Essays on consumers’ responses to retail promotions

Abstract

How do consumers respond to innovative forms of promotional strategies employed by retailers? This thesis attempts to answer this question across two essays, using experiments as a primary method of inquiry. In Essay 1, six studies investigate consumers' responses to cashbacks, a novel price-promotion wherein savings are delivered automatically with minimal delay (e.g., cashback within 24 hours after the purchase). In Essay 2, seven studies examine what drives consumers’ judgments of value associated with a unique free-gift promotion that offers an option to choose from a menu of gift items. In essay 1, we contrast consumers' perceptions of cashbacks from traditional pricediscounts by focusing on evaluations of the attribute that differentiates both promotions – the time-of-reward-accrual. Building on Evaluability Theory, we propose and demonstrate that the time-of-reward-accrual of promotions is hard-to-evaluate, and hence consumers’ perceptions of cashbacks (vs. price-discounts) are influenced by evaluation modes. We first show that when consumers view cashback and price-discount offers separately (separate-evaluation mode) they fail to distinguish between promotions and find them equally attractive. However, when consumers encounter a choice between cashback and price-discount offers (joint-evaluation mode), the differences become apparent, leading them to favor price-discounts. We provide further evidence on the evaluability of time-of reward-accrual of promotions by showing how 4 product-returnability, an easy-to-evaluate attribute in the product-promotion feature, influences consumers’ judgments of cashbacks vs. price-discounts. In Essay 2, using choice overload theory, we examine the impact of the menu-size on the perceived attractiveness of free-gift promotions. Using data from in-store retail promotions and controlled lab studies, we show that free-gift attractiveness follows an inverted U-shape (or plateauing-shape) as the ‘menu-size’ increases. We also highlight the interplay of resource (time and money) constraints experienced by consumers and menu-size on the proposed effects. We follow up with more evidence on the impact of menu-composition and individuallevel factors on free-gift attractiveness. By shedding light on evaluations of time-of-reward-accrual and choice in promotions, we pave a new path for academic investigation in the domain of promotions. We also provide actionable recommendations to retailers for better planning their promotions strategy, especially pertaining to the design of cashback and free-gift promotions.