IDEAS home Printed from https://ideas.repec.org/a/eee/joepsy/v70y2019icp80-89.html
   My bibliography  Save this article

Effectiveness of trade-ins and price discounts: A moderating role of substitutability

Author

Listed:
  • Xu, Xiaobing
  • Chen, Rong
  • Zhang, Jin

Abstract

This paper investigates the effects of price discounts and trade-ins on the probability of replacement purchase. Based on economic and psychological criteria, the authors propose that the effectiveness of these two promotional tools is contingent on the extent to which the new product can substitute for the old one. Study 1 demonstrated that at a “high” substitutability level, trade-ins were more effective than price discounts. However, this effect was mitigated when the substitutability level decreased. Study 2 showed that at a “low” substitutability level, trade-ins were inferior to the no-promotion condition. Using a different product and a real purchase situation, Study 3 provided more evidence that the effectiveness of trade-ins and price discounts was contingent on the level of substitutability between the product owned and the one that was going to be purchased. Study 3 also provided evidence for the potential mechanism for the observed effects. Theoretical contributions and marketing implications are discussed.

Suggested Citation

  • Xu, Xiaobing & Chen, Rong & Zhang, Jin, 2019. "Effectiveness of trade-ins and price discounts: A moderating role of substitutability," Journal of Economic Psychology, Elsevier, vol. 70(C), pages 80-89.
    • Handle: RePEc:eee:joepsy:v:70:y:2019:i:c:p:80-89
    DOI: 10.1016/j.joep.2018.10.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167487017304361
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.joep.2018.10.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Knetsch, Jack L, 1989. "The Endowment Effect and Evidence of Nonreversible Indifference Curves," American Economic Review, American Economic Association, vol. 79(5), pages 1277-1284, December.
    2. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1039-1061.
    3. Ortona, Guido & Scacciati, Francesco, 1992. "New experiments on the endowment effect : Journal of economic psychology 13 (1992) 277-296," Journal of Economic Psychology, Elsevier, vol. 13(4), pages 761-761, December.
    4. Jeff T. Casey, 1994. "Buyers' Pricing Behavior for Risky Alternatives: Encoding Processes and Preference Reversals," Management Science, INFORMS, vol. 40(6), pages 730-749, June.
    5. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    6. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    7. Daniel Kahneman & Jack L. Knetsch & Richard H. Thaler, 1991. "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter.
    8. Gourville, John T & Soman, Dilip, 1998. "Payment Depreciation: The Behavioral Effects of Temporally Separating Payments from Consumption," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 25(2), pages 160-174, September.
    9. Strahilevitz, Michal A & Loewenstein, George, 1998. "The Effect of Ownership History on the Valuation of Objects," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 25(3), pages 276-289, December.
    10. Fiona Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2003. "Consumer Information and Discrimination: Does the Internet Affect the Pricing of New Cars to Women and Minorities?," Quantitative Marketing and Economics (QME), Springer, vol. 1(1), pages 65-92, March.
    11. Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
    12. Rebecca Hamilton & Debora Thompson & Zachary Arens & Simon Blanchard & Gerald Häubl & P. Kannan & Uzma Khan & Donald Lehmann & Margaret Meloy & Neal Roese & Manoj Thomas, 2014. "Consumer substitution decisions: an integrative framework," Marketing Letters, Springer, vol. 25(3), pages 305-317, September.
    13. Carmon, Ziv & Ariely, Dan, 2000. "Focusing on the Forgone: How Value Can Appear So Different to Buyers and Sellers," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 27(3), pages 360-370, December.
    14. van Dijk, Eric & van Knippenberg, Daan, 1998. "Trading wine: On the endowment effect, loss aversion, and the comparability of consumer goods," Journal of Economic Psychology, Elsevier, vol. 19(4), pages 485-495, August.
    15. Ortona, Guido & Scacciati, Francesco, 1992. "New experiments on the endowment effect," Journal of Economic Psychology, Elsevier, vol. 13(2), pages 277-296, June.
    16. Okada, Erica Mina, 2001. "Trade-Ins, Mental Accounting, and Product Replacement Decisions," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 27(4), pages 433-446, March.
