Which makes for a more effective offer — an ad with a discount percentage, or a specific amount off the regular price?  As shopkeepers we may guess at the answer to this question, but it turns out that there is actual scientific research we can use to make our decision.

In his book Contagious: Why Things Catch On, Jonah Berger (associate professor of marketing at the Wharton School of the University of Pennsylvania) addresses this issue in what he calls the Rule of 100.  The same reduction, it turns out, can be more productive when shown as a percentage off or a sale price depending on the amount of the original price.

“For low-priced products, like books or groceries, price reductions seem more significant when they are framed in percentage terms,” Berger concludes. “Twenty percent off a $25 shirt seems like a better deal than $5 off.”  The discount is of course identical.

“For high-priced products, however, the opposite is true.  For things like laptops or other big-ticket items, framing price reductions in dollar terms (rather than percentage terms) makes them seem like a better offer.  The laptop seems like a better deal when it is $200 off rather than 10 percent off.”

Berger summarizes the researchers’ findings by suggesting the Rule of 100: if the product’s price is less than $100, percentage discounts will seem larger.  If the product sells for more than $100, the opposite is true: numerical discounts will seem larger.

The main topic of Berger’s book is how ideas go viral, and he concludes that one of the factors in information being shared is whether it has practical value. In the world of retailing, the Rule of 100 is a great example of a helpful and practical idea worth passing on.  So feel free to share — and to read Contagious to find out about the other factors cause some concepts to become popular, while others quickly fade into oblivion.

Happy Retailing,

Carol “Orange” Schroeder