Price Promotions and Online Product Evaluations

42 Pages Posted: 9 Jan 2020

See all articles by Yongdong Liu

Yongdong Liu

University College London - School of Management

Anja Lambrecht

London Business School

Yiting Deng

University College London

Date Written: December 18, 2019

Abstract

Price promotions increase sales, at least in the short term, but the effect of price promotions on consumers’ product evaluations is not well understood. We focus on the market for mobile apps, a category where price variation, including discounting to a zero price is common. We ask how price promotions affect the evaluations measured by star ratings posted subsequently online. Our results suggest that during price promotions, consumers evaluate the product less favorably than before the price promotions. This effect is especially pronounced for price promotions to a zero price. We provide evidence suggesting that lower prices, and especially zero prices, increase the likelihood that consumers with lower valuations will purchase the product. Notwithstanding the lower promoted price, the app still represents a bad fit to these consumers' tastes. As a result of the mismatch between a consumer's taste and product characteristics, consumers who purchased the app during a promotion rate it less favorably.

Keywords: price promotion, product evaluation, mobile app

JEL Classification: C21, D12, L15, M31

Suggested Citation

Liu, Yongdong and Lambrecht, Anja and Deng, Yiting, Price Promotions and Online Product Evaluations (December 18, 2019). Available at SSRN: https://ssrn.com/abstract=3506009 or http://dx.doi.org/10.2139/ssrn.3506009

Yongdong Liu

University College London - School of Management ( email )

Gower Street
London, WC1E 6BT
United Kingdom

HOME PAGE: http://yongdong.liu@ucl.ac.uk

Anja Lambrecht

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom

Yiting Deng (Contact Author)

University College London ( email )

Level 38, 1 Canada Square
London, Please Select E14 5AA
United Kingdom
2031086081 (Phone)

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