An Experimental Technique For Exploring the Psychological Mechanisms of the Effects of Price Promotions

ABSTRACT - While a number of interesting psychological mechanisms of the effects of price promotions have been proposed, investigation of these mechanisms has been held back by the difficulty and expense of doing research in real world situations. This paper describes a flexible and inexpensive laboratory technique which would make practical the experimental study of a wide variety of hypotheses concerning how price promotions act on the decision processes of the consumer.

Citation:

Robert M. Schindler and Stacy E. Rothaus (1985) ,"An Experimental Technique For Exploring the Psychological Mechanisms of the Effects of Price Promotions", in NA - Advances in Consumer Research Volume 12, eds. Elizabeth C. Hirschman and Moris B. Holbrook, Provo, UT : Association for Consumer Research, Pages: 133-137.

Advances in Consumer Research Volume 12, 1985      Pages 133-137

AN EXPERIMENTAL TECHNIQUE FOR EXPLORING THE PSYCHOLOGICAL MECHANISMS OF THE EFFECTS OF PRICE PROMOTIONS

Robert M. Schindler, University of Chicago

Stacy E. Rothaus, Beecham Products

[This research was supported by a grant from Northeastern University's Research and Scholarship Development Fund. The authors would also like to express appreciation to the Milton Bradley Company for its help in the development of the supermarket shopping game.]

ABSTRACT -

While a number of interesting psychological mechanisms of the effects of price promotions have been proposed, investigation of these mechanisms has been held back by the difficulty and expense of doing research in real world situations. This paper describes a flexible and inexpensive laboratory technique which would make practical the experimental study of a wide variety of hypotheses concerning how price promotions act on the decision processes of the consumer.

INTRODUCTION

A number of frequently used sales promotions involve giving the consumer a certain amount off the price of a product. The discount may be given by having the item 'on sale", through the use of a cents-off coupon, or by returning part of the purchase price through a rebate. There is ample evidence both in the trade press (e.g. Abrams 1980) and the academic literature (e.g. Massy and Frank 1965; Nakanishi 1973; Sunoo and Lin 1978) that price promotions can serve to powerfully stimulate consumer sales, at least in the short run. However, for a manager to be able to make optimum decisions about the timing, frequency, target, form, etc. of price promotions, he or she must have an understanding of just how a price promotion affects the decision processes of the consumer to cause a greater likelihood of purchase.

To some, the psychological mechanism of price-off promotions is obvious: when you reduce a price, consumers become more likely to buy. However, there is evidence that a price promotion can cause far more sales stimulation than a simple reduction in price (McCann 1974; Cotton and Babb 1978). For example, Cotton and Babb used diary panel data to measure the sales effects of a set of price promotions whose average discount was 15%. While the price elasticities for these products (from previous studies) indicated that a 15% price reduction should cause a 3% to 25% sales increase, the price promotions yielded sales increases which were much larger, ranging from 20% to 400%.

It is not at all clear what is it about fashioning a price decrease into the form of a price promotion that gives the decrease added effectiveness. However, there have been a number of interesting suggestions. Kotler (1980) has proposed that sales promotions (1) gain consumer attention, (2) provide an incentive to buy, and (3) include 'a distinct invitation to engage in the transaction now." Beem and Shaffer (1980) suggest that promotions may be a more effective way to overcome "customer entropy" than an equivalent decrease in everyday prices. Thaler ( 1983 ) suggests that a price promotion may increase the total utility of a purchase by increasing the pleasure associated with the transaction. Gardner and Strang (1984) present the possibility that a price promotion might evoke in the consumer a "script", or stereotyped sequence of steps, which may often lead to a purchase.

Empirical research on these hypotheses, and the others that could be formulated, would be of both theoretical interest and managerial importance. However, an attempt to begin such research in the real commercial environment would run up against the fact that it would be quite difficult and expensive to find or create appropriate test situations. For example, to rigorously test the role of, say, transaction pleasure in causing price promotion effects, it would be necessary to make a controlled comparison between a price promotion and a simple price decrease. Since a situation where one group of consumers is offered a price promotion while an equivalent group of consumers is offered the same discount in the form of a simple price reduction rarely occurs naturally, considerable effort and expense would be required to create such a situation.

