Akshay Rao, who holds the general mills chair in marketing at the Carlson School of Management, University of Minnesota, looks at consumers’ attitudes to discounting in his research paper, When More Is Less: The Impact of Base Value Neglect on Consumer Preferences for Bonus Packs over Price Discounts. In an interview, he talks about consumer behaviour. Edited excerpts:
Why do consumers neglect base value? Is it common across the globe? How do retailers make use of this?
The tendency to neglect base value is probably a consequence of two factors—ability and motivation. Many do not know or do not think carefully about percentages, and treat them as whole numbers because they lack the ability to calculate. Those who can, probably think it is not worth the effort. I suspect it is a universal phenomenon. Retailers can use this knowledge to their advantage in at least two ways. First, they can influence consumer preferences by emphasizing the larger magnitude (though equivalent percentage) to boost sales. Second, retailers can employ double discounts and leave consumers with the feeling that they are better off, when is is not so.
Why does percentage always confuse consumers?
People tend to be confused by arithmetical and mathematical operations such as percentages, fractions and logarithms, because the human brain may not be evolutionary adapted to do so. In other words, during our evolution as a species, we didn’t need to think in these terms—mere counting was enough to procure food and to avoid becoming prey. However, some of our senses (hearing, for example) do operate in a mathematically sophisticated fashion—hearing occurs on a logarithmic scale. Look at the marks on the volume control on your stereo and you will see what I mean.
Do discounts work, irrespective of the customer’s income group? Does discounting lead to over consumption?
Nothing about human psychology is always true. Some people are price sensitive and some are not. In fact, some people are quality sensitive or are averse to low-priced options because they may be “cheap”, of low-quality or may lack the appropriate image. As for over consumption, if people buy more when a product is on sale, and if the sale price is legitimate, and if the product is consumed at the same rate as it was when not on sale, then it is not a waste of money or over-consumption. However, that is often not the case. People sometimes buy carbonated soft drinks on sale, buy large quantities, and consume more. Then, they come back to replenish their stock. This is over-consumption.