The Marketing of Deals: Maximizing the Profit Impac of Sales Promotions

Abstract:     
Consumers often purchase products based on sales promotions that they can redeem only after making the purchase. Such deals typically offer consumers a reward contingent on their performing a certain quantity of consumer effort, and we use the term rebates to refer generally to this family of deals. In this paper, we replicate and extend prior research showing that the time delay between the purchase and the redemption has the potential to cause a perceptual distortion in the value of the future reward and effort. However, we further argue that the appropriate marketing of deals can result in an effect on purchase without an effect on the redemption rate. Using an analytical model and a controlled laboratory experiment, we demonstrate that the marketing of the reward (i.e., highlighting) and the demarketing of the effort can maximize the profit potential of the promotion. We also derive implications of our results for optimal rebate design.

Number of Pages in PDF File: 40

Keywords: mail-in rebates, sales promotions, purchase, redemption, consumer effort

JEL Classification: M30, M31

working papers series