IDEAS home Printed from https://ideas.repec.org/a/eee/jouret/v92y2016i2p173-184.html
   My bibliography  Save this article

Sometimes “Fee” Is Better Than “Free”: Token Promotional Pricing and Consumer Reactions to Price Promotion Offering Product Upgrades

Author

Listed:
  • Mao, Wen

Abstract

Conventional wisdom suggests that for price promotions offering product upgrades, the best promotional price to maximize promotion effectiveness is to offer product upgrades for free (e.g., buy an 8″ birthday cake, upgrade to 10″ for free). This research examines a counterintuitive pricing scheme coined “token promotional pricing (TPP)”, showing that a price promotion can be more effective and can generate greater sales when the upgrade is offered at a small, token price (e.g., upgrade the cake for 1¢) rather than free. Results from Studies 1 and 2 attest to the robustness of the TPP effect involving hypothetical and real product purchase, and help rule out several alternative explanations of the TPP effect. Consumers’ more positive reaction to a token-priced than a free upgrade is hypothesized to be a contrasting effect from consumers’ comparing the upgrade's regular retail price against a disproportionally small (but non-zero) promotional price. Accordingly, asking consumers to articulate deal savings prior to evaluating the deal, which disinhibits relative thinking and encourages consideration of absolute values, renders a token-priced upgrade no more attractive than a comparable, free upgrade (Study 3). The article concludes by discussing research implications and limitations, and offers suggestions for followup study.

Suggested Citation

  • Mao, Wen, 2016. "Sometimes “Fee” Is Better Than “Free”: Token Promotional Pricing and Consumer Reactions to Price Promotion Offering Product Upgrades," Journal of Retailing, Elsevier, vol. 92(2), pages 173-184.
    • Handle: RePEc:eee:jouret:v:92:y:2016:i:2:p:173-184
    DOI: 10.1016/j.jretai.2015.09.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022435915000779
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jretai.2015.09.001?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. Pham, Michel Tuan & Johar, Gita Venkataramani, 1997. "Contingent Processes of," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 24(3), pages 249-265, December.
    2. John A. List, 2002. "Preference Reversals of a Different Kind: The "More Is Less" Phenomenon," American Economic Review, American Economic Association, vol. 92(5), pages 1636-1643, December.
    3. Sucharita Chandran & Vicki G. Morwitz, 2006. "The Price of "Free"-dom: Consumer Sensitivity to Promotions with Negative Contextual Influences," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 33(3), pages 384-392, October.
    4. Michael A. Kamins & Valerie S. Folkes & Alexander Fedorikhin, 2009. "Promotional Bundles and Consumers' Price Judgments: When the Best Things in Life Are Not Free," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 36(4), pages 660-670, December.
    5. Markman, Arthur B. & Medin, Douglas L., 1995. "Similarity and Alignment in Choice," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(2), pages 117-130, August.
    6. 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.
    7. Slovic, Paul & Finucane, Melissa L. & Peters, Ellen & MacGregor, Donald G., 2007. "The affect heuristic," European Journal of Operational Research, Elsevier, vol. 177(3), pages 1333-1352, March.
    8. Catherine W. M. Yeung & Dilip Soman, 2007. "The Duration Heuristic," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 34(3), pages 315-326, July.
    9. Bettman, James R & Luce, Mary Frances & Payne, John W, 1998. "Constructive Consumer Choice Processes," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 25(3), pages 187-217, December.
    10. Mauricio M. Palmeira, 2011. "The Zero-Comparison Effect," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 38(1), pages 16-26.
    11. Marco Bertini & Elie Ofek & Dan Ariely, 2009. "The Impact of Add-On Features on Consumer Product Evaluations," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 36(1), pages 17-28, June.
    12. Bruce G. S. Hardie & Eric J. Johnson & Peter S. Fader, 1993. "Modeling Loss Aversion and Reference Dependence Effects on Brand Choice," Marketing Science, INFORMS, vol. 12(4), pages 378-394.
    13. Hsee, Christopher K., 1996. "The Evaluability Hypothesis: An Explanation for Preference Reversals between Joint and Separate Evaluations of Alternatives," Organizational Behavior and Human Decision Processes, Elsevier, vol. 67(3), pages 247-257, September.
    14. Kristina Shampanier & Nina Mazar & Dan Ariely, 2007. "Zero as a Special Price: The True Value of Free Products," Marketing Science, INFORMS, vol. 26(6), pages 742-757, 11-12.
    15. Hsee, Christopher K & Leclerc, France, 1998. "Will Products Look More Attractive When Presented Separately or Together?," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 25(2), pages 175-186, September.
    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. Gerpott, Torsten J. & Schneider, Christina, 2016. "Buying behaviors when similar products are available under pay-what-you-want and posted price conditions: Field-experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 65(C), pages 135-145.
    2. Xiaomeng Fan & Fengyan Cindy Cai & Galen V. Bodenhausen, 2022. "The boomerang effect of zero pricing: when and why a zero price is less effective than a low price for enhancing consumer demand," Journal of the Academy of Marketing Science, Springer, vol. 50(3), pages 521-537, May.

