buyer behav research article review

Buyer
Behaviour

Research
Article
Review

Topic:

The
influence
of

conditional
price
promotions

on
consumers’
estimates
of
a

product’s
true
value.

Prepared
by
Nicole
Brown

May
2014

Buyer
Behaviour
Research
Article
Review
Prepared
by
Nicole
Brown
(May
2014)
Page
i

Table
of
Contents

1.
Research
Problem
and
Objectives
_______________________________________________
1

1.1.
Research
Problem
______________________________________________________
1

1.2.
Research
Objectives
_____________________________________________________
1

2.
Theory
and
Hypotheses
Overview
_______________________________________________
2

3.
Studies
and
Findings
Overview
_________________________________________________
3

3.1.
Experiment
1
Description
and
Key
Findings
__________________________________
3

3.2.
Experiment
2
Description
and
Key
Findings
__________________________________
3

3.3.
Experiment
3
Description
and
Key
Findings
__________________________________
4

3.4.
Experiment
4
Description
and
Key
Findings
__________________________________
5

3.5.
Experiment
5
Description
and
Key
Findings
__________________________________
5

4.
Theoretical
Contributions
_____________________________________________________
7

5.
Managerial
Implications
_______________________________________________________
9

5.1.
Real
world
organisation
background
and
SWOT
analysis
________________________
9

5.2.
Recommendations
_____________________________________________________
10

Reference
List
__________________________________________________________________
12

Appendix
A:
Elizabeth
Arden’s
‘The
Power
of
Color’
Order-‐Upgrade
Promotion
______________
14

Buyer
Behaviour
Research
Article
Review
Prepared
by
Nicole
Brown
(May
2014)
Page
1
of
14

1. Research
Problem
and
Objectives

1.1. Research
Problem

Conditional
price
promotions
can
stimulate
short-‐term
increases
in
product
sales
(Gedenk,

Neslin
&
Ailawadi
2010)
and
encourage
product
trial,
brand-‐switching
and
increased

consumption
(Lee-‐Wingate
&
Corfman
2010).
However,
constant
sales
promotion
can
teach

consumers
to
only
buy
products
when
prices
are
low
(Chitty
et
al.
2013).
To
avoid
negative

unintended
consequences
from
conditional
price
promotions,
Palmeira
and
Srivastava
(2013)

tested
previous
inferences
that
free
offers
caused
product
devaluation.

1.2. Research
Objectives

In
response
to
the
research
problem
identified
in
section
1.1,
Palmeira
and
Srivastava’s
(2013)

study
investigated
how
conditional
price
promotions
influence
consumers’
estimates
of
the

product’s
true
value
when
promotions
end.
This
study
specifically
investigated
whether

conditional
promotions
offering
supplementary
products
for
‘free’
leads
to:

1. De-‐valuation
after
the
promotion
ends.

2. More
de-‐valuation
after
the
promotion
ends
compared
to
low,
non-‐zero
price

promotions.

3. Different
emotional
reactions
compared
to
low,
non-‐zero
price
promotions.

4. Less
meaningful
information
about
the
promoted
price
compared
to
low,
non-‐zero

price
promotions.

5. Different
reactions
compared
to
promotions
that
use
the
number
zero
($0.00).

6. Different
mental
reference
points
when
estimating
the
supplementary
product’s
true

value
compared
to
low,
non-‐zero
price
promotions.

7. Persistent
mental
reference
points
about
the
supplementary
product’s
price
even
after

being
exposed
to
a
new
price.

Buyer
Behaviour
Research
Article
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Prepared
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Brown
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2014)
Page
2
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14

2. Theory
and
Hypotheses
Overview

The
‘value
discounting
hypothesis’
describes
an
association
between
lower
prices
in
promotions

and
a
lowering
of
both
the
perceived
product
value
and
the
amount
a
consumer
would
be
willing

to
pay
for
the
product
(Raghubir
2005).
This
hypothesis
was
used
by
Raghubir
(2004)
to
support

his
conclusion
that
free
offers
devalue
products.
It
was
inferred
that
non-‐zero
prices
would
cause

less
price
devaluation
because
free
products
are
perceived
as
inexpensive
(Raghubir
2004)
and

poor
quality
(Kamins,
Folkes
&
Fedorikhin
2009).

