Consumer perceptions of monetary and non-monetary introductory promotions for new products

Abstract

Little research has examined how consumers respond to sales promotions in new product categories. This article fills this gap by integrating research on reference prices with literature on sales promotions for new product categories. Existing research suggests that consumers respond more favourably to non-monetary promotions (e.g. extra free promotions) than monetary promotions (e.g. price discounts) because non-monetary promotions are framed as segregated gains rather than reduced losses. However, both kinds of promotions are widely used in practice, suggesting the importance of other contributory factors. With a consumer experiment on a national panel of consumers, this research demonstrates that extra free product promotions are most preferred for existing products, and introductory low-price promotions are preferred for innovative products. The moderating effect of a product's innovativeness is explained via a new relationship in the marketing literature, whereby perceived risk mediates the relationship between perceived innovativeness and a consumer's tendency to stockpile.     

Price Awareness and Consumers’ Use of Deals in Brand Choice

There is evidence that consumer knowledge of prices is limited, implying that, on occasions, consumers may not be fully informed of prices when making a brand purchase. On such occasions, how do consumers make their brand choice decision? One possibility is that consumers use their expectation of prices. This raises an interesting question. To what extent is brand purchase either a function of preferences and posted prices or, of preferences and expectation of brand prices? Another important issue relates to the role of displays and features in simplifying consumer brand choice. First, do promotions cause consumers to restrict their attention to only promoted brands? Second, do promotions affect the price aware consumers more than the price unaware consumers? Our study uses scanner data on ketchup and peanut butter categories to answer the foregoing questions. We find that between 40 and 50% of the purchases are made by consumers using expectations of prices rather than posted prices. Consumers using price expectations may be thought of as being “unaware” of prices. We also find that promotions cause some consumers to focus exclusively on promoted brands, and this effect is greater on the price aware consumers than on the price unaware consumers. Our findings have an important bearing on the rationality of consumer expectation of prices, especially of the promoted brands. Price aware consumers act as a check against firms promoting without accompanying price cuts.     

The competing roles of variety seeking in new brand adoption

We examine how consumers' attribute-level variety-seeking behaviors can explain their propensity to adopt a new brand in the consumer packaged goods (CPG) market. We leverage consumers' purchase history among extant brands prior to a new brand introduction as an indicator of the new brand adoption upon its launch. We incorporate variety seeking at two product attribute levels – brand and flavor – and find that variety seeking along these two dimensions predicts different outcomes for new brand adoptions. The estimation results of our discrete-time hazard model show that consumers' brand-level and flavor-level variety-seeking behaviors affect their likelihood to adopt a new brand in different manners: consumers who purchase various brands are more likely to adopt a new brand, whereas those who choose various flavors are less likely to adopt a new brand. The results also show that the new brand's price promotions and in-store displays can affect the role of variety seeking in consumers' new brand adoption. We assess the robustness of our findings by replicating our empirical model with an additional measure of variety seeking as well as a variety-seeking measure in another product category.     

Consumer heterogeneity in the longer-term effects of price promotions

While a significant literature has emerged recently on the longer-term effects of price promotions, as inferred from persistence models, there is very little if any attention paid to whether such longer-term effects vary across different types of consumers. This paper takes a first step in that direction by exploring whether the adjustment, permanent, and total effects of price promotions, and the duration of the adjustment period, differ between consumers segmented based on their usage rates in a product category and their loyalty to a brand. We also investigate whether such consumer segmentation will improve the forecasting performance of persistence models at both product category and brand levels. Expectations are developed based on consumer behavior theory on various effects of price promotions, such as the post-deal trough, the mere purchase effect, the promotion usage effect, and responsiveness to competitor's reactions. Evidence from household-level supermarket scanner data on four product categories is provided. We find substantial differences between consumer segments and provide insights on how managers can increase the longer-term effectiveness of price promotions by targeting each consumer segment with a different promotion program. In addition, consumer segmentation is found to significantly improve the forecasting performance of the persistence model for two of the four product categories. For the other two product categories, consumer segmentation provides forecasting performance similar to that obtained from aggregate-level persistence models.     

The Dilemma of Pull and Push-Price Promotions

Should manufacturers of products such as automobiles and household appliances offer cash rebates to all consumers at the time of purchase, or offer trade deals to retailers? The authors conduct an analytical inquiry that shows that choosing between these two types of price promotion critically depends on the consumer sensitivity to both regular and promotional prices. More specifically, when consumers are more (less) sensitive to promotions than to regular prices, manufacturers are better (worse) off offering trade deals (consumer rebates) rather than consumer rebates (trade deals). Consistent with traditional predictions found in the economic literature, either of the two promotions can be offered indiscriminately if consumers make no difference between promotional offers and regular-price reductions. The theoretical and managerial implications of these findings are discussed.     

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.     

Can Consumers Forgo the Need to Touch Products? An Investigation of Nonhaptic Situational Factors in an Online Context

Touch is an important source of information for consumers, and there is much to learn about its role in an online purchase decision context where the ability to touch products is not (at least currently) possible. The present investigation examines three nonhaptic situation‐specific factors that moderate the relationship between haptic motivation and consumer responses. The results indicate that positive mood, price promotions, and level of situation‐specific product expertise are influential, yielding greater purchase intentions and product judgment confidence when touch is not available. Additionally, the findings of the investigation suggest that imagining a Web site is comparable to actually viewing a Web site. Several implications for consumer behavior research and online marketers are discussed.     

A Micromodel of New Product Adoption with Heterogeneous and Forward-Looking Consumers: Application to the Digital Camera Category

We develop an empirical model for the adoption process of a new durable product that accounts for consumer heterogeneity as well as consumers forward-looking behavior. Accounting for heterogeneity is important for two reasons. As the mix of consumers with different preferences and price sensitivities could change over time, firms need to update their marketing strategies. Further, it allows for a variety of shapes for the aggregate adoption process over time. As prices for durable and technology products fall over time with firms continually introducing enhanced products, consumers may anticipate these prices and improvements and delay their purchases in the product category. Forward-looking consumers optimize purchase timing by trading off their utilities from buying the product and their expectations on future prices, quality levels, and brand availability. Such forward-looking behavior will result in price dynamics in the marketplace as price changes today influence future purchases. And it results in different shapes of the new product sales pattern over time by influencing the time to take-off. We show how the parameters of our model can be estimated using aggregate data on the sales, prices, and attributes of brands in a product category. We apply our model to market data from the digital camera category. Our data are consistent with the presence of both heterogeneity and forward looking behavior among consumers. At the product category level, we are able to decompose the effects of the entry of Sony into primary demand expansion and switching from other brands. At the brand level, we find that there exist several segments in the market with different preferences for the brands and different price sensitivities leading to differences in adoption timing and brand choice across segments. For a given brand, we show how the changing customer mix over time has implications for that brands pricing strategies. We characterize how price effects vary across brands and over time and how price changes in a given time period influence sales in subsequent periods. Model comparison and validation results are also provided.     

Assessing the Impact of Price Promotions on Consumer Response to Online Stockouts

The recent growth of e‐commerce technologies has disrupted the traditional retail environment, leading to more consumers shopping online. While the manner in which consumers shop is changing rapidly, our understanding of how changing consumer behaviors affect retail supply chain management is lacking. In particular, our understanding of how consumers react to stockouts in an online shopping environment remains unclear. Making the challenge even more difficult is the fact that price promotions are heavily used to attract consumers in an online retail environment where consumer switching costs are low. This research develops a theoretical framework, based on expectation‐disconfirmation theory, to explain the effect of price promotions on consumer expectations of product availability and their reactions to stockouts in an online retail environment. Surprisingly, our findings suggest that consumers are actually less dissatisfied with a stockout of a price promoted item than a nonprice promoted product and are less likely to switch to another retailer's website. These findings may suggest that price promotions actually create a type of switching cost in the online retail environment, leading to interesting implications for researchers and supply chain managers.     

Internal reference price response across store formats

Reference price models have a long tradition in marketing and consumer research. Pricing strategies can utilize consumer response to gains and losses relative to internal reference prices, which are price expectations developed from past-observed prices. Consequently, many previous studies have been devoted to analyzing differences in internal reference price response across product categories and consumer characteristics. However, knowledge about internal reference price response across different store formats is missing. Our study aims to fill this research gap. To do so, we estimate a reference price model for the same set of brands and the same sample of consumers across two store formats (discount chain vs. supermarket chain). The prices for the brands in our model are similar across store formats. Results from our proposed model show that the same consumers are loss-averse at the discount chain while gain-seeking at the supermarket chain. Predicted by previous literature, we attribute the difference in internal reference price response to the different price image of the store formats. Overall, our research contributes to the reference price literature and provides important implications for pricing strategies at stores with different price image.     

