When More Is Less: The Impact of Base Value Neglect on Consumer Preferences for Bonus Packs over Price Discounts

Haipeng (Allan) Chen, Howard Marmorstein, Michael Tsiros, & Akshay R. Rao
Journal of Marketing
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Executive Summary
Percentage information is ubiquitous in the communication of important marketplace information, ranging from price and quality metrics to the state of a person’s financial well-being as captured by the day-to-day movement of the Dow Jones Industrial Average or the quarterly changes in a retirement portfolio. Therefore, how consumers encode and evaluate changes in percentage information and employ this information in their decision making is of great importance to marketing researchers and practitioners. However, extant literature has shown that consumers experience difficulties in processing changes in percentage information.

Consistent with this stream of research, the authors examine consumers’ tendency to neglect base values associated with percentages and the impact of this tendency on their preferences for one of two commonly used promotion tactics: price discounts and bonus packs. In support of this notion of base value neglect, the authors first document a substantial advantage in sales volume for a bonus pack compared with an economically equivalent price discount in a field experiment conducted in a retail store. Furthermore, in a mall-intercept survey and multiple lab studies, they provide additional evidence in support of this effect and identify managerially useful boundary conditions for when the effect is likely to be manifested. The current research is among the first to offer and test a theoretical explanation for people’s preferences between bonus packs and price discounts.

Methodologically, the authors employ multiple approaches, including field study, mall intercept, and laboratory experiment, to support their propositions, thus enhancing the robustness of their findings. From the standpoint of practice, given the prevalence of numerical information in the marketplace, obtaining a richer understanding of how consumers process such information is of considerable pragmatic importance. Specifically, the authors offer a series of useful prescriptions regarding the use of bonus packs versus price discounts as a promotional tactic. Their notion of base value neglect also allows for the examination of theoretically justifiable and practically consequential moderators of the effect, including conditions under which the advantage of bonus packs over price discounts may be attenuated or reversed. For example, they find that the preference for bonus packs over price discounts holds for inexpensive products and familiar brands but diminishes or can even be reversed for expensive products or unfamiliar brands. In addition, their research is potentially applicable to other settings in which favorable product enhancements (e.g., improvements in speed of data processing, fuel efficiency) can be presented in percentage terms. Finally, public policy officials may be interested in understanding the circumstances in which consumers err when engaging in percentage calculations and the extent to which such errors affect consumer welfare adversely.

Biography
Haipeng (Allan) Chen is an Associate Professor and Mays Research Fellow in Marketing at the Texas A&M University. He received his PhD in Business Administration from the University of Minnesota (Twin Cities) and conducts research in the area of behavioral decision theory. His research has been published in Marketing Science, Journal of Marketing Research, Journal of Consumer Research, Journal of Monetary Economics, Review of Economics and Statistics, Economica, and Marketing Letters. He has won various research awards, including the 2010 Ricky W. Griffin Research Excellence Award and the 2001 ACR-Sheth Foundation Dissertation Award (co-winner of the Public Policy Track), and has been invited to the 2007 Marketing Science Institute Young Scholars’ Program. He has also been recognized with various school- and university-level teaching awards.

Howard Marmorstein is Associate Professor of Marketing at the University of Miami (Florida). His research has appeared in a range of publications including Journal of Marketing Research, Journal of Consumer Research, and Journal of Business and Psychology. His research focuses on consumers’ financial decision making and response to marketing communications. He has received two national awards for his research on consumer behavior and has worked as a consultant in the areas of eminent domain, trademark infringement, and deceptive advertising. He has also received the Professor of the Year award. He currently serves on the Editorial Board at Journal of the Academy of Marketing Science.

Michael Tsiros is 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. His research focuses on customer satisfaction, regret, and price promotions and has been published in Journal of Consumer Research, Journal of Marketing Research, Journal of Marketing, Organizational Behavior and Human Decision Processes, Journal of Retailing, Journal of the Academy of Marketing Science, Marketing Letters, and Journal of Service Research. Recent awards and recognitions include the 2010 Davidson best paper award and being selected as a Thought Leader in 2008 and as an MSI Young Scholar in 2005. He has served or serves on the editorial boards of Journal of Marketing, Journal of Service Research, and Journal of Retailing. He has also worked and consulted for several marketing research companies.

Akshay R. Rao holds the General Mills Chair in Marketing in the Carlson School of Management at University of Minnesota. He has also served as a visiting professor at Massachusetts Institute of Technology and at the Hong Kong University of Science & Technology. A winner of the Ferber Award and the Maynard Award, his research on pricing, brand management, and consumer behavior has been published in scholarly journals such as Journal of Business, Journal of Consumer Research, Journal of Marketing, Journal of Marketing Research, Marketing Science, and Organizational Behavior and Human Decision Processes, as well as in managerially oriented journals such as Harvard Business Review and Sloan Management Review. He currently serves on the editorial review boards of Journal of Consumer Psychology, Journal of Consumer Research, Journal of Marketing, and Journal of Marketing Research and on the policy board of Journal of Consumer Research.

Journal of Marketing, Volume 76, Number 4, July 2012
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Haipeng (Allan) Chen, Howard Marmorstein, Michael Tsiros, & Akshay R. Rao
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