However,
Palmeira
and
Srivastava
(2013,
p.
655)
disputed
the
validity
of
Raghubir’s
findings

because
his
experiment
design
did
not
have
a
“control
condition
without
any
price
information”.

This
led
Palmeira
and
Srivastava
(2013)
to
hypothesise
that
after
a
conditional
promotion
ends,

consumers
offered
free
offers
are
prepared
to
pay
higher
prices
for
products
compared
to
those

offered
low,
non-‐zero
promotion
prices.

Several
theories
were
considered
by
Palmeira
and
Srivastava
to
explain
why
consumers
react

differently
to
free
promotions,
including
the
assertions
that
zero
is
perceived
differently
to
other

very
small
numbers
(Palmeira
2011;
Shampanier,
Mazar
&
Ariely
2007).
It
also
appeared
that

consumers
process
free
offers
differently,
possibly
due
to
free
offers
inducing
disproportionate

excitement
(Chandran
&
Morwitz
2006)
and
more
positive
feelings
(Shampanier,
Mazar
&
Ariely

2007)
compared
to
non-‐zero
price
offers.
This
led
to
the
hypothesis
that
consumers
perceive
free

offers
to
be
more
valuable
due
to
feelings
of
reciprocity
towards
marketers
(Palmeira
&
Srivastava

2013).

Palmeira
and
Srivastava
(2013)
asserted
the
underlying
mechanism
for
their
hypothesis
might
be

explained
by
the
‘anchoring
effect’
described
by
Tversky
and
Kahneman
(1974).
This
anchoring

process
suggested
promotional
prices
act
as
a
mental
‘reference
point’
that
influences
a

consumer’s
subsequent
numerical
judgments
when
estimating
the
product’s
value.
Palmeira
and

Srivastava
identified
the
‘selective
accessibility
model’
(Strack
&
Mussweiler
1997)
as
the
most

appropriate
conceptualisation
of
how
consumers
access
information
that
is
consistent
with
the

mental
reference
point.
More
recent
research
by
Adaval
and
Wyer
(2011)
used
the
selective

accessibility
model
mechanism
to
explain
why
consumers
focused
on
the
reference
point’s
value

even
when
products
were
unrelated.

Buyer
Behaviour
Research
Article
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Prepared
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Nicole
Brown
(May
2014)
Page
3
of
14

3. Studies
and
Findings
Overview

This
section
briefly
describes
the
methods
and
findings
of
five
experiments
conducted
by
Palmeira

and
Srivastava
(2013,
pp.
647-‐654).

3.1. Experiment
1
Description
and
Key
Findings

The
first
experiment
investigated
how
the
price
of
a
product
during
a
promotion
affected

consumer’s
estimates
of
the
product’s
true
value
when
the
promotion
ended.
The
study

participants
were
shown
a
promotion
for
either
pizza
with
bread
sticks,
or
pasta
sauce
with

spaghetti.
To
compare
the
effects
of
different
prices,
participants
were
randomly
assigned
to

see
four
different
prices
for
the
bread
sticks
and
spaghetti.
All
of
the
people
in
the
study
were

asked
how
much
they
would
be
prepared
to
pay
for
the
bread
sticks
or
spaghetti
when
the

promotion
ended.

This
experiment
showed
there
was
no
difference
in
the
price
estimates
for
the
bread
sticks
or

spaghetti
between
the
people
that
were
shown
the
full-‐price
and
people
offered
these

products
for
free.
However,
the
estimated
price
of
the
bread
sticks
or
spaghetti
was
much

lower
when
the
promotion
offered
these
products
for
two
dollars,
and
the
price
estimation

was
even
lower
when
these
products
were
offered
for
fifty
cents.
On
the
basis
of
the
first

experiment,
the
researchers
concluded:

1. A
free
promotion
does
not
de-‐value
the
supplementary
product
price
after
the

promotion
finishes.

2. When
supplementary
products
are
offered
for
free,
consumers
are
willing
to
pay

more
after
a
promotion
finishes
for
the
same
product
compared
to
non-‐zero
price

offers.

