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:

What's in a name? For young Chinese consumers, it's about culture mixing
Younger, more cosmopolitan Chinese consumers tend to favor brand translations that keep both the sound and the meaning of the original name, says U. of I. business professor and branding expert Carlos J.
Why do consumers participate in 'green' programs?
From recycling to reusing hotel towels, consumers who participate in a company's 'green' program are more satisfied with its service, finds a new study co-led by a Michigan State University researcher.
Consumers care about carbon footprint
How much do consumers care about the carbon footprint of the products they buy?
Consumers have huge environmental impact
You won't make big cuts in your environmental impact by taking shorter showers or turning out the lights.
Consumers' preferences for foliage plant attributes
Experiments investigated the effect of plant attributes on consumers' likelihood of purchasing indoor foliage plants.
New study finds adult fresh pear consumers had a lower body weight than non-pear consumers
The epidemiologic study, led by Carol O'Neil of the Louisiana State University Agricultural Center, used a nationally representative analytic sample to examine the association of fresh pear consumption with nutrient intake, nutrient adequacy, diet quality, and cardiovascular risk factors in adults.
How much do consumers know about new sunscreen labels?
Sunscreen labels may still be confusing to consumers, with only 43 percent of those surveyed understanding the definition of the sun protection factor value, according to the results of a small study published in a research letter online by JAMA Dermatology.
Saving money: Do consumers spend less if they think about the future?
Why is it so hard for consumers to save money?
When are consumers more likely to rely on feelings to make decisions?
Why do some consumers make choices based on their feelings instead of rational assessments?
How are ordinary consumers transforming the fashion business?
One of the most important shifts of the 21st century is the ability of consumers to participate in markets they love such as music and fashion.

Related Consumers Reading:

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

Digital Manipulation
Technology has reshaped our lives in amazing ways. But at what cost? This hour, TED speakers reveal how what we see, read, believe — even how we vote — can be manipulated by the technology we use. Guests include journalist Carole Cadwalladr, consumer advocate Finn Myrstad, writer and marketing professor Scott Galloway, behavioral designer Nir Eyal, and computer graphics researcher Doug Roble.
Now Playing: Science for the People

#530 Why Aren't We Dead Yet?
We only notice our immune systems when they aren't working properly, or when they're under attack. How does our immune system understand what bits of us are us, and what bits are invading germs and viruses? How different are human immune systems from the immune systems of other creatures? And is the immune system so often the target of sketchy medical advice? Those questions and more, this week in our conversation with author Idan Ben-Barak about his book "Why Aren't We Dead Yet?: The Survivor’s Guide to the Immune System".