Daniel Kahneman won a Nobel Prize for his studies on how people process information. According to Kahneman, people have two systems:
- System 2: Processing information slowly, using logical reasoning and conscious thinking to make choices.
- System 1: Fast and automatic processing, emotions highly influence the choices, leading to more intuitive choices.
Behavioural research shows that we often use System 1 processing. This certainly also apply to consumer behaviour. Questions about consumers' System 1 behaviour led Thomas and Morwitz to study the influence of difficult discount calculations on brand preference.
In the study, participants were shown 24 price discounts, with the regular price and the promotional price displayed next to each other. The participants evaluated the size of the price differences on a scale ranging from small (1) to large (11). The difficulty of the discount calculation was measured using their reaction time: the faster participants answered, the easier the calculation.
The price pairs were divided into three groups: easy ($1.00 difference, rounded prices), difficult-larger ($1.01 difference, exact prices), difficult-smaller ($0.99 difference, exact prices). The results show that difficult discount calculations led to lower perceived price benefits, regardless of whether the actual differences were smaller or larger.
Follow-up studies show that this effect occurs not only for discounts, but also for price differences between brands. The difficulty of the calculation is unconsciously interpreted as a factor indicating price benefits. The more difficult the calculation, the lower the perceived price benefit.
Therefore, when giving discounts, pay attention to the ease of price difference calculations. Because easier calculations will lead consumers to perceive higher price benefits, leading to greater preferences for your product or service.