3.2. Experiment
2
Description
and
Key
Findings

The
second
experiment
tried
to
identify
underlying
factors
that
might
cause
consumers
to

react
differently
to
a
free
promotion.
Study
participants
shown
were
a
picture
of
a
toothbrush

and
toothpaste,
which
also
presented
the
price
of
the
toothbrush.
To
compare
the
effects
of

different
prices,
participants
were
randomly
assigned
to
see
four
different
prices
for
the

toothpaste,
and
asked
the
price
they
would
be
prepared
to
pay
for
the
toothpaste
when
the

promotion
ended.
The
participants
also
rated
their
emotional
reactions
to
the
promotion.

Buyer
Behaviour
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Brown
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2014)
Page
4
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14

The
second
experiment
confirmed
the
findings
of
the
first
experiment.
There
was
no

difference
in
toothpaste
price
estimates
between
the
people
that
were
not
shown
the
price

and
people
offered
the
toothpaste
for
free.
Similarly
the
estimated
price
of
the
toothpaste

was
much
lower
when
the
promotion
price
was
twenty-‐five
cents
or
one-‐dollar.

Among
the
participants
offered
the
toothpaste
for
free,
twenty-‐five
cents
or
one-‐dollar,
this

study
showed
there
were
no
differences
in
the
participants’:

• Feelings
of
happiness,
excitement
and
interest
caused
by
the
promotion.
This
proved

that
free
offers
do
not
induce
more
positive
feelings
than
the
same
product
offered
at

a
lower-‐price.

• Feelings
of
positivity,
gratitude,
appreciation,
closeness
and
interest
towards
the
brand.

This
proved
the
participants
did
not
see
the
free
offer
as
more
valuable
due
to
feelings

of
reciprocation.

3.3. Experiment
3
Description
and
Key
Findings

The
third
study
investigated
whether
promotions
with
non-‐zero
prices
contain
more

meaningful
information
about
the
true
product
value.
The
study
participants
were
shown
a

promotion
for
either
pizza
with
chocolate
mousse,
or
pasta
with
a
jar
of
sauce.
To
compare

the
effects
of
different
prices,
participants
were
randomly
assigned
to
see
three
different

prices
for
the
chocolate
mousse
and
pasta
sauce
(free,
$0.00
and
$0.01).
Once
again
the

participants
were
asked
the
price
they
would
be
prepared
to
pay
for
the
chocolate
mousse
or

pasta
sauce
when
the
promotion
ended.

This
experiment
showed
there
was
no
different
in
the
price
estimates
for
chocolate
mousse

or
pasta
sauce
between
the
people
that
were
shown
the
word
‘free’
or
the
price
‘$0.00’.
In

contrast,
price
estimates
were
much
lower
among
the
participants
offered
the
chocolate

mousse
or
pasta
sauce
for
$0.01.
The
difference
in
price
estimates
occurred
despite
both
zero

and
one-‐cent
being
totally
unrealistic
prices
for
chocolate
mousse
and
pasta
sauce.
On
this

basis,
the
researchers
concluded
the
participants
used
different
mental
reference
points
to

estimate
the
value
of
products
offered
for
zero
and
non-‐zero
promotional
prices.

Buyer
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2014)
Page
5
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14

3.4. Experiment
4
Description
and
Key
Findings

The
fourth
experiment
compared
the
reference
points
that
consumers
used
when
estimating

a
product’s
true
value
if
the
promotion
offered
the
product
for
free
or
at
a
low,
non-‐zero

price.
Study
participants
were
shown
a
promotion
either
for
jewellery
or
wine
with
a

supplementary
product
(a
pendant
or
a
wine
thermometer,
respectively),
and
asked
the
price

they
would
be
prepared
to
pay
for
the
pendant
or
wine
thermometer
when
the
promotion

ended.

