While reading Jonah Berger's book Contagious, I came across a simple sales-psychology concept called the Rule of 100.
As consumers, we are always looking for a great deal. Whether it’s through a sale, a discount code, a special promotion or even by haggling, we’re always driven to pay the lowest amount possible for the product or service we want.
From a business perspective though, how do we make our offering seem like a great deal? Our customers are bombarded with endless “special offers” every time they visit a shop or website, so how can we make our special offer stand out from the crowd? According to Berger, one simple way to help do this is by how you frame the deal’s information, and it’s known as the Rule of 100.
Some offers are communicated by “absolute” (or numerical) discounts, such as €15 off or €150 off. Others are expressed as “relative” (or percentage) discounts, like 5% off or 50% off. You might not think it, but how a promotion is framed does in fact influence how a discount is perceived by the buyer.
Let’s go through an example: you walk into your favourite clothes shop. Two t-shirts are on sale. Both are marked as €20, however one has an extra discount of 25% off and the other has a discount of €5 off. Which one sounds like a better deal to you?
Here’s another example: you’re in the market to buy a new laptop. Two identical models are for sale at €2000. One has an extra discount of 25% off while the other has a discount of €500 off. Which one sounds like a better deal to you this time around?
Both discounts are exactly the same monetary wise, however to buyers they don’t feel the same psychologically. One feels bigger than the other. Berger explains “Researchers find that whether a discount seems larger as money or percentage off depends on the original price. For lower priced products [such as t-shirts], price reductions seem more significant when they are framed in percentage terms. For high-priced products [such as laptops], however, the opposite is true.”
So, in order to figure out which discount frame will seem larger to your customers, you should use the Rule of 100. If your product or service costs less than €100, the Rule of 100 says that percentage discounts will seem larger. If your product or service costs more than €100, the opposite is true. “It's all about how you frame a deal to make it more enticing.” Berger says.