Why bigger discounts don’t necessarily attract more customers.
June 07, 2024
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Retailers might think that bigger discounts attract more customers. But new research suggests that’s not always true. Sometimes, a smaller discount that looks more precise — say 6.8% as compared to 7% — can make people think the deal won’t last long, and they’ll buy more. In a series of nine experimental studies involving around 2,000 individuals considering online or retail purchases of a variety of products, the authors found precise discount depths — the difference between the original and sale price — can increase purchase intentions by up to 21%.
Discounts are an important promotional tactic retailers use to drive sales. So much so that discounts were a major factor for three out of four U.S. online shoppers in 2023, luring consumers away from shopping at other retailers, getting them to increase their basket size, and convincing them to make purchases they otherwise wouldn’t. Discounts have a particularly strong impact on food purchases, where 90% of consumers reported stocking up on groceries when they were on sale.
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Dinesh Gauri is a professor and Walmart chair in the department of marketing at the Sam M. Walton College of Business at the University of Arkansas. He is also the executive director of retail information at the Walton College. His research and teaching interests include retailing, pricing, marketing analytics, retail media, e-commerce and social media marketing. He advises for various companies in these areas and is a recognized leader in marketing.
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Abhijit Guha is an associate professor in the department of marketing at the Darla Moore School of Business at the University of South Carolina. His research and teaching interests include retailing, pricing, and artificial intelligence.
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Abhijit Biswas is the Kmart endowed chair and professor of marketing, chair of the department of marketing, and distinguished faculty fellow at the Mike Ilitch School of Business, Wayne State University. His research and teaching interests include retailing, pricing and advertising. He has published over a hundred articles, majority of which are in academic journals including the Journal of Marketing, Journal of Marketing Research, etc.
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Subhash Jha is an associate professor of marketing at the Fogelman College of Business & Economics at the University of Memphis. His research and teaching interests include retailing, pricing, online reviews and role of haptic cues.
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