The Effect of Deals and Deal Retraction on Brand Switching

ABSTRACT - Analysis of panel data for two consumer packaged goods indicate that media-distributed coupons and cents-off deals induce brand switching and result in less loyalty when retracted than if no deal is offered. In contrast, package coupons stimulate brand loyalty and result in maintained loyalty when retracted. The accuracy of economic utility theory and self-perception theory in predicting these findings is assessed and the implications of these results for demand management are discussed.

Citation:

Joe A. Dodson, Alice M. Tybout, and Brian Sternthal (1977) ,"The Effect of Deals and Deal Retraction on Brand Switching", in NA - Advances in Consumer Research Volume 04, eds. William D. Perreault, Jr., Atlanta, GA : Association for Consumer Research, Pages: 78-80.

Advances in Consumer Research Volume 4, 1977   Pages 78-80

THE EFFECT OF DEALS AND DEAL RETRACTION ON BRAND SWITCHING

Joe A. Dodson, Northwestern University

Alice M. Tybout, Northwestern University

Brian Sternthal, Northwestern University

[Loyalty has taken on a variety of meanings in the literature. In this paper it is operationally defined as the probability that two sequential purchases of a product will be for the same brand. The related concept, switching, is operationally defined as 1-minus loyalty]

ABSTRACT -

Analysis of panel data for two consumer packaged goods indicate that media-distributed coupons and cents-off deals induce brand switching and result in less loyalty when retracted than if no deal is offered. In contrast, package coupons stimulate brand loyalty and result in maintained loyalty when retracted. The accuracy of economic utility theory and self-perception theory in predicting these findings is assessed and the implications of these results for demand management are discussed.

INTRODUCTION

During the past five years, consumer deals such as cents-off the price marked on the package and cents-off coupons distributed via the media or in the package have emerged as an important part of the marketer's strategic arsenal. Between 1971 and 1974, the A.C. Nielsen Company reported that the number of coupons distributed increased from 16.4 billion to 29.8 billion. During this time period, there was s concomitant increase in the number of coupons redeemed by consumers. In fact, during 1974, 65 percent of American households redeemed coupons (Lazarus, 1975). Despite the widespread use of deals, however, relatively little attention has been given to determining the relative efficacy of various types of deals in inducing brand switching, or to determining the effect of deal type on loyalty to a dealt brand upon retraction of the deal.

The purpose of the research summarized in this paper was to address two issues pertaining to the effects of deals on brand choice:

(1) What is the effect of a consumer deal on brand switching? Consistent with economic utility theory, the existing literature suggests that dealing is inversely related to brand loyalty (Massy and Frank, 1965; Montgomery, 1971; Webster, 1965). However, the extent to which this is the case for different types of deals has not been investigated. In the present study, an attempt is made to replicate the dealing brand loyalty relationship previously reported, and to ascertain the extent to which it is maintained for different types of deals.

(2) What is the effect of deal retraction on subsequent loyalty to the dealt brand? Consistent with self-perception theory, evidence reported in the published literature indicates that an economic incentive contiguous with purchase behavior undermines the persistence of that behavior when the economic incentive is retracted (Bogart, Loeb, and Rutner, 1969; Doob, Carlsmith, Freedman, Landauer and Tom, 1969; Scott, 1976). However, the investigations on which this prediction is based have not been generalized to include various types of deals.

These issues were examined for two product categories, margarine and flour, and for three types of deals--media distributed coupons, cents-off marked on package and package coupons--using data from a subsample of those households that participated in the Chicago Tribune Consumer Panel between 1963 and 1970. The selection of two product categories enabled cross-product validation of the findings. The three types of deals investigated accounted for 99% of the deals redeemed in both the margarine and flour product category.

HYPOTHESES AND RATIONALE

The specific study predictions and their rationale appear below.

H1: The likelihood of switching to a brand when it is offered on a deal is significantly greater than when it is not offered on a deal.

This prediction is based on economic utility theory. According to this formulation, deals serve to enhance the utility of a brand, thus attracting former purchasers of other brands. Furthermore, it may be argued that the extent to which a particular deal stimulates switching depends on the economic value of the deal; deals having relatively high economic value are expected to have greater utility and induce more switching than ones having relatively low economic value. Since for the products investigated media distributed coupons had substantially greater economic value (savings of 21% and 30"A on the selling price for margarine and flour, respectively) than either cents-off deals (3%, 12% savings for margarine and flour, respectively) or package coupons (9%, 10% savings for margarine and flour respectively), it was also predicted that:

H2: The likelihood of switching to a brand when it is offered on a media-distributed coupon deal is significantly greater than when it is offered on a cents-off or package coupon deal.

