[Pricing Nugget #035] Double Impact for Double Discounts

You are about to launch a promotion, and you checked the previous Pricing Nugget #034, where you learned that customers prefer stacked or sequential discounts over a single discount.

Okay, you plan two – 13% and 8% – discounts, and you wonder in which order you should present them: the 13% first & 8% second or  8% first & 13% second.

Does it matter whether you present them simultaneously or sequentially on two different pages?

We will find out today.

What decisions do we have to make?

You have two discounts: 8% and 13%. You can present the 8% first or the 13% first. You can also decide whether to show them simultaneously or sequentially. In total, you have four combinations [a) to d)].

The answer to your decision depends on which number you want your customers to place more attention and weight on and the mode of presentation – i.e., do you show the discounts simultaneously or sequentially and reveal them one by one?

And here are the two effects that come into play.

The first effect is "anchoring." Anchoring works if you present both discounts simultaneously.

So anchoring gives more attention to the first number. So, if you want to place more weight on the higher number, you should present it first.

The second effect is "surprise," and it works only in the sequential presentation case. So if you give a first discount of, let us say, 8%, and 13% as a subsequent discount, customers place more attention on the second discount. Suppose you want to place more attention and weight on the higher number. In that case, you should present the higher discount when you present both discounts sequentially.

Let us look at a couple of studies.

In the first study, the researchers ran a promotion on a $5 Starbucks card and offered the participants a discount of either 13% or 8% first and 8% or 13% second. They also changed the mode of presentation.

The second discount was either presented on the same page or on a second page. In this online experiment, what did they find out?

The researchers measured the choice share. So the share of participants in the experiment who accepted a $5 Starbucks card at a given discount presentation.

Let us look at the grey bars first. These are about simultaneously presenting both discounts. If you show the smaller discount first, only 10% would accept the Starbucks card, but it goes up to 35% if you present the larger discount first and the smaller one later here. This is 3.5 times as many people. You see, the anchoring effect is in full play.

But this effect changes if you present the first and the second discount sequentially. The choice share more than doubles (from 23% to 53%) if you show the larger discount second and surprise your customers.

The second experiment is about a four-day vacation to a resort in Miami, Florida. And here, you either present 11% or 4% as the first discount and 4% or 11% as the second discount. The second discount is shown on the same page ("simultaneous") or the second page ("sequential").

We find that customers would have a more favorable deal evaluation if you present the higher discount first in the simultaneous presentation (grey bars) case and the larger discount second in the sequential presentation case (blue bars).

Not only discounts - what about surcharges?

Up to now, we have looked only at discounts, which are favorable outcomes. But now we look at surcharges, which are more or less negative discounts.

Assume you work in a bakery, offer extra large cakes, and allow customers to customize them. The surcharge is 10% for customization and 5% for being an extra large cake.

You can present the surcharges simultaneously, or you show them a sequential order, like 10% first and  5% second on a second page.

What happens here?

First, if you present both surcharges simultaneously and you want to place more attention on a smaller percentage, you should show the smaller percentage first (anchoring effect!). Customers would evaluate the respective offer more favorably (see grey bars).

Second, if you present the surcharges sequentially and you want to place more attention on the smaller surcharge, you should show it second and surprise your customers (surprise effect!). Customers evaluate this deal as much more attractive compared to presenting the larger surcharge later (see blue bars).

What did we learn today?

If we have two percentages, either discounts or surcharges, we can steer to which number customers pay more attention to and give more weight to.

If you present your numbers simultaneously, "anchoring" works, so customers pay more attention to the first number. If you present your numbers sequentially, "surprise" works, and customers pay more attention to the second number.