Small Print Versus Large Print: Consumer Evaluations of Different Rebate Ad Formats

Hyeong-Min Kim, University of Michigan
ABSTRACT - Despite the popularity of rebates among manufacturers and consumers, no research has investigated whether or not the presentation format can affect consumer evaluations of the product featured in a rebate ad. Retailers use two different rebate ad formats. One format is to provide price information about rebates by showing both before- and after-rebate prices in large print, and the other is to show only after-rebate price in large print. Two experimental studies were conducted to determine which format was more effective. Consistent with mental accounting principles, the results showed that emphasizing only after-rebate prices was less effective.
[ to cite ]:
Hyeong-Min Kim (2002) ,"Small Print Versus Large Print: Consumer Evaluations of Different Rebate Ad Formats", in NA - Advances in Consumer Research Volume 29, eds. Susan M. Broniarczyk and Kent Nakamoto, Valdosta, GA : Association for Consumer Research, Pages: 149-154.

Advances in Consumer Research Volume 29, 2002     Pages 149-154

SMALL PRINT VERSUS LARGE PRINT: CONSUMER EVALUATIONS OF DIFFERENT REBATE AD FORMATS

Hyeong-Min Kim, University of Michigan

ABSTRACT -

Despite the popularity of rebates among manufacturers and consumers, no research has investigated whether or not the presentation format can affect consumer evaluations of the product featured in a rebate ad. Retailers use two different rebate ad formats. One format is to provide price information about rebates by showing both before- and after-rebate prices in large print, and the other is to show only after-rebate price in large print. Two experimental studies were conducted to determine which format was more effective. Consistent with mental accounting principles, the results showed that emphasizing only after-rebate prices was less effective.

Manufacturers are increasingly depending on sales promotion techniques to boost sales (Folkes and Wheat 1995; Tat, Cunningham, and Babakus 1988; Tat and Schwepker 1998). Among consumer promotion techniques used by consumer goods companies, rebates rank as the second most popular technique next to coupons, and the success of rebates is due to growing consumers’ acceptance (Tat and Schwepker 1998). The primary goal of rebate ads is to inform consumers of current rebate programs for merchandise so that consumers can realize that they can save money if they will purchase the merchandise from the advertiser during the rebate period. Therefore, the key element of rebate advertisements is price-related information.

Despite the importance and popularity of rebates among both consumers and manufacturers, to my knowledge, no research has systematically examined how consumers process rebate information presented in different rebate ad formats, and whether or not different ways of presenting rebate information can influence purchase intentions. The lack of research in this area becomes apparent when one casually examines the different rebate ad formats chosen by retailers. Three formats of rebate advertisements can be identified based on how rebate-related price information is presented. One way to present rebate information is to emphasize only the after-rebate price. In this format, the after-rebate price is presented in a large print size, and the before-rebate price and the rebate amount appear in a much smaller print size. Presumably, the rationale behind this format is that the seemingly low after-rebate price can draw consumers’ attention. It has been shown that consumers’ behavior associated with the Internet browsing and paging through print ads is often times more stimulus-driven than planned (Janiszewski 1998). Therefore, as numerous studies on consumer visual attention have shown (e.g., Janiszewski 1998), it seems to make sense to emphasize only the after-rebate price to catch consumers’ attention. However, the effectiveness of this format remains to be tested because if the consumer is interested in buying the product featured in such a format, she will soon realize that the low price is just the after-rebate price. A second way of presenting rebate advertisements is not to emphasize only the after-rebate information: In this format, all the pieces of price information (i.e., before- and after-rebate prices and the rebate amount) are presented in an equally visible manner. A third format is to present only the rebate amount to consumers without showing the regular price of merchandise. This format is often used in TV commercials, manufacturers’ Web sites, and store displays, but not much used in print advertisements and on-line stores’ Web sites. Research has shown that the format chosen to present price information can significantly affect perceived savings of a transaction, which, in turn, can influence purchase behaviors (Della Bitta, Monroe, and McGinnis 1981). Yet, advertisers do not seem to know which of the aforementioned three rebate ad formats is the most effective. For example, one nation-wide retail chain store routinely uses the first two formats even on the same page of its print ads. Because the third format (the one that provides only the rebate amount) is not often used in print ads and on-line stores’ Web sites, it is not considered in this research. Using principles of prospect theory and mental accounting, the present study seeks to answer the following two questions,. Is there a significant difference in the effectiveness of the two different rebate ad formats? If one is more effective than the other, what are the underlying mechanisms that lead to the difference?

