A meta-analysis of the impact of price presentation on perceived savings

Pricing is one of the most crucial determinants of sales. Besides the actual price, how the price offering is presented to consumers also affects consumer evaluation of the product offering. Many studies focus on “price framing,” i.e., how the offer is communicated to the consumer —is the offered price given along with a reference price, is the reference price plausible, is a price deal communicated in dollar or percentage terms. Other studies focus on “situational effects,” e.g., is the evaluation for a national brand or a private brand, is it within a discount store or a specialty store. In this article, a meta-analysis of 20 published articles in marketing examines the effects of price frames and situations on perceived savings. The results reveal many features that significantly influence perceived savings. For instance, while both the percent of deal and the amount of deal positively influence perceived deal savings, deal percent has more impact. Further, the presence of a regular price as an external reference price enhances the offer value of large plausible deal and implausible deals, but not of small plausible deals. Thus, high value deals should announce the regular price, but not low value deals. Overall, the results have several useful insights for designing promotions.     

Spending propensity and price perceptions

ABSTRACT

This article presents a systematic investigation of how Spending Propensity moderates consumers’ perceptions of prices. Results from three studies are presented. Studies 1 and 2 reveal that, in the absence of any external cues, consumers who are predisposed to spending freely evaluate a posted price more favorably than those who are not. Such consumers also report anticipating less pain associated with spending than those who are not inclined to spend. Additionally, Study 2 informs that simple price communication tactics, without any real reduction in price, may be effective at mitigating the pain felt among those who are less inclined to spend. Furthermore, such tactics are capable of reducing, and even reversing, the gap between those who are not predisposed to spending and those who are. Finally, Study 3 explores how spending propensity moderates consumers’ perceptions of a discount.     

When less is better than more: Just-below discount in tensile price promotions

Retailers often use Tensile Price Claims (TPC) such as “upto 40% off” or “from 10% to 40% off” to promote a line of merchandize. This enables them to have a salient communication while allowing specific level of discount on particular items. Recently, retailers have started using just-below TPC frames such as “upto 39% off”. This research explores the influence of TPC framed with “just-below” numbers on consumers’ perceived benefits through three studies. The results indicate that just-below temporal frames have a more favorable impact on consumer perceptions than round frames; this is contrary to left digit salience heuristic but is in line with anchoring and adjustment theory. The effect of just-below framing disappears both for deep discount levels and with sequential TPC discounts. This study has important managerial implications for the use of TPC as a promotional tool. The study also contributes to theory in multiple ways.     

Consumer responses to the depth and minimum claimed savings of “Scratch and Save (SAS)” promotions

This study examines consumers' responses to advertisements employing “Scratch and Save” (SAS) type promotions, which are emerging store‐level promotional tools. Due to SAS promotions' “gambling” characteristics, they offer the possibility of high savings levels, however, they also confront the consumer with uncertainty about the value of the discount at the point of purchase. Particular attention is paid to the depth of the claimed savings, and its effect on regular price believability and consumers' expected savings, as well as perceived value and shopping intentions. The depth of the advertised SAS promotions was observed to not affect consumer believability of the regular price in SAS advertisements. In addition, the disjunction effect is made applicable through showing that the minimum claimed saving information enhances the level of savings expectation. The results also report the positive impact of expected savings on offer value and, in turn, shopping intentions. © 2010 Wiley Periodicals, Inc.     

Should firms display the sale price using larger font?

Prior work has shown that evaluations may be lower when retail price discounts are either small or large (vs. moderate), due to concerns about discount depth perceptions and/or product quality. Building from work on perceptual salience, we show that displaying the sale price in larger (vs. similar) font vis-à-vis the regular price makes the sale price more “salient”. In turn, when retail price discounts are either small or large (but, not moderate), such salience impacts how consumers process price discount information, mitigating concerns relating to discount depth perceptions and/or product quality, and so increasing evaluations. In effect, displaying the sale price using a relatively larger font increases consumers’ evaluations, somewhat mitigating the negative aspects of using small or large price discounts. We propose theory contributions towards research on display effects and pricing. Further, the proposed mechanism in this research note is easy-to-implement, and is expected to increase sales.     

