Contextual influences on the efficacy of price incentives to induce consumer behavior

Ralph J. Perfetto, University of Rhode Island

Abstract

The Weber-Fechner Law applied to pricing (Monroe 1971b) includes the proposition that the relative, rather than absolute, discount size influences consumers’ reaction to price incentives is largely influenced by relative, rather than absolute, discount size. For example, shoppers value a $10 discount when its relative size is large, in comparison to the product’s original price (e.g., $10 off $25), whereas, small relative discounts (e.g., $10 off $125) are not seen as attractive; even though absolute dollars gained is identical. Researchers argue that consumers use a form of mental accounting to frame decisions in relation to the product price (topical) and not in relation to the absolute wealth gain (pure) or the costs associated with obtaining a given discount (minimal). While research documents consumers’ use of mental accounts and the psychophysical effects of price judgments, most findings have involved a traditional brick-and-mortar shopping environment. Few studies explore whether these findings hold true in an online shopping situation. This dissertation explores the influence of contextual factors, such as shopping environment, on consumers’ reaction to price promotions and attempts to understand whether (a) contextual factors influence by the relative size of price promotions online to the same extent as traditional promotions; (b) shoppers use a different form of mental accounting to evaluate online shopping decisions; and (c) lower price incentives offered in an online environment gain the same level of consumer response as larger discounts in a traditional brick and mortar environment. Results from three studies show that, for a given relative price discount, online price promotions were more efficacious compared to traditional promotions.^ Furthermore, respondents indicated a willingness to spend more time obtaining online discounts. Small relative and absolute online discounts were as efficacious as larger traditional discounts. In contrast to Kahneman and Tversky’s (1981) seminal findings, respondents demonstrate fewer preference reversals and are more likely to accept relatively small price discounts online. Qualitative data reveal that consumers used minimal account framing, comparing discounts to value of their time online. Their ability to multi-task while shopping online contributed to their willingness to spend more time pursuing smaller price promotions. The managerial implications of findings suggest that marketers can gain the same level of behavioral response using smaller price incentives online compared to larger promotions in a traditional shopping situation.^

Subject Area

Business Administration, Marketing

Recommended Citation

Ralph J. Perfetto, "Contextual influences on the efficacy of price incentives to induce consumer behavior" (2011). Dissertations and Master's Theses (Campus Access). Paper AAI3449938.
http://digitalcommons.uri.edu/dissertations/AAI3449938

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