Ariyh

Share this post

A simple rule to use $10 vs 10% off

tips.ariyh.com

A simple rule to use $10 vs 10% off

If a product is priced at above $100, use an 'amount off' discount (e.g. $20 off). If it’s priced at below $100 use a 'percentage off' (e.g. 20% off). People will be more likely to buy.

Thomas McKinlay
Jun 17, 2021
33
Share this post

A simple rule to use $10 vs 10% off

tips.ariyh.com
4
Share

New to Ariyh? Join 15,000+ evidence-based marketers for 3min insights 💡 based on scientific research 🎓 to grow your business 📈


📝 Intro

People are bombarded by different offers: 20% off, $40 discount, or $12 cashback if you spend more than $120.

But which type of discount works best: amount or percentage? $20 or 20% off?

It depends on the price of your product.

P.S.: Ariyh teaches you new tactics or how to optimize them. But don’t forget about getting your strategy right. 

I’m a fan of this metaphor from my former Professor and employer, Stefano Puntoni:

“Imagine walking on very difficult terrain. To make sure that you don’t fall, you need to look carefully at where you put your feet. [i.e. tactics]

[But] If you are only looking down at your feet, you cannot look ahead and see whether you are going in the right direction [i.e. strategy]. You are not going to fall today but sooner or later you will hit a wall”.


Previous insight: People prefer crowdfunded products (All insights here)

Use $ amount off for high-priced items and % percent off for low-priced items

Impacted metrics: Customer acquisition
Channels: Promotions | Pricing
For: B2C. Can be tested for B2B
Research date: August 2015

📈 Recommendation

If you are discounting a product that is priced more than $100, use an amount off discount (i.e. $X off).

If you are discounting a product that is priced less than $100, use a percentage off discount (i.e. X% off).

Keep “100” as the cutoff for other currencies too (e.g. for an item priced 180 pesos use 36 pesos off, not 20% off).

🎓 Effects

  • For higher-priced products, people perceive better value and are more likely to buy when a discount is an amount off (e.g. $25) rather than a percentage off (e.g. 10%).

  • For lower-priced products, the opposite happens. People perceive better value and are more likely to buy when a discount is a percentage off.

  • A cutoff of “100” (e.g. $100, €100, 100 pesos) determines what is high priced (more than 100) and what is low priced (less than 100).

  • For example, in experiments:

    • When a jacket priced 480 pesos was discounted as 120 pesos off (vs 25% off), people

      • Perceived the offer as 12.4% better value

      • Said they were 16.3% more likely to buy

    • When balloons priced 48 pesos were discounted as 25% off (vs 12 pesos off), people

      • Perceived the offer as 7.8%* better value

      • Said they were 11.1%* more likely to buy

Purchase intention in one of the experiments for a high priced item and a low priced item (Click to zoom in)


New here? Subscribe for the latest marketing research 💡 from top business schools 🎓 in 3-min practical tips 📈 twice per week.


🧠 Why it works

  • Part of how we perceive the value of an offer is based on the absolute number of that discount (e.g. 10, 50).

  • That’s because we don’t always put in the mental effort to calculate a percentage discount to the equivalent amount.

  • For example, a 10% discount means we think of the number 10. If a price is higher than $100 (the equivalent amount would be more than $10 off), we perceive it as a smaller discount than what it actually is.

  • When we see $20 off instead of $10 off for a $200 item, we think of the number 20, which is higher, so better.

  • Mathematically, amount offs will look bigger than percentage offs when the price is higher than 100.

  • When we perceive a promotion as better value, we’re more likely to buy it.

✋ Limitations

  • The study tested both US dollars and Mexican pesos (100 pesos ≅ $5). The rule should apply to other currencies although this was not directly verified.

  • *The researchers state that for lower-priced products (below 100) it’s better to use a percentage off discount. However, this is based on the “direction” of results, the actual difference was not statistically significant. This means it’s probably not a big deal if you always stick to using an amount off, even for lower-priced items.

🏢 Companies using this

  • Companies seem to interchangeably use amount off or percentage off, rarely taking into account this rule.

⚡ Steps to implement

  • Match your discount type to the price of the products you are promoting

    • More than $100 -> Use $ off

    • Less than $100 -> Use % off

  • If adapting your discount types to prices is logistically difficult, stick to using amount off (i.e. $ off)


🔍 Study type

Lab and online experiments. Mexico and United States

📖 Research

González, E. M., Esteva, E., Roggeveen, A. L., & Grewal, D. (August 2015). Amount off versus percentage off—when does it matter?. Journal of Business Research.

[Link to paper]

🏫 Affiliations

EGADE Business School and Babson College. Mexico and United States.

Remember: This research could be disproven in the future (although this is rare). It also may not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.


Rate today’s tip to help me make Ariyh's next tips 🎓 even more useful 📈

How was today’s tip?
Loved it | Great | Good | Meh | Bad

Want to sponsor Ariyh or ask a question? -> Reach out at thomas@ariyh.com

New to Ariyh? -> Subscribe below or read other 3min marketing tips here

33
Share this post

A simple rule to use $10 vs 10% off

tips.ariyh.com
4
Share
Previous
Next
4 Comments
Share this discussion

A simple rule to use $10 vs 10% off

tips.ariyh.com
Stijn
Nov 8, 2021Liked by Thomas McKinlay

Hi Thomas, I've read (about, not thoroughly) the effect a discount can have on the perceived value of your offering. In the short term, a discount will boost sales. However, in the long term it can make people think less of your offer, which is why I refrain from discounting my (high consideration) offerings. What is your take on this? Do you have links to any interesting (systematic review) papers?

Expand full comment
Reply
Share
1 reply by Thomas McKinlay
Sritam Das
Jun 22

From my experience, a $/₹ value discount works better when the TG is aware of the standard pricing of the product and % discount works better when the TG is not sure about the pricing.

B2C - FinTech & EdTech

Expand full comment
Reply
Share
1 reply by Thomas McKinlay
2 more comments...
Top
New
Community

No posts

Ready for more?

© 2023 Thomas McKinlay
Privacy ∙ Terms ∙ Collection notice
Start WritingGet the app
Substack is the home for great writing