To Whom,When, and How Much to Discount? A Constrained Optimization of Customized Temporal Discounts

Customized temporal discounts are price cuts or coupons that are tailored by size, timing, and household to maximize profits to a retailer or manufacturer. The authors show how such discounts allow companies to optimize to whom, when, and how much to discount. Such a scheme allows firms to send just enough discounts just prior to the individual's purchase of a rival brand. To do so, the authors model household purchase timing and brand choice in response to discounts and use Bayesian estimation to obtain individual household parameters. They illustrate the model on a Japanese data set having price cuts, a US data set having coupons, and another US data set having discounts. They formulate the optimization task of customized temporal coupons as a constrained multiple-knapsack problem under a given budget. They use simulations of the empirical contexts to obtain optimal solutions and to assess improvement in profits relative to existing practice and alternate models in the literature. The proposed model yields increase in profits of 18–40 percent relative to a standard model that optimizes the value but not timing of discounts.     

A comparison of two types of price discounts in shifting consumers' attitudes and purchase intentions

This study focuses on consumer responses to two different types of price discounts: 1) a price discount with and 2) a price discount without a minimum purchase requirement. The effects of the discounts are examined to the extent that they may change consumers' attitudes and purchase intentions regarding a particular brand, by moving it from consumers' hold set to consideration set. A three-phase study on fast-food services in China was conducted. The results of the study provide new empirical insights regarding how to use a brand categorization model to predict the effects of different types of price discounts on consumer purchase behavior. More specifically, this study demonstrates that when a price discount with and without a minimum purchase requirement is applied to a brand in a hold set, the brand moves from the consumers' hold set to the consideration set. However, the effects of the two types of price discounts on consumers' attitudes and purchase intentions are not significantly different. The results are discussed in relation to brand management and marketing strategies in consumer goods industries.     

Empirical decomposition of customer responses to discount coupons in online FMCG retailing

This study considers the efficacy of ‘general’ discount coupons: i.e. those whose discounts apply storewide. We decompose purchase behavior into three effects: spending, basket size, and inter-purchase time. The effects of dollar-off vs. percentage-off coupons are examined for 3,827 customers who had redeemed both types of coupon framings in an Australian online fast-moving consumer goods (FMCG) retail context. Results from Bayesian simultaneous equation modelling confirm that compared to dollar-off coupons, percentage-off general coupons induce customers to both spend more and shop more items. Moreover, by capturing consumer heterogeneity the customer base can be segmented into several clusters based on their reaction to coupons.     

The dark side of multiunit discounts: Multiunit discounts reduce rest of basket revenue

Multiunit discounts refer to the practice of offering a discount on purchase of multiple units of a product. An example of multiunit discounts, which are commonly used by retailers, is ‘3 for $10’. While past research suggests that multiunit discounts generate higher sales than per-unit discounts, there is no research on how such discounts affect sales of other products in the store. We argue that consumers exposed to multiunit discounts may purchase the products offered as such to benefit from the deal. These customers, however, will spend less on other products, resulting in lower revenue from the rest of the basket during the shopping trip. Based on theoretical insights, we propose why such an effect could occur and test our arguments using store data and a lab experiment. The findings of this research suggest that multiunit discounts have a multifaceted impact on consumer decision-making. We also discuss the theoretical, managerial, and methodological contributions of this research.     

Evaluating discounts as a dimension of customer behavior analysis

Today, increased competition between organizations has led them to seek a better understanding of customer behavior through identifying valuable customers. Customers’ expectations about the price and quality of products and services play an important role in their selection process. In online businesses, competition and price differences between suppliers is high, so discounts will attract different customers. As a result, discounts and the frequency and amount of purchases can lead to better understanding of customer behavior. Customer segmentation and analysis is essential for identifying groups of customers. Hence, this study uses a model based on RFM called RdFdMd, in which d is the level of discount used to analyze customer purchase behavior and the importance of discounts on customers’ purchasing behavior and organizational profitability. The CRISP-DM and k-mean algorithm were used for clustering. The results indicate that using the R_dF_dM_d model achieves better customer clustering and valuation, and discounts were identified as an important criterion for customer purchases.     

