The festive season never fails to bring out throngs of shoppers as retailers compete for consumers' attention and spending using price discounts and a myriad of promotion strategies.
Alibaba's November 11 Singles Day perhaps marked the start of the festive sales period. This year, it saw a hefty 60 per cent increase in sales to US$14.3 billion, promptly followed by Black Friday and Cyber Monday, where Amazon also chalked up its best sales days in the calendar year.
Price promotions are a common sight in the retail industry. To shoppers, such promotions translate into real savings, guide buying decisions, encourage trial of new products, and make shoppers feel good. To retailers, promotions drive demand, albeit short term, and encourage brand switching.
However, promotions can also have negative consequences. They can make shoppers more price sensitive or have lower price expectations, making it challenging for firms to charge higher prices.
As consumers, we often find ourselves buying products because they are on sale. Sometimes we put these purchases to one side and when we eventually come to use them the discounted products don't seem such a great buy after all.
Would we have felt any differently if we had used the items right away after buying them? Or if we had bought the items at full price and used them after a delay?
Together with Dr Claire Tsai at University of Toronto, we conducted four studies involving 638 shoppers buying a range of products – music, chocolate truffles and orange juice. One of the studies also involved online purchases. In the studies, shoppers were either offered a price discount or not, and they used the product immediately or with a delay after payment. The quality of the product was maintained so as not to influence the consumption experience.
Price discounts may induce purchase and consumption in the short run, but can have negative long-term effects on customer satisfaction and brand loyalty
Our findings showed that price promotions can be a double-edged sword. While price discounts can elevate shoppers' moods by making the consumption experience pleasant and enjoyable, paying a lower price may also dampen consumption enjoyment.
We found that whether shoppers end up more or less happy depends on when the promoted product is consumed – right away after payment, or after a delay.
While it is enjoyable to consume a discounted product or service right after payment, the same discount may reduce the good feelings if the product is used after a few days.
In one study, we had people purchase chocolate truffles at either the regular price of $1 or a discount of 50 cents. Half of them consumed the chocolate right away, while the other half waited for a week before consuming it.
In this case while price promotions increased enjoyment following immediate consumption, price promotions decreased enjoyment instead when consumption was delayed by a week.
Moreover, our results showed that paying only 50 cents while thinking that this is the regular price (hence not perceiving it as a price reduction, and thus not psychologically enjoying a discount) did not produce the same effect. This indicates that the phenomenon is due to perceived price discounts and not absolute paid prices.
Why would price promotion have different effects on enjoyment depending on when the purchased product is consumed?
When people buy a product on promotion, they experience an immediate joy that carries over to positively affect their experience when using the product. But this initial joy dissipates over time. Hence, when people use the product much later after purchase, they become less motivated to justify why they had bought the product in the first place given its lower price. This reduced motivation in turn makes them pay less attention to the pleasure that accompanies product use.
In contrast, people who paid full price for the product but used a product only after a delay would have enjoyed using it much more even though they might have felt bad when paying for it. This increased enjoyment arises from the greater motivation to psychologically recover the cost of buying the product at full price and hence, greater attention is paid to the enjoyment with product use.
Our research provides new insights into the mixed effects of promotions on sales and loyalty - price discounts may induce purchase and consumption in the short run, but can have negative long-term effects on customer satisfaction and brand loyalty.
Price promotions can induce short-term sales and enhance consumption experience if the promotional products are consumed immediately after purchase. But for products consumed later, price promotions reduce enjoyment as a result of lower attention during consumption. This negative effect may reduce repeat purchase and brand loyalty in the long run.
So, while Santa is making a list and checking it twice, shoppers might themselves want to think twice before purchasing a product just because it is on sale. Succumbing to such temptation may not give shoppers a joyful feeling after all.