Make small discounts a gamble

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📝 Context

Topic: Promotions
For: B2C. Can be tested for B2B
Research date: June 2025
Universities: University of California Berkley, University of Pennsylvania

You’re planning a new campaign and are deciding between 2 options that would cost you the same to offer:

• Guaranteed discount: 10% off to everyone

• Uncertain discount: Spin the wheel for 10% chance to get the product for $0

Which one will drive more sales? Science says the uncertain discount is better, but only under certain circumstances.

P.S.: Check out our Science-based Playbook of Pricing & Promotions for more techniques like this to help optimize your promotions.

📈 Recommendation

If you can only offer a small discount (under 10%), switch to offering an uncertain discount of a larger value (e.g. 1 in 10 chance to get 50%).

People will be more likely to buy, and you may be able to reduce costs.

If you’re giving a significant discount (>10%), stick to a guaranteed discount.

🎓 Findings

• People are more likely to choose a larger uncertain discount (e.g. 1 in 10 chance to receive 50% off) compared to a smaller but guaranteed discount (e.g. 5% off).

• As part of a series of 5 experiments, researchers found that people were:

  • 92.6% more likely to choose a larger uncertain discount (10% chance of a free night’s stay) compared to a small guaranteed discount (1% discount per night) when booking a hotel.

  • 12.3 % more likely to choose an uncertain offer (10% chance to get free gym training) compared to a guaranteed 10% discount ($4 off a monthly plan or $48 off a yearly plan).

• The effect is stronger when:

  • The guaranteed discount amount is much smaller. People were 15.4% more likely to choose a mystery offer for a $48 per night hotel compared to a $480 per night hotel.

  • The guaranteed discount is shown as a percentage. People were 27.3% more likely to choose a mystery discount compared to when the guaranteed option was shown as a percentage (10% off) versus a fixed amount ($1.10)

🧠 Why it works

• When we’re judging a discount, our perception of its size has a larger impact than its objective value.

• Depending on the scenario, we’re either more risk averse, preferring certainty, or open to taking a risk.

• When a guaranteed discount is small or seems trivial, it’s less appealing to us. Because it feels insignificant, we’re more likely to take a risk with a larger discount.

• This is also known as the “Peanuts effect”, where we’re more willing to take risks if the stakes are small.

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✋ Limitations

• The research looked at online buying. The effect likely works the same way for physical retail, but it hasn’t been tested. It’s also unclear if the effect would work the same way for luxury items or B2B buying.

• The definition of a “small” discount depends on the category. A $10 discount may seem tiny for some products (e.g. a $250 speaker), while seeming large and attractive for other products (e.g. a $35 shirt).

• The research looked at uncertain discounts in isolation. If people lose too often, it’s possible they may feel the discount is unfair or lose trust in the brand.

• The experiments were conducted in the US only. Other research has shown that people in individualistic cultures, like the US, feel a greater sense of control and are more optimistic when facing uncertainty compared to more collectivistic cultures. This could make people in the US and other similar cultures more likely to take a risk for an uncertain reward.

👀 Real-life example

Target offers a guaranteed $1 discount on bags of candy for Halloween.

❌ Issue: Compared to this relatively small discount ($1), offering an uncertain discount would likely be more effective.

✅ Solution: Target can optimize this promotion by:

• Switching to an uncertain promotion (e.g. “Spin a wheel for a chance to get this at half price”).

• Reframing the discount to say “was 11% higher” instead of “10% off” to make it seem larger. 

• Positioning the discounted price ($8.99) to the right of the original price ($9.99), instead of before it.

• Using an italicized font for the line “Sale save $1.00…” to build a sense of urgency and increase the likelihood of people considering the deal.

🔍 Study type

Online experiments.

📖 Research

Why (and When) Are Uncertain Price Promotions More Effective Than Equivalent Sure Discounts? Journal of Consumer Research (June 2025)

🏫 Researchers

• Celia Gaertig. University of California, Berkeley

• Joseph Simmons. The Wharton School, University of Pennsylvania

Remember: This is a new scientific discovery. In the future it will probably be better understood and could even be proven wrong (that’s how science works). It may also not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.

🎁 Bonus mini-insight

Read the full insight here (for paid Platform members only)

🎓 Insight: Use consistent endings in discounts

📈 Recommendation: When you offer a discount, make sure the ending of both the original and discounted prices is the same (e.g. “Was $44.50, Now $37.50”). The new price will seem cheaper, increasing sales.

✋ Careful: This doesn’t work if both the new and original prices are only two digits (e.g. $1.8)

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