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When Retailing and Las Vegas Meet: Probabilistic Free Price Promotions

Author

Listed:
  • Nina Mazar

    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada)

  • Kristina Shampanier

    (Analysis Group, Boston, Massachusetts 02199)

  • Dan Ariely

    (Duke University, Durham, North Carolina 27705)

Abstract

A number of retailers offer gambling- or lottery-type price promotions with a chance to receive one’s entire purchase for free. Although these retailers seem to share the intuition that probabilistic free price promotions are attractive to consumers, it is unclear how they compare to traditional sure price promotions of equal expected monetary value. We compared these two risky and sure price promotions for planned purchases across six experiments in the field and in the laboratory. Together, we found that consumers are not only more likely to purchase a product promoted with a probabilistic free discount over the same product promoted with a sure discount but that they are also likely to purchase more of it. This preference seems to be primarily due to a diminishing sensitivity to the prices. In addition, we find that the zero price effect, transaction cost, and novelty considerations are likely not implicated.

Suggested Citation

  • 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.
    • Handle: RePEc:inm:ormnsc:v:63:y:2017:i:1:p:250-266
    DOI: 10.1287/mnsc.2015.2328
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    1. Le Wang & Paul Benjamin Lowry & Xin (Robert) Luo & Han Li, 2023. "Moving Consumers from Free to Fee in Platform-Based Markets: An Empirical Study of Multiplayer Online Battle Arena Games," Information Systems Research, INFORMS, vol. 34(1), pages 275-296, March.
    2. Li, Wenjing & Hardesty, David M. & Craig, Adam W. & Song, Lei, 2022. "Hidden price promotions: Could retailer price promotions backfire?," Journal of Retailing and Consumer Services, Elsevier, vol. 64(C).
    3. Wu, Xingli & Liao, Huchang, 2021. "Modeling personalized cognition of customers in online shopping," Omega, Elsevier, vol. 104(C).
    4. Silver, Ike & Silverman, Jackie, 2022. "Doing good for (maybe) nothing: How reward uncertainty shapes observer responses to prosocial behavior," Organizational Behavior and Human Decision Processes, Elsevier, vol. 168(C).
    5. Yingdong Tian & Wensheng Yang & Kun Wen & Dawei Zhang, 2023. "Who is better for single and double coupon promotion? Comparison from dual‐channel and two‐period," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2079-2093, June.
    6. Robert Mislavsky & Uri Simonsohn, 2018. "When Risk Is Weird: Unexplained Transaction Features Lower Valuations," Management Science, INFORMS, vol. 64(11), pages 5395-5404, November.
    7. Martin Adam & Konstantin Roethke & Alexander Benlian, 2022. "Gamblified digital product offerings: an experimental study of loot box menu designs," Electronic Markets, Springer;IIM University of St. Gallen, vol. 32(2), pages 971-986, June.
    8. Camilleri, Adrian R. & Dankova, Katarina & Ortiz, Jose M. & Neelim, Ananta, 2023. "Increasing worker motivation using a reward scheme with probabilistic elements," Organizational Behavior and Human Decision Processes, Elsevier, vol. 177(C).
    9. Junjuan Du, 2023. "Impact of project information disclosure on backers' investment intensity in reward-based crowdfunding: Evidence from agri-food crowdfunding in China," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 69(11), pages 427-435.
    10. Aleksandra Kovacheva & Hristina Nikolova, 2024. "Uncertainty marketing tactics: An overview and a unifying framework," Journal of the Academy of Marketing Science, Springer, vol. 52(1), pages 1-22, January.
    11. Tang, Jiansheng & Zhou, Jiamin & Zheng, Chundong & Jiao, Sijing, 2022. "More expectations, more disappointments: Ego depletion in uncertain promotion," Journal of Retailing and Consumer Services, Elsevier, vol. 66(C).
    12. Robert Brooks & Joshua A. Brooks, 2017. "An Option Valuation Framework Based On Arithmetic Brownian Motion: Justification And Implementation Issues," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 40(3), pages 401-427, September.
    13. Junjuan Du, . "Impact of project information disclosure on backers' investment intensity in reward-based crowdfunding: Evidence from agri-food crowdfunding in China," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 0.
    14. Attari, Amin & Chatterjee, Promothesh & Singh, Surendra N., 2022. "Taking a chance for a discount: An investigation into consumers’ choice of probabilistic vs. sure price promotions," Journal of Business Research, Elsevier, vol. 143(C), pages 366-374.
    15. Karl Akbari & Udo Wagner, 2021. "Playing When Paying and What Happens Next: Customer Satisfaction and Word-of-Mouth Intention in Gambled Price Promotions," Schmalenbach Journal of Business Research, Springer, vol. 73(2), pages 243-271, June.

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