BACKGROUND

Only a few studies have investigated issues related to rebates. Jolson, Wiener, and Rosecky (1987) found that occasional rebate users could be more valuable to the sellers because they are less likely to mail in the rebate application. Folkes and Wheat (1995) showed that consumers’ price perceptions were lowered to a greater extent when the same product was offered in the context of a sale or with a coupon than in the context of a rebate because a rebate requires some effort to redeem the savings and the savings from a rebate will not be received at the time of a transaction. Tat and his colleagues examined consumers’ perceptions of rebates and motives for using and redeeming rebates, and identified price consciousness, time and effort associated with rebate redemption, and satisfaction from using rebates to obtain savings as the key elements in utilizing a rebate program (Tat 1994; Tat, Cunningham, and Babakus 1988; Tat and Schwepker 1998).

Rebate ads can be categorized as a special and rather interesting case of comparative price ads. Comparative price ads refer to ads using comparisons of some form of a selling price to a higher advertised reference price (see Compeau and Grewal 1998 for a recent review). Fr example, retailers frequently list the manufacturer’s suggested retail price (MSRP) of an item, which is higher than the selling price, thus giving an illusion of a good deal. The implication of comparative price advertising is that this deal-oriented pricing strategy can enhance consumers’ perceptions of the transaction value (Grewal, Monroe, and Krishnan 1998). The total value or utility of a transaction can be decomposed into two parts: acquisition value and transaction value. Acquisition value is determined by the value of the good received compared to the economic outlay (Thaler 1985), and, in essence, refers to the product’s quality (Zeithaml 1988). Transaction value depends on the perceived merits of the deal in terms of money spent (Thaler 1985). In other words, the bigger the difference between the actual price paid and some reference price, the greater the transaction value of a deal. There are two types of reference prices: internal and external reference prices (cf., Biswas and Blair 1991). Internal reference prices are those stored in consumers’ memory, and consumers can sometimes have a solid internal reference price for an item. For example, consumers should have a good idea about the price of an item that they frequently purchase (e.g., price of a cup of coffee at their favorite cafT). However, most of time, consumers do not have clear internal reference prices (e.g., how much is an electric violin?) and in that case consumers’ internal reference prices can change when they receive external reference prices (e.g., competitor’s price) provided by advertising (Della Bitta, Monroe, and McGinnis 1981). Therefore, advertised reference prices in deal-oriented ads can pull up consumers’ internal reference prices (Berkowitz and Walton 1980; Grewal, Monroe, and Krishnan 1998; Lichtenstein and Bearden 1989; Urbany, Bearden, and Weilbacker 1988). These inflated internal reference prices, when contrasted with the lower offering price, lead to a higher perceived transaction value. The enhanced transaction value, in turn, positively affects the acquisition value of the product, and as a result consumers become more likely to purchase it (Grewal, Monroe, and Krishnan 1998).

As in comparative price ads, rebate ads allow consumers to explicitly compare two prices: the before- and after-rebate prices. But, rebate ads are different from ordinary comparative ads in a sense that they involve comparisons of prices of the same seller at a given time. In addition, since the savings from rebates are not materialized at the time of the transaction (Folkes and Wheat 1995), consumer responses to rebate ads may be different from their responses to ordinary comparative pricing ads.

STUDY 1

Conceptual Background

As noted earlier, two different formats of rebate ads are widely used. One way of presenting rebate ads is to provide the price information of rebates by showing regular price, after-rebate price, and the rebate amount in equally large prints. The other format is to show only the after-rebate price in very large print. In this case, the regular price and the rebate amount are shown in fine print so that consumers will pay attention to the much lowered after-rebate price before they attempt to read the fine print. What will happen in consumers’ minds when they process price-related information presented in those twodifferent formats? Using principles of mental accounting, we can predict which of the two formats will result in a higher perceived transaction value, and, thus, understand which one is more effective.

