Percentage Cost Discounts Always Beat Percentage Benefit Bonuses: Helping Consumers Evaluate Nominally Equivalent Percentage Changes

Forthcoming, Journal of Marketing Behavior

INSEAD Working Paper No. 2015/05/MKT

44 Pages Posted: 5 Sep 2014 Last revised: 28 Jan 2015

See all articles by Bhavya Mohan

Bhavya Mohan

University of San Francisco

Pierre Chandon

INSEAD

Jason Riis

University of Pennsylvania - The Wharton School

Date Written: January 25, 2015

Abstract

Marketing offers that are framed as a “percentage change” in consumer cost vs. benefit can have highly non-linear impacts in terms of actual value for consumers. Even though two offers might appear identical, we show that consumers are better off choosing the offer framed as a percentage cost change over one framed as the opposite percentage benefit change, regardless of whether the net result is a gain (e.g., 50% less cost is better than 50% more benefit) or a loss (e.g., 50% less benefit is worse than 50% more cost) and regardless of whether costs or benefits are in the nominator or denominator of the standard rate (cost/benefit or benefit/cost). Three lab studies and one field experiment show that a majority of consumers (and particularly those with low numeracy) fail to accurately recognize the superiority of percentage cost changes over percentage benefit changes across various tasks and contexts. Even highly numerate consumers are prone to error. However, the provision of salient standard rates can reduce consumer error.

Keywords: Number Cognition, Numeracy, Bonus Packs, Price Discounts, Unit Prices

Suggested Citation

Mohan, Bhavya and Chandon, Pierre and Riis, Jason, Percentage Cost Discounts Always Beat Percentage Benefit Bonuses: Helping Consumers Evaluate Nominally Equivalent Percentage Changes (January 25, 2015). Forthcoming, Journal of Marketing Behavior; INSEAD Working Paper No. 2015/05/MKT. Available at SSRN: https://ssrn.com/abstract=2491518 or http://dx.doi.org/10.2139/ssrn.2491518

Bhavya Mohan

University of San Francisco ( email )

2130 Fulton Street
San Francisco, CA 94117
United States

Pierre Chandon (Contact Author)

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Jason Riis

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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