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E-commerce  |  

Discount by Percentage or Fixed Amount?

2018-12-21
E-commerce
promotions, marketing, digital marketing, promotion types

Google Consumer Barometer clearly states:

  • 43% of users in Bulgaria consider price the most significant factor when shopping.
  • 30% of users are more likely to make a purchase if the product is discounted.

You probably think that a discount is a discount and it always has the same effect. The truth, however, is: Yes and no. There is no doubt that every discount draws consumers’ attention. But some discounts work better than others.

Do you know what the trick is? The success of a certain discount depends on the type of product/service offered and your customers’ perceptions.

Read more: Free Shipping or Discounted Price?

In this article we are about to introduce the most popular discounting approaches: by a percentage or fixed amount.

Example: -50% или -50 BGN.

We would like to start with the important statement that…

Users are irrational

From sellers’ point of view consumer behavior is unpredictable. Sometimes it does not follow any rules of common sense. However, we are beyond convinced that users are led by their own feelings, perceptions and impressions.

To give an example, we would like to quote a research:

In the distant year of 2008 an interesting experiment was conducted. An offer containing the same discount value was sent to a group of consumers as they received two versions of the offer: One version had the discount represented as - 15%, the other as - 50 dollars.

he results were quite impressive. There was almost no difference in the number of emails opened by users. Which led to the conclusion that no matter what the discount was, it drew users’ interest.

Read more: Product Descriptions: 7 Tips to Boost Your Sales

What was even more interesting - the offer with the discount pointed in dollars led to 170% more purchases than the offer with a percentage discount.

Why?

Important: Do not think the fact that this research was led 10 years ago means it's outdated. Unlike technologies, the way human brain works has not changed much since the appearance of homo sapiens.
Some psychology…

The human brain has been trained to treat great benefits as more significant.

Example: You sell a dress which costs BGN 300 and you make a discount of BGN 50 or respectively a -15% discount. Which amount seems more attractive to you? - BGN 50 or -15%? Experience and continuous observations show that the brain treats the greater amount with priority when it comes to promotions.

This, of course, does not mean that the percentage discount does not work at all. The fixed amount discount does not always work as well.

When it's appropriate to apply fixed amount discount?

Always, when it comes to high-value items. Discount of BGN 300 from a flight reservation amounting BGN 1300 sounds much more impressive than a 23% discount. There are a few reasons for this:

  • Firstly, 300 from 1300 > 23 from 1300;
  • The user does not need to calculate how much 23% from 1300 is. Consumers hardly ever do this. Most users just scan the offers before thinking over the content and they have already made their own conclusions.
Golden rule: When you are planning a promotional campaign, calculate your discounts in both ways. Use whichever of the two strategies represents a bigger amount.
When it's appropriate to apply percentage discount?

Always when it comes to lower-value items. If you are selling socks at a price of BGN 6, the discount of 50% seems a lot more impressive than - BGN 3. Percentage discount works even better if the percent represented as a number is bigger than the total price of the product/service. Here’s how it works:

  • Optical illusion is always an advantage. 70% discount from BGN 20 sounds much more impressive than a discount of BGN 14 from BGN 20.
  • When it comes to small amounts, users do not even make the effort to calculate. They already know that the size of the discount is significant.
  • Percentage discount is always associated with savings.
Golden rule: The American marketing professor Jonah Burger introduced his theory called the “Rule of 100”. If the product costs less than BGN 100 - use a percentage discount. If you sell products or services costing more than BGN 100, use a fixed amount discount no matter what the currency you trade with is.

However, nothing in life should be taken for granted. Do not believe in everything we say or write. We recommend trying both of the approaches described above.

Is the “Rule of 100” working for your business?

We are looking forward to reading your comments below this article!

Read more: When promotions fail?

Marketing Specialist

Didi is part of the SuperMarketing Team. One of her many SuperPowers is her ability to cope with any challenge she faces on her way to success. Her positive attitude, wide smile and absolute professionalism, immediately gains the sympathy of everyone – familiar and unfamiliar with her personality. It doesn't matter if a friend or a client needs her help, Didi is always ready to cooperate and do whatever it takes to get the job done.

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