Prospect theory (Kahneman and Tversky 1979) argues that a loss looms larger than the equivalent amount of gain because the slope of people’s value function is steeper in the loss domain than in the gain domain (i.e., losing $50 has more impact on one’s value than does gaining $50). Based on prospect theory, Thaler (1985) proposed four metal accounting principles to explain how people maximize utility of joint events. Suppose two monetary outcomes (x, y), x>0, y>0. The outcomes (x, y) could be jointly valued as an integration of v(x + y), where v is a value function, or (x, y) could be coded into separate mental accounts as v(x) + v(y). For instance, suppose that a computer dealer buys a computer for $2,000 and sells it for $2,500. If these two events are stored in a single mental account, the dealer will experience the two events as a net gain of $500. If the events are stored in separate mental accounts, the dealer will experience a loss of $2,000 and a gain of $2,500. The value of the two events is determined by whether they are mentally integrated or separated before being subjectively evaluated by the prospect theory value function. Depending on the magnitude and sign of two events, x and y, four possible combinations can be considered: (1) multiple gains (x, y), (2) mixed gains (x, -y), where x>y, (3) multiple losses (-x, -y), and (4) mixed losses (x, -y), where x<y. According to mental accounting principles for maximizing value, it is better to segregate multiple gains and mixed losses, and to integrate multiple losses and mixed gains (see Thaler 1985; Thaler and Johnson 1990 for more discussion). These principles have been empirically supported (e.g., Heath, Chatterjee, and France 1995; Linville and Fischer 1991; Mazumdar and Jun 1993; Thaler 1985; Thaler and Johnson 1990). [It has been shown that when two events are temporally separated (i.e., one event occurs today, and another occurs one week later), mental accounting principles do not hold (Linville and Fischer 1991; Thaler and Johnson 1990). For example, people often prefer having two losses occurring on different days, which is a violation of mental accounting principles. However, temporal separation adds psychological processes beyond Thaler=s original mental accounting principles based on prospect theory. For example, people=s psychological resources to cope with losses can be renewed over time (Linville and Fischer 1991).]

Let’s consider a case of multiple losses, which is relevant to the present study. Suppose the following two scenarios: (1) Mr. A received a letter from IRS saying that he made a mistake on his tax return and now owed $100. He received a similar letter on the same day saying that he owed $50, and (2) Mr. B received a letter from IRS saying that he made a mistake and owed $150. Previous research showed that people thought that Mr. A was more upset than Mr. B. This indicates that v(-150)>v(-50) + v(-100), thus satisfying the principle of integrating losses. Now, consider the two rebate ads, Ad 1 and Ad 2 in Figure 1. As can be seen in Figure 1, the two ads are identical except the way rebate information is presented in each advertisement. What would be a typical sequence of consumer responses to Ad 1? Since rebate information is presented in fine print, it would be reasonable to assume that most consumers will look at the $1,399 price before they notice the information in fine print (Muehling and Kolbe 1997). Therefore, a typical sequence of consumer responses to Ad 1 would be as follows: (1) "I would have to pay $1,399," (2) "Urrit is an after-rebate price, and I would have to pay additional $400," and (3) "I would receive a $400 rebate check later". This sequence can be expressed as the transaction value of v(Ad 1)=v(-1,399) + v(-400) + v(400). Since all the pieces of rebate-related price information are presented in equally large print in Ad 2, it would be reasonable to assume that most consumers will process price-related information from top to bottom. Therefore, a typical sequence of consumer responses to Ad 2 would be (1) "I would have to pay $1,799 initially," and (2) "I would receive a $400 rebate check later". This sequence can be expressed as the transaction utility of v(Ad 2)=v(-1,799) + v(400). Now, let us find which of v(Ad 1) and v(Ad 2) has a greater perceived transaction value. The answer is not apparent because the term v(400), which is the rebate amount, is temporally separated from the other value terms. In other words, the saving of $400 will be realized 4 o 6 weeks later if consumers bother to fill out the rebate application and mail it in. Folkes and Wheat (1995) found that consumers do not seem to incorporate the rebate amount in assessing transaction value. Thus, we can ignore the term v(400) from v(Ad 1) and v(Ad 2) to ascertain perceived transaction value that each advertisement induces. It follows that the transaction value induced by each ad can now be expressed as v(Ad 1)=v(-1,399) + v(-400), and v(Ad 2)=v(-1,799). Now, it is easy to predict that v(Ad 2) is greater than v(Ad 1) according to the "integration of losses" principle of mental accounting. [Even if consumers do incorporate the rebate amount, the rebate term is the same in both equations and thus cannot contribute to any response differences.] Thus, I expect that Ad 2 will be more effective than Ad 1.

Method

The goal of Study 1 was to test whether the rebate ad that did not emphasize only the after-rebate price (Ad 2) was more effective than the rebate ad that emphasized only the after-rebate price (Ad 1). The stimuli used were Ad 1 and Ad 2 in Figure 1. Twenty-two graduate students and nine graduates of a U. S. university voluntarily participated in this experiment. They were randomly assigned to small group sessions in a simple one factor with two levels (Ad 1 vs. Ad 2) between-subjects design. Subjects received a booklet that contained either Ad 1 or Ad 2, and the background and dependent measures. Subjects first completed the background measures. They provided demographics, and indicated their familiarity of notebook PCs [1=not familiar at all; 7=very familiar], overall attitude toward IBM, whether they shopped for a notebook PC during the last six months, and whether they bought products that offered rebates before. Subjects, then, looked at the print rebate advertisement, and completed the dependent measures: (1) Subjects’ attitudes toward the ad were measured on a seven-point scale ("How much do you like the ad?" [1=not at all; 7=very much]), and (2) Purchase intentions were measured [1=very unlikely; 7=very likely]. Finally, subjects were asked to recall the contents of the advertisement without looking at it, and they were asked to guess the purpose of the study.

FIGURE 1

Results

Attitude and Purchase Intentions. Subjects’ attitudes toward the ad and purchase intentions were analyzed using an independent-samples t-test. A t-test on attitudes yielded a significant difference between the two conditions (t(29)=-2.20, p<.036). Subjects who saw Ad 2 reported more favorable attitudes toward the ad than did subjects who saw Ad 1 (Ms=5.06 versus 4.07). A t-test on purchase intentions revealed that subjects who saw Ad 2 reported marginally higher purchase intentions than did subjects who saw Ad 1 (Ms=3.75 versus 2.93; t(29)=-1.67, p<.106). These results confirmed the prediction that Ad 2 is more effective than Ad 1 because of the "integration of losses" principle of metal accounting.

Manipulation and Confound Checks. All subjects remembered the contents of the advertisement that they saw. No subject correctly guessed the real purpose of this study, and none of the background demographic variables, subjects’ evaluations of IBM in general,and their previous experience with rebates significantly co-varied with the dependent measures.

Discussion

Table 1 presents the results of Study 1. As predicted, the rebate advertisement that emphasizesd only the after-rebate price was less effective than the rebate advertisement in which all price-related information was readily visible. It seems that subjects processed rebate information according to the integration of losses principle. The format used in Ad 1 made subjects realize that they would have to pay $1,399 only to find that they would need to pay additional $400, whereas the format used in Ad 2 unambiguously informed that subjects would have to pay $1,799. Although both Ad 1 and Ad 2 contained exactly the same information, due to the difference in the formats subjects reported more favorable attitudes toward Ad 2 and higher purchase intentions for Ad 2 versus Ad 1.

STUDY 2

Study 2 was conducted to further investigate the role of mental accounting in evaluating the two different rebate advertisement formats. The goal of Study 2 was (1) to test if the results of Study 1 were robust, and (2) to see whether the same results could be obtained when the rebate amount was relatively small.

Method

Pretest. A pretest was conducted to choose the best possible product featured in the advertisement. Seventeen graduate students of a U.S. university voluntarily participated. They were asked whether they had seen a rebate advertisement for the following eight products: VCR, CD player, MP3 player, TV, calculator, notebook PC, cellular phone, and PDA. None of them indicated that they had seen rebate advertisements for a calculator. Thus, a calculator was chose as the featured product to avoid any confounding effects of previous exposure to a similar advertisement. Subjects also provided their attitudes toward eight companies (e.g., Sony) that could market the aforementioned eight products on a seven-point scale. Sharp was rated as neither favorable nor unfavorable (M=3.29), and was chosen as the company.

TABLE 1

SUMMARY RESULTS FOR STUDY 1

FIGURE 2

Stimuli. Four different fictitious rebate advertisements were prepared for Study 2.

As Figure 2 shows, Ad 2.1 and Ad 2.2 differed only in the format in which rebate-related price information was presented. In this set of advertisements, the rebate amount was relatively large compared to the regular price (large amount condition). Another set of rebate advertisements was prepared. Ad 2.3 was identical to Ad 2.1, and Ad 2.4 was identical to Ad 2.2 except that in both Ad 2.3 and Ad 2.4 the rebate amount was $5 (small amount condition).

Subjects. One hundred and one undergraduate students who enrolled in an introductory marketing course at a U.S. university participated in the study for partial course credit. They participated in small group sessions and randomly received a booklet that contained one of the four rebate advertisements. Two subjects did not follow the instruction, and their responses were discarded.

