Double Discounts at Stores Trick Customers

Would you be more likely to buy a product that is 45 percent off, or the same product in a storewide 25 percent off sale with an additional 25 percent off that product?

A new study suggests shoppers are more attracted to the double discount, even though it involves less savings. In department store tests, double discounts increased the number of purchasers, sales volume, revenue and profit.

In the case of a 25 percent off sale with an additional 25 percent off for a certain product, math-challenged consumers assume they are getting a 50 percent price break, the researchers found. In reality, they are getting about a 43 percent discount, because the second discount is taken on the reduced amount after the first discount. On a $100 product, they pay $56.25, not $50.

"When consumers have to deal with more than one percentage at a time, they make errors that can be costly," said Akshay Rao, professor of marketing at the University of Minnesota Carlson School of Management.

And what's costly for the consumer can be profitable for a store.

"The effects of consumer miscalculation when confronted by multiple percentage changes can benefit firms at the expense of numerically challenged consumers," write Rao and colleague Haipeng Chen.

Their findings will be detailed in an upcoming issue of the Journal of Consumer Research.