The role of attributions in consumer perceptions of retail advertisements promoting price discounts

This study examines whether information in an advertisement promoting a price discount is capable of affecting attributions made about the price reduction and whether these attributions, in turn, affect consumer perceptions and evaluations of the sale. Findings show that price image of the retail advertiser had a strong effect on attributions pertaining to the merchant and a marginal effect on product attributions. The attribution variables, in turn, explained significant amounts of variance in criterion variables measuring consumer perceptions of value, attitude toward the ad, and shopping intentions, beyond the variance explained by the store and discount claim variables manipulated in the study. These results suggest the importance of the role of attributions made by consumers when exposed to ads promoting discounts.     

Impact of “High Quality,Low Price” Appeal on Consumer Evaluations

Marketers frequently adopt a “high quality, low price” appeal in advertisements. However, the price–quality inference theory implies that this contextual appeal may not be well-accepted by consumers because it contains two contradictory cues: high quality and low price. This article investigates how consumers evaluate this appeal through two laboratory experiments. Study 1 shows that the appeal leads to favorable price perceptions and purchase intentions when the product price is high; it leads to high quality perceptions when the price is low. Study 2 shows that these effects are salient when consumers have a weak price–quality schema or a low need-for-cognition.     

The effect of product touch information and sale proneness on consumers' responses to price discounts

Since price discounts are costly and can negatively affect consumers' perceptions of quality, it is crucial to identify the factors that make them effective in stimulating purchase behavior. Drawing on cue utilization theory, we examine price discount effectiveness in affecting consumers' reliance on the sale cue based on the provided product touch information as an intrinsic cue and individual consumer differences in sale proneness. Two experimental studies indicate that price discount information, product touch information, and sale proneness interact to determine consumers' responses. Perceived quality is the underlying mechanism behind the observed effects. For nonsale-prone consumers, product touch information favorably influences responses to large price discounts by addressing product quality concerns and enhancing purchase confidence, but has no effect for regularly priced or low discounted products. For sale-prone consumers, product touch information is not effective in increasing their responses regardless of the discount size. A qualitative study provides support for these results and highlights the role of perceived quality and purchase confidence. The research contributes to behavioral pricing, cue utilization theory, and sensory marketing and suggests that marketing managers should provide consumers with product touch information when implementing high discounts for products for which prepurchase touch is important.     

The Euro Illusion in Consumers’ Price Estimation: An Italian–Irish Comparison in the Third Year of the Euro

The euro illusion is a transient phenomenon that consists of currency-related asymmetries in the intuitive judgment of product prices made by consumers. The results of a cross-country study in the third year after the introduction of the euro show a strong price estimation asymmetry in a country with an extreme exchange rate (Italy) and a weaker effect in a country in which the nominal values of the new and the old currency are much closer (Ireland). These results rule out proposed explanations of the euro illusion in price estimation that assume the sole influence of plausible anchors (reference prices stored in memory within the plausible price range), supporting instead accounts also endorsing the role of implausible anchors (reference prices outside the plausible price range). Beyond contributing to our theoretical understanding of the euro illusion, this research starts to unveil the interplay between structural factors (i.e., the currency exchange rate) and psychological mechanisms that produce long-lasting difficulties for consumers after a monetary changeover.

Third-Degree Price Discrimination in the Presence of Asymmetric Consumption Externalities

In this paper, we consider third-degree price discrimination in two markets in the presence of asymmetric consumption externalities; we establish that under plausible conditions, a firm reduces its price in the market with low price elasticity of demand. The firm can increase its profits by reducing the price for these consumers and enlarging the demand for other consumers, provided that positive consumption externalities exist. Moreover, we show that third-degree price discrimination enhances not only the firm’s profit but also total consumer surplus.

