A Guide to Discounting: Should You Frame Discounts in $ or in %?

Biases in Discount Perception: Frame it as $ or as % off?

The question of whether to frame discounts as a nominal value or as a % off has bothered marketers for a long time. But scientific evidence gives us some answers. Learn when it’s better to use % off and when to use $ off.

In this article, you’ll discover:

  • What’s going on in your customer’s heads when they’re faced with discounts;
  • Whether it’s better to frame your discounts as % or as $ off;
  • What the factors are that influence the discount perception; and
  • How to make sense of it all and adjust your discounts in the optimal way

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One of the greatest findings of consumer psychology is that the value that customers perceive is not objective, but can be influenced by many factors. Customers are vulnerable to many cognitive biases that can nudge them to buy or not to buy.  When it comes to discounts, the same holds true. 

Before jumping to pricing and discounts themselves, you need to understand what’s happening in your customers’ heads when they think about numbers. Picture the following situation: You’re standing in front of two containers. The small one contains 2 red marbles out of a total of 10. The large container contains 19 red marbles out of a total of 100. You get to choose one of the containers, out of which you will draw one marble. If the marble drawn is red, you win a prize. 

Of course, you have to pick without looking and the containers are shaken up before you draw. Which one of the containers should you draw from to maximize your chances of winning? 

And an even more important question - what the heck has this got to do with pricing? Actually, a lot. If you picked the larger container with 19 red marbles, you fell for so-called ratio bias. Research shows that more than 60% of participants pick the larger one as well. If you chose the smaller one, congratulations! You picked the one with a higher probability of winning.

The value that customers perceive is not objective, but can be influenced by many factors.

So why is that? Why do people fall for problems like this if all it requires is to spend a minute to think about it? Well, that’s why - because it takes a minute to think about it. And thinking is hard - it not only costs us time, but also energy. 

That’s why we evolved in a way that allows us to save time and energy, and instead of thinking hard about everything in every situation, we use subconscious shortcuts (heuristics) - intuitions that allow us to solve simple problems quickly. 

That’s why in the example above, people don’t think about it and instead, they judge the absolute value they see - 19 is a bigger number than 2, therefore they pick the larger container. 

Learn how Nespresso uses heuristics and cognitive biases to make their capsules worth buying.
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Decoded: How Nespresso Uses Price Relativity to Make Their Customers Buy

Believe it or not, it’s very similar to your customers. Multiple studies have looked at how the ratio bias affects their price perceptions - specifically, how they perceive differently framed discounts. They offered customers multiple products and let them judge which discount seemed like the better deal - either a discount in % or in $.

A word of caution here - all of the studies we mention from now on worked with $, € or £. All of those have a similar value, so the results can only be generalized for your situation if you live in a country with one of these currencies. The effects may differ with currencies such as PLN, CZK, INR or any other currencies in which the absolute values are much higher.

Table of types of discounts and situations in which they should be used.
Table of types of discounts and situations in which they should be used.

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