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Claire Tsai is Associate Professor of Marketing, Rotman School of Management, University of Toronto. Leonard Lee is Associate Professor of Marketing and Dean's Chair, NUS Business School, National University of Singapore. Together they examined how discounts influence pleasure-related consumption experiences.
Most, if not all, consumers love getting good deals. They even spend hours hunting for them or waiting in line to get them. For example, we see consumers lining up in freezing weather to get good deals on Black Friday and Boxing Day. As customers become more sensitive to price when shopping online, companies have been increasingly relying on price promotions to boost sales for their ecommerce.
While price promotions make consumers feel good about their purchases, discounts can also lower the motivation to enjoy the purchased goods to the fullest, thereby reducing consumption enjoyment and even satisfaction. For example, a consumer who pays the full price for a vacation may be more motivated to make the trip worthwhile—by visiting more places of interest and paying closer attention to them during the visits—than a customer who receives a 40% discount for the trip.
In a series of laboratory experiments, we examined how discounts influence pleasure-related consumption experiences in a mock store. We found that discounts generally make consumers happier at the time of purchase, but we also found that paying a lower price causes people to pay less attention during consumption, thereby dampening enjoyment. The relative strength of these opposing forces depends on when the product is consumed after payment—right away or after a delay.
In one experiment, participants purchased one of two types of chocolate truffles at either the regular price or half price. Half of the participants consumed the chocolate right away, and the other half waited for a week before receiving the chocolate. Consumers enjoyed the chocolate less when they had to wait a week. Similar patterns to these results were observed in other product categories including music and fruit juice.
Why do price promotions first increase consumption enjoyment and later decrease it? On the one hand, by elevating consumers' moods and reducing the psychological pain arising from making a payment, price discounts make consumption more enjoyable. On the other hand, discounts may reduce the psychological need to justify or recover one's expenditure (lower sunk cost), which in turn dampens consumption enjoyment. This is why in the vacation example, the consumer receiving a 40% discount may appreciate the trip less. When consumption follows soon after payment, the positive mood effects of price promotions tend to dominate. However, in the longer term, the negative effect of price promotions dominates because positive moods are often short lived.
The same pattern of results also manifested in actual stores. In one field study conducted in a hair salon in Taipei, Taiwan, we found that price promotions decreased customer satisfaction. The store had a “buy 10 get one free" frequency program that essentially offered a 10% volume discount for blow-dry services. We measured the satisfaction level of customers for a three-month period. Customers who purchased the “buy 10 get one free" card reported lower satisfaction for the services than customers who paid full price for the services. This result is strikingly ironic because loyal customers who had purchased the card appeared to have become less satisfied with the hair salon services, defeating the purpose of introducing the card in the first place.
Further, we tested a simple intervention to remedy the negative effect of price promotions. That is, we rekindled the positive feeling in getting the bargain by asking customers questions about the frequency card. Drawing customers' attention to the discount reminded them of the good deal and recovered their initial positive feelings. As a result, this simple intervention restored customer satisfaction.
From a managerial perspective, our results highlight the fact that price promotions could be a double-edged sword: price promotions can induce short-term sales and enhance consumption experience if the promotional products are consumed immediately after purchase. For products consumed later, however, price promotions can instead reduce enjoyment and customer satisfaction as a result of lower attention during consumption. The latter negative effect is likely to reduce repeat purchases and brand loyalty in the long run.
From a consumer's standpoint, our results suggest that consumers can maximize their consumption experience if they base their purchase decisions on criteria most relevant to consumption enjoyment rather than solely on price discounts, particularly for products they plan to consume later (e.g., books, take-out). Thus, when consumers go shopping and find themselves enticed by the tempting array of bargain products, they should perhaps think twice before placing any of these items into their shopping baskets. Unless they are planning to consume these items soon, they might be better off buying what they really like, need, or want.
These findings have important implications for retailers, especially those in the online channels. As online shoppers become more sensitive to price than offline shoppers, the use of price promotions has become an increasingly important marketing strategy to increase sales. Given that merchandise takes time to ship, offering price promotions in online channels may create an unexpected backlash on consumption experience and customer satisfaction. Marketers must focus on putting the long term back into loyalty rather than focusing on the short-term.
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