The effect of specific discount pattern in terms of price promotions on perceived price attractiveness and purchase intention: An experimental research

This study aims to investigate consumer perceptions and reactions in terms of specific discount patterns (fixed price, 40% discount, discount from 500 TL to 300 TL and 20% + 25% discount) in price promotion. According to the results, specific discount patterns in price promotion have a significant effect on perceived price attractiveness and purchase intention. When the specific discount patterns in price promotion and gender interaction were analyzed in terms of perceived price attractiveness, the scenario of the “discount from TL 500 to TL 300” significantly differentiated from both the control scenario (fixed price) and experimental scenarios for female. For males, no significant difference was found between the control and experimental scenarios. In terms of purchase intention, a significant difference was found between the fixed price scenario and the discount scenario from 500 TL to 300 TL and between the fixed price and 20% + 25% discount scenario. The theoretical managerial implications of the study were discussed, and future research suggestions were presented.     

“Pay 80%” versus “get 20% off”: The effect of novel discount presentation on consumers’ deal perceptions

Consumers often undervalue price promotions because they discount the discounts. In this research, we examine the effect of using a novel type of discount presentation (e.g., “Pay 60% of the regular price”) on deal evaluations, and compare it to that of an equivalent discount presentation commonly used in the U.S. (e.g., “Get 40% off the regular price”). In three experiments we show that the former discount presentation results in higher perceived savings and higher purchase likelihood than the latter. Using process measures, we demonstrate that this effect is due to increased systematic processing induced by the novelty of the discount presentation, which improves calculation accuracy and hence decreases the underestimation of discounts. We also report a boundary condition of the effect of discount presentations on deal evaluations by showing that it is eliminated when consumers do not need to expend effort to accurately process price information. Both authors contributed equally and are listed in alphabetical order     

EDITOR'S COMMENTS

ABSTRACT

The key to improving pricing methods lies in establishing a clear relationship between the price paid by customers and the value received. A company's understanding of how a decision in its pricing policy will affect the perceptions its potential consumers will have of these prices, is fundamental if it wishes to make sure that its offer is properly perceived. Thus, if companies identify the rules used by purchasers to price their products, they will be successful in getting the objective signal they send via their communication strategies to be perceived in the desired manner. This analysis shows that both monetary and non-monetary costs are considered by consumers when determining the final cost perception associated with the acquisition of a good, and that the understanding of the internal reference price is essential for determining the nominal price effect on the monetary component of total sacrifice.     

Are your consumers variety seekers? The moderating impact on the effectiveness of free gift promotions vs. price discounts

The purpose of this paper is to assess the effect of consumers’ variety-seeking tendency on their preference for monetary versus nonmonetary promotions (i.e. a price discount versus a free gift, respectively) and to identify possible reasons for this preference. A sample population of 150 students was surveyed. The research employed a 2 (discount/free gift)?×?2 (high variety seeking/low variety seeking) between-subjects design. A two-way ANOVA was applied to analyse the effects of the promotion frame and variety seeking on perceived transaction value. The ANOVA revealed a general consumer preference for a free gift over a price discount. This outcome is moderated by the variety-seeking tendency of the consumer; that is, repetitive consumers prefer a price discount, but variety-seeking consumers favour a free gift. This study gives managers insights into the issue of what kind of price promotion is most effective under which circumstances, namely for which type of consumer segment. The practical implications of our findings recommend that if the targeted consumer segment is variety-seeking, a free gift may be optimal, yet if the target segment represents returning customers, a price discount yields better results. If no clear assignment of consumers to either segment is possible, a free gift is the preferred option.     

Consumers’ multifaceted deal knowledge in a grocery retail setting

Despite its relevance to retailers, studies of consumers’ deal knowledge have been few. This study explores consumers’ deal knowledge before, during, and after the store visit applying a between-subjects field-study design with 1204 respondents. In particular, the authors investigate perception of deal price status, typical deal price knowledge, and deal-spotting ability. Results show reasonably stable knowledge of typical deal prices, while knowledge of deal price status and deal-spotting ability improves significantly during grocery shopping. Surprisingly, consumers’ deal knowledge is not conditional on purchasing a special thus indicating that most consumers, consciously or unconsciously, scan for promotion signals when shopping groceries. In addition, the results suggest consumers are not easily fooled, as the vast majority is able to spot ‘good’ and ‘bad’ deals, while also possessing typical deal price knowledge. Furthermore, the findings suggest that consumers store internal reference deal prices. Retailers are therefore well advised to consider mixed depth and creative discount patterns to prevent ‘perfect’ perceptions of typical deal prices.     

