As shop windows are plastered with mid-year sales signs, a timely study into the psychology of discounting has been published in the Journal of Marketing.
It turns out that retailers offering discounts to entice customers are on the wrong track – they should be offering something extra.
A team of researchers at University of Minnesota’s Carlson School of Management have looked at customer attitudes to discounting and found that shoppers much prefer getting something extra for free than getting it cheaper.
The main reason for the preference is that most people have a hopeless grasp of fractions, or what the experts term ‘base value neglect’.
What would you prefer, a 50% increase in quantity or a 33% discount in price?
If you know your fractions you’ll realise that these are the same thing.
In an experiment the researchers sold 73% more hand lotion when it was offered in a bonus pack than when sold at an equivalent discount. That was even after all other effects, like stockpiling, were taken into account.
Consumers always figured the bonus deal presented better value, even though they were the same. This remained the case when researchers offered a deal that favoured the price discount.
Head researcher Akshay Rao offered his undergraduate students two deals on coffee beans – a 33% bonus or 33% discount. Despite the discount being a way better deal, the university students still viewed them as equivalent.
Pretty concerning that even supposedly well educated consumers are getting confused by these tricky tactics.
Other ways that consumers are getting tricked include the old double discounting ploy. Studies show shoppers have a preference for a product that has been discounted by 20% then by a further 25% than a product just discounted by 40% in the first place.
In case that’s got you confused, again they are equivalent percentage discounts.
So whether a shopper or a small business salesman, look carefully at the discounts and bonuses on offer this sale season. They’re probably not all they appear to be.