Yesterday we reviewed a landmark study, When More Is Less: The Impact of Base Value Neglect on Consumer Preferences for Bonus Packs over Price Discounts (Chen, Marmorstein, Tsiros, & Rao, 2012).
The takeaway is that people think bonuses are worth more than percentage discounts of the same value. The reasoning is that percentage discounts lead people to neglect the “base value” of the product, aptly named base value neglect.
So people instinctively know that a bargain can only be had on a bargain product and also they think 50% more of something is better than 33% off that something.
Some important caveats (situational differences matter):
- all these pricing studies are on consumer goods, not info products)
- for low value products, the preference switches where people tend to prefer price discounts over bonus packs
- for smaller discounts vs smaller bonus packs (called offer magnitude), people became more indifferent to the options: eg. 11% more of something, vs 10% less cost
- for familiar products, differences were less significant
- previous research has shown that feelings of guilt associated with a purchase can flip people to preferring a discount (people may prefer 33% off the price of cake instead of 50% more cake).
In the discussion, the authors review some possible non-price implications of the findings. An example:
travel services can highlight improvements that emphasize the increase in speed (e.g., of 25%) rather than the equivalent decrease in time taken (e.g., of 20%).
They posit that when you are discussing value, focusing on higher [something good] versus lower [something bad], will result in better outcomes.
Again, the reason that base value neglect happens is probably two-fold:
- Concrete thinking due to “innumeracy“: basically that people can’t do fractions well. While 500% more of something is the same as 80% less cost, people revert to thinking in raw numbers and 500 is better than 80.
- Attribute framing: basically that a discount on cost is perceived as a discount on value. If a product’s price is being slashed, it’s probably because it isn’t worth the original listed price.
How big is the difference in preference though?
This is maybe the most interesting question that isn’t answered, and I think, depends. We want to know the inflection point, or point at which what size discount on one solution leaves consumers indifferent to the size of bonuses on another solution.
Potentially the difference is large enough to neutralize the difference between picking you and a preferred competitor.
In another study (same paper) with a very small sample size (n=90), it was found that the gap between economically equivalent discount vs bonuses was approximately the size of the preference for a favorite brand over a competitor.
[participants] were indifferent between a new brand that offered a bonus pack of 50% more and their favorite brand that offered a price discount of 33% off.via Chen, Marmorstein, Tsiros, & Rao, 2012
Is any of this relevant to us?
If this finding “holds,” you could offer some bonuses while a competitor a consumer prefers offers a discount, and you would be neutralizing the brand preference for the competitor.
Pretty neat, I think.
In addition, consumer products have a cost associated with bonuses, while info products don’t really.
Since bonuses are “digital,” the cost to stack on bonuses for a higher priced option are near infinite, while the cost of running a promo of 30% off is literally 30% less profit in your pocket.
At the very least, discount debate aside, focusing on stacking bonuses, particularly once that are relevant and enhance your info product, will be time very well spent in terms of increasing perceived value of your product.