The Rule of 100: What Makes Something Seem Like A Good Deal?

From the Lecture Series How Ideas Spread

By Jonah Berger, Ph.D.University of Pennsylvania

What makes something seem like a good deal?  Subtle ways of framing the same information can make consumers more compelled to purchase. For example, let’s look at “The Rule of 100”.

Image of a sale tag: The Rule of 100

Everyday consumers are bombarded by discounts.  5% off this, 20% of that, or 30% off something else.  $5 off your grocery bill, $20 off a phone, or $15 off your purchase if you spend more than $150.

This article originally appeared in Professor Jonah Berger’s personal blog

The goal of such offers is to pique consumer interest and increase demand.  People will buy more, or buy more often, than they would have otherwise.

But for that to happen, the deal has to compel consumers to take action.  There are thousands of coupons, discounts, and deals out there, and it’s impossible to pay attention to all of them.  So what helps a particular deal cut through the clutter?  What makes a certain deal seem, well, good?

Learn more about consumer psychology

As I talk about in Contagious, one simple way is something called The Rule of 100.  Imagine you own a casual clothing store that’s having a sale.  Usually a particular line of t-shirts costs $20 per shirt, but for the purposes of the sale you’re going to mark them down to $15 a piece.

There are two ways you could advertise that discount.  One would be as a percentage.  Going from $20 to $15 would be 25% off.  But you could also represent that same amount as an absolute number, $5 off.  Which way is better?

Go ahead, check my math.  Or just take my word for it.  Both discounts lead to the same final price.  25% off $20 and $5 off $20 both leave the customer paying $15 for a shirt.  So both ways of representing the discount should have the same effect, right?

Learn more about the phenomenon of triggers

Nope.  Turns out consumers find the discount more attractive, and are more compelled to purchase, when it’s 25% off (compared to $5 off).  While the two discounts are the same economically, they don’t feel the same psychologically. One feels bigger than the other.

So does that mean that percentage discount are always more effective?

Not quite.  Take the same situation but up the stakes.  Rather than a $20 t-shirt, think about a $2,000 laptop. A 25% discount would take it down to $1500, and $500 off should equal the same amount.  In both cases, the laptop would cost $1500.

But it doesn’t feel the same to the consumer.  For a $2,000 item, $500 off seems larger than 25%, which makes people more likely to purchase when they see the absolute dollar discount.

Learn more about the powerful effects of framing

The Rule of 100 says that under 100, percentage discounts seem larger than absolute ones.  But over 100, things reverse.  Over 100, absolute discounts seem larger than percentage ones.

This rule affects whether consumers think something is a good deal, but it also influences a host of other behaviors related to numerical information.  Shrinking the size of your product?  Reporting revenue growth?  Representing the difference in percentage versus absolute terms should affect how big the changes seem.  A 2 ounce decrease seems smaller than a 15% decrease.  A 30% increase in revenue seems larger than a $2 million increase.

So next time you’re reporting, or consuming, numerical information, pay attention to how it’s presented.  The way changes are represented can have a big impact on how they’re perceived.

Common Questions About the Rule of 100

Q: What is a psychological pricing example?
A: One example would be pricing something at $29.99 rather than $30. In the customer’s mind, the product feels significantly cheaper even though it is really just one penny.

Q: What is the Rule of 100 in regards to pricing strategy?
A: If the price is less than $100, then frame the sale as a percent discount (i.e. 45% off). If it’s more than $100, frame the price as the actual whole number amount that you will be deducting from the total amount.

Q: Why is psychological pricing used?
A: Psychological pricing works on the level of emotion, which can be far more powerful than logic. Often, it has an unconscious effect on the consumer so he/she is not even aware of what is taking place.

Q: Why is the Rule of 100 so effective in pricing?
A: Most people will not bother to calculate the percent discount of an item. Therefore, they will see that an item is, for instance, 35% off, and they will perceive this as a big discount without taking the time to do the math.

This article was updated on July 7, 2019

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