    17. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, vol. 35(1), pages 124-140, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Thi-Phuong Nguyen, 2021. "Assess the Impacts of Discount Policies on the Reliability of a Stochastic Air Transport Network," Mathematics, MDPI, vol. 9(9), pages 1-13, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sayman, Serdar & Onculer, Ayse, 2005. "Effects of study design characteristics on the WTA-WTP disparity: A meta analytical framework," Journal of Economic Psychology, Elsevier, vol. 26(2), pages 289-312, April.
    2. Kogler, Christoph & Kühberger, Anton & Gilhofer, Rainer, 2013. "Real and hypothetical endowment effects when exchanging lottery tickets: Is regret a better explanation than loss aversion?," Journal of Economic Psychology, Elsevier, vol. 37(C), pages 42-53.
    3. Roth, Gerrit, 2006. "Predicting the Gap between Willingness to Accept and Willingness to Pay," Munich Dissertations in Economics 4901, University of Munich, Department of Economics.
    4. (Xiao-Tian) Wang, X.T. & Ong, Lay See & Tan, Jolene H., 2015. "Sense and sensibility of ownership: Type of ownership experience and valuation of goods," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 58(C), pages 171-177.
    5. Domenico Colucci & Chiara Franco & Vincenzo Valori, 2021. "Endowment effects at different time scenarios: the role of ownership and possession," Discussion Papers 2021/279, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    6. repec:cup:judgdm:v:7:y:2012:i:4:p:462-471 is not listed on IDEAS
    7. Mandel, David R., 2002. "Beyond mere ownership: transaction demand as a moderator of the endowment effect," Organizational Behavior and Human Decision Processes, Elsevier, vol. 88(2), pages 737-747, July.
    8. Alexopoulos, Theodore & Šimleša, Milija & Francis, Mélanie, 2015. "Good self, bad self: Initial success and failure moderate the endowment effect," Journal of Economic Psychology, Elsevier, vol. 50(C), pages 32-40.
    9. Daniel Villanova, 2019. "The extended self, product valuation, and the endowment effect," AMS Review, Springer;Academy of Marketing Science, vol. 9(3), pages 357-371, December.
    10. Amos Schurr & Ilana Ritov, 2014. "The Effect of Giving It All Up on Valuation: A New Look at the Endowment Effect," Management Science, INFORMS, vol. 60(3), pages 628-637, March.
    11. Delgado, Laura & Shealy, Tripp, 2018. "Opportunities for greater energy efficiency in government facilities by aligning decision structures with advances in behavioral science," Renewable and Sustainable Energy Reviews, Elsevier, vol. 82(P3), pages 3952-3961.
    12. Eduard Marinov, 2017. "The 2017 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 117-159.
    13. Min, Shi & Wang, Xiaobing & Liu, Min & Huang, Jikun, 2018. "The asymmetric response of farmers to an expected change in the price of rubber: The roles of sunk costs and path dependency," Land Use Policy, Elsevier, vol. 79(C), pages 585-594.
    14. repec:cup:judgdm:v:2:y:2007:i::p:107-114 is not listed on IDEAS
    15. Ravaja, Niklas & Korhonen, Pekka & Köksalan, Murat & Lipsanen, Jari & Salminen, Mikko & Somervuori, Outi & Wallenius, Jyrki, 2016. "Emotional–motivational responses predicting choices: The role of asymmetrical frontal cortical activity," Journal of Economic Psychology, Elsevier, vol. 52(C), pages 56-70.
    16. Jochen Reb & Terry Connolly, 2007. "Possession, feelings of ownership and the endowment effect," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 2, pages 107-114, April.
    17. Dertwinkel-Kalt, Markus & Köhler, Katrin, 2016. "Exchange asymmetries for bads? Experimental evidence," European Economic Review, Elsevier, vol. 82(C), pages 231-241.
    18. Fieke Harinck & Ilja Van Beest & Eric Van Dijk & Marjolijn Van Zeeland, 2012. "Measurement-induced focusing and the magnitude of loss aversion: The difference between comparing gains to losses and losses to gains," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 7(4), pages 462-471, July.
    19. Hochman, Guy & Ayal, Shahar & Ariely, Dan, 2014. "Keeping your gains close but your money closer: The prepayment effect in riskless choices," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 582-594.
    20. Brown, Thomas C., 2005. "Loss aversion without the endowment effect, and other explanations for the WTA-WTP disparity," Journal of Economic Behavior & Organization, Elsevier, vol. 57(3), pages 367-379, July.
    21. van Dijk, Eric & van Knippenberg, Daan, 1998. "Trading wine: On the endowment effect, loss aversion, and the comparability of consumer goods," Journal of Economic Psychology, Elsevier, vol. 19(4), pages 485-495, August.
    22. Jose Apesteguia & Miguel Ballester, 2009. "A theory of reference-dependent behavior," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(3), pages 427-455, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:joepsy:v:70:y:2019:i:c:p:80-89. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/joep .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.