Journal of Marketing Behavior > Vol 1 > Issue 1

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

Bhavya Mohan, Harvard Business School, USA, Pierre Chandon, INSEAD, France, Jason Riis, Wharton School, University of Pennsylvania, USA,
 
Suggested Citation
Bhavya Mohan, Pierre Chandon and Jason Riis (2015), "Percentage Cost Discounts Always Beat Percentage Benefit Bonuses: Helping Consumers Evaluate Nominally Equivalent Percentage Changes", Journal of Marketing Behavior: Vol. 1: No. 1, pp 75-107. http://dx.doi.org/10.1561/107.00000005

Published: 18 May 2015
© 2015 B. Mohan, P. Chandon, and J. Riis
 
Subjects
 
Keywords
Number cognitionNumeracyPercentagesBonus packsPrice discountsUnit prices
 

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In this article:
1. Conceptual Framework
2. Consumer Perceptions of Percentage Change Offers
3. Effects of Standard Rate Information Availability and Type on Perceptions of Cost Change Superiority
4. Individual Differences in Numeracy
5. Overview of Studies
6. Study 1: Assessing Consumer Ability to Evaluate the Actual Value of Varying Percentage Changes in Cost vs. Benefit
7. Study 2: Effects of Cost vs. Benefit Framing, Rate Availability, Outcome Valence, and Cognitive Reflection on Ranking Printers’ Speed
7. Study 3: Effects of Availability and Type of Rate Information when Evaluating Nominally-Equivalent Percentage Changes in Price vs. Duration of Internet Access Plans
7. Study 4: Effects of Cost vs. Benefit Framing, Rate Information Availability, and Cognitive Reflection on Work Choices (Field Experiment)
References

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.

DOI:10.1561/107.00000005