Now let's review some visual tricks that can influence how consumer evaluate a promotion. Now the very first visual trick is the visual contrast. So here is an example. You really want to bring visual contrast to the sale price so that piece of information is salient in the mind of your consumers. And secondly, you want to position the sale price on the right side of the retail price to facilitate a mental computation. What do I mean here? So if you are evaluating the two options here, it's much easier for consumers to go to retail price first and sale price second, because it's a larger number to a smaller number. And therefore, form an impression that yes, they are really saving money here. Whereas in the other example, the mental computation is a little bit trickier to do, because it doesn't facilitate how we usually process numerical information. So similarly, when we are reading price information, most people tend to go left to right. So when we are reading the price level of $129.99, we really stop after seeing the number two, and versus when you read this number we stop after three. So even though there is more information there, consumers don't really process that, and they conclude that $129.99 is a much smaller price and therefore better deal in this case. And other examples of visual tricks including using the size of font to suggest the numerical magnitude of your sales information. So if you evaluate the two sales prices here, you will really get to see, because the second price information is much smaller in actual physical magnitude. Mentally, we are going to infer that monetary value involved will also be on the smaller scale. So that's the situation where customers will prefer because they are really trying to save more money here. Now, another visual trick that can be placed on our head is how we process percentage discount versus absolute discount. What do I mean here? So let's imagine if you are trying to buy a product that's priced at $50, you could either offer the promotion as 10% off versus $5 off. And here because the product is valued under $100, that 10% is numerically larger, so it's going to be perceived as a larger discount here, and therefore more preferred. Now, whenever the price of the product is over $100, in this case, let's see if a product that you're trying to buy is priced at $500, you can again offer the same percentage-based discount, which is 10% off. And the equivalent absolute discount will be $50. So in this case when the product price is over $100 the $50 discount will actually be much more preferred, because the magnitude is perceived larger when the price of the product is larger. So to summarize, when the product is placed under $100, people prefer a percentage discount. When the product is placed over $100, people prefer the absolute discount. Now the other important mental shortcut I would like to review is free as a special price. Free is a special price, because consumers tend to over-value a free promotion versus an equivalent monetary discount. What do I mean here? For example, if you are on the market trying to consider to buy some ground coffee, here are two promotional offer right in front of you. You can either get a ground coffee for buy one, get one free discount, versus the buy two get both 50% off discount. In this case which promotion do you prefer? If you really think about it, they are really the same. Because buy two get both 50% off discount is the same thing as buy one get one free. But however, consumers overall tend to prefer this buy one get one free discount for a number of reasons. One is that people overall have a positive reaction to anything that's free, free shipping, free bonus pack, free trial offer. Anything that involves the word free is going to elicit a positive reaction. And the second reason why free would be preferred is because it's mentally taxing to do those percentage-based discount. In this case the 50% off discount is relatively easy to process, but consumers still have trouble comparing the equivalent offer here. Now, I'm going to give you another example, which is really economically the same. So, let's say if you are trying to evaluate toothpaste A and toothpaste B. Now toothpaste A is listed at the same price level at $2.99 as toothpaste B, but it offers a price discount of 33%, which brings the price down, because the sales price now is $2. Now for toothpaste B, instead of offering a price discount, it offers a bonus pack because you get 50% more of the content for free. Now why this 33 odd number versus 50%? Because really, these are the economically comparable price between a percentage discount versus the bonus discount. Because you see, I've done the price per ounce calculation for you. And they really come down to the same level if you count it in both promotions. But consumers overall prefer the bonus pack offer much more than the percentage discount across many domains. For the same reason that it's simply difficult to process percentage discount information, and it's much easier to imagine how much product you are getting for free. Now, this rule works really well because it's a robust phenomenon. It works across a bunch of different domains with only one exception. That exception is when it comes to indulgent product, especially indulgent food that we are really not supposed to buy a lot of. So in this case, price discount is going to be preferred compared to bonus offer for a different kind of reason. So if you look at the two potato chips available here, one is 20% off regular price, so that brings up sale price down to $3.19. And the other is available for 20% more potato chips for free, so that price keeps the same. And in this case consumers won't have a difficulty processing the different percentage information because it's really the same. But if you think about their physiological experience, whenever you have a price discount on indulgent products, it's really going to reduce their level of guilt, when they feel about this product that they shouldn't be buying too much of. So this is the only exception to the general preference of preference for free product, and relatedly there was a phenomenon called hedonic bundling. So bundling happens when retailers try to sell multiple items together in a bundle. It turns out that it matters where do you place that price discount within the bundle. So let's use the example of tortilla chips and fresh salsa, for example. So you can either offer no discount, or if you decide that you want to offer $2 off discount. There are really three different ways that you can offer the discount. You can either offer that on the bundle together, or you can offer just on the salsa, or you can offer the price of discount just on the chips. So let's assume that the salsa is really the indulgent item here because, it's fresh, it's local, it's probably very tasty. So over all, whenever you place the price discount on the indulgent item, that`s when the promotion is going to be most effective. Because again, it`s reducing people's level of guilt, and to make them easily justify, buying for this bundle product.