Further, the cost and difficulty of doing real world price promotion research may cause attempts to begin with such research to do so at the expense of the development of theory. For example, since theoretical justification is usually required of an application for research support, the researcher may be led to prematurely spell out a theory, and perhaps come to feel committed to it, just so as to be able to begin to submit the theory to empirical test. Or, a researcher might find him- or herself hanging on to a theory longer than the evidence would warrant simply because of the difficulty involved in trying out some other hypotheses. Or, the researcher, perhaps understandably, may choose research topics based on the relative ease of finding certain real world situations, but thus be led away from the systematic program of research which will be necessary to gain a real understanding of the mechanisms of price promotions.

In short, there is a need for a technique for doing exploratory research on price promotion mechanisms. This technique should be readily available and inexpensive, should make possible the testing of some basic elements of theory under controlled conditions, and should enable the preliminary testing of a wide range of hypothesized mechanisms.

We propose such a technique in this paper. The basis of this technique is the assumption that a price promotion affects the consumer by acting on basic mental processes common to all decisions. Under this assumption, the particular decision used to study price promotion effects should not be of critical importance. As long as there is more than one plausible alternative, and the decision-maker cares about the outcome, then there would be enough of the basic decision processes present _o be able to demonstrate and study price promotion effects.

The technique we propose involves having people make decisions in a laboratory situation where the available information and decision alternatives can be easily and inexpensively controlled. However, we felt it would be inadequate to have the people make decisions about a hypothetical situation. When asked what they would do in a situation. people tend to he influenced by their theories of their own behavior, which are often incorrect (Nisbett and Wilson 1977), or by their perception of how the researcher would like them to respond (Orne 1962). In order for the decision processes to be sufficiently realistic, the decision-maker must have some personal stake in the outcome of his or her choice.

Our solution to the problem of how to have both the control and convenience of decisions in a laboratory setting but still have the decision-maker care about the outcome, was to embed the decisions in the context of a game. Each player of the game is in competition against one other player for a cash prize. The winner of the game is determined by how each player makes a series of choices concerning prices and brands of items in commonly purchased product categories. The rules of the game are explicit and simple enough that the players can become quickly involved in the game and strive to make the decisions that will maximize their chances of winning the prize. At the same time, the structure of the game makes it easy to take the choices made by a group of players who must use a price promotion to get a certain brand for a low price and compare them with the choices made by another group of players for whom the brand is regularly sold at that low price.

Thus, this game technique is well-suited to the exploratory phase of research on the mechanisms of price promotion effects. It enables a large number of real decisions to be studied conveniently, inexpensively, and with rigorous experimental methods. under the assumption that price promotions act on basic processes common to all human decisions, this laboratory technique can be used to test a wide range of hypothesized psychological mechanisms of price promotion effects. The tentative theory which would result from these studies could then be applied to real world business situations and be modified appropriately.

The remainder of this paper is a description and discussion of an initial test of this game technique. The test involved constructing a game appropriate for studying cents-off coupons, a form of price promotion which has been rapidly increasing in popularity (Bowman 1980). The goal of the test was to use the game technique to bring the coupon effect (the ability of cents-off coupons to cause a greater short-run sales increase than the equivalent reduction in price) into the laboratory.

The design of the particular implementation of the game technique which we used for this test was guided by our efforts to have the game involve as many plausible mechanisms for the coupon effect as possible. As long as we were reliably able to obtain the coupon effect under laboratory conditions, it would be relatively easy to test each plausible mechanism in later research. In the next section we describe, in detail, the game we constructed, and the subjects who served as players in the first test.

METHOD

Materials

When two players sat down to play the "supermarket shopping game," they received a box which contained all the materials necessary for play. Inside the box were two envelopes and an amount of loose play money in various denominations of bills and coins. When each player took an envelope, the box containing the loose play money was placed between the two players and became "the cash register." Each of the two envelopes contained the following:

one price list

one pack of shopping lists

$100 in play money

Five sheets of coupons

one questionnaire

The price list showed the names and prices of five alternative brands in each of 12 product categories and served in the game as the "supermarket." The 12 product categories were selected from among consumer packaged goods frequently purchased at supermarkets. the five brands chosen for each category were those national brands that a small survey indicated were given the most shelf space in the local supermarkets. The prices listed were modified only slightly from the actual prices of those products at the time of the survey. The goals of the modifications were to separate brands which had the same price and to insure that the difference between the highest and lowest priced brand in a product category was less than 25 cents The product categories were listed in alphabetical order, and the five brands within a product category were listed in a random order.