Price-aware enhanced dynamic recommendation based on deep learning

Price is one of the essential elements influencing consumer purchase behavior. Like consumers’ preferences in products, their price preferences also dynamically change over time. However, dynamic price preferences haven’t been fully considered in existed recommendation studies. In this study, we propose a deep learning-based dynamic recommendation model by considering consumers’ dynamic preferences in both product and price. We specially design a review-and-rating-based sequence generator to select products whose prices the consumers are satisfied with to form the new purchase sequence. We also develop a multi-level attention mechanism in the transformer layer to explore the correlations between consumers’ price choices and to combine the price preferences with the product preferences. Experimental results show the proposed model outperforms the state-of-the-art models on some real-world datasets. Our findings can help retailers understand consumers’ price preferences and make informed decisions related to pricing, discounting, and bundle sales strategies.     

Consumer responses to characteristics of price-matching guarantees: The moderating role of price consciousness

The present study develops and tests a conceptual model of consumer response to different types of price-matching characteristics (i.e., refund depth, length, and scope) across consumer segments with varying levels of price consciousness. A computer shopping simulation results show that a deep refund is interpreted as a signal of low prices by nonprice conscious consumers. However, price conscious consumers are found to associate deep refunds with increased prices, an unintended outcome for the retailer. The effects of price-matching characteristics on search and purchase behavior were also found to vary across more and less price conscious consumer segments.     

The perception of discount sales promotions – A utilitarian and hedonic perspective

This paper explores the effects of utilitarian and hedonic benefits perceptions of discount sales promotions on consumer purchase decisions (attitude and behavioral intention). A closed-ended survey, as well as a partial least squares structural equation modeling of consumers sampling who had used discount sales promotions in their recent purchases, was utilized in this study. The findings suggest that utilitarian benefits perceptions derived from price-quality perception and hedonic benefits perceptions derived from smart shopper self-perception of using discount sales promotions positively affect consumer purchase decisions. Both utilitarian and hedonic benefits perceptions of discount sales promotions can henceforth be used to produce the desired effects on purchase decisions. Hence, this paper sheds light on the effects of utilitarian and hedonic benefits perception of discount sales promotions on purchase decisions. Though the findings are limited to discount sales promotions alone and two types of purchase decisions outcomes (attitude and behavioral intentions), this paper identified multiple avenues to extend its findings. This encourages further exploration of such promotion topics, particularly on the various perceptions of discount sales promotions as well as other sales promotion techniques among marketing academics and practitioners.     

Coupons in context: discounting prices or decreasing profits?

A coupon is a commonly used sales promotion device offering the user a discount on the purchase of a product. Consumer coupon offerings are also becoming increasingly diverse: from “% off” and “$ off” to “Buy one, Get one free” (BOGO) offers and co-promotions (Buy X, Deal on Y). This paper reports the results of three experiments that examine whether the economic value of a coupon is a source of information to infer the price of the product/service, and the quality of the product/service, which inference can undercut the economic value, with resulting consequences for deal evaluations and purchase intentions. The framework predicts, and empirical results show, that increasing the value of the coupon does not always improve deal evaluations or purchase intentions. This could imply lower profits for the company. The presence of past price information about the brand, information about prices of other brands offered by the company, and information about competitors’ prices moderate the impact of coupon value on brand-related inferences. When such alternate sources of information are present and are diagnostic of the price of the promoted product, consumers are less likely to infer price and quality from the value of the coupon and higher coupon values are more likely to increase deal evaluations and purchase intentions. Implications for managers designing and communicating promotions are offered.     

Budget over health unless overweight: A Solomon four‐group study

Budget and health motivations for food purchase (e.g., discounts and health consciousness, respectively) affect consumer choice while shopping and well‐being afterward. However, not all findings from research have suggested that discounts/taxations on healthy/unhealthy food encourage health‐conscious food choice. On the other hand, the consumer behaviour line of research on the influence of front‐of‐package health messages has mostly echoed similar results that such communication leads to overconsumption; thus, obesity. We examined the influence of market practices targeting consumers’ budget and health‐related motivations for food purchase in a 2 (price: recommended retail price, discount price) × 2 (product: regular potato chips, potato chips with ‘75% less saturated fat’) experiment using six Solomon four‐group designs. Our results indicate that overweight consumers are not prone to discounts, unlike their normal‐weight counterparts. A price cut nullifies the influence of health messages on purchase intentions among normal‐weight buyers when the regular and healthier packaged foods are both on discount.     

