Is 67% off actually better than free?

25Oct11

The other day, I walked into the pharmacy to pick up some prescriptions. As always, I stopped at the kiosk to scan my loyalty card and see which coupons it spit out. Usually, these coupons are mediocre, but one caught my eye: $2 off a multi-pack of the gum that I buy regularly.

Since the package of gum normally costs about $3, the $2 discount basically amounted to 67% off. This made me wonder: if they’re really trying to drum up interest in this product, why not make the coupon cover the entire cost of the product instead?

I’m sure there’s a lot of complex analysis that went into determining that the 67% discount was the best way to encourage customers to buy the product that day, and to purchase more of it during subsequent trips. At least in this particular case, I’m guessing that a substantial discount wins out over free because of the implied value of the item itself. 

In other words, if something is being given out for free, then people may only remember that it was free, with little sense of what the product is worth. But if it’s being offered at a substantial discount, paying even a nominal amount for the item creates an anchor point around what it should normally cost and what a great deal the customer received. This is a subtle distinction, but probably an important one when it comes to planning out a discount and promotional strategy for consumer products.



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