Imagine you are about to create a promotion and think: "How should I present the price reduction?"
Either as an absolute amount-off discount, like $10 off? Or should you instead present it as a relative percentage-off discount, like 10% off?
What should you do? We will find out today.
You can present your price promotion as either an amount-off promotion or a percentage-off promotion.
Researchers ran a meta-analytic study, which means they looked into all past research investigating the effect of an amount-off promotion versus a percentage-off promotion on customer behavior, like behavioral intentions.
In their study, they included 19 papers that covered 86 observations. And these 86 observations encompassed 12,000 respondents. The overall effect was not statistically significant. So, there was no total effect of an amount-off versus a percentage-off promotional frame on behavioral intentions.
Okay, neither amount-off nor percentage-off promotions are, per se, more effective. Maybe the effect depends on something. And this “something” was also investigated by the researchers.
The researcher considered three context factors.
The first was the product price level, low versus high price.
The second was the promotional mode, discounts versus coupons.
And lastly, whether it was a material product or an experiential product.
On the product price level...
past research found that customers are more attracted by a higher number.
So, if your promotional frame gives you a higher number, customers prefer this one.
For example, for prices below 100, a percentage-off promotional frame delivers a higher number ($10 of $50 is 20%, “20” is higher than “10”). And for prices above 100, the amount-off price reduction delivers a higher number (10% of $150 is $15, “15” is higher than “10”).
So, the researchers concluded in this meta-analytic study that for lower prices, percentage-off promotions are better, and for high prices, amount-off promotions are better.
On the price promotion mode...
...past research has shown that percentage-off discounts are harder to calculate from a customer perspective.
And if something is harder to be calculated, customers perceive the savings as lower. Vice versa, for amount-off discounts where you directly present the savings, customers perceive higher savings.
On the other side, for coupons, customers need to know to which former price the coupon refers to. When receiving a coupon, they don't know the exact savings because they don't know for which items they might use this percentage-off coupon. Hence, for percentage-off coupons, customers are more likely to overestimate the value compared to amount-off coupons.
Overall, discounts might work better for amount-off promotions, and coupons might work better if presented as a percentage-off promotion.
On the product type...
...we differentiate between material products and experiential products. Material products, like a TV set, are more tangible and very concrete. Whereas experiential products like Skydiving are less tangible and less concrete. Customers who are considering material products might be in a more concrete state of mind.
In this state of mind, promotional frames that are at the same level of concreteness, like amount-off promotions, might work better. On the other side, for experiential products where the state of mind is less concrete and less tangible, promotional frames that refer to the same lower level of concreteness, like percentage-off promotions, might work better.
The underlying theory here is the Construal Level Theory for those of you who are interested in going a bit deeper.
What did we learn today?
Today, we learned about very concrete guidelines on when to use amount-off promotions and when to use percentage-off promotions.
In summary, amount-off promotions work better
- if the product is of a high price (the threshold is 100),
- it refers to discounts,
- and the products are material.
Percentage-off promotions work better
- for low-price products,
- if you are considering giving coupons, and
- if the product is experiential.
References
Yuan, Q., Li, J., Jiang, Y., & Liu, C. (2022). When do amount‐off discounts result in more positive consumer responses? Meta‐analytic evidence. Psychology & Marketing, 39(1), 46-58.