Inflation-induced adaptive behavior

Periods of rapidly rising prices are seen by many as cyclical and pervasive phenomena in modern day economic systems. When rapid price increases occur, they are likely to induce adaptive behavior on the part of consumers. This article reports on a study seeking to analyze consumer inflation-induced adaptive behavior as it relates to three food-related consumer activities–food buying, preparation, and consumption. Results indicate that consumers, in general, attempt to adjust to the changing economic environment in several ways: they exercise more care and planning in food shopping, are more price sensitive and price conscious, are willing to sacrifice convenience but not quality, and try to maintain their usual level of food consumption and food habits. Results also indicate that inflation leads to greater adaptive behavior on the part of lower income consumers.     

Effects of sales promotion type and promotion depth on consumer perceptions: the moderating role of retailer reputation

This study uses a between-subjects experimental design to test the effect of two sales promotion formats (coupon versus markdown) with either high and low face values on consumer attitudes toward the deal, perceived product quality, and purchase intentions. The reputation of the retailer offering the deal is predicted to moderate the relationship between the promotional offer and consumer responses. Consumers perceive product quality to be higher when offered a high value coupon vs. markdown but there is no significant difference in perceived quality across promotion types when the promotion face value is low. When a deep price discount is offered by a retailer with a negative reputation, however, consumers have more favorable attitudes toward the deal and higher purchase intentions when provided with a markdown vs. coupon. Conversely, a high value coupon elicits more favorable evaluations than a markdown when the retailer has a positive reputation. When the value of the promotion is low and the retailer has a positive reputation, consumers have more positive deal attitudes and purchase intentions when offered a markdown vs. coupon. There is no significant difference in the effects of promotion type when the retailer has a negative reputation. The findings therefore establish retailer reputation as an important moderator of sales promotions effectiveness. This research is limited by the use of a single product category and a student sample. Process measures are also needed to validate the proposed theoretical conceptualization. The results provide managers insight into the type and value of the sales promotion to offer based on consumer perceptions of the retailer's reputation in the market.     

An empirical test of the Theory of Sales: Do household storage constraints affect consumer and store behavior?

We revisit and test Salop and Stiglitz (1982) Theory of Sales. Equilibrium comparative static predictions are that greater consumer storage constraints lead to: (1) higher average prices, (2) fewer promotions, and (3) shallower promotions. In equilibrium, price dispersion is nonlinear in storage constraints, first increasing then decreasing. Empirical estimates of storage constraints are developed for approximately 1,000 households using the American Housing Survey (1989), United States Census (1990), and Stanford Market Basket Database (1991–1993). We find consumers with greater storage constraints shop more often and purchase smaller quantities per visit; moreover, the comparative static predictions are supported and evidence consistent with the equilibrium dispersion prediction is observed. Estimated quantitative effects are economically important. JEL Classification D12 · D40 · M3     

Implementing price increases in turbulent economies: Pricing approaches for reducing perceptions of price unfairness

Consumer frustration over having less money in their pockets and, at the same time facing higher prices for products and services in the marketplace, arises during turbulent economic times (e.g., post-2007). Sellers suffer increased costs and pass along increases by raising prices to consumers. The current article discusses trends in the pricing literature and in practice that sellers utilize in limiting perceptions of price unfairness, particularly when increasing price in turbulent economic times. Specifically, engaging in transparency in pricing by revealing information about price changes to the consumer during poor economic times potentially reduces perceptions of price unfairness. Using industry-common price-setting practices, shrinking product volume, providing automatic rebates promotions, or offering price-matching promotions also likely reduces perceptions of price unfairness.     

Can't Buy Me Green? A Review of Consumer Perceptions of and Behavior Toward the Price of Organic Food

Support for organic farming is a promising policy for improving sustainability in the food sector. Further consumer demand, however, is hindered by high prices. We review research from 2000 to 2014 on the role of perceived price, income, price knowledge, willingness to pay, and reactions to price changes on organic food. We find that price is the major perceived barrier to purchase. Income is only a partial explanatory factor and is superseded by psychographic variables. Willingness to pay a premium is around 30% (ranging from 0% to 105%) and depends on consumer segments and product category. Price knowledge is vague, and organic consumers' price sensitivity is relatively lower than that of occasional or nonorganic consumers. The results suggest that further market differentiation in terms of organic consumer segments and food categories is necessary. Furthermore, we discuss detailed implications for public policy and practice and present a future research agenda.