The rule of 100

We should all try to avoid doing a discount promotion. I know I have to. However, with a pressure to increase a short term gain, we all need to do discounting. As it doesn’t require much of a brain work, let add some intelligence behind it. There are 2 ways to do discounting – absolute (or numerical) discounts or relative (or percentage) discounts. Which way is working better than which? The rule of 100 is your answer.

Researchers find that whether a discount seems larger as money or percentage off depends on the original price.

  • If the prices are lower than $100, the percentage discounts (e.g. 10% off) will seem larger.
  • If the prices are higher than $100, the numerical discounts (e.g. $100 off) will seem larger.

Let’s try this rule in your next promotion.


Prospect Theory

I am in search of a way to fight with a discount tactic. As I work in the hospitality industry, it’s a mammoth task to fight against the influence of Online Travel Agents (OTAs). Customers always look for good deals, deep discounts. It’s really difficult.

However, it doesn’t mean there is no hope. I just need to think harder and do more research. I came across the theory called “Prospect Theory”. The main idea of this theory is people don’t evaluate things in absolute terms. They evaluate them relative to a comparison standard, or “reference point”. Basically, if I tell you a cup of cappuccino in Australia costs $4.00. It’s just a single number that doesn’t mean much. But, if I also tell you that a similar cup of cappuccino in Thailand cost about $3.00. Then, the first idea that comes to mind is that coffee in Thailand is cheaper than in Australia.

This theory makes me think that we don’t always have to give a massive percentage discount e.g. 50% OFF. What we could do is to do the same tactic as many retailers i.e. have a reference point. For example, instead of saying getting 10% off for your next booking, we could say book now and pay only $99/night (normal price is $109/night).

That is just one way to do it. I am sure there are other ways. I will share with you if I find more ways in the future.


How to get out of the discount game

It depends on your industry. It is certainly difficult if you have a track record of giving discounts all the time. It is super difficult if your target customers only expect to get discounts from you and your competitors like in the hotel industry.

But as a smart marketer, we should be able to do something. Talking about the hotel industry, the key strategy all major hotel chains e.g. Marriott, Accor, and Wyndham use is a loyalty program. The basis is simple they encourage guests to make direct bookings with them instead of using Online Travel Agents (OTAs). Those guests earn points which can be used for future bookings. It’s a kind of keeping customers in their ecosystem. But, it could be seen as another discount tactic.

To get out of the whole discount game entirely, you will need to change your mindset. The key success factor would be that you stop offering an average product. You have to stop offering your product to everyone. You have to understand that it’s not possible to please everyone and in doing so (pleasing everyone) you are on a road map of being average. Once you change your mindset, you will start to think who need your solution (your product) and you will start thinking deeper and deeper on how you could “serve” those customers.

Another way to say it is, to get out of the discount game, you need to be remarkable. You cannot be remarkable if you try to attract everyone. Find the people who need your help, tell them how you could help, and do the work to help them. Your universe will be much smaller. But, you will get quality. There is no way for you (or anybody) to get both quality and quantity at the same time. If you can, please let me know.