Many manufacturers and retailers use discount pricing to lure consumers, but the strategies they employ can change a customer’s perception of a product’s value. In an article in the July 2007 issue of Journal of Marketing, Devon DelVecchio and his co-authors explain their research exploring how shoppers respond to percentage discounts and to “cents-off” discounts.
Since the publication of “Cents or Percent? The Effects of Promotion Framing on Price Expectations and Choice,” DelVecchio has fielded questions from publications as diverse as the New York Times, Brandwire, the Cincinnati Business Courier and The Korean Times. The first reporter, from the New York Times, caught up with DelVecchio when he was on vacation with his family.
To explain one conclusion of the research he did with H. Shanker Krishnan and Daniel C. Smith, DelVecchio offers an example: A box of heavy-duty trash bags that normally retails for $9. Which do customers find more attractive, the product offered at 40 percent off or at $3.60 off? The team discovered that customers tend to prefer paying a percentage off an item. When buyers choose a percentage-discounted item, there is no bargain price fixed in their minds as there would be if they had purchased an item with a stated dollar discount. The percentage off seems like a greater savings to most shoppers.
The DelVecchio team also found that a shopper’s expectations of future bargains depend on how the discount was presented. If consumers buy a product discounted by a specified dollar amount, they expect the same savings the next time, because they tend to remember the price they purchased it for the previous time. However, since most consumers do not calculate percentages while shopping (with the exception of 10 percent or 50 percent where the calculations are easier), buyers are more likely to purchase the same item a second time for the full price.
According to DelVecchio, “People tend to expect prices to remain lower when the discount is in dollars, because the discount is obvious.” He and his fellow researchers concluded that people prefer to buy an item if it is discounted by a percentage figure and they are more likely to buy that same item again with no discount if the savings were displayed originally in a percentage.
DelVecchio’s research provides valuable insights for marketers nationwide. Marketing consultant Kim Sun-hee, who gives advice to small businesses, stated, “Pleasing costumers during promotions and still getting them to buy afterwards-that’s the homework for businesses.”
Content maintained by External Relations
