Devon DelVecchio, H. Shanker Krishnan, & Daniel C. Smith
As a result of their ability to stimulate sales in the short run, manufacturers of consumer products are offering more and deeper price discounts to consumers than ever before. Although offering deep price promotions increases brand choice at the time of the promotion, such discounts may come with a downside because they can reduce postpromotion choice. One reason for a negative effect on future sales is that consumers may lower their expectations of future price, which in turn may threaten future choice when prices return to normal levels. In this research, the authors examine how promotion frame (percentage off versus cents off) moderates the effect of promotion depth on postpromotion price expectations and choice.
Study 1 considers whether promotion frame affects (1) consumers' price expectations and (2) the rate of brand choice at the time of the promotion. The results of Study 1 indicate that for promotions of high depth (e.g., greater than 40%), a cents-off frame leads to lower postpromotion price expectations than a percentage-off discount of equivalent value. In addition to being associated with less downward revision of price expectations, the high-depth percentage-off discount resulted in the same level of brand choice during the promotion as the high-depth cents-off promotion.
Study 2 finds that the effect of promotional frame on price expectations carries through to brand choice after the promotion is removed. Specifically, repeat choice for a brand following its use of a deep promotion was greater when the promotion was framed in percentage terms than in dollar terms. As with price expectations, postpromotion choice did not differ as a function of frame for a low-depth (less than 15%) promotion. Taken together, Studies 1 and 2 indicate that using a percentage-off frame to communicate a deep promotion insulates future choice share by buoying price expectations while not undermining choice when the brand is promoted.
Studies 3 and 4 indicate that discount frame and depth influence consumers' price expectations primarily by affecting their perceptions of the promoted price and the weight they place on this price when updating their price expectations. Inaccuracies in price perceptions stem from the difficulty of calculating the value of percentage-based discounts. Computational difficulty (1) biases perceptions of prices arising from deep percentage-off promotions upward and (2) makes consumers hesitant to place weight on the promoted price when updating price expectations. Both outcomes help insulate price expectations from falling when consumers are exposed to a discounted price. However, because computational difficulty drives the frame effect, the effect disappears for percentage-off discounts that are easy to compute. For example, the authors find frame effects for a 40% discount in Study 3 but not for a 50% discount in Study 4. Thus, to best insulate postpromotion share (while not undermining sales when promoted), managers should use percentage-off discount framing while avoiding discount values that are simple to calculate.
Devon DelVecchio is Assistant Professor of Marketing in the Richard T. Farmer School of Business at Miami University. He joined the faculty at Miami in 2005 after serving in the same capacity at the University of Kentucky and receiving his PhD at Indiana University. Devon's research focuses on pricing, promotions, and brand management. His work has appeared in Journal of Academy of Marketing Science, Journal of Retailing, Journal of Applied Psychology, and Psychology & Marketing, among others.
H. Shanker Krishnan is Associate Professor of Marketing in the Kelley School of Business at Indiana University. Shanker joined the faculty of the Kelley School of Business in 1991. Before joining Indiana, he completed his PhD at the University of Arizona. Shanker's research focuses on the interaction between customer behavior and marketing strategy. Specific projects focus on effects of humorous advertising, memory for brand intentions, advertising testing methods, and nonconscious processing of brand information. His research papers have appeared in Journal of Marketing, Journal of Consumer Research, Journal of Consumer Psychology, Journal of Experimental Psychology, International Journal of Research in Marketing, Journal of Advertising, Psychology & Marketing, and Advances in Consumer Research. He serves on the editorial board of Journal of Consumer Psychology and Marketing Education Review.
Daniel C. Smith is the dean of and Claire W. Barker Chair in Marketing in the Kelley School of Business at Indiana University. He received his PhD in Business Administration from the University of Pittsburgh in 1988 and joined the faculty of the Kelley School of Business in 1996. Dan has published approximately 50 journal articles, book chapters, and conference papers. His research, which focuses on strategic brand management and marketing strategy, has appeared in leading business journals, such as Harvard Business Review, Strategic Management Journal, Journal of Marketing Research, Journal of Marketing, Planning Review, Journal of the Academy of Marketing Science, Journal of Advertising Research, Journal of Consumer Research, Journal of Business & Industrial Marketing, Journal of Consumer Marketing, Journal of Personal Selling and Sales Management, Journal of Services Marketing, and Industrial Marketing Management. Dan has served on the editorial boards of Journal of Marketing, Journal of the Academy of Marketing Science, Journal of Competitive Intelligence, and Journal of Personal Selling and Sales Management.
Journal of Marketing, Vol. 71, No. 3, July 2007
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