The effects of mobile promotions on customer purchase dynamics

While mobile promotions have become increasingly popular in recent years, limited research has examined the effects of mobile promotions over time. This research investigates the effects of two popular types of promotional offers, price discount and non-price free sample coupons, on purchase behavior. To this end, we present a dynamic model of customer purchase behavior that incorporates time-varying effects of mobile coupons, enabling us to investigate both the short-term and longer-term effects of mobile promotions. Using transaction and mobile promotion data, we find that both price discount and free sample coupons increase customers' purchase likelihood and expenditures during the coupon redemption period. We also find that free sample coupons have an enduring effect that increases the purchase propensity beyond the promotion period, thereby contributing to incremental purchases over a longer period of time. We demonstrate how our approach can help marketers improve mobile couponing decisions by considering the dynamic effects of mobile promotions that manifest over time.     

Expectations and product performance as determinants of satisfaction for a high-involvement purchase

Customer satisfaction is a central issue for organizations wishing to create a sustainable competitive advantage in the 1990s. Empirical work to date, concentrating on low-involvement, nondurable products, has concluded that both prior expectations and postpurchase experience interact to influence the level of customer satisfaction. Only a few studies have examined the purchase of high-involvement, nondurable products. The current study employs a multiattribute approach using pre- and postpurchase questionnaires to assess determinants of customer satisfaction for a high-involvement product. Causal path analysis shows perceived product performance to be the most powerful determinant. Prior expectations did interact with performance to affect disconfirmation, which translated into only a minor impact on satisfaction. © 1993 John Wiley & Sons, Inc.     

When do amount-off discounts result in more positive consumer responses? Meta-analytic evidence

Extant research has examined the effects of amount-off discounts on consumer responses, but the empirical findings are inconsistent. This study presents a meta-analysis of 19 studies and 86 effect sizes (N = 12,003) calibrating the effects of discount frames on consumer responses. Amount-off discounts are found to lead to positive consumer responses through positive changes in attitudes. Analyzing various moderators’ impacts shows that amount-off discounts have different effects depending on the product price level, the product type, and the price promotion mode. For instance, amount-off discounts tend to be more effective than percentage-off discounts when the price is high, when the product type is material, and when the price promotion mode is 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.     

The Impact of Coupons on Service Quality Evaluations,Risk, and Purchase Intentions

Abstract

To attract customers, restaurants will often use coupons. This research examined the impact of a promotional coupon on service quality expectations, perceived purchase risk and purchase intentions. It was found that the use of coupons does increase purchase intentions and reduce perceived purchase risk. However, coupons were found to negatively influence service quality expectations. Implications of these findings for restaurant managers are discussed.     

Antecedents and consequences of cross-effects: An empirical analysis of omni-coupons

As the modern retail industry evolves from multi-channel to seamless omni-channel retailing, retailers are increasingly adopting omni-channel strategies, such as the usage of omni-coupons. A consumer may obtain an omni-coupon from a digital (catalog) channel and purchase either online or via the telephone channel. Past studies have not examined such cross-channel effects at the purchase incidence level. Using customer transaction data from an omni-channel retailer, we investigate the key drivers of cross-effects, and the impact of such cross-effects on two consumer purchase outcomes (purchase value and cross-buying). We specifically study two types of cross-effects, a) catalog-to-online and b) digital-to-telephone, and find that the effect of time variables and individual characteristics on them is asymmetric. We also show that the impact of such cross-effects on purchase outcomes depends on whether the omni-coupon was sourced digitally or from a catalog. Retailers aiming to increase cross-buying should prioritize catalog coupons, while those aiming to increase purchase value should prioritize digital coupons.     

The effect of search channel elimination on purchase incidence,order size and channel choice

This study investigates the impact of eliminating a search channel on purchase incidence, order size, channel choice and, ultimately, sales and profits. We analyze customer panel data from a large retailer over a five-year period. The retailer conducted a randomized field test in which the firm eliminated its catalog for half of the panel. We find that channel elimination decreases purchase incidence, especially for customers who, before the test, were heavy users of the telephone purchase channel that aligns with the catalog search channel. As expected, channel choice for purchases is shifted toward the internet and away from the telephone channel. Interestingly, order size per purchase increases. We investigate the impact of channel elimination on profits across different customer segments. We calculate a net positive impact because the savings from eliminating the catalog compensate for lower sales revenues.     

Comparing the effectiveness of rewards and individually targeted coupons in loyalty programs

Loyalty programs (LP) and rewards are ubiquitous in retailing, designed to increase customer expenditures and retention, gather abundant customer-level data, and design individually targeted coupons. Although studies have analyzed the individual impacts of LP rewards and targeted coupons on shopping trip incidence and expenditures, they have not compared the two instruments. By investigating the LP of a leading German grocery retailer that uses both LP rewards (points to redeem for free products) and individually targeted coupons, the current study establishes a comparison of their profitability and relative contributions to increasing shopping trips and expenditures. The investigated LP also relies on in-store kiosks to interact with customers, so they can decide when to redeem LP points and request coupons. By jointly modeling the effects of LP point redemptions and coupons on shopping trip incidence and expenditures, using their decision to access the kiosk as a dependent variable and rich data that span thousands of customers over 60 weeks, this study reveals that both instruments increase shopping trip incidence, kiosk access, and expenditures. The LP point redemptions have a stronger effect on shopping trip incidence; coupons have a stronger effect on kiosk access. Although a single redemption of LP points leads to a greater increase in expenditures than a single coupon redemption (€1.46 vs. €0.48), coupons yield three times greater expenditures after controlling for usage frequency; lower discounts also contribute to coupons’ higher profitability. Therefore, LP point redemptions and individually targeted coupons are complementary tools for retailers. This empirical study provides practical insights and pertinent managerial implications regarding the management and design of modern LPs.     

Buying free rewards: the impact of a points-plus-cash promotion on purchase and reward redemption

While many studies have investigated consumer purchase behavior in reward programs, a better understanding of customer redemption behavior is lacking, particularly when promotions affect a core aspect of reward programs—free rewards. In this paper, we examine the impact of a promotion on purchase and reward redemption in a reward program in which consumers can partially cover the cost of a free reward with their money. The literature on reward programs suggests a positive reinforcement caused by reward redemption, whereas the literature on promotion provides different views regarding the existence of a postpromotion dip. Using data from a major retailer’s reward program, we verify that such a promotion attracted customers with less transaction activity and shorter tenure. Interestingly, consumers using the promotion increased their preference for hedonic rewards compared to their previously observed behavior. This change in preference persisted after the promotion ended. Overall, the promotion significantly increased the number of redemptions but generated a negative impact on subsequent consumer behavior by decreasing purchase incidence and quantity. Our findings point to a need to understand the trade-off between spending money on buying an otherwise free reward and future regular purchases.

     

Hidden price promotions: Could retailer price promotions backfire?

Hidden-price promotions, a type of uncertain price promotion in which the final price is not revealed when consumers first encounter the product, have been recently adopted by retailers. However, current research suggests that hidden-price promotions have the potential to backfire and result in reduced consumer purchase intention. Across seven studies, we reveal that hidden-price promotions can be effective but risk increasing discount expectations, as consumers expect a large discount. Only when the discount level meets or exceeds inflated expectations does the excitement built by the promotion positively impact purchase intention. For cognitive purchases, even without providing a high discount, hidden-price promotions are as effective as traditional ones. This research provides guidelines for retailers that want to employ hidden-price promotions.     

