Magazine / How To Figure Out If A Discount Is Actually A Good Deal

How To Figure Out If A Discount Is Actually A Good Deal

What makes something seem like a good deal? Subtle ways of framing the same information can make consumers more compelled to purchase.

Everyday consumers are bombarded by discounts. 5% off this, 20% of that, or 30% off something else. $5 off your grocery bill, $20 off a phone, or $15 off your purchase if you spend more than $150.

The goal of such offers is to pique consumer interest and increase demand. People will buy more, or buy more often, than they would have otherwise.

But for that to happen, the deal has to compel consumers to take action. There are thousands of coupons, discounts, and deals out there, and it’s impossible to pay attention to all of them. So what helps a particular deal cut through the clutter? What makes a certain deal seem, well, good?

As I talk about in Contagious, one simple way is something called The Rule of 100. Imagine you own a casual clothing store that’s having a sale. Usually a particular line of t-shirts costs $20 per shirt, but for the purposes of the sale you’re going to mark them down to $15 a piece.

There are two ways you could advertise that discount. One would be as a percentage. Going from $20 to $15 would be 25% off. But you could also represent that same amount as an absolute number, $5 off. Which way is better?

Go ahead, check my math. Or just take my word for it. Both discounts lead to the same final price. 25% off $20 and $5 off $20 both leave the customer paying $15 for a shirt. So both ways of representing the discount should have the same effect, right?

Nope. Turns out consumers find the discount more attractive, and are more compelled to purchase, when it’s 25% off (compared to $5 off). While the two discounts are the same economically, they don’t feel the same psychologically. One feels bigger than the other.

So does that mean that percentage discount are always more effective?

Not quite. Take the same situation but up the stakes. Rather than a $20 t-shirt, think about a $2,000 laptop. A 25% discount would take it down to $1500, and $500 off should equal the same amount. In both cases, the laptop would cost $1500.

But it doesn’t feel the same to the consumer. For a $2,000 item, $500 off seems larger than 25%, which makes people more likely to purchase when they see the absolute dollar discount.

The Rule of 100 says that under 100 percentage discounts seem larger than absolute ones. But over 100, things reverse. Over 100, absolute discounts seem larger than percentage ones.

This rule affects whether consumers think something is a good deal, but it also influences a host of other behaviors related to numerical information. Shrinking the size of your product? Reporting revenue growth? Representing the difference in percentage versus absolute terms should affect how big the changes seem. A 2 ounce decrease seems smaller than a 15% decrease. A 30% increase in revenue seems larger than a $2 million increase.

So next time you’re reporting, or consuming, numerical information, pay attention to how it’s presented. The way changes are represented can have a big impact on how they’re perceived.

Jonah Berger is a Marketing professor at the Wharton School. Want to learn more about how to frame discounts and other numerical information to make it compelling? Check out his New York Times bestseller Contagious: Why Things Catch On