Use € or % to identify the discounted amount? For a long time this question did not have a scientific answer. Rather, we decided by intuition or trial and error what was the best option to get the desired sale. today we have scientifically verified cognitive psychology-based guidelines that help us make this decision safely.
What goes through our heads when we see a discount
Cognitive psychology reveals it the value perceived by a user in evaluating a discount is not based only on objective factorsbut it can be seen largely influenced by prejudices irrational.
Let’s take an example to understand how our mind works in this situation: a common cognitive bias linked to the perception of an economic amount is called Effect naming: We perceive a number as larger when it is written in one large denomination than when it is written in several smaller denominations. For example, if someone sees an item for sale priced at $100, they may perceive it as much more valuable than $20 for 5 months.
Perceived value is not always an objective value
Why then do we fall so easily into these irrational or distorted traps when we perceive a price? The answer is in natural saving of time and energy required by our daily transit. Quite a challenge for our brain if we take into account that we take approx 35,000 decisions on average in one day.
Humans have learned to trust our ability to save energy by using automated decision-making processes. Applying these intuitively guided cognitive “shortcuts” – known as heuristics – simplifies difficult challenges and speeds up the resolution of everyday tasks. This energy conservation has been vital in the evolution of our species.
That’s why, in the example above, people judge values wrong: the numbers 20 and 5 are both digits less than 100. Therefore, the perception of quantity is distorted. Of course this is nothing more than an irrational and erroneous perception.
The perception of the discount depends on the price of the product and the amount of the discount.
A small discount is usually considered to be around 10%, while a large one is between 30% and 40%. In general, we have the following options for offering different types of discounts:
- A cheaper product with a small discount.
- A cheaper product with a big discount.
- An expensive product with a small discount.
- An expensive product with a big discount.
In the table below we reflect what should be the way to frame a discount:
It’s important to note that what we consider cheap or expensive, or a small or large discount, can vary from person to person. however, the Most studies focus on the four main categories listed above. The cheapest products are usually items like toothpaste or coffee, while the most expensive are usually services and electronics.
For the cheapest products: use a percentage discount is more effective than a concrete reduction in prices. This is because a percentage discount, such as a 20% discount on toothpaste, appears to represent a more significant savings than a specific reduction in price, such as a $1 discount. Therefore, customers are more likely to consider the discount percentage as the best offer and make the purchase.
When it comes to higher priced items: AND euro discount seems to work better. This is probably because, on expensive items, a discount such as €200 on a €1,000 electric guitar is a substantially higher discount than a 20% discount.
If your product is priced at more than €100, opt for a discount in Euros. For products priced below €100, opt for a % discount. This is an easy heuristic to follow.
- The reasoning is simple. With double-digit prices, the absolute value of the % discount is greater than the euro discount. If a €20 t-shirt drops to €15, it is better to present it with a 25% discount than with €5 because 25 is greater than 5.
- However, with triple-digit prices (100 euros and more) the opposite happens. For €200 loudspeakers we apply a €50 discount instead of 25%, since 50 is greater than 25.
While the effect may not be as noticeable around numbers close to €100, for a €95 product you can still use the 100 rule.
conclusions
- We tend to perceive large numbers as more significant than they actually are. Due to their unfamiliarity with complex mathematical calculations, they tend to evaluate discounts based on their intuition, where larger numbers are perceived as more advantageous.
- When promoting products that cost less than $100, it’s more effective to express discounts as a percentage rather than a specific amount. This is because the discount appears larger when presented as a percentage.
- When dealing with products with a price higher than €100, it is advisable to present the discounts in monetary value rather than as a percentage, since in this way the amount of the discount is greater.
