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Consumers opt for 'extra product' deals over discounts
Consumers much prefer getting something for free than getting something for less, according to new research on the psychology of discounting by a team of researchers led by Akshay Rao of the University of Minnesota's Carlson School of Management.
What's the best value for money - "50% extra free" or "33% discount"? According to research led by Akshay Rao, who holds the General Mills Chair of Marketing at Minnesota University, many consumers aren't aware both offers are the same. Instead, most assume that the extra free product is the better deal.
Two experiments further confirmed research findings that many consumers, when confronted with deals and discounts, aren't too good at math.
1. Hand lotion offered in a bonus pack (more for free) was a far more attractive deal than the same product carrying an equivalent discount. 73% more product was sold via the bonus pack route.
2. Even undergraduates fall foul of discounting methods. When asked to decide between either 33% extra or 33% discount Rao's students perceived the offers to be identical, whereas the discount is by far the best value.
So, by simply re-positioning a discount differently to take advantage of this consumer behavior, a substantial lift in sales is possible. As Brad Tuttle of Time's Moneyland suggests, "the psychological power of "free" may also make us worse at math".
According to an article in The Economist that reports the findings, "Studies have shown other ways in which retailers can exploit consumers' innumeracy. One is to befuddle them with double discounting. People are more likely to see a bargain in a product that has been reduced by 20%, and then by an additional 25%, than one which has been subject to an equivalent, one-off, 40% reduction."
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