Who Does Not Love a Good Bargain?

By Dr. Yunhui HUANG

In a metropolis that, like Hong Kong, is teeming with savvy bargain hunters, amidst a landscape replete with shopping malls, chain outlets and family-run shops, even the mere promise of a discount on a Hello Kitty toy can stop traffic. Yet, as discounts can come in many forms, retailers are left to wonder what resonates most with shoppers.  In a new paper[1], researchers explore whether consumers are more inclined to open their wallets when presented with a price reduction that can be seen directly on a product’s price tag or when offered a separate coupon which can be used when buying something.

As consumers, we often face choices among products in the same category, each having unique features. For instance, a store might offer discounts on various mobile phones, each with different functions and price ranges as part of a multi-products promotion. Sometimes, the price tags of these products already include a discount, like HKD50 off for phones with different screen sizes. This is known as an integrated discount. In other cases, we get a coupon of the same value that can be used to buy any phone on sale, which is called a non-integrated discount. From an economic perspective, both promotions offer the same benefit to buyers. But how do consumers respond to these alternatives?

After conducting fourteen experiments including a field study involving real purchases, the results are clear: when conducting multi-products promotions, sellers should favor offering coupons over displaying reductions on price tags, especially when trying to move higher priced products.

When customers check price tags, they usually compare the final prices after discount. However, when using coupons, customers tend to skip the somewhat complex task of calculating the final prices, referring instead to the products’ original prices. Because the numerical difference of, say, HKD 10 appears smaller between two larger numbers (e.g., the list or initial prices) than between two smaller numbers (e.g., the final prices after discount), ignoring the final prices makes the perceived price gap between the compared products smaller. This “final price neglect” – which only happens in promotions involving multiple products – makes higher-priced options seem more appealing, although the impact is less pronounced for items considered relatively inexpensive or when promotions use a "percent-off" format. Sellers should also be aware that the “final price neglect” associated with non-integrated promotions is much less likely to occur online, where virtual “coupons” and discounted price tags often co-exist on the same web page.

While the lessons for sellers are obvious, what about the buyers? Firstly, when given a voucher, make sure to bring your calculator when you hit the store – especially when looking at pricier items – if you don’t want to be nudged into spending more than necessary. It’s also better to shop online; the thrill of the in-store bargain hunt may be diminished, but your chances of getting a better deal are higher than when you stroll through the aisles in pursuit of that must-have item!

Reference:

1]  Jia, H., Huang, Y., Zhang, Q., Shi, Z., & Zhang, K. (2023). Final Price Neglect in Multi-Product Promotions: How Non-Integrated Price Reductions Promote Higher-Priced Products. Journal of Consumer Research, Article ucad045. Advance online publication. (https://doi.org/10.1093/jcr/ucad045)