[Pricing Nugget #055] Discounts: Be Wise, Be Precise

Imagine you are preparing a promotional campaign or you are preparing a quotation.

At one point, you need to decide about the concrete discount you will give.

You think the discount level should be around seven-ish.

What should be the final discount?

Should it be round at 7% or, more precise, at 6.8%?

We will find out today.

What does a round number mean?

When customers see a round number, they associate this round number with the concept of stability. This means if a number is round, the object it refers to is considered to last for a longer time.

Vice versa, if the number is precise, consumers conclude this to be unstable or go away soon.

In the context of discounts, if a discount is presented as a precise number, consumers unconsciously conclude this discount might go away soon and will not stay long into the future.

This further means that if consumers conclude that the discount might disappear soon, this sense of urgency will increase their purchase intentions and make them more likely to buy.

In one study, consumers were asked about their purchase intentions when the discount was at 7%, and they gave it a rating on average of 3.65.

When the discount was lowered to 6.8%, the purchase intention significantly increased to 4.21.

Welcome to Utopia.

That's really crazy. You lower the discount, and you increase the purchase intentions.

Does this also work for B2B?

Let me reply with three points.

First, that human beings associate precise numbers with the concept of instability, or in our case, with discounts that might disappear soon, should also apply to organizational buyers where human beings make decisions.

Second, research shows that for precise prices, not only for used vehicles but also for six-digit numbers, customers are more likely to pay a bit more for precise prices than for round prices because they conclude from a precise price: This must be accurate. In our case, if you have a more precise discount, customers are more likely to accept it because it might be correctly calculated.

Third, I invite you to check out Pricing Nugget number 49, where I show that a more precise anchor, and in our case, the discount is an anchor, is linked to the concept of accuracy so that customers are less likely to deviate too much from it. If you give a precise discount, my hypothesis is that customers more strongly anchor at this precise discount and negotiate a much lower discount compared to starting with a round discount.

What did we learn today?

Today, we learned that more precise discounts are better received by customers and increase purchase intentions.

References

Jha, S., Biswas, A., Guha, A., & Gauri, D. (2024). Can rounding up price discounts reduce sales? Journal of Consumer Psychology, 34(2), 343-350.

Thomas, M., Simon, D. H., & Kadiyali, V. (2010). The price precision effect: Evidence from laboratory and market data. Marketing Science, 29(1), 175-190.

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