A simple rule to use $10 or 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.
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📝 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 usually 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 do not fall, you need to look carefully 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”.
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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
Tip type: Existing research (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)
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🧠 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.
🏫 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.
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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?