    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. Santana, Shelle & Thomas, Manoj & Morwitz, Vicki G., 2020. "The Role of Numbers in the Customer Journey," Journal of Retailing, Elsevier, vol. 96(1), pages 138-154.
    2. Ahmetoglu, Gorkan & Furnham, Adrian & Fagan, Patrick, 2014. "Pricing practices: A critical review of their effects on consumer perceptions and behaviour," Journal of Retailing and Consumer Services, Elsevier, vol. 21(5), pages 696-707.
    3. repec:cup:judgdm:v:1:y:2006:i::p:23-32 is not listed on IDEAS
    4. David Gal, 2006. "A psychological law of inertia and the illusion of loss aversion," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 1, pages 23-32, July.
    5. Koo, Jieun & Suk, Kwanho, 2020. "Is $0 Better than Free? Consumer Response to “$0” versus “Free” Framing of a Free Promotion," Journal of Retailing, Elsevier, vol. 96(3), pages 383-396.
    6. Wardley, Marcus & Alberhasky, Max, 2021. "Framing zero: Why losing nothing is better than gaining nothing," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 90(C).
    7. A. Peter McGraw & Eldar Shafir & Alexander Todorov, 2010. "Valuing Money and Things: Why a $20 Item Can Be Worth More and Less Than $20," Management Science, INFORMS, vol. 56(5), pages 816-830, May.
    8. Joost M. E. Pennings & Ale Smidts, 2003. "The Shape of Utility Functions and Organizational Behavior," Management Science, INFORMS, vol. 49(9), pages 1251-1263, September.
    9. Clark, Jeremy & Friesen, Lana, 2008. "The causes of order effects in contingent valuation surveys: An experimental investigation," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 195-206, September.
    10. Nina Mazar & Kristina Shampanier & Dan Ariely, 2017. "When Retailing and Las Vegas Meet: Probabilistic Free Price Promotions," Management Science, INFORMS, vol. 63(1), pages 250-266, January.
    11. Jonathan E. Alevy & John A. List & Wiktor L. Adamowicz, 2011. "How Can Behavioral Economics Inform Nonmarket Valuation? An Example from the Preference Reversal Literature," Land Economics, University of Wisconsin Press, vol. 87(3), pages 365-381.
    12. Mark Schneider & Cary Deck & Mikhael Shor & Tibor Besedeš & Sudipta Sarangi, 2019. "Optimizing Choice Architectures," Decision Analysis, INFORMS, vol. 16(1), pages 2-30, March.
    13. Hossain, Mehdi T. & Saini, Ritesh, 2015. "Free indulgences: Enhanced zero-price effect for hedonic options," International Journal of Research in Marketing, Elsevier, vol. 32(4), pages 457-460.
    14. Luce, Mary Frances & Payne, John W. & Bettman, James R., 2000. "Coping with Unfavorable Attribute Values in Choice," Organizational Behavior and Human Decision Processes, Elsevier, vol. 81(2), pages 274-299, March.
    15. Muthukrishnan, A. V. & Pham, Michel Tuan & Mungale, Amitabh, 1999. "Comparison Opportunity and Judgment Revision," Organizational Behavior and Human Decision Processes, Elsevier, vol. 80(3), pages 228-251, December.
    16. Bateman, Ian J. & Day, Brett H. & Jones, Andrew P. & Jude, Simon, 2009. "Reducing gain-loss asymmetry: A virtual reality choice experiment valuing land use change," Journal of Environmental Economics and Management, Elsevier, vol. 58(1), pages 106-118, July.
    17. Botti, Simona & Hsee, Christopher K., 2010. "Dazed and confused by choice: How the temporal costs of choice freedom lead to undesirable outcomes," Organizational Behavior and Human Decision Processes, Elsevier, vol. 112(2), pages 161-171, July.
    18. Cheng, Yin-Hui & Yen, HsiuJu Rebecca & Chuang, Shih-Chieh & Chang, Chia-Jung, 2013. "Product option framing under the influence of a promotion versus prevention focus," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 402-413.
    19. Tan, Huimin & Lv, Xingyang & Liu, Xiaoyan & Gursoy, Dogan, 2018. "Evaluation nudge: Effect of evaluation mode of online customer reviews on consumers’ preferences," Tourism Management, Elsevier, vol. 65(C), pages 29-40.
    20. J-J Huang, 2009. "Revised behavioural models for riskless consumer choice," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 60(9), pages 1237-1243, September.
    21. A. Ye(scedilla)im Orhun, 2009. "Optimal Product Line Design When Consumers Exhibit Choice Set-Dependent Preferences," Marketing Science, INFORMS, vol. 28(5), pages 868-886, 09-10.

    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:jouret:v:92:y:2016:i:2:p:173-184. 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: https://www.journals.elsevier.com/journal-of-retailing .

    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.