Elsevier

Journal of Retailing

Volume 92, Issue 2, June 2016, Pages 173-184
Journal of Retailing

Sometimes “Fee” Is Better Than “Free”: Token Promotional Pricing and Consumer Reactions to Price Promotion Offering Product Upgrades

https://doi.org/10.1016/j.jretai.2015.09.001Get rights and content

Highlights

  • Examine price promotion offering product upgrades for free versus at a token price.

  • Deal evaluation is more positive when upgrade is token-priced rather than free.

  • Results hold for hypothetical and real product choices.

  • Articulating deal savings eliminates the effects of token promotional pricing.

Abstract

Conventional wisdom suggests that for price promotions offering product upgrades, the best promotional price to maximize promotion effectiveness is to offer product upgrades for free (e.g., buy an 8″ birthday cake, upgrade to 10″ for free). This research examines a counterintuitive pricing scheme coined “token promotional pricing (TPP)”, showing that a price promotion can be more effective and can generate greater sales when the upgrade is offered at a small, token price (e.g., upgrade the cake for 1¢) rather than free. Results from Studies 1 and 2 attest to the robustness of the TPP effect involving hypothetical and real product purchase, and help rule out several alternative explanations of the TPP effect. Consumers’ more positive reaction to a token-priced than a free upgrade is hypothesized to be a contrasting effect from consumers’ comparing the upgrade's regular retail price against a disproportionally small (but non-zero) promotional price. Accordingly, asking consumers to articulate deal savings prior to evaluating the deal, which disinhibits relative thinking and encourages consideration of absolute values, renders a token-priced upgrade no more attractive than a comparable, free upgrade (Study 3). The article concludes by discussing research implications and limitations, and offers suggestions for followup study.

Section snippets

Product Upgrade in Conditional Price Promotion

A popular form of price promotion is to offer consumers upgrades of their purchased products at a special price (see e.g., Palmeira and Srivastava 2013). The many real-world examples already cited are cases in point. Specifically, an upgrade can be delivered as a supplementary good, which provides utility if consumed with the focal, base product (e.g., toothpaste for toothbrush; Guiltinam 1987). By virtue of introducing new features or capacities the base product does not have, the

Study 1

Study 1 tests the hypotheses that consumers evaluate a price promotion more positively when the upgrade is offered at a token price than free (H1), provided that the token price is sufficiently small relative to the regular retail price of the upgrade (H2).

Study 2

Study 2 was conducted with two goals in mind. First, it sought to replicate the TPP effect by allowing participants to purchase real products with real payoffs. Second, it tentatively ruled out several alternative explanations of the TPP effect.

Study 3

Study 3 examines whether encouraging consumers to contemplate the absolute amount of deal savings diminishes the TPP effect.

General Discussion

A popular form of price promotion, widely adapted by retailers around the globe, is to offer consumers a free upgrade of a pre-purchased base product to an augmented option. Freebie marketing may not be a retailers’ panacea (Raghubir 2004; cf. Kamins, Folkes, and Fedorikhin 2009), but contemporary literature documents a considerably larger body of evidence suggesting the many benefits a free offer can bring to the retailer. For example, freebies can provoke delight and rejoicing from the

Acknowledgement

The author thanks the Editor, the Associate Editor, and three anonymous reviewers for their insightful comments on earlier drafts of this manuscript. This research was partly supported by a startup research fund awarded to the author by SWUFE.

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