There
was
no
difference
in
the
participant’s
estimation
of
the
pendant’s
price
when
the

pendant
was
offered
for
five
dollars
when
they
spent
either
ninety-‐nine
or
two-‐hundred
and

ninety-‐nine
dollars
on
jewellery.
Similarly,
there
was
no
difference
in
the
participant’s

estimation
of
the
wine
thermometer’s
price
when
the
thermometer
was
offered
for
five

dollars
when
they
spent
either
fifty
or
three-‐hundred
dollars
on
wine.
The
researchers

concluded
that
when
a
complementary
product
is
offered
for
a
non-‐zero
price,
this
non-‐zero

price
acts
as
the
reference
point
to
estimate
the
product’s
true
value.

Different
results
were
observed
when
the
promotion
offered
the
pendant
or
wine

thermometer
for
free.
In
both
cases,
the
more
the
participant
was
required
to
spend
on

jewellery
($300
vs.
$50)
or
wine
($299
vs.
$99),
the
higher
their
estimate
of
the
pendant
or

thermometer’s
true
price.
The
researchers
therefore
concluded
that
when
supplementary

products
are
offered
for
free,
consumers
use
the
focal
product
(wine
or
jewellery)
as
the

reference
point
when
estimating
the
supplementary
product’s
true
value
use.

3.5. Experiment
5
Description
and
Key
Findings

The
final
experiment
investigated
whether
introducing
a
different
price
reference
point
would

change
the
participants’
original
price
estimations.
Study
participants
were
shown
a

promotion
for
a
box
of
pasta
(which
cost
$5.49)
and
a
bottle
of
sauce,
and
they
were
asked

twice
the
price
they
would
be
prepared
to
pay
for
the
pasta
sauce
when
the
promotion

ended.
To
compare
the
effect
of
two
different
price
reference
points,
participants
were

randomly
assigned
to
see
different:

• Initial
prices
for
the
bottle
of
pasta
sauce
(‘a
special
price’,
free
or
twenty-‐five
cents).

• Subsequent
price
suggestions
for
the
pasta
sauce
(fifty-‐cents
or
two-‐dollars).

Buyer
Behaviour
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2014)
Page
6
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14

When
the
participants
were
exposed
to
the
first
price
reference
point,
there
were
no

differences
in
the
participant’s
estimations
of
the
price
of
the
pasta
sauce
between
groups

that
saw
the
‘special
price’
or
‘free’
promotion,
while
the
group
that
saw
the
twenty-‐five
cent

promotion
had
the
lowest
price
estimations.
However,
different
results
were
observed
when

the
same
participants
were
exposed
to
the
second
price
reference
point.

All
participants
that
were
told
the
pasta
sauce
normally
cost
six-‐dollars
were
willing
to
pay
a

much
higher
price
compared
to
the
group
that
were
told
the
pasta
sauce
normally
cost
fifty-‐
cents.
Since
the
new
price
reference
point
replaced
the
previous
reference
point,
the
authors

concluded
recovery
is
possible
when
low,
non-‐zero
price
promotions
cause
supplementary

products
to
become
devalued.

Buyer
Behaviour
Research
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Brown
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2014)
Page
7
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14

4. Theoretical
Contributions

Palmeira
and
Srivastava’s
study
extended
consumer
behaviour
theory
in
six
ways:

1. By
designing
an
experiment
with
a
control
condition,
Palmeira
and
Srivastava
refuted

Rahubir’s
(2004)
incorrect
conclusion
that
free
offers
de-‐valued
products.
In
all
experiments

conducted
by
Palmeira
and
Srivastava
(2013)
the
participants
offered
free
supplementary

products
were
consistently
willing
to
pay
more
after
the
promotion
finished
for
the
same

product
compared
to
non-‐zero
price
offers.

2. By
designing
experiments
that
controlled
for
confounding
factors,
Palmeira
and
Srivastava

proved
their
study
findings
were
not
compromised
by
free
offers
inducing
more
positive

feelings
or
feelings
of
reciprocity.

3. By
demonstrating
consumers
reacted
differently
to
zero
compared
to
other
very
small

numbers,
Palmeira
and
Srivastava’s
experiments
confirmed
the
findings
of
research
by

Palmeira
(2011)
and
Shampanier,
Mazar
and
Ariely
(2007).