The pack of shopping lists consisted of eight lists stapled together. Each list corresponded to a "weekly shopping trip" and named six product categories in which purchases were to be made on that trip. Thus, over the course of the game, each player had to make 48 brand choices. There was space on each shopping list for the player to write the name of each brand he or she had chosen and the price he or she had paid for the brand. At the bottom of the list was a line under which the players wrote the total cost of the six purchases made during the shopping trip. Bach shopping list contained a different set of six product categories with the constraint that over the eight shopping lists, each product category was listed exactly four times and that no product category would occur more than once on one list. The lists were in a different random order in each pack.

Each player's allotment of $100 in play money was given in the following denominations: two 20's, four 10's, three 5's, three 1'S, two SO cent pieces, and four quarters.

Bach of the five sheets of coupons included in each envelope contained four coupons for the same brand. If the sheet were folded in half lengthwise and widthwise and then torn along each of the folds, the four coupons could be separated. Thus, "clipping" the coupons required some effort, but was certainly not difficult.

The questionnaire, which was filled out after the game was over, asked players to estimate how much supermarket shopping they do in an average week, and then asked for some demographic information.

Note that, except for the order of the eight shopping lists in the pack, the contents of the two envelopes in any one game box were identical.

Design

In order to give the processes of choosing a brand in the game some of the complexity of real consumer decisions, both the price aspects and the benefit aspects of the alternative brands were made to be relevant to winning the game. To accomplish this, an objective measure of a benefit aspect of the brands was needed. This was obtained by constructing a form like the price list but with blank spaces instead of prices after each brand name. These forms were given to approximately 120 people, drawn from the same population as that of the players of the game in this test, who were asked to rank each of the five brands in a product category according to its subjective utility, or perceived "quality". These rankings were tabulated to yield the group's perception of the one highest quality brand and the one lowest quality brand in each category.

For the players, the object of the game was to make their 48 brand selections so as to spend the least amount of money. The opponent who spent the least amount of the play money used as currency in the game won real money: a $5 cash prize. Thus, the listed brand prices were relevant to brand selection. However, the players also had to consider brand quality since they would receive an additional 25 cents for each highest quality brand they chose, but would have to pay an additional 25 cents for each lowest quality brand they chose (they neither received nor paid any extra amount when they chose one of the three brands in a product category which were neither highest nor lowest quality). The players were told how the brand quality ratings were arrived at, but were not told which were the highest or lowest quality brands. Thus, in the game, as is so often the case in real consumer decisions, price information was concrete and immediately available; but the information on the benefit aspect of the alternatives required some estimation and judgment.

Of course, using this measure of brand benefit involved an element of unrealism. In real decisions, the consumer weighs the price of a brand against his or her own perception of its quality. But in the game, the players had to weigh price against the quality perceptions of other people . There were two reasons why this was not felt to be a serious problem. First, pilot testing indicated that players typically approached the task of judging how a brand had been rated by first determining their own perceptions of the brand and then adjusting for how they felt they may differ from the people around them. Thus, their own perceptions played a major role in their assessment of the perceptions of others. But, second, the use of the game technique rests on the assumption that price promotions act on mental processes common to all human decisions. Under this assumption, the mechanisms of the effects of cents-off coupons should not depend critically on the particular benefit aspect the players considered. The players were making real human decisions in the game since they chose between plausible alternatives and had a stake in the outcome.

The game in this test existed in two versions. Half of a game's players played Version A, while the other half played version B. The only differences between Versions A and B of a game involved the ten brands that had the potential of being couponed, which will be from here on referred to as the "critical brands". Each of ten product categories contained one critical brand. The coffee and toothpaste categories did not contain a critical brand, but served as "dummy" product categories which were included to prevent the proportion of couponed brands from becoming overly large. The critical brands were chosen so that four were highest quality brands in their product categories, four were lowest quality brands, and two were brands which were neither highest nor lowest quality in their categories.

