Today’s research gives us a powerful way to increase the attractiveness of promotions.

Warning: this can be easily misused to harm vulnerable consumers (e.g. overconsumption, unhealthy eating). Please use it ethically and responsibly.

New around here? Subscribe below at no cost.

Previous tip: ‘Default option’ nudges: be careful how you use them (All tips here)

Calculate discounts using the discounted price to increase sales

Impacted metrics: Customer acquisition | Customer spending
Channels: Promotions | Pricing

Recommendation

You can make a promotion or discount more powerful by calculating the discount % based on the discounted price (e.g. $443.63/$755.37= 59%) rather than the original price ($443.63/$1,199.00= 37%), even when the discounted amount is the same ($443.63).

Phrase it as “was 59% higher” instead of “37% off”.

You can also use it in other situations, such as product features “was 25% smaller” rather than “now 20% bigger”

Effects

• Calculating the discount based on the discounted (vs original) price makes it seem larger. Larger discounts lead to larger sales.

• When discounts are small (e.g. $1), the effect is negligible because the difference between using the discounted price as a base (11%) and the original price (10%) is small.

• The effect is weaker for people that have high numeracy skills (i.e. are good at math). It’s stronger for consumers that are typically less numerate (those who are older, less educated, and with lower income).

• The effect can be applied beyond pricing. For example, instead of saying a new laptop is 30% lighter, you could say that the previous model was 42% heavier.

• Based on previous research, there are also other ways to make a discount feel larger:

  • “Pay 80%” vs. “20% off”

  • Putting a sale price to the right of (vs. left of) original price

  • Stacked discounts (“25% off, then 20% off”) rather than single discounts (“40% off”)

Why it works

• We are more likely to buy when a discount is, or seems, bigger.

• Typically, we are attracted to numbers when judging an offer (e.g. 20%, $120), and pay less attention to the surrounding text.

• We usually think with our so-called “System 1”, which makes fast, almost automatic decisions and is more prone to biases like this one. This is especially true when we’re buying small everyday items like groceries. To think through and calculate the true meaning of an offer means engaging our “System 2” deliberative thinking, which requires much more effort and energy, and might not be worth it. (see Daniel Kahneman’s Thinking, Fast and Slow).

Limitations

• The experiments are robust and measured actual sales. However, they were run only on physical products. The effect should extend to services and digital products, but this was not directly tested.

• The researchers did not test if the effect persists at very high discounts that go over 100% (e.g. “now 67% lower” vs. “was 200% higher”).

• Some people could feel deceived by this discount framing and develop negative feelings towards a brand. This was not investigated.

• If many companies start using this practice, the effect is likely to become reduced.

Companies using this

• Very few or no companies seem to be using this promotion strategy.

Steps to implement

• Reframe your offers to “was X% higher” instead of “now Y% lower”.

• Think of whether you can apply this different framing to your product or service features as well (e.g. opening an account is 60% slower with our competitor).

Study type

Field and lab experiments, Sweden and United States

Source

Guha, A., Biswas, A., Grewal, D., Verma, S., Banerjee, S., & Nordfält, J. (June 2018). Reframing the discount as a comparison against the sale price: does it make the discount more attractive?. Journal of Marketing Research, 55(3), 339-351.

[Link to paper]

Affiliations

University of South Carolina, Wayne State University, Babson College, Lawrence Technological University, Wayne State University, and Stockholm School of Economics

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.

Want to share feedback or ask a question? -> Reply to the email or write to thomas@ariyh.com

Did you enjoy it? -> Please forward this or share it on Slack, it really does make a difference. Thank you!

Was this forwarded to you? -> Subscribe below or read previous marketing tips here