Do you know which is more cost effective for the same amount of discount?
percentage discount like 25% off
number discount like USD10 off
Unfortunately, it depends. But fortunately, there is a general guideline: the Rule of 100.
The Rule of 100 was introduced by Wharton marketing professor Dr Jonah Berger in his book "Contagious". It says:
For products priced lower than 100 in numerical terms, it is more effective to give percentage discounts;
For products prices higher than 100 in numerical terms, it is more effective to give number discounts.
Let's look into an example:
A. Suppose we sell a watch at USD150 online and we give USD18 discount. That's 12% off. In this case, since the price tag is bigger than 100, your sales will generate more revenue if you display "USD18 Discount" on your ecommerce store.
B. If we are selling phone casings at USD12 and we give USD3 discount. That's 25% off. In this case, since the price tag is smaller than 100, your sales will generate more revenue if you display "25% Discount" on your online store.
The reason behind this is simply psychological. Consumers are attracted to bigger absolute numbers. In Case A, the absolute number of "18" is bigger than "12". Thus, a "USD18 Discount" is more attractive to consumers. In Case B, the absolute number of "25" is bigger than "3". Hence, a "25% Discount" will draw more attention.
You may feel this cliche. However, often dropshippers or ecommerce sellers don't realise that they behave in exactly the same way their potential customers will. You can test the Rule of 100 on yourself: are you not more attracted to USD18 discount when you are presented a USD150 watch? Exactly!
Therefore, check your prices and discounts against the Rule of 100 now! You will be amazed!
One more thing: what if you sell in Japan where all prices are bigger than 100?
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