How big a discount is the most effective for a voucher offer?
This is a standard question from a Marketing Director to their in-house team, consultant or partner (if they are conducting a one-person survey!). Most of the answers will come back based on personal buying preferences or past history, but such history is often distorted by vagueness of recollection.
If we go to our industrious academics though, they provide a rich source of knowledge and data. In this case: Jia, H., Yang, S., Lu, X., & Park, C. W. (2018). Journal of Marketing, 82(4), 70-85. One might imagine that a higher value in £ on a discount voucher drives a consumer to a higher value purchase. It’s free money after all, why not use it to purchase a better brand or upgrade product features?
But research showed that when the value of a voucher reaches a certain level, it ceases to have the effect of growing the consumers’ budget to purchase. Instead, they start to calculate the percentage saving which the researchers named the ‘savings comparison mechanism’. This behaviour drives them back into the cheaper product purchase because £10 off a £20 item is 50%, which entices a consumer more than £10 off a £50 item which is only 20%.
Identifying this trigger level, where the savings comparison mechanism kicks in and the propensity to buy more expensive declines, is crucial to promotion design. How do we find this out? Test and data, test and data.
Pricing gem:
If you are trying to give the customer a boost so they can buy more expensive options, testing the effect before launch is crucial.
