The Effects Of Low Price Discounts On Purchase Propensity

Professor John Maule from the University of Leeds describes new research into the way that consumers choose a product.

Young and Faber (2000), states that in addition to the atmospheric factors such ambient factors, design factors and social factors, promotion (e.g. sales and free gifts) can also be considered as an atmospheric stimuli or factor, which influences the impulse buying behavior of the consumers. Also Young and Faber suggest that consumer’ personal characteristics are directed related to impulsive buying

Hoyer, W. D., MacInnis, D. J., & Pieters, R. (2012). Consumer Behavior, 6e, 6th Edition.

G. Industry Analysis – The supermarket and grocery store industry is maintaining throughout the economic crisis that America is currently experiencing. As stated by the Market Report of “Grocery Stores”, “The industry fared well during the economic recession of the late 2000s, as more Americans chose to eat at home rather than go out. During this time grocery stores focused on providing economical food choices for cash-strapped consumers.” