Discount High Prices By Amount Off

Should you discount by percentage or amount?

It depends. Customers prefer whichever digit is higher:

...a $1,000 discount on a $20,000 automobile appears significant in terms of dollar savings, but the equivalent 5% discount seems less attractive. On the other hand, a 50% price reduction on a $0.50 can of cola appears attractive in terms of percentage amounts, but the real monetary savings of $0.25 does not appear to be significant (Chen et al., 1998, p. 356)

(see also González et al., 2016)

Use $100 as a baseline:

• Under $100? Discount by percent.
• Over $100? Discount by amount.

In both cases, you'll show the higher digit:

• $50 blender: 20% off seems better than $10 off
• $150 blender: 20% seems worse than $30 off

Caveats: Discount By Amount For

• Everyday Items. Grocery prices are highly accessible, so customers rely on absolute differences (Yan, 2019).
• Low Power Customers. They're skeptical of percentages (Choi & Mattila, 2014).

Caveats: Discount By Percent For

• Very High Prices. $500 off can remind customers that they are spending a lot of money.

• Chen, S. F. S., Monroe, K. B., & Lou, Y. C. (1998). The effects of framing price promotion messages on consumers' perceptions and purchase intentions. Journal of retailing, 74(3), 353-372.
• Choi, C., & S. Mattila, A. (2014). The effects of promotion framing on consumers' price perceptions: The moderating role of a personal sense of power. Journal of Service Management, 25(1), 149-160.
• DelVecchio, D., Krishnan, H. S., & Smith, D. C. (2007). Cents or percent? The effects of promotion framing on price expectations and choice. Journal of marketing, 71(3), 158-170.
• González, E. M., Esteva, E., Roggeveen, A. L., & Grewal, D. (2016). Amount off versus percentage off—when does it matter?. Journal of Business Research, 69(3), 1022-1027.
• Guha, A., Biswas, A., Grewal, D., Verma, S., Banerjee, S., & Nordfält, J. (2018). Reframing the discount as a comparison against the sale price: does it make the discount more attractive?. Journal of Marketing Research, 55(3), 339-351.
• Kim, H. M., & Kramer, T. (2006). “Pay 80%” versus “get 20% off”: The effect of novel discount presentation on consumers’ deal perceptions. Marketing Letters, 17, 311-321.
• Yan, D. (2019). Subtraction or division: Evaluability moderates reliance on absolute differences versus relative differences in numerical comparisons. Journal of Consumer Research, 45(5), 1103-1116.