Research: Smaller, More Precise Discounts Could Increase Your Sales
Retailers might think that bigger discounts attract more customers. But new research suggests that’s not always true. Sometimes, a smaller discount that looks more precise — say 6.8% as compared to 7% — can make people think the deal won’t last long, and they’ll buy more. In a series of nine experimental studies involving around 2,000 individuals considering online or retail purchases of a variety of products, the authors found precise discount depths — the difference between the original and sale price — can increase purchase intentions by up to 21%.
Discounts are an important promotional tactic retailers use to drive sales. So much so that discounts were a major factor for three out of four U.S. online shoppers in 2023, luring consumers away from shopping at other retailers, getting them to increase their basket size, and convincing them to make purchases they otherwise wouldn’t. Discounts have a particularly strong impact on food purchases, where 90% of consumers reported stocking up on groceries when they were on sale.
Given the apparent importance of discounts, it’s crucial for retailers to use these promotions effectively to drive sales. Intuitively, one would expect that consumers would be more likely to purchase an item at a greater discount than one at a smaller discount.
Retailers leverage this assumption, employing various tactics to increase the perceived size of a discount. These tactics include displaying the sale price to the right (vs. left), displaying the sale price using a different font size, and using left-digit “anchoring” effects (e.g., a sale price of $2.99 vs. $3.00). Retailers also typically round discounts up to the nearest whole number, describing a discount as “Save 7%” rather than presenting the actual discount, i.e., “Save 6.8%.”
Another major driver of consumer purchase behavior is perceived discount duration. Shorter discount durations incentivize consumers to take advantage of the deal while they can, increasing purchase intentions. Retailers signal short discount durations in various ways, such as flash sales, using countdown timers, and employing mechanisms like the “running of the brides,” an annual tradition where soon-to-be-married women rush — and sometimes fight — to secure massive discounts on wedding dresses.
In contrast to all the above, we propose that the retailer may benefit from presenting price discounts in ways that specifically indicate a lower “discount depth” — i.e., the difference between the original and sale price. One way to signal that the price discount may not be available for long is to describe the discount using precise numbers, e.g., 6.8% (vs., say, a higher number of 7%). If so, then a smaller perceived discount depth could be effective in driving increased sales.
We build from research that suggests that while round numbers are perceived as more stable, precise numbers are perceived as more prone to change. If so, then holding price information constant and describing the discount depth as 6.8% (vs. higher-value 7%) should 1) lead consumers to perceive that the price discount will not last as long, and 2) increase consumers’ purchase intentions.
In nine experimental studies involving around 2,000 individuals who were considering online or retail purchases of a wide variety of product categories (e.g. portable hard drive, water bottle, coffee mug, camping chair, drinks cooler), with price values ranging $8-$50, this is exactly what we found.
Specifically, we found that describing the discount depth using a precise number (e.g., 6.8% vs. 7%) increased consumers’ stated purchase intentions by between 13% and 21%. In other words, consumers were more likely to purchase the product — rather than wait and look elsewhere — when the discount description was precise and not rounded up.
As expected, we found that these higher purchase intentions were driven by the perception that the price discount may not be available for long. Interestingly, this suggests a shorter discount duration has a stronger effect on consumers’ purchase intentions than a larger discount depth.
The above results were stronger when the discount depth was relatively low (say, under 10%). While research has shown that in many cases, offering small discounts is ineffective, our results suggest that there are ways to “stretch” the effectiveness of these discounts. This is good news for retailers, as effective low discounts drive sales while reducing the impact on profit margins that larger discounts would have.
While our findings persisted across a range of product types, there are additional nuances which retailers and researchers should consider. For example, research shows that round numbers can lead to consumers relying on feelings when processing information. Therefore, there may be drawbacks in using precise discounts for products processed using feelings, such as champagne or perfume. As such, future research should consider how feelings may impact the perception of discount descriptions.
In addition, retailers may display discounts using dollars (“$10 off”) rather than percentages (“10% off”). While our research focused on percentages, future research might examine whether our results persist for “$ off” discounts as well.
The implications of our research are clear. In general, retailers are concerned about making price discounts more attractive, balancing the perceived depth and duration for price discounts. Specifically, considering that relatively low price discounts are perceived as less attractive, retailers want to find ways to make these small discounts more effective.
To increase consumers’ purchase intentions, and therefore sales, our research suggests that retailers should not round up discounts to the nearest whole number, especially for relatively small discounts. Instead, they should use precise discount descriptions to suggest a shorter discount duration.
Pricing strategy, Sales and marketing, Marketing, Digital Article
Dinesh Gauri,
Dinesh Gauri is a professor and Walmart chair in the department of marketing at the Sam M. Walton College of Business at the University of Arkansas. He is also the executive director of retail information at the Walton College. His research and teaching interests include retailing, pricing, marketing analytics, retail media, e-commerce and social media marketing. He advises for various companies in these areas and is a recognized leader in marketing.
Abhijit Guha,
Abhijit Guha is an associate professor in the department of marketing at the Darla Moore School of Business at the University of South Carolina. His research and teaching interests include retailing, pricing, and artificial intelligence.
Abhijit Biswas,
Abhijit Biswas is the Kmart endowed chair and professor of marketing, chair of the department of marketing, and distinguished faculty fellow at the Mike Ilitch School of Business, Wayne State University. His research and teaching interests include retailing, pricing and advertising. He has published over a hundred articles, majority of which are in academic journals including the Journal of Marketing, Journal of Marketing Research, etc.
Subhash Jha
Subhash Jha is an associate professor of marketing at the Fogelman College of Business & Economics at the University of Memphis. His research and teaching interests include retailing, pricing, online reviews and role of haptic cues.
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