Percentages are hard to grasp

Posted by Oliver Koll on Sep 21, 2015

BVNMany people struggle with percentage calculations. One of the challenges arises from a phenomenon called base value neglect (BVN), the tendency to ignore the base values to which percentages are attached. A field experiment in a US retail store investigated how BVN impacts promotional offers. A hand cream was offered at either a price discount of 35% or in a 50% extra volume bonus pack. While the discount is the financially superior offer, the store sold 73% more when offering the bonus pack (see figure 1 for details).
Lack of analytical skill or lack of motivation leads many consumers to compare the two percentages directly (50% sounds better than 33%) without considering the impact on the price per unit of either offer. The effect becomes weaker for less known products or brands where the extra volume increases the performance risk associated with a purchase.
BVN may offer companies a promotional tactic to respond to price discounts of competitors by offering bonus packs. Furthermore, any changes in a numerical product attribute (e.g., package size, calories, formula) should be communicated accordingly. For example, claim 25% more washes, not 20% less detergent needed.

Source: Chen, Maarmorstein, Tsiros, Rao (2012). When More is Less: The Impact of Base Value Neglect on Consumer Preference for Bonus Packs over Price Discounts. Journal of Marketing, Vol. 76, 64-77.