Ending a Price Promotion: Retracting It in One Step or Phasing It Out Gradually

Michael Tsiros & David M. Hardesty
Journal of Marketing
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Executive Summary
Using literature on both pricing and regret, the authors develop a conceptual model of purchase likelihood and propose a pricing tactic that appears to have marketplace potential. Sellers currently using a hi–lo pricing tactic discount a product for a limited time and then raise the price back to its original level in one step. This article investigates whether sellers should return prices to their prepromotion levels all at once or in steps. The authors propose that sellers might consider an alternative tactic—“steadily decreasing discounting” (SDD). This alternative tactic requires that the seller offer one or more additional, smaller discounts before returning the product to its original price. In Study 1, the authors conduct a laboratory experiment that tests the proposed underlying mechanism (future price expectations and anticipated inaction regret) influencing likelihood to buy a personal digital assistant (PDA). They also assess the relative effectiveness of hi–lo pricing, everyday low pricing (EDLP), and SDD and evaluate the impact on brand image and store image of each tactic. They find that SDD results in approximately 9% greater revenue than hi–lo pricing and approximately 23% more revenue than EDLP. As expected, SDD generates higher future price expectations than hi–lo pricing and also results in greater anticipated inaction regret. Moreover, SDD does not suffer from any negative effects associated with brand image or store image. In Study 2, the authors conduct an additional laboratory experiment to provide further empirical support in favor of the SDD tactic, to address alternative explanations for the findings, and to demonstrate that there are no negative perceptions associated with using SDD across a greater time horizon. Study 2 results support SDD because it generates greater willingness to pay and a higher likelihood to visit the store. As in Study 1, a PDA is used, and SDD is again free from any adverse effects on brand image or store image. Alternative explanations, such as, price uncertainty and the frequency and depth of promotions are also ruled out. Study 3 is a field experiment that further assesses the effectiveness of SDD. The authors rotate price promotion information for 30 weeks, employing either SDD, same-frequency hi–lo pricing, or same-depth hi–lo pricing promotion patterns. The results reveal that same-frequency hi–lo pricing generates 75% greater sales than when no promotion was offered for wine stoppers. Same-depth hi–lo pricing results in a 63% increase in sales. Importantly, SDD results in a 200% increase in sales and a 55% increase in profits, providing further support for the effectiveness of SDD. Study 4 assesses Dominick’s Finer Foods scanner panel data to provide anecdotal evidence in support of SDD in grocery stores. Several instances of SDD’s effectiveness are highlighted. Overall, the results from four diverse studies support the SDD tactic as a viable alternative to both hi–lo pricing and EDLP. Moreover, SDD appears to be more effective as a result of generating greater future price expectations and more anticipated inaction regret.

Biography
Michael Tsiros is Associate Professor of Marketing at University of Miami and Tassos Papastratos Research Professor at ALBA Graduate Business School. Previously, he was with the faculty at the Olin School of Business at Washington University in St. Louis. He holds a B.S. (with honors) in Computer Science and an MBA from St. John’s University and a PhD in Marketing from Temple University. His research interests include the role of customer satisfaction and regret in both consumer decision making and pricing decisions. His articles have appeared in journals such as Journal of Marketing Research, Journal of Consumer Research, Journal of Marketing, Organizational Behavior and Human Decision Processes, Journal of Retailing, and Journal of Service Research. He currently serves on the editorial board at Journal of Retailing and Journal of Service Research and has served on the editorial board at Journal of Marketing. He has also worked and consulted for several marketing research companies (e.g., The Response Center, Research Data Analysis, Maritz Marketing Research).

David M. Hardesty is Associate Professor of Marketing in the Gatton College of Business & Economics at the University of Kentucky. Previously, he was a faculty member at the University of Miami and the University of Southern Mississippi. Professor Hardesty received his PhD in 1998 and his MS in Statistics in 1994, both from the University of South Carolina. David earned a BS in Mathematics from Salisbury University in 1992. He has published in journals such as Journal of Consumer Research, Journal of Retailing, Journal of Business Research, Journal of Advertising, and the Journal of Public Policy & Marketing. David’s research focuses on the behavioral aspects of pricing, emotional intelligence, knowledge, and measurement. He serves on the editorial review boards for the Journal of Retailing, Journal of Business Research, and Journal of Product & Brand Management. David’s main teaching interests are Consumer Behavior and Marketing Research. He was named the most outstanding faculty member in the MBA program at the University of Kentucky in 2007 and received the Bell South Outstanding Professor Award in the College of Business at the University of Southern Mississippi in 2001.

Journal of Marketing, Volume 74, Number 1, January 2010
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Michael Tsiros & David M. Hardesty
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