A price discount of 20% is economically equal to a volume increase of 25%. Chen et al. (2012) discovered that consumers err when calculating percentages and tend to ignore the base value the percentage refers to – an effect coined “base value neglect.”
The researchers observed that consumers systematically prefer a large percentage to a small percentage. This means consumers prefer a bonus pack to an economically identical price discount when both are expressed as percentages. Vice versa, consumers also prefer a size decrease to price increase when presented as a percentage.
In a field study, Chen et al. (2012) sold a hand lotion either at a 35% price discount or as bonus pack with 50% more content in a small retail store. After 16 weeks of promotion, the researchers observed that the bonus pack promotion sold 81% more units per day than the price discount promotion.
Excerpt from: The Psychology of Price: How to use price to increase demand, profit and customer satisfaction by Leigh Caldwell
