According to a study by hornet held in 2014, a thousand consumers were asked about the type of discount they preferred. Here’s what Hornet found:
- 42% of respondents found $ off the price to be the most attractive for all consumers
- Percentage off was the second choice for 18-24, 25-34 and 35-45 age brackets
- The other options chosen were Free shipping for people aged 46 & above.
Now, why do customers behave this way? Well, according to one school of thought, some people believe that a discount in $s is more real than a discount in %s. If you see an ad stating ‘Flat $20 off’, it implies how much you can hold in your hand, i.e. you know what $20 off is. Others might opine that 20% off has no intrinsic value. Also, some might find the math perplexing –“What’s 20% of $30?! Ugh, too hard”.
This is about what people think, now let’s talk look into some real numbers. A 2011 study of retail brands’ Facebook posts concluded that:
- Posts containing the sales keywords “$ off” and “coupon” receive a 55% higher user engagement rate than the average post.
- ‘$ off’ generated twice the engagement against ‘% off’ offers for the retail industry. Even small $ off discounts, less than $10, receive 17% higher engagement than % off promotions.
- Popular sales keywords, such as “sale” and “% off,” receive the lowest fan engagement.
However, there is a caveat to this. They call it The Rule of 100:
Anything over $100 should be money off deal and anything below $100 should be a percentage deal Why?
Business Economics 101: $ off is more risky for low-value purchases because it fixes a loss. The $ discount should be set below the average order $ gross margin. % off is more risky for high-value purchases (in effect, a % off discount has no upper bound) but, if fixed below the % gross margin the financial impact is well understood.
So, a 20% off a $30 shirt is more attractive than $6 off a $30 shirt? Or a $60 off a $300 jacket is more attractive than 20% off a $300 jacket?
Here comes the Theory of Relativity (not Einstein’s though): The value-seekers will often choose a lower- priced product based on their perception of getting a deal. The premium shoppers, on the other hand, will choose a more expensive version because they associate high price with luxury or quality. Some might think that you might drive further or do more to save $20 on a $40 product than they will to save $20 on a $400 product.
So, how should you go about it to acquire customers for your business? The question you must ask yourself is: “How is your product framed?” The context to which your product is marketed would better determine which discounting model will work. If your product is at its pinnacle of the product line I would go with 10% with the $200 price first, then the sale price. Now if the product is middle of the pack or lower $20, “instant” gift card or your consumers are going to experience dissonance on the percent scaling, value versus saving.
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