Expectation For a Future Deal: Discount Depth, Timing, and Product Availability

Kyoung-Nan Kwon, Michigan State University
David W Schumann, University of Tennessee
Ann Fairhurst, University of Tennessee
EXTENDED ABSTRACT - According to Prospect Theory (Kahneman and Tversky 1979), buyers may not perceive a current price as an absolute financial term, but rather as a gain or loss relative to a reference price(s). A current discounted price can be perceived as Aa good bargain@ when it is compared against the regular price (pre-discounted price). However, if a buyer is preoccupied with the price that is likely to be offered in the future, the current discount offer may not generate as positive an evaluation as was intended. Indeed, the current discount offering may be evaluated negatively in light of the expected future price. It follows that two important questions need to be answered. First, compared to a current discounted price, how influential is an expectation of a future discount, acknowledging a certain level of uncertainty? Second, how will the two opposite reactions (gain and loss) derived from the different price reference points be reflected in the purchase decision? The competitive relationship between current and future reference prices has been relatively little researched in the marketing literature to date. The purpose of our study was to examine the influence of an expectation for a future deal (EFD) on the effectiveness of a current discount. The expectation was examined in terms of future discount depth (EFD depth). The impact of EFD depth was further examined by testing potential moderators (i.e., EFD timing, future product availability, and current discount levels) to gai a more comprehensive picture of how EFD is factored into purchase decisions.
[ to cite ]:
Kyoung-Nan Kwon, David W Schumann, and Ann Fairhurst (2005) ,"Expectation For a Future Deal: Discount Depth, Timing, and Product Availability", in NA - Advances in Consumer Research Volume 32, eds. Geeta Menon and Akshay R. Rao, Duluth, MN : Association for Consumer Research, Pages: 484-484.

Advances in Consumer Research Volume 32, 2005     Page 484

EXPECTATION FOR A FUTURE DEAL: DISCOUNT DEPTH, TIMING, AND PRODUCT AVAILABILITY

Kyoung-Nan Kwon, Michigan State University

David W Schumann, University of Tennessee

Ann Fairhurst, University of Tennessee

EXTENDED ABSTRACT -

According to Prospect Theory (Kahneman and Tversky 1979), buyers may not perceive a current price as an absolute financial term, but rather as a gain or loss relative to a reference price(s). A current discounted price can be perceived as "a good bargain" when it is compared against the regular price (pre-discounted price). However, if a buyer is preoccupied with the price that is likely to be offered in the future, the current discount offer may not generate as positive an evaluation as was intended. Indeed, the current discount offering may be evaluated negatively in light of the expected future price. It follows that two important questions need to be answered. First, compared to a current discounted price, how influential is an expectation of a future discount, acknowledging a certain level of uncertainty? Second, how will the two opposite reactions (gain and loss) derived from the different price reference points be reflected in the purchase decision? The competitive relationship between current and future reference prices has been relatively little researched in the marketing literature to date. The purpose of our study was to examine the influence of an expectation for a future deal (EFD) on the effectiveness of a current discount. The expectation was examined in terms of future discount depth (EFD depth). The impact of EFD depth was further examined by testing potential moderators (i.e., EFD timing, future product availability, and current discount levels) to gai a more comprehensive picture of how EFD is factored into purchase decisions.

We proposed a conceptual model to explore EFD and promotion effectiveness. Promotion effectiveness depends on buyers’ perception of value associated with the purchase. The value of a purchase can be derived in two different forms, transaction value and acquisition value (Thaler 1983), both thought to be antecedents of purchase behavior (Grewal, Monroe and Krishna 1998; Monroe and Chapman 1987; Urbany et al. 1997). Acquisition value is an evaluation of product quality relative to a price paid (i.e., CD). Transaction value is an outcome of a comparison of CD with a reference price, EFD depth. As depicted in the model, the influence of EFD depth on transaction value is expected to be moderated by expectations for timing when the future deal occurs (EFD timing), the likelihood that the product will be available when the future deal is offered (product availability), and CD depth. The relations hypothesized in the model were tested in two experiments.

Respondents for the two studies were recruited from undergraduate classes at a large public American university. They were randomly assigned to the experimental conditions. Respondents were provided with a booklet containing the experimental stimuli and survey questions. This booklet included a scenario depicting a local department store running a sales promotion. Respondents were asked to imagine a hypothetical situation where they were shopping for a semi-formal jacket for themselves. They were informed about CD, EFD depth, EFD timing, and product availability selectively corresponding to the design of each study.

Study 1 contained a 2 (EFD depth: 10% and 40%) x 2 (CD depth: 10% and 40%) x 3 (future product availability: 20%, 50%, and 80%) between-subject design. A MANCOVA with planned contrasts test was conducted with three dependent variables (transaction value, acquisition value, and purchase intention) and three covariates (shopping compulsiveness, sale proneness, and gender). The findings suggest that EFD depth is a key reference price for transaction value, but not for acquisition value. A deeper discount expected in the future is likely to lower the transaction value perception and subsequently purchase intention of the current deal. The effect of EFD depth appears to be greater than the effect of CD depth on purchase intention. A future deal involving uncertainty could have a significant impact on purchase intention, offsetting the positive effect of a current discount. Study 1 also investigated if product availability moderated the extent of the impact of EFD depth. The impact of EFD depth on transaction value and purchase intention appears to be more salient when product availability is high.

A 2 (EFD depth: 10% and 40%) x 4 (EFD timing: 1, 4, 7, and 10 weeks) x 2 (Future product availability information: present and absent) between-subjects design was employed in Study 2. Data were analyzed using a MANCOVA with planned contrasts test as in Study 1. Study 2 examined the influence of EFD timing on the effectiveness of a current price promotion. The influence of EFD timing was investigated in relation to EFD depth and future product availability. We found that the extent to which EFD depth influences transaction value perception appears to be a function of how close a future deal is in time to the present deal. If the EFD is perceived as being a long way off, the shopper is more likely to lose interest in the EFD and be more susceptible to the current deal. The significant effect of future product availability found in Study 1 was further explored. Product availability is not typically provided in numbers as executed in Study 1. We investigated whether the expectation of how likely a certain product will be available in the future is naturally factored in by shoppers when a price change in the future is considered. The overall results suggest that product availability is subsumed in consideration of future deal timing.

The two studies presented in this paper investigated the influence of knowledge of a future deal on the effectiveness of a current price promotion. When consumers have an expectation for a future deal, their response to a current deal can be substantially weakened. Specifically, the reported findings support that expectations for future discount depth change the perception of transaction value and, consequently, purchase intention; this relationship is further moderated by other future deal factors such as deal timing and product availability. The conceptual model proposed was supported overall.

REFERENCES

Grewal, Dhruv, Kent B. Monroe and R. Krishna (1998), "The Effect of Price-Comparison Advertising on Buyers’ Perceptions of Acquisition Value, Transaction Value, and Behavioral Intentions," Journal of Marketing, 62 (April), 46-59.

Kahneman, Daniel and Amos Tversky (1979), "Prospect Theory: An analysis of Decision Under Risk," Econometrica, 47 (March), 263-91.

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