Also of focal concern in the present research was the effect of deal attraction on subsequent brand loyalty. Several previous studies have found that the retraction of substantial incentives reduces the likelihood of behavioral persistence relative to the retraction of small incentives or not offering an incentive (Bogart, et al., 1969; Doob, et al., 1969; Scott, 1976). This effect can be explained by self-perception theory (Bem, 1972). According to this theory, individuals examine their own behavior and the circumstances in which that behavior occurs as a basis for determining their attitude toward an object. To the extent that behavior can be attributed to internal causes (e.g., liking attributes of a brand), attitudes are consolidated and guide subsequent action (brand repurchase). However, if behavior can be attributed to both internal and external causes (e.g., incentives, such as deals), the theory predicts that individuals will discount internal causes as the reason for their behavior. As s result, their attitudes toward the object will not be consolidated and behavior will persist only if the external cause remains present.

To extend the predictions made by self-perception to the effects of retraction of specific types of deals on subsequent brand loyalty, deals must be categorized according to the cues they provide the consumer regarding their motivation for purchasing the dealt brand. When individuals purchase on a deal requiring moderate effort to redeem, which has substantial economic value (e.g., media distributed coupon), it is expected that they will attribute brand selection to the deal. (Why did I go to the effort to redeem this coupon? --because of its economic value.) As a result, self-perception theory predicts that when the deal is retracted people who had switched brands to take advantage of the deal will have less motivation to repurchase the brand than if no deal had been previously offered. In addition, individuals who had purchased the brand prior to the deal will now attribute the brand purchase to the deal and be less likely to exhibit brand loyalty when the deal is retracted than if no deal had been offered.

A similar line of reasoning can be used to predict the effects of deal retraction on brand loyalty for other types of deals. If a deal requiring little effort and having low economic value is redeemed (e.g., cents-off marked), self perception theory predicts that deal retraction will undermine loyalty relative to a situation where no deal was offered. On the other hand, redemption of a deal which involves substantial effort and has low economic value (e.g., package coupons) is expected to enhance loyalty after the deal is retracted relative to not offering a deal. In this case, the theory predicts that people are likely to observe that they exerted much effort to redeem the coupon despite the low incentive and conclude that they must really like the dealt brand. These predictions are supported by research demonstrating that there is a greater likelihood of behavioral persistence if individuals have performed a behavior without sufficient justification for doing so than if there was sufficient justification (Aronson and Carlsmith, 1963; Freedman, 1965).

The following hypotheses regarding the effect of deal retraction on subsequent brand loyalty were investigated:

H3: Media-distributed coupons and cents-off deals will result in significantly reduced loyalty once these deals are retracted relative to a situation where no deal is offered.

H4: Package coupons will result in significantly increased loyalty once retracted relative to a situation where no deal is offered.

H5: The retraction of a media-distributed coupon will reduce loyalty to a greater extent than the retraction of a cents-off deal or a package coupon.

H6: The retraction of a cents-off deal will reduce loyalty to a greater extent than the retraction of a package coupon.

RESULTS

The research findings relate to two basic issues: 1) the effect of offering a deal on brand switching and 2) the effect of retracting a deal on subsequent brand loyalty.

Deal Offering

Consistent with Hypothesis l, it was found that offering a deal enhanced brand switching. The probability of switching brands was significantly greater when a deal was involved than when no deal was involved for both margarine (Z = 16.750, p < .001) and flour (Z = 4.211, p < .01). However, the relationship was not obtained for all types of deals. Media distributed coupons induced substantial switching (probability of switching = .653, margarine, .823, flour), cents-off coupons somewhat less switching (probability of switching = .444, margarine, .483, flour), and package coupons either decreased (probability of switching = .321, flour) or did not effect (probability of switching = .405, margarine) brand switching relative to switching under no deal (probability = .396, margarine, .431, flour). Furthermore, the likelihood of switching to a brand offered with a media distributed coupon was significantly greater than the likelihood of switching to a brand offered with either a cents-off or package coupon. Thus, Hypothesis 2 was supported.

Deal Retraction

The retraction of a deal had a significant effect on the incidence of brand loyalty. Retraction of media-distributed coupons undermined brand loyalty among those who switched brands to take advantage of the deal (margarine Z = 8.55, p < .01; flour, Z = 3.17, p < .05) as well as those who had purchased the brand prior to the deal (i.e., loyal users) (margarine, Z = 7.86, p < .01; flour, Z = 2.05, p < .05). Similarly, retraction of a cents-off deal undermined the loyalty of purchasers regardless of whether they switched brand to take advantage of the deal (margarine, Z = 8.41, p < .01; flour, Z = .56, p > n.s.) or had been purchasing the dealt brand when the deal occurred. These findings support Hypothesis 3.

Retraction of package coupons had a different effect on subsequent loyalty than did retraction of the other types of deals. Specifically, it served to maintain the loyalty of those persons who purchased the dealt brand prior to coupon redemption (not significantly different from loyalty under no deal, margarine, Z = -.33, p > .05; flour Z = .24, p > .05). Thus, Hypothesis 4 was supported.

Finally, media-distributed coupons undermined loyalty to a greater extent than either cents-off deal or package coupons, while cents-off deals undermined loyalty to a greater extent than package coupons. However, only the tendency of media distributed coupons to undermine loyalty to a greater extent than cents-off coupon reached conventional levels of significance. These data provide only weak support for Hypothesis 5 and Hypothesis 6.

CONCLUSION

In sum, the data presented in this paper suggest that self-perception theory and economic utility theory provide complementary explanations regarding the effects of deals. Economic utility theory orders the effects of deals on brand switching in situations where the salient cue on which a brand decision is predicated is an economic variable; that is, when an individual is offered a deal. On the other hand, when the economic cue is confounded by the presence of non-economic cues (such as an individual's previous behavior and the circumstances in which it occurred) as is the case when deals are retracted, self-perception theory accounts for the observed effects.

Furthermore, the findings have practical implications for marketers. The data suggest that certain types of deals are likely to be appropriate given particular objectives regarding the management of demand. Media-distributed coupons are particularly useful to induce brand switching. However, since they also result in very substantial undermining of repeat purchase when retracted, they are appropriate only if consumers perceive the dealt brand to be superior to competing brands on attributes relevant to purchase choice. In such situations, the attrition in loyalty after the retraction of media-distributed coupons observed for highly similar brands in the present data is less likely to occur. If the objective is to attract purchasers of other brands, and the focal brand does not dominate competing brands on some attribute relevant to consumer purchase, cents-off marked deals appear to be an attractive alternative. Not only does this type of deal induce switching to the dealt brand, it also tends to maintain the loyalty of those who switched after the deal is retracted, relative to media-distributed coupons. Finally, if the objective is to maintain the current franchise, package coupons are appropriate. They not only stimulate repeat brand purchase, but also result in maintained loyalty after the deaf is retracted among those who had purchased the brand prior to the deal.

More information regarding this research can be obtained by writing to

Professor Joe Dodson / Department of Marketing / Graduate School of Management / Northwestern University / Evanston, Illinois 60201

REFERENCES

E. Aronson and J. Carlsmith, "Effect of the Severity of Threat on the Devaluation of Forbidden Behavior," Journal of Abnormal and Social Psychology, 66 (1963), 584~588.

D. J. Bem, "Self-perception Theory," in L. Berkowitz (ed.), Advances in Experimental Social Psychology (New York: Academic Press, 1972), 1-62.

K. Bogart, A. Loeb, and I. Rutman, "Behavioral Consequences of Cognitive Dissonance," paper read at Eastern psychological Association Meeting, 1969.

J. Dodson, "An Empirical Examination of Buyer Behavior: Individual and Brand Analysis," unpublished Doctoral Dissertation, Purdue University, 1975.

A. Doob, J. Carlsmith, J. Freedman, T. Landaver, and S. Tom, "Effect of Initial Selling Price on Subsequent Sales," Journal of Personality and Social Psychology, 11 (1969), 345-350.

J. Freedman, "Long-Term Behavioral Effects of Cognitive Dissonance," Journal of Experimental Social Psychology, 1 (1965), 145-155.

G. Lazarus, "Pluses and Minuses of Coupons," Chicago Tribune (June 24, 1975), Section 4, 11.

W. Massy and R. Frank, "Short Term Price and Dealing Effects in Selected Market Segments," Journal of Marketing Research, 2 (May, 1965), 175-185.

D. Montgomery, "Consumer Characteristics Associated with Dealing: An Empirical Example," Journal of Marketing Research, 8 (February, 1971), 118-120.

C. Scott, "Effects of Trial and Incentives on Repeat purchase Behavior," Journal of Marketing Research (forthcoming).

F. Webster, "The 'Deal-Prone' Consumer," Journal of Marketing Research, 2 (May, 1965), 186-189.

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