimum spend, a shopper compares the discount amount to their internal reference point. For example, a $3 discount might be mentally compared to a typical $40 grocery bill, feeling like a relatively small savings. However, when the offer is “$3 off a $6 purchase,” the $6 minimum spend becomes a salient external reference point. The shopper might then compare the $3 discount to the $6 requirement, and the deal suddenly feels like a 50% savings, making it seem much larger.
Putting the Theory to the Test
To test this idea, the researchers designed a series of studies. In an initial experiment, they presented 1,801 online participants with a hypothetical coupon for a supermarket. One group saw an offer for “$3 off.” A second group saw “$3 off a $6 purchase,” a minimum spend well below the typical supermarket bill. A third group saw “$3 off a $20 purchase,” a minimum spend above the typical bill.
The results aligned with their theory. Participants who saw the “$3 off $6” offer perceived the discount to be significantly larger than those who saw the unrestricted offer. They also reported a higher likelihood of visiting the store to use the coupon. In contrast, those who saw the “$3 off $20” offer perceived the discount as smaller than the unrestricted version and were less likely to want to redeem it.
In another study, the researchers flipped the design. They kept the promotion fixed at “$5 off a $15 order” for a restaurant and instead changed the participants’ internal reference point. They showed student participants one of two menus. One menu had prices averaging around $30, making the $15 minimum spend appear low. The other had prices averaging around $10, making the $15 minimum seem high.
When the students had seen the high-priced menu, the offer with the $15 minimum was more appealing than an unrestricted “$5 off” deal. But for students who had seen the low-priced menu, the same restriction made the offer less attractive. This showed that the effect depends entirely on the relationship between the minimum spend requirement and a person’s own spending expectations.
From the Lab to Social Media
To see if this pattern held in a real-world setting, the team ran an advertising campaign on Facebook. They created two ads for a fictional grocery coupon website. One ad offered “$1 OFF,” while the other offered “$1 OFF if you spend $2 or more.” The ads were shown to U.S. residents for five days. The ad with the minimum spending requirement generated a higher click-through rate, suggesting it was more effective at capturing consumer interest.
Having established the basic effect, the researchers next investigated the specific mental process at play. They suspected that the minimum spend causes people to think about the discount in percentage terms. In an experiment involving a real chance to buy a gift card, participants saw either a “$1 off” offer or a “$1 off a $2 purchase” offer. They were asked what percentage discount they felt the promotion provided, how large they thought the discount was, and whether they wanted to make a purchase.
The results showed a clear chain of events. The presence of the “$2 purchase” requirement led people to report a much higher perceived percentage discount. This feeling of a larger percentage discount was linked to a perception that the discount’s overall magnitude was greater. Finally, this increased sense of magnitude was connected to a higher rate of participants choosing to buy a gift card.
This led to a striking question: could this effect be so strong that a smaller, restricted discount could appear more attractive than a larger, unrestricted one? Another study tested this by pitting a “$1 off a $2 product” coupon against a “$2 off a product” coupon. Logically, the second offer is superior. Yet, participants rated the objectively worse “$1 off $2” deal as a larger discount and expressed a greater intention to use it.
Finding the Boundaries
The researchers then explored the boundaries of this phenomenon. They wanted to know when the effect might weaken or disappear. One factor they examined was how strongly a person holds their internal reference point. They asked participants to imagine ordering food for delivery. One group was first asked to list the items they would order and estimate the total cost. This task was designed to make their own spending plan more concrete and accessible in their minds.
They found that when participants had first thought about their specific order, the positive effect of a minimum spend requirement on their purchase intention vanished. The external benchmark had less influence when a person’s internal benchmark was already top of mind.
Another boundary condition they tested was the format of the discount. The theory rests on the idea that a minimum spend provides a new number for a mental calculation. If the discount is already presented as a percentage, the calculation is already done. An experiment compared a “$2 off” deal to a “50% off” deal for a department store, with and without a “$4 or more” spending requirement.
The results were clear. Adding the minimum spend boosted the appeal of the absolute dollar discount. However, it did not increase the appeal of the percentage-based discount, where the relative value was already explicit.
Finally, the team explored whether other types of restrictions could create a similar effect. They compared a coupon for “$2 off a product above $4” to a coupon for “$2 off a 12 oz bottle of juice.” Since most consumers know a bottle of juice costs around $4, the product restriction itself could serve as a reference point. Indeed, they found that the juice-specific coupon made the $2 discount seem larger than an unrestricted offer. Adding a minimum spend requirement to the juice offer did not provide much additional benefit, because a reference point was already established by the product category.
Insights for the Savvy Retailer
So, what does this mean for businesses and shoppers? The research indicates that the effect of making a deal more attractive is strongest when a consumer evaluates a promotion in isolation, like in an email or a social media ad. In supplementary studies, the researchers found that when people see a restricted and an unrestricted offer side-by-side, they correctly identify the unrestricted offer as the better deal. The advantage disappears with direct comparison.
For businesses, this work offers specific guidance. Adding a low purchase precondition, set below a customer’s typical spending amount, can make a dollar-off promotion more effective at attracting customers. This strategy is less likely to work for percentage-off deals or in situations where customers are directly comparing multiple offers. The research also found that these low preconditions did not cause shoppers to reduce their overall spending, meaning the strategy could increase customer visits without hurting revenue per customer.
New Questions from New Findings
This investigation opens up new questions for future research. Scientists could explore the long-term effects of these promotions on brand perception. For instance, consistently using low minimums might signal that a brand is a discount retailer, which could be either a benefit or a drawback depending on its market position.
Other avenues include studying how these simple preconditions interact with more complex promotional structures, such as tiered discounts or offers with savings caps. It is also possible that repeated exposure to these external reference points could slowly shift a consumer’s own internal expectations for what constitutes a normal amount to spend. The psychology of a simple coupon, it seems, is more complex than it first appears.
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