Procedure ad Variables. The experiment procedure was similar to that of Study 1. Subjects provided background information and their attitudes toward Sharp before looking at the advertisement. Then, they read a cover story saying that they were looking for a calculator to do well on an exam and came across an advertisement for a calculator on a Sunday newspaper. After looking at the rebate advertisement, subjects provided attitudes toward the product and the advertisement, and purchase intentions on two seven-point scales. These scale items were averaged to form an index for each dependent measure (in large amount condition, a’s=.94, .93, and .94, for Aproduct, Aad, and purchase intention, respectively; in small amount condition, a’s=.92, .97, and .80, for Aproduct, Aad, and purchase intention, respectively). They also reported the perceived savings on a seven-point scale ("How much can you save if you buy the product from the advertiser? [1=not at all; 7=very much]). Finally, subjects reported perceived magnitude of the rebate amount on a seven-point scale ("How large is the rebate amount? [1=not large at all; 7=very large]), and were asked to guess the purpose of the study.

Results

Large Rebate Amount. The results of the large rebate amount condition (i.e., Ad 2.1 and Ad 2.2) replicated the findings of Study 1. Subjects who were exposed to Ad 2.2 reported significantly more favorable attitudes toward the product and the advertisement, and significantly higher purchase intentions than did subjects who saw Ad 2.1 (for Aproduct, t(56)=-4.86, p<.001, Ms=4.71 versus 2.77; for Aad, t(56)=-3.93, p<.001, Ms=4.36 versus 2.92; for purchase intention, t(56)=-2.79, p<.007, Ms=4.18 versus 3.03). The difference in perceived savings induced by Ad 2.1 and Ad 2.2 was marginally significant (t(56)=-1.66, p<.10, M(Ad 2.2)=4.75 versus M(Ad 2.1)=4.23).

TABLE 2

SUMMARY RESULTS FOR STUDY 2

Small Rebate Amount. The subjects in the small rebate amount condition were not affected by different rebate advertisement formats. Responses of subjects exposed to Ad 2.4 did not significantly differ from those of subjects exposed to Ad 2.3 (all ps>.30).

Manipulation and Confound Checks. Subjects in the large amount condition reported significantly larger perceived magnitude of the rebate amount and perceived savings than subjects in the other condition (for magnitude, t(97)=9.16, p<.001, Ms=5.19 versus 3.15; for savings, t(97)=5.09, p<.001, Ms=4.48 versus 3.24). None of the demographic measures, previous experience with rebates, and general attitude toward Sharp significantly co-varied with dependent measures.

Discussion.

Consistent with the prediction based on mental accounting principles, it was shown that Ad 2.1 was less effective than Ad 2.2. That is, v(-39.99)>v(-19.99) + v(-20). However, when the rebate amount was relatively small, subjects’ evaluations were not affected by different formats: v(-24.99) did not differ from v(-19.99)+ v(-5). The reason might be that v(-5) was too small to have any significant effects on subjects’ responses.

GENERAL DISCUSSION

The present study extended mental accounting principles to consumer evaluations of different rebate advertisement formats, and showed that even when two ads provide the same information, consumers’ perceived transaction utility can differ depending on the format. This study also filled the void in rebate research. Study 1 showed that the rebate advertisement format that emphasized only the after-rebate price was less effective than the other format in which all pieces of the price-related information of a rebate were visibly presented. Study 2 further showed that the results obtained in Study 1 were robust when the rebate amount was substantial.

The use of student subjects in this research should not be an issue because students represent a consumer group who frequently buys a notebook PC or a calculator. One limitation of the present study is that no information of the advertiser was provided. Store reputation can influence consumer evaluations of price information in retail advertisements (Campbell 1999). Therefore, it would be interesting to see if a store’s reputation could affect consumer responses to different rebate advertisement formats. Another interesting possibility that was not examined in this study is the possible effect of subjects’ feelings. It may be reasonable to argue that Ad 1, Ad 2.1, and Ad 2.3 were rather misleading at a glance compared with the other advertisements used in this study. If that is the case, subjects’ negative feelings could have affected their responses (cf., Schwarz, Bless, and Bohner 1991). It would be interesting to examine whether such feelings will have an impact on consumer evaluations of different rebate advertisement formats beyond the effect of mental accounting principles if subjects indeed found some of the rebate advertisements misleading. In addition, subjects’ prior knowledge about prices might be a factor that influences the relative effectiveness of ad formats.

This study showed that despite its widespread use by many retailers, the rebate advertisement format that emphasizes only the after-rebate price has no advantage over the other format that clearly presents all the price-related information to consumers. Compared with the latter format, the former format can result in much unfavorable consumer attitudes and lower purchase intentions. This study provides some initial insight into how retailers should present rebate information to consumers. Future studies might want to investigate a possible impact of feelings of deception on consumer evaluations of rebate advertisements, or the role of store reputation in consumer perceptions of rebate advertisements.

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