Dollar vs. Percentage Discounts, Which to Use With Multifamily?

The Harvard Business Review’s daily stat email recently sent an interesting statistic related to pricing psychology. Specifically, they reported:

Consumers react differently to discounts depending on whether they’re presented as an amount off or a percentage off, especially for more expensive products, according to a study led by Eva M. González of Monterrey Institute of Technology and Higher Education.

“Even when people understand percentages and dollar amounts, consumers tend to focus on an absolute number in isolation, so a 20% discount appears larger than $10 for a $50 item, and a 20% discount seems smaller than $80 for a $400 item,” write the researchers. They suggest retailers should provide consumers with an absolute savings amount for big-ticket items.

This has very interesting implications for us in multifamily housing. We often promote discounts as “1 month free” or some such similar quote. This begs the question whether we would be better off with a dollar discount offer instead—perhaps “$1,000 off” or similar.

We definitely qualify as a “big ticket item.” The challenge is that this particular study compared percentage offers versus dollar offers. Something like a month free is not either, so there’s no clear answer from the study. But if I was still running a pricing team, I would test both approaches and see how the market responds. What do you think?