Each game contained coupon sheets for five brands. Five of the critical brands were couponed in version A games, and the other five critical brands were couponed in version B games (see Table 1). The value of the coupons for a critical brand was chosen so that, with the use of the coupon, the price for that brand became the lowest in the product category. Within that constraint, an attempt was made to make the game coupons reflect the actual values of manufacturers' coupons in recent Years (Bowman 1980).

TABLE 1

THE TEN CRITICAL BRANDS

As can be seen in Table 2, the prices of the critical brands in game Versions A and B were set to allow the comparison of a brand's sales when a cents-off coupon was available with its sales when offered at the equivalent low price. While the players of version A games needed to redeem coupons to get Chips Ahoy, Tide, Golden Griddle, Promise, and Ragu Homestyle at the lowest prices in their categories, the players of version B games found those brands listed at that lowest price. And, while the players of version B games needed their coupons to get Post Raisin Bran, Dawn, Sunlite, Chicken of the Sea, and Sweet 'N Low at the lowest prices in their categories, the players of Version A games found those brands listed at that lowest price. Thus, while each critical brand was always available at its low price, half of the players saw it in its 'couponed form' and had to use a coupon to get the low price; the other half saw it in its "control form", where it was listed at the low price.

TABLE 2

LIST OF ALTERNATIVE BRANDS AND PRICES USED IN VERSIONS A AND B

Subjects

A total of 72 Northeastern University students and staff were recruited by advertisement to serve as players in this test of the game technique. The participants received $3 just for playing. The 36 players who won their games received an additional $5.

Fifty-eight percent of the players were male, and 876 were between the ages of 18 and 22. Seventy-six percent of the players indicated that they do at least some supermarket shopping each week, and 25% reported that they purchased over $20 worth of supermarket products in an average week.

Description of Game Play

When a group of players was assembled, they were told that they were about to play a supermarket shopping game (which was part of a consumer behavior experiment) and were instructed to choose an opponent. Half of the pairs of opponents were given a box containing the A Version of the game and the other half were given a box containing the B Version of the game. Each player took one of the two envelopes inside the box. Then the contents of the envelope was inventoried in order to familiarize the players with the game materials and to allow each player to confirm that he or she was starting with the full play money allotment of 5100. At that point, the rules of the game were explained:

"The object of the game is to purchase all of the items on your shopping list and have as much money as possible left over at the end of the game. Whoever (of the two of you) has the most play money left over at the end of the game wins the prize of $5, real money.

Of course this means you'll want to pay attention to the price of each brand you buy. However, it is also necessary to take quality into account. In this game, the quality of a brand is defined as how 120 people like yourselves rated each brand on a list which did not include the prices. Based on these ratings, there is one brand in each product category which is the highest quality and one brand which is the lowest quality. For each highest quality brand you buy, you will receive 25 cents (which corresponds to the pleasure of using a high quality product). For each lowest quality brand you buy, you will have to pay 25 cents (which corresponds to the problems of using a low quality product). These adjustments will be made after you have completed your shopping trips and they may greatly alter the amount of money you have left over.

Thus, you must take both price and quality into account in each brand choice you make. However, while you know the prices, you'll have to use your intuitions to assess quality.

When the game begins, one of you will be the "shopper" and the other will be the "cashier". The shopper will select a brand of the first product on this week's shopping list and write the brand name and the price paid on the shopping list next to the product name. If the shopper chooses to use a coupon, he or she will subtract the value of the coupon from the listed price to get the price he or she will actually pay, and will write that price on the shopping list. When the shopper has purchased all six products on this week's list, the cashier will add up the amount the shopper has spent (we will loan you a calculator if necessary). The cashier will then collect the money from the shopper, and will collect any coupons the shopper may have used. The cashier will put the money in the cash register, and make change from the cash register if necessary.

At this point, the roles will reverse, and the former cashier will now have a chance to shop and the former shopper will become the cashier. Continue in this way until both of you have completed all eight shopping lists. Then call one of us over and we will make the adjustments for quality and then give the $5 prize to the player who has the most money remaining. Remember, both the price and the quality of the brands you choose will affect whether you win or not.

Also, remember that one, but only one of the two of you will win the $5 prize. Sometimes the results are very close, so it is in your interest to make the best choice you can for every purchase."

It was clear from watching the games being played that most players got caught up in the competition and cared about whether they won or lost. Also, informal post-game questioning failed to indicate any players who had correctly surmised the purpose of the experiment.

RESULTS

While the players were exposed to coupon promotions for only five of the 60 available brands, they showed an average redemption rate of approximately 34%. [It is impossible to report the exact redemption rate in the game because the players occasionally made errors when recording the price they paid for a brand.] This redemption rate is considerably higher than that observed in real world coupon promotions; even in-pack coupons show a redemption rate of only 18.4% ("Coupon Distribution and Redemption Patterns" 1982). However, this high redemption rate does not appear to be due to a large number of players reflexively using coupons and ignoring the other factors in the decision. Seventy-one percent of the players redeemed fewer than half of the coupons available to them, and no player used more than 858 of the available coupons.

To determine if the cents-off coupons in this game were more effective in influencing choice than the equivalent low price, two probabilities were computed for each player. One was the probability of the player choosing one of those five critical brands which he or she saw in their couponed form, and the other was the probability of the player choosing one of those five critical brands which he or she saw in their control form. Since half of the players played Version A of the game and the other half played Version 8, each of the ten critical brands appeared in its couponed form as often as it appeared control form. Thus, the mean probability of all 72 players selecting critical brands seen in their couponed form can be compared to the mean probability of the 72 players selecting critical brand seen in their control form.

The results indicated that a critical brand in its control form had a 0.26 probability of being chosen. Since these brands were listed at the lowest price in each category, it is not surprising that their purchase likelihood is above the 0.20 (one in five) which would be expected from chance alone. More interesting, then, is that a critical brand in its couponed form had a 0.45 probability of being chosen. This 0.19 difference between mean purchase probabilities is a measure of the coupon effect shown in the game. x matched t-test on the arcsine transformations (Winer, 1971, p. 399) of the pair of the probabilities computed for each of the 72 players indicated that this coupon effect was highly reliable across the subjects who participated in this test (t(71) = 5.66, p < .001).

DISCUSSION

The results of this test showed that this particular implementation of the game technique is capable of bring the coupon effect into the laboratory. However, the usefulness of this game for exploratory research on the mechanisms of the coupon effect can be criticized on at least two grounds.

First, it could be asserted that the artificial game situation, the unrealistic measure of brand benefit used, and the nonrepresentative selection of subjects for the test prevent the results of this laboratory technique from being able to have any relevance to price promotions conducted in the real world. Those who would take this position are questioning our assumption that there exist basic mental processes for decision making which are relatively invariant across people and situations, and that price promotions exert their effects on the consumer by acting on these processes. While we have no proof for our assumption, we believe it should be considered favorably at this early stage of research because it greatly facilitates laboratory study and the development of theory. The true test of this assumption will come as the implications of the theories based on laboratory research are tested in real world situations (see Calder, Phillips, and Tybout 1981; 1983).

Second, it could be argued that, while such a laboratory game could be useful for price promotion research, the behavior shown in the particular game described here is heavily influenced by a variable that never occurs in real world situations. In particular, it is possible that the players may have been more likely to use the coupons in the laboratory game because they felt that it was- what the experimenter wanted them to do. While giving the players a stake in the outcome was designed to avoid this artifact, it may not have completely done so since players may have believed that doing what the experimenter wanted them to do would increase their chance of winning the game. To minimize this problem, future version of the supermarket shopping game should have the coupons distributed in a way which makes it less obvious that they are the most important experimental variable. For example, each player could receive the coupons on the pages of a little newspaper which could also carry other price advertising and even articles on the quality aspects of certain products.

With such an improvement, it is easy to imagine how the supermarket shopping game tested here could be used to test a wide variety of possible mechanisms of the coupon effect. For example, a sequence of experiments could be done where aspects of coupons are added one-by-one to the low price control conditions to see which aspects are necessary to make coupons work as well as they do. Other hypotheses could be tested by varying whether or not some coupons are distributed to only certain players and by varying the effort necessary to redeem a coupon.

Thus, the game technique offers a promising approach to research on the psychological mechanisms of price promotions. we agree with Cook ( 1984 ) on the need for more consumer research experiments where the rewards in the experiment are linked to the choices the subject makes, and we believe that wider use of such methods could facilitate great advances in our understanding of the mental processes that underlie consumer decisions.

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