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6 Exceptions: When consumers prefer discounts to bonuses

There are, however, six specific exceptions to the people-are-bad-at-math rule—instances where the kind of product under consideration overrules the default psychology behind calculation and comparison that would normally lead people to prefer bonuses.

1. Consumers prefer discounts for vice products and prefer bonuses for virtue products

What’s a vice product? You can answer that question for yourself. It’s the kind of product you feel guilty about buying.

Usually, a bonus works better at getting you to buy products. But not vice products. When you think a product is a vice product, the opposite happens: you prefer discounts.

Two researchers confirmed this with a novel experiment. They offered people chocolate priced at $14.00. Half of the subjects saw the chocolate presented with a note about its healthy attributes: the chocolate was sugar-free, made from low-fat milk, and included healthy nuts. But the other half saw the chocolate described as a “sublime consumption experience.”

Each half was split again. Some saw the chocolates promoted with a 20% off discount. The others saw a smaller box of chocolates promoted with a 20% bonus. All participants from both groups saw a box of 42 pieces of chocolate with a final price of $11.20.

What happened? The people who saw the chocolate described using its healthy properties liked the bonus: 62.5%, compared to 37.5% who preferred the discount. But when eating the chocolate was described as a “sublime consumption experience,” their preferences switched: 66.1% of people responded to discounts, while only 33.9% chose the bonus.

In another experiment, people were shown either raisins or chocolate at either a regular price, a discount, or with a bonus. Then they were asked to indicate how likely they were to buy it. The researchers found that discounted chocolates were 3.125 times more likely to be purchased than chocolates that came with a bonus. Tellingly, a bonus did not encourage people to buy chocolate: people who saw bonuses were just as likely to buy chocolate at the regular price without a bonus.

In other words, a “20% more chocolate free!” on your package will not increase the number of units sold. All those people would have bought the chocolate anyway at the regular price.

Why do vice products make you prefer discounts instead of bonuses?

Because you feel guilty about buying vice products. Feelings of guilt have more influence on your desire to buy than your desire for more of whatever you’re buying.

However, let’s face it, you still want to buy vice products. Guilt alone won’t deter you. All you need is a reason to buy That Thing You Know You Shouldn’t Buy.

Both a bonus and a discount can serve as a reason to buy, but they produce opposite effects. A bonus just gives you more of the thing you’re already guilty about getting in the first place. More of That Thing You Know You Shouldn’t Buy isn’t going to tip you over the edge into buying it. That’s why bonuses can work against your desire to buy.

However, a discount helps justify your decision without adding to your guilt.

Here’s how we know this. A discount is just one way to remove guilt from the transaction. But there are other ways to remove guilt; and when guilt is removed in those other ways, people go right back to preferring discounts.

There are lots of ways to remove guilt. Here are two.

2 ways you get rid of guilt for buying a vice product

1. You prefer discounts to bonuses for vice products, unless your friend buys them for you.

Let’s go back to our chocolate example. Sure, you feel guilty when you get it. But what if you don’t buy it? What if someone buys it for you?

In a different version of the chocolate experiment, people were told a friend would pick it up for them. That way they wouldn’t have to buy it themselves. As before, chocolates were described in terms of either their healthy or indulgent properties. When people bought chocolate for themselves, 71.11% chose the discount, 22.22% chose the bonus, and 6.67% were indifferent.

But when people had a friend pick up chocolate for them—when the decision was out of their hands, thereby removing the possibility of feeling guilty—46.34% chose the discount, 48.78% chose the bonus, and 4.88% didn’t care.

To test this, researchers followed up the experiment, except this time they swapped out the chocolate and offered a salad instead. Now, nobody feels guilty for buying a salad.

When people bought a salad for themselves, 30.3% chose the discount, 66.67% chose the bonus, and 3.03% were indifferent. When people asked a friend to get the salad for them, 41.46% chose the discount, 56.1% chose the bonus, and 2.44% were indifferent.

What’s the difference between chocolate and a salad? One is good for you, one is bad for you. If a restaurant wants you to buy a salad, they should offer a bonus (or just a really big salad). But to get you to buy dessert, they need to offer you a good price.

2. You prefer discounts to bonuses for vice products, unless you have recently donated to charity.

There’s an even more clever way to feel less guilty: do something nice.

Think about it: what makes you feel guilty?

Usually, you feel guilty after you’ve done something bad.

But if you do something nice, then you’ve lowered your “default guilt” setting. This, in turn, means you need less evidence that you’re a not-guilty person.

You prefer discounts to bonuses for vice products unless you do something nice right before you buy. When you do something nice before you buy, you go back to preferring bonuses to discounts.

