Nav: Home

The art and science of promotional pricing

June 01, 2016

Normal rules of economic behavior would dictate that free upgrades to a particular product would move it out the door in record numbers. Somewhat counterintuitively, new research from Professor Wen Mao reveals that a token upgrade fee, even no more than a penny, is often more attractive to consumers than a freebie.

In his article "Sometimes 'Fee' Is Better Than 'Free': Token Promotional Pricing and Consumer Reactions to Price Promotion Offering Product Upgrades," which is forthcoming in the June 2016 issue of the Journal of Retailing, Professor Mao, as associate professor of marketing at China's Southwestern University of Finance and Economics, describes study results that argue that a small, non-zero price provides consumers with a meaningful benchmark to evaluate the upgrade against its token price, whereas in the case of a free upgrade, that comparative evaluation is absent. He posits that the opportunity to make such a comparative evaluation boosts the perceived attractiveness of the upgrade.

In one study, participants were presented with a choice between a digital camera with a free upgraded memory card and one with the upgrade offered for a token additional price. Counterintuitively, more chose the minimally more expensive upgrade. Similarly, participants in a second study chose to upgrade the size of vegetable juice more often when it cost a token fee to do so, rather than when the larger size was available at the original base price.

The core argument is that a consumer's deal evaluation, by its very nature, is relative and comparative, comprising an assessment of the attractiveness of the upgrade against pertinent background information, the author writes. The lesson for managers is that in a conditional price promotion offering product upgrades, charging a token price for the upgrade rather than offering it for free can lead to more positive deal evaluation and greater product sales. In line with that, consumers may find McDonald's breakfast more attractive when its free coffee is instead one cent. Similarly, consumers may be more likely to buy Windows XP if a future system upgrade costs $1 rather than nothing.

As Professor Mao concludes, "Free is certainly good, but in conditional price promotion offering product upgrades, a small fee may even be better."
-end-


Journal of Retailing at New York University

Related Consumers Articles:

Should patients be considered consumers?
No, and doing so can undermine efforts to promote patient-centered health care, write three Hastings Center scholars in the March issue of Health Affairs.
Consumers choose smartphones mostly because of their appearance
The more attractive the image and design of the telephone, the stronger the emotional relationship that consumers are going to have with the product, which is a clear influence on their purchasing decision.
When consumers don't want to talk about what they bought
One of the joys of shopping for many people is the opportunity to brag about their purchases to friends and others.
As consumers, how do we decide what's 'best' when it's not clear?
Imagine you are choosing between two resorts for your island vacation.
Effects of ethnocentrism on consumers
Aitor Calvo-Turrientes, winner of the prize for End-of-Degree Project in Sustainability in 2015 awarded by the Faculty of Economics and Business of the UPV/EHU-University of the Basque Country in Vitoria-Gasteiz, is the author of the paper 'The valuation and purchase of food products that combine local, regional and traditional features: The influence of consumer ethnocentrism,' published recently by the prestigious journal Food Quality and Preference.
More Consumers News and Consumers Current Events

Best Science Podcasts 2019

We have hand picked the best science podcasts for 2019. Sit back and enjoy new science podcasts updated daily from your favorite science news services and scientists.
Now Playing: TED Radio Hour

Erasing The Stigma
Many of us either cope with mental illness or know someone who does. But we still have a hard time talking about it. This hour, TED speakers explore ways to push past — and even erase — the stigma. Guests include musician and comedian Jordan Raskopoulos, neuroscientist and psychiatrist Thomas Insel, psychiatrist Dixon Chibanda, anxiety and depression researcher Olivia Remes, and entrepreneur Sangu Delle.
Now Playing: Science for the People

#537 Science Journalism, Hold the Hype
Everyone's seen a piece of science getting over-exaggerated in the media. Most people would be quick to blame journalists and big media for getting in wrong. In many cases, you'd be right. But there's other sources of hype in science journalism. and one of them can be found in the humble, and little-known press release. We're talking with Chris Chambers about doing science about science journalism, and where the hype creeps in. Related links: The association between exaggeration in health related science news and academic press releases: retrospective observational study Claims of causality in health news: a randomised trial This...