Promotion Architecture: Perceived Fairness of Restricted Price Promotions

Abstract

This research examines the effectiveness of two comparable types of restricted price promotions: threshold promotions (conditional on spending more than a threshold amount; e.g., "Get $5 off on orders of $10 or more") and capped promotions (limited to a maximum dollar value; e.g., "Get 50% off, up to $5 per order"). Results show that threshold promotions lead to higher purchase intentions, conversion rates, and overall sales than comparable capped promotionseven though capped promotions are equivalent or better in economic savings-when the trigger value (the spending amount at which the promotion activates or caps) is low. This effect occurs because consumers raise their promotion expectations for capped promotions and lower their spending expectations for threshold promotions, leading them to perceive the threshold promotion as fairer. However, this effect reverses when the trigger value is high, where consumers perceive capped promotions as fairer and prefer them to threshold promotions. We observe these results in seven pre-registered studies, including a field study. We discuss the implications of our results for the optimal management of price promotion architectures.

Keywords: price promotion, framing, fairness, expectation, choice architecture