A simultaneous model of multiple-discrete choices of variety and quantity

In many categories, consumers purchase discrete quantities of multiple varieties. For example, when doing grocery shopping for cereals, consumers may purchase in each category three units of brand A, four of brand B, and one of brand C. These decisions are often influenced by nonlinear pricing strategies such as quantity discounts. Modeling such multiple-discrete choices is challenging, as they violate assumptions of standard choice models. In this research, the author introduces a computationally attractive choice model that simultaneously captures 1) variety, 2) discrete quantity, and 3) nonlinear pricing strategies, such as quantity discounts. The model assumes that consumers maximize variety of the choice outcome, while taking into account constraints on utilities of alternatives. Application of the proposed model to two datasets demonstrates the superior fit compared to several rival models. Counterfactual analyses demonstrate that the model is a valuable tool for assortment and pricing decisions.     

Understanding purchase intention towards Chinese products: Role of ethnocentrism,animosity, status and self-esteem

The Indian market has got flooded with Chinese goods that pose a great threat to indigenous businesses. Despite increase in bilateral trade, the relationship between India and China continues to be marred with suspicion, animosity and distrust. Therefore, it becomes meaningful to understand how the consumers distinguish between domestic and Chinese goods. The study examines the relationship between ethnocentrism, customer animosity, social status and personal self-esteem and their impact on purchase intention towards Chinese imports. The results indicate that the attitudes and behaviour of consumers in an emerging nation differ greatly from their counterparts in developed nations. Contrary to expectations, the relationship between ethnocentrism and customer animosity is not significant. Personal self-esteem and customer animosity impact the purchase intentions of Indians while ethnocentrism and social status do not have any such influence. The study seeks to expand the existing literature on purchase intention of foreign products and also help the marketers design their marketing mix strategies.     

The role of customer loyalty as a brand extension purchase predictor

The paper explores the relationship between customer loyalty to the retail brand and the purchase of non-traditional products and services (NTPS) offered by grocery retailers with their private label (i.e. over-the-counter products, photo printing, mobile communication services and travel booking). Customer loyalty to the retail brand is measured through its behavioral and attitudinal components. A survey was conducted administering a questionnaire to 480 retail customers in two stores belonging to different retail grocers. A binary logistic regression was then applied using the buying of at least one NTPS as the dependent variable (1 = buy; 0 = no buy) and behavioral loyalty and attitudinal loyalty as independent variables. Results show that attitudinal loyalty plays a significant role as buying predictor, but this depends on the NTPS offered. Theoretical and managerial implications are derived.     

Greater patience and monetary expenditure: How shopping with companions influences purchase decisions

Shopping with companions plays a crucial role in daily consumer activities. However, only a few studies have explored the influence of this factor on consumers’ patience. We conducted four studies, including two field studies, to investigate the effects of shopping with companions (e.g., friends and peers) on purchase decisions. We found that consumers exerted greater effort when shopping with friends and peers by spending more money and being willing to wait longer for a product. This effect could be explained by three mediators: positive emotions, negative emotions, and perceived value, in which the hedonic and social value, unlike the utilitarian value, played essential mediating roles. This study elucidates the underlying psychological processes involved in purchase decisions shaped by companions. Retailers should encourage shopping with companions to increase sales and customer retention.     

All at once or one at a time? The effect of simultaneous versus sequential discount presentation on store patronage intentions

Retailers often employ store flyers, be they in print or digital form, to drive store traffic. A fundamental difference in the presentation of multicomponent information, such as the multiple discounts presented in flyers, is whether the components are displayed simultaneously (all at once) of sequentially (one at a time). Yet a little extant research examines how these different presentations affect individuals' responses to retailer price promotions. Three experiments demonstrate that a sequential display of price discounts is associated with more positive store patronage intentions. Evidence, gleaned by both measuring and manipulating the process by which the discounts are evaluated, implicates a greater sense of accumulating benefit with each successive discount when presented sequentially as the driver of the cross-format difference in patronage intentions.