A simple rule to use $10 vs 10% off

If a product is priced at above $100, use an 'amount off' discount (e.g. $20 off). If it’s priced at below $100 use a 'percentage off' (e.g. 20% off). People will be more likely to buy.

June 17, 2021

Topics: Promotions | Pricing
For: B2C, B2B Friendly
Tip type: Existing research (August 2015)
Universities: EGADE Business School and Babson College

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📝 Intro

People are bombarded by different offers: 20% off, $40 discount, or $12 cashback if you spend more than $120.

But which type of discount works best: amount or percentage? $20 or 20% off?

It depends on the price of your product.

📈 Recommendation

If you are discounting a product that is priced more than $100, use an amount off discount (i.e. $X off).

If you are discounting a product that is priced less than $100, use a percentage off discount (i.e. X% off).

Keep “100” as the cutoff for other currencies too (e.g. for an item priced 180 pesos use 36 pesos off, not 20% off).

🎓 Findings

  • For higher-priced products, people perceive better value and are more likely to buy when a discount is an amount off (e.g. $25) rather than a percentage off (e.g. 10%).

  • For lower-priced products, the opposite happens. People perceive better value and are more likely to buy when a discount is a percentage off.

  • A cutoff of “100” (e.g. $100, €100, 100 pesos) determines what is high priced (more than 100) and what is low priced (less than 100).

  • For example, in experiments:

    • When a jacket priced 480 pesos was discounted as 120 pesos off (vs 25% off), people

      • Perceived the offer as 12.4% better value

      • Said they were 16.3% more likely to buy

    • When balloons priced 48 pesos were discounted as 25% off (vs 12 pesos off), people

      • Perceived the offer as 7.8%* better value

      • Said they were 11.1%* more likely to buy

🧠 Why it works

  • Part of how we perceive the value of an offer is based on the absolute number of that discount (e.g. 10, 50).

  • That’s because we don’t always put in the mental effort to calculate a percentage discount to the equivalent amount.

  • For example, a 10% discount means we think of the number 10. If a price is higher than $100 (the equivalent amount would be more than $10 off), we perceive it as a smaller discount than what it actually is.

  • When we see $20 off instead of $10 off for a $200 item, we think of the number 20, which is higher, so better.

  • Mathematically, amount offs will look bigger than percentage offs when the price is higher than 100.

  • When we perceive a promotion as better value, we’re more likely to buy it.

💸 The Science Says guide to choosing your most profitable prices

You’re probably charging too little, and leaving profits on the table - or too much, and hurting your sales.

That’s why I created the Science Says Science-based Playbook of Pricing & Promotions. Use it to:

  • Accurately research your optimal price

  • Choose how to display your price (e.g. $100, $99.99, or $94.37)

  • Run high-converting promotions and discounts

✋ Limitations

  • The study tested both US dollars and Mexican pesos (100 pesos ≅ $5). The rule should apply to other currencies although this was not directly verified.

  • The researchers state that for lower-priced products (below 100) it’s better to use a percentage off discount. However, this is based on the “direction” of results, the actual difference was not statistically significant. This means it’s probably not a big deal if you always stick to using an amount off, even for lower-priced items.

🏢 Companies using this

  • Companies seem to interchangeably use amount off or percentage off, rarely taking into account this rule.

⚡ Steps to implement

  • Match your discount type to the price of the products you are promoting

    • More than $100 -> Use $ off

    • Less than $100 -> Use % off

  • If adapting your discount types to prices is logistically difficult, stick to using amount off (i.e. $ off)

🔍 Study type

Lab and online experiments.

📖 Research

González, E. M., Esteva, E., Roggeveen, A. L., & Grewal, D. Amount off versus percentage off—when does it matter?. Journal of Business Research (August 2015).

🏫 Affiliations

EGADE Business School and Babson College. Mexico and United States.

Remember: This research could be disproven in the future (although this is rare). It also may not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.

🎓 Found this insight useful?

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