You are responsible for setting prices, and you are also responsible for **giving discounts and for communicating about price increases**. Usually, you present discounts and price increases as a percentage.

One day you sit at your desk, and you wonder whether the way you do it today – presenting a single percentage number to your customers as a discount or price increase – is the best.**Maybe splitting the discount or price increase into multiple percentage numbers is smarter?**

We will find out today.

## Let us look at an example.

We can frame our discount as a **single discount of 40%** or a **double discount of 20%** with an **e****xtra discount of 25%**.

**The economic value of both discounts is the same.** So if you have a single discount of 40%, the price you pay is 60%, 40% off.

If you have a double discount, you pay 80% after the first discount, and the 25% extra discount refers to the reduced base after the first discount.

The extra discount means you get 25% off the remaining price after the first discount of 20%, i.e., 25% of a new base of 80% of the original price. The final price you pay is 60%, i.e., 40% off.

That is the mathematically correct way to calculate **stacked discounts** or **sequential discounts**.

## However, people are not so good with decimals, fractions, and percentages.

We rely more on whole numbers when doing calculations. This **"whole number dominance"** explains how we do simple math.

In our case here, people **neglect the base when adding percentages**.

The** single discount **of 40% is **perceived**, of course, **as 40%**, but the **double discount is perceived as 45%** because people apply a simple heuristic and only add up percentages.

They add up 20% and 25% and do not recognize that the extra discount of 25% refers to a smaller base.

**If you have the chance to split up your single discount into double discounts of the same economic value, customers perceive it as more attractive.**

## A real-life study.

The researchers ran a real-life study and cooperated with a small upscale kitchen appliance store.

In this experiment, they put Totally Bamboo cutting boards into a promotion.

The researchers set up the first promotion, giving a **single discount of 40% for two weeks**. Two weeks later, they ran a similar promotion with **double discounts of 20% and 25%** also for two weeks.

To balance the order of discounts, they did the same experiment half a year later. But this time, the researchers offered double discounts first and ran a promotion with a single discount afterward.

They found out that the **number of purchasers, the sales volume, the revenue, and the profit increased** when offering a **double discount instead of a single discount of the same economic value**.

## But guess what? The same also applies to price increases.

We also have a positive effect on price increases if customers use a simple heuristic of adding up percentages.

Assuming we have a **single price increase of 62.5% **(I know it is a bit dramatic, but let us stay with this example as this has been used in the study).

The economic equivalent value framed as a **double price increase would be a 25% price increase plus a 30% price increase**.

The researchers found that **customers prefer a double price increase over a single price** increase because the perceived number is smaller when simply adding up percentages: 55% based on a base value neglect calculation compared to 62.5%.

## What did the researchers find out?

Comparing the **separated willingness to pay** through the packaged willingness to pay, they found out that in the separated format, the willingness to pay is about **4.6% higher** for the same ancillary services.

## What did we learn?

Today we learned that **customers simply add up percentages and neglect the base **these percentages refer to (the "base value neglect" effect).

We saw how we could use it to frame discounts and price increases.

In our case, we learned that **customers perceive a double price increase or price discount as better** – i.e., lower (price increase) or higher (price discount) – than a single price increase or price discount.

**References**

Chen, H., & Rao, A. R. (2007). When two plus two is not equal to four: Errors in processing multiple percentage changes. *Journal of Consumer Research*, 34(3), 327-340.