Distortion of price discount perceptions through the left-digit effect

Through two experiments, we examined the consumers’ process of comparison of regular and sale price information in advertisements. This is an extension of studies of the left-digit effect with different price levels and multiple digits conducted using Taiwanese data. First, we find that in a comparison of regular and sale prices, specifically three-digit integers with different leftmost digits, consumers perceive the price discount to be larger when the left digit is small (e.g., 1 or 4) than when it is large (e.g., 7). The lower the two prices being compared, the more likely it is that the left-digit effect will exist. Second, the perceived discount is likely to diminish when the number of digits is increased to produce a four-digit integer. In other words, the number of digits can affect perceptions of the numerical difference when comparing two prices. Thus, the effect of a left-digit change to produce a nine-ending price would be weaker for higher-priced products. The findings indicate the existence of a novel boundary to the left-digit effect.     

Memory-Based Store Price Judgments: The Role of Knowledge and Shopping Experience

This paper investigates the processes underlying consumers’ memory-based store price judgments. The numerosity heuristic implies that the greater the number of relatively lower priced products at a store that consumers can recall, the lower will be their overall price image of the store. That is, people use the number of recalled low-price products to judge the overall store price image. We show that this expectation holds only for knowledgeable consumers. Instead, less knowledgeable consumers use the ease with which low-price products are recalled (i.e., the availability heuristic) as a cue to make store price judgments. Therefore, the fewer low-price products they recall, the easier their recall task, and the lower their price perceptions of the store.Field studies using different manipulations tested and confirmed these predictions. Managerial implications for retailers are offered. Theoretical implications for behavioral price perceptions, memory-based judgments, and the use of heuristic cues are also discussed.     

Discounting in International Markets and the Face Value Effect: A Double‐ Edged Sword?

Consumer response to price is often subjective and prone to systematic perceptual biases, such as the “face value” effect, whereby consumer perceptions of willingness to pay are systematically biased by the nominal value of a new currency. That is, prices presented in higher denomination currencies are perceived to be more expensive and prices presented in lower denomination currencies are perceived to be less expensive. The results from two separate experiments suggest that for high‐price products, when a substantial enough discount is invoked, the face value effect can reverse and becomes a double‐edged sword. While existing research implies that the face value effect becomes stronger for high‐price products, the findings from this research suggest this is the case only when the product is not being promoted. The findings also reveal that the face value effect is robust for low‐price products, even when there is a discount, providing further evidence of the effect in new contexts. Consistent with earlier research, this is because in real terms the discount for a low‐price product is not perceived as substantial enough. The experiments also suggest that for high‐price products, discounts framed as absolute amounts in higher denomination currencies are perceived to be more substantial than discounts framed as percentage amounts. These findings extend existing theory on the face value effect and have several important managerial implications for pricing management in international markets.     

Brand choice and deep price discounts

Whenever price is presented in a discount format it can perform an informative role in brand choice. This article postulates the occurrence of an “attribution” process to account for the possibility that a very deep price discount produces a decrease in the desirability of the discounted brand under choice conditions involving unfamiliar brands and/or discount store (as opposed to department store). Hypotheses derived from the theoretical analysis are tested in a laboratory experiment. The results of the study support the proposition that the desirability of a discounted unfamiliar brand does not continue to increase as the size of the price discount increases. Predictions concerning the effects of store type and size of price discount were not confirmed. The article concludes with a brief discussion of the implications for marketing management.     

A Temporary Federal Discount Program to Stimulate Consumer Spending

In this paper, we evaluate a new proposal to stimulate recovery from the current recession: a temporary federal price discount on consumer goods. An attractive feature of the temporary federal discount program is that it gives consumers a price incentive to purchase more rather than simply giving consumers more disposable income, which they might choose to either spend or to save. According to our simulations with the Fair macro-econometric model, a temporary 20 percent federal discount on all consumer goods in a severe recession would significantly reduce the unemployment rate while causing only a small increase in federal debt as a percentage of GDP.