Sure, offering promotional discounts and pricing markdowns can attract more customers and boost sales. But how much thought do you typically give to how you articulate those deals in your ads and marketing materials?
Don’t assume that people will simply do the math and choose your offer over someone else’s. How you word your discounts makes more of a difference than you may think.
The Carlson School of Management at the University of Minnesota provides some thought-provoking research on this subject. An experiment published by the Journal of Marketing tells how the lead researcher, Akshay Rao, asked his students to choose the better “deal” on loose coffee beans: 33 percent more beans for the same price, or a 33 percent discount on the price for the standard amount. Most of the students stated that it didn’t matter, because both deals are the same.
Of course, as a savvy businessperson, you can spot the bargain, right?
Let’s say that the standard price is $9 for 300 coffee beans. This comes out to a per-bean price of 3 cents (or 900 cents divided by 300 beans). The first deal would provide 33 percent more beans for the same price, or 99 more beans for $9 (33 percent times 300 equals 99). That’s a total price-per-bean of about 2.25 cents (900 cents divided by 399 beans).
The second deal would cut the standard price by 33 percent, or by $2.97 (33 percent of $9) for 300 beans. So, with the new price of $6.03, the customer would pay only 2.01 cents per bean, making this offer a better deal.
However, despite the math, studies show that most shoppers prefer buy-one-get-one free offers to 50 percent discounts — or even a “half off” discount.
Customers Can’t Do Math
The moral of the story? Customers frequently miscalculate discounts, because many people aren’t adept at figuring out percentages or fractional discounts. This fact is important to keep in mind if your goal is to attract more consumers and/or push them to buy selected merchandise. As long as customers think they are getting the best deal, that’s what matters, even if they’re aren’t.
“Studies have shown other ways in which retailers can exploit consumers’ innumeracy,” the Journal of Marketing notes. “One is to befuddle them with double discounting: People are more likely to see a bargain in a product that has been reduced by 20 percent, and then by an additional 25 percent, than one which has been subject to an equivalent, one-off, 40 percent reduction.”
In other words, the customer is always right — even when they’re wrong.