4. By
providing
compelling
evidence
for
selective
accessibility
model,
Palmeira
and
Srivastava

explained
the
underlying
mechanism
that
caused
study
participants
in
different
contexts
to

consider
information
consistent
with
a
mental
reference
point.
When
supplementary
products

were
offered
for
low,
non-‐zero
prices
during
conditional
promotions,
the
non-‐zero
price
(even

as
low
as
one
cent)
acted
as
the
reference
point
to
estimate
the
supplementary
product’s

value.
Accordingly,
the
conceptual
selective
accessibility
model
explains
why
products
can
be

devalued
by
conditional
price
promotions
offering
the
supplementary
products
at
low,
non-‐
zero
prices.

Since
zero
could
not
act
as
a
reference
point
when
supplementary
products
were
offered
for

free
during
conditional
promotions,
study
participants
used
other
contextual
information
(such

as
the
focal
product’s
price)
to
estimate
the
supplementary
product’s
value.
Therefore
the

conceptual
selective
accessibility
model
explains
why
free
promotions
do
not
de-‐value
the

supplementary
product
price
after
the
promotion
finishes.

Buyer
Behaviour
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2014)
Page
8
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5. By
proving
the
participant’s
mental
reference
point
could
be
shifted
by
introducing
a
new

price,
Palmeira
and
Srivastava
also
offered
hope
to
companies
that
have
experienced
product

devaluation.

6. By
identifying
gaps
in
consumer
behaviour
theory,
Palmeira
and
Srivastava
suggested

researchers
investigate
specific
promotion
conditions
that
cause
a
consumer’s
thoughts
to

switch
from
the
product’s
value
to
making
negative
inferences.

Buyer
Behaviour
Research
Article
Review
Prepared
by
Nicole
Brown
(May
2014)
Page
9
of
14

5. Managerial
Implications

The
final
section
of
this
report
will
explain
how
Palmeira
and
Srivastava’s
(2013)
theoretical

findings
can
be
translated
into
evidence-‐based
practice
by
the
marketing
management
in
real-‐
world
organisations.

5.1. Real
world
organisation
background
and
SWOT
analysis

Elizabeth
Arden
manufactures
and
markets
fragrances,
skin
care
and
cosmetics
in
120

countries
(MarketLine
2014).
Factors
influencing
the
company’s
success
are
presented
in
the

Strengths,
Weaknesses,
Opportunities
and
Threats
(SWOT)
analysis
shown
in
Figure
1
below.

STRENGTHS
• Widely recognised international beauty brand.
• Strong portfolio of well-known products.
• Strong growth in anti-aging skin care products in
China.
• Brand repositioning has modernised brand and
increased the brand’s relevance to a broader
consumer base.
WEAKNESSES
• Dependency on 10 retail customers for 38%
of sales in 2013 reduces bargaining power.
• In June 2013 total debt exceeded $338
million, which could limit future operations
or capital purchases or acquisitions
• Potential supply chain disruptions due to
dependence on third-party manufacturers.
OPPORTUNITIES
• Increased demand for natural cosmetics.
• Sales of skincare and fragrances for men
expected to grow 20% over the next 4 years.
• Growth in online retail sales globally.
• Expansion into high-growth German, Brazilian
and Russian markets.
THREATS
• Counterfeit products could damage the
company’s image and reputation.
• Celebrity and designer fragrances
contributed 47% of net sales in 2013, but
the continued success demands on future
demand for these products.
Figure
1:
Elizabeth
Arden’s
SWOT
Analysis

Adapted
from
MarketLine
(2014,
pp.
4-‐8)
and
Elizabeth
Arden
(2013)

Although
in
2013
the
company’s
revenue
exceeded
1.3
billion
dollars,
Elizabeth
Arden’s
net

profit
decreased
by
29%
compared
to
2012
(MarketLine
2014).
Given
their
recent
poor

financial
performance,
it
is
therefore
important
for
Elizabeth
Arden
to
evaluate
the

effectiveness
of
sales
promotions.
Effective
promotions
may
also
offer
Elizabeth
Arden
a

competitive
advantage
since
free-‐gift
offers
stimulated
half
of
Estee
Lauder’s
sales
(Raghubir

&
Celly
2011).