Evidence backs this up. In an experiment, 199 people were asked to indicate their willingness to buy a product, on a scale of 1 to 7. Here’s what happened:

People who did not make a donation:

  • chocolates: 4.1 price discount, 2.94 bonus pack

  • Raisins: 2.65 price discount, 3.98 bonus pack

People who made a donation:

  • chocolates: 4.32 price discount, 4.42 bonus pack

  • Raisins: 4.06 price discount, 2.58 bonus pack

People were more persuaded by a discount promotion than a bonus promotion unless they recently gave to charity. Those who gave to charity were more likely to be persuaded by a bonus promotion than a discount promotion.

To sum up what we’ve covered: People need a justification for their purchase. When a bonus pack is offered, the extra quantity is this justification. But for vice products, this extra quantity exacerbates preexisting feelings of guilt. (If you know you shouldn’t eat chocolate, offering more chocolate won’t make you more likely to buy chocolate.) Instead, for vice products, a discount can assuage your guilt, making you more likely to buy. And, surprisingly, other forms of guilt-mitigation, such as giving to charity, influence your preferences, too.

The takeaway: next time you see chocolate, you’re more likely to buy it when there’s a discount unless you threw a few coins in the Salvation Army bucket on your way into the store, in which case a bonus is more likely to get you to buy.

2. Consumers prefer discounts for experiential products if they are introverts or feel socially excluded

Some products are designed to be experienced with other people, such as a trip to Disneyland, dinner at a fancy restaurant, board games, sports equipment, and so on. For these kinds of products a bonus—a “plus one”—works particularly well.

Experiential products—whether they are consumed with others or alone—lend themselves well to bonus promotions. When you go out for dinner, or go on vacation, or buy another kind of similar experience, the happiness you derive from that experience is enhanced in the presence of others. When you see a bonus promotion for an experiential product, like a “two for the price of one” message, it’s usually easy to imagine who you will (or could) experience it with.

But what if you’re alone? (*sad trombone*) What if you’re an introvert? What if you feel (or are) socially excluded?

If you’re introverted or you feel socially excluded, then you are less likely to respond to a bonus promotion for an experiential product, and more likely to respond to a discount promotion instead.

In a study, when bonuses were described in terms of being used with a friend, people were 56.2% more likely to choose them. The effect was enhanced when people were extroverts—the more extroverted people are, the more likely they are to be persuaded by a bonus promotion for an experiential product. But this effect disappeared when the consumption was framed in terms of self-consumption.

3. Consumers prefer bonuses for stock-up products and prefer discounts for non-stock-up products

Researchers have also found that discounts have more value for stock-up products than for non-stock-up products.

Before we explore why this is, let’s define what we mean by “stock-up” and “non-stock-up”:

  • Stock-up products can be purchased in bulk, are used frequently, and don’t go bad. For example, there’s a 25-pound bag of rice in my pantry, a 10-pack of lightbulbs in my closet, and a 12-count package of Kleenex boxes in my basement. These items don’t go bad and are guaranteed to get used, eventually.

  • Non-stock-up products are small, used infrequently, or are perishable. Obvious examples include the milk and produce in my fridge, which must be consumed within a few days. Other examples include non-perishable items where having more than one might not be practical, such as a lawn mower or a hammer. I’ll probably have more than one flat tire in my life, but it doesn’t make sense to carry more than one spare in my trunk, because the storage costs are too high.

In a study of 438 customers, researchers asked people to rate the transaction value of product promotions on a scale of 1 to 5. They found that for stock-up products (like bags of rice, light bulbs, and Kleenex), customers preferred discounts and bonuses almost equally: discounts were rated a 3.27 and bonuses were rated a 3.05. However, for non-stock-up products, people strongly preferred discounts to bonuses: discounts were rated 4.07, while bonuses were ranked only 3.05.

This makes sense if you think about it. If I can consume a gallon of milk in one week, a buy-one-get-one won’t affect my decision to buy, because the extra gallon will spoil before I can drink it. I’ll end up with the same amount of milk at the same price—not exactly a reason to buy.

On the other hand, an economically equivalent 50% off discount makes the transaction more appealing.

Another experiment found that discounts are more appealing for frequently-used products. A 12-pack of lightbulbs is just as nonperishable as the hammer in my garage. But the lightbulbs and the hammer differ in an important way: I’ll use all the lightbulbs within the next couple of years, but I won’t need another hammer for decades. Offering a hammer I’ll never use along with the hammer you want me to buy won’t give me an extra reason to buy; the transaction value is the same.

Every item you own comes with a storage cost. Lightbulbs are small and easy to store. Spare tires, television sets, and cars aren’t. This is why you might occasionally see extreme discounts on large, stock-up products, but you’ll never see a five-for-the-price-of-ten promotion on a new television set.

4. Consumers prefer discounts at low promotion levels and bonuses at high promotion levels

Researchers have also found bonuses and discounts vary in their appeal depending on the promotion level. In other words: people react differently to a low promotion level—say, 10% off or 10% extra—compared to a higher promotion level, such as 25%, 50%, or 100% off.

But how? In one study, 261 customers were shown tubes of toothpaste at varying promotion levels. (Remember, toothpaste is a stock-up product, and on stock-up products, customers tend to prefer bonuses to discounts.)

Customers saw one of three promotion levels: 10%, 25%, and 50%.

Here’s what the researchers found. For low and medium promotion levels, discounts and promotions are valued almost the same. On the ranking scale used by the researchers, customers who saw a promotion at 10% liked bonuses better: they ranked bonuses at 16.05 but ranked discounts at only 15.34. Customers who saw the 25% promotion ranked discounts and bonuses about the same: they ranked discounts at 18.33 and bonuses at 18.00. But at 50%, customers clearly preferred discounts: they ranked discounts at 23.05 and promotions 20.37.

Researchers found similar responses for other kinds of products, such as soap, laundry detergent, hand lotion, and trash bags.

What does this mean? All other things equal, you prefer bonuses to discounts at low promotion levels, and you prefer discounts to bonuses at high promotion levels.

5. Consumers prefer discounts for high-priced products and bonuses for low-priced products

Just as the promotion level changes your preferences for discounts and bonuses, so does the price of the product. For lower-priced products, you prefer bonuses, but for higher-priced products, you prefer discounts.

In one study, people were shown a promotion on a product for either “33% more” or “33% off.” If you pay close attention, you’ll notice that 33% off is economically equivalent to 50% more, not 33% more. Yet, as we’ve seen, people view the numerosity of percentages incorrectly: bigger numbers are better. When customers were asked to rank the transaction value on a 7-point scale, they rated a “50% more” promotion a 4.72 but rated a “33% off” a 4.

However, when people were shown a “33% more” promotion, they rated it a 3.76 on average, compared to a 4 for “33% off.” For low priced items, people liked the discount and the bonus roughly the same: they rated the discount at 4.29 and the bonus at 4. But for higher priced items, they preferred the discount, rating discounts a 4, compared to 3.13 for bonuses.

Again, all things equal, you prefer bonuses to discounts for inexpensive products, but you prefer discounts to bonuses for expensive products.

6. Consumers prefer discounts for unfamiliar products and bonuses for familiar products

You also tend to avoid bonuses if you’re not familiar with a brand.

In an experiment, researchers showed 107 participants various products. Overall, consumers preferred a 50% bonus to a 33% discount, as expected.

But what was striking was that for familiar brands, consumers preferred a 33% bonus to a 33% discount, even though the discount was a better deal. On a 7-point scale, consumers rated the discount a 3.36 but rated a bonus as a 4.

In another experiment designed to determine the role of risk in consumer preferences for bonuses and discounts, 322 people were shown either a package of AA batteries or a painkiller. Of the people who saw batteries, half saw a normal product, and the other half saw batteries that lasted 15 times longer but were twice as expensive. Of the people who saw painkillers, half saw one that provided relief for four hours, while the other provided relief for 72 hours, but, as with the batteries, was twice as expensive. In short, longer-lasting products came with an increased risk: products that last longer and cost more also are more likely to not perform as expected.

Consumers were asked to rank both the transaction value and their purchase intention on a 7-point scale. The experiment found that for low-risk products, people prefer bonuses to discounts: 4.34 compared to 3.42 for the painkillers, and 4.18 compared to 3.81 for the batteries. But for high-risk products, the opposite happens. People rated a discount at 4.35 compared to a bonus at 3.54 for the painkillers, and they rated a discount at 4.96 compared to a bonus at 4.28. In both cases, their purchase intent decreased as well.

The reason you prefer discounts when you’re unfamiliar with a brand is that you’re risk-averse. This makes sense: if you’ve never heard of a product, or you haven’t used it, or you don’t know if you trust it, then the prospect of having more of that thing you haven’t heard of, haven’t used, and might not trust won’t convince you to exchange your money for it.

On the other hand, a discount can help you feel better about taking the risk. A discount effectively compensates you for the uncertainty you might feel about a new product or experience. Likewise, a discount can incentivise a brand switch. Remember, discounts don’t reduce the risk, they merely lower the cost you’ll incur if you make the wrong choice. Same risk, just a slightly less bad outcome if you fail.

In short, people don’t want more of something they’re unfamiliar with. Familiar items come with low risk. Unfamiliar items come with higher risk. Because people are risk-averse, a bonus promotion for an unfamiliar brand is ineffective.

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