Let me give you an example of how it is used at a burrito place called Moe's.
Moe's, like a lot of burrito places, is set up there you start at the beginning of a line and work your way down, picking what you want from a bar, and finally paying at the end. The setup is very similar to Subway.
At the end of the line, when you pay for your meal, like a lot of similar places, you have an option to leave a tip.
When you don't leave a tip, nothing happens. You still get your food and go on your way.
But when you do leave a tip, the cashier rings a bell and everybody working the line says, "Thank you!"
That changes everything.
Social scientists have long known that people modify their behavior in public in order to be perceived better by others. By ringing a bell, the cashier takes an otherwise private act of leaving a tip and makes it public. This now becomes an "opportunity" for customers to elevate their status.
How can you use this same strategy to sell more music, t-shirts, and other merchandise at your live shows?
Make the transactions public.
When people buy something from your merch booth during a show. Recognize them from the stage. This will do three things.
1. It gives you an opportunity to plug your stuff.
Many musicians, and you may be one of them, feel uncormfortable selling from the stage. There are ways to do this that don't have negative effect on the show though and this is one of them.
If somebody in the audience is enjoying your show, if you've done the necessary work in creating a great show, people should be enjoying your shows, he's going to be thinking, "I wonder if this act has music I can buy..."
If you do have music, but don't announce it, how will this guy know? Don't assume he's going to ask somebody or dig too much -- people are lazy. Let your audience know you have something for sale and get on with the show. It's easy, painless, and everybody involved benefits.
2. It provides social proof.
Do you know about a car from Nissan called LEAF? It's 100% electric and has zero emissions.
But, like a mobile phone, it runs on a battery and you have to recharge it... And, because it doesn't take gas, traveling is a little bit different than the cars you're most used to.
If you're like most people, you're probably a bit skeptical of the concept. At the very least, you think it's "too early."
So part of the marketing plan is for Nissan to get as many of these cars on the road as possible. It's important that people see them in use, so they know a 100% electric car is a viable option.
You want to do the same thing with your music, t-shirts, and other merch. Your fans (and potential fans) will feel a lot more comfortable taking a chance on something if others have proven it's safe to do so, so the more you can get what you're selling into the hands of people, the better chance what you've got will do well.
When you're on stage and announce that somebody bought your music or point out the people who are wearing your t-shirts, you are letting people who haven't purchased anything from you know they'll be happy spending money with you (the risk) because what you're selling is great (the reward).
3. It gives "status" to your fans.
Like ringing a bell gives status to customers who tip, acknowledging customers who purchase music (or whatever else) is another way to set them apart from the average person in the audience. If you want to increase this "status" to an even higher level, buy these people drinks.
Will this cost a lot of money? No. If you sell a CD for $10, the cost is probably around $1. Adding a $2 drink (negotiate a price beforehand and buy "drinks" by passing out tickets to be redeemed at the bar) still leaves you with a $7 profit per unit. Plus, it will likely allow you to sell more product if you make the offer public and give people an option to get in on it themselves.
Doing an all-ages show? Playing a church? Don't want to support drinking? No problem!
You can use this same technique with other "gifts," such as exclusive EPs, song dedications, limited edition t-shirts, fan club memberships, or other items of value. The only reason I mention drinks is because 99% of musicians reading this are playing clubs where drinks are served and buying drinks is something you can do to support club owners and staff.
NOTE: If you're unsure about how to motivate a crowd to take action from the stage, my book, Six-Figure Musician, has several related "scripts" you can use and combine with the ideas mentioned above.