Buyer
Behaviour
Research
Article
Review
Prepared
by
Nicole
Brown
(May
2014)
Page
10
of
14

Appendix
A
presents
an
‘order
upgrade
promotion’
currently
available
from
Elizabeth
Arden’s

online
store.
‘The
Power
of
Color’
offer
is
valued
at
$134
and
features
a
bright
orange
tote

bag
with
six
miniature
product
samples,
and
can
be
added
at
the
checkout
for
$29.50.

However,
compelling
evidence
from
consumer
behaviour
research
suggests
‘The
Power
of

Color’
promotion
will:

• Cause
consumers
to
undervalue
the
six
sample
products
due
to
charging
a
low,
non-‐
zero
price
for
the
offer
(Palmeira
&
Srivastava
2013).

• Increase
consumer’s
perceptions
of
product
quality
(Raghubir
&
Celly
2011)
due
to

the
larger
visual
size
of
the
sample
products
in
the
advertisement.

• Not
reduce
consumption
guilt,
which
is
a
major
barrier
for
female
consumers

purchasing
Elizabeth
Arden’s
non-‐essential
cosmetics
(Lee-‐Wingate
&
Cofrman
2010).

5.2. Recommendations

Given
the
limitations
of
‘The
Power
of
Color’
promotion
identified
in
section
5.1,
Elizabeth

Arden
are
encouraged
to
adopt
following
five
evidence-‐based
recommendations
to
improve

the
effectiveness
of
their
promotional
activities.

1. Ensure
all
future
Elizabeth
Arden
conditional
sales
promotions
offer
supplementary

products
for
free
to
avoid
product
devaluation,
since
consumers
were
consistently
willing

to
pay
higher
prices
after
a
promotion
finishes
if
the
supplementary
product
was
offered

for
free
rather
than
at
a
low,
non-‐zero
price
(Palmeira
&
Srivastava
2013).
This
type
of

promotion
may
be
particularly
effective
to
create
a
high
price
expectation
for
new

products.

2. Package
free
supplementary
products
in
elaborate
gift-‐wrapping
to
reduce
consumption

guilt
by
highlighting
the
potential
to
give
the
free
gift
to
others
(Lee-‐Wingate
&
Corfman

2010).

3. Change
‘The
Power
of
Color’
promotion
to
a
free
gift
offered
only
to
customers
that
spend

at
least
one-‐hundred
dollars
at
Elizabeth
Arden’s
online
store.
Palmeira
and
Srivastava’s

(2013)
study
proved
consumers
were
willing
to
pay
higher
prices
for
free
supplementary

products
after
the
promotion
finished
when
they
were
required
to
pay
a
high
price
for
a

Buyer
Behaviour
Research
Article
Review
Prepared
by
Nicole
Brown
(May
2014)
Page
11
of
14

focal
product.
Assuming
a
consumer
decided
to
continue
using
two
products
they
sampled

in
‘The
Power
of
Color’
gift,
the
consumer’s
mental
reference
point
for
the
price
the

sample
products
will
be
determined
by
the
one-‐hundred
dollars
they
paid
to
get
the
‘gift’

(Palmeira
&
Srivastava
2013).

4. Quickly
rectify
product
devaluation
by
introducing
a
new
price
reference
point
(Palmeira
&

Srivastava
2013)
to
customers
that
have
already
purchased
‘The
Power
of
Color’
offer
from

Elizabeth
Arden’s
online
store.
This
could
be
achieved
by
sending
an
email
to
these

customers
and
highlighting
the
usual
retail
prices
for
the
six
sample
products.
Correcting

product
devaluation
from
any
recent
non-‐zero
promotional
offer
is
particularly
important

given
Elizabeth
Arden’s
poor
financial
performance
described
above.

5. Develop
free
offer
promotions
with
product
samples
specifically
for
men,
to
cater
for
the

growing
demand
for
male
skincare
and
fragrance
products
identified
in
Figure
1,
and
to

alleviate
guilt
from
female
consumers
(Lee-‐Wingate
&
Corfman
2010).

Buyer
Behaviour
Research
Article
Review
Prepared
by
Nicole
Brown
(May
2014)
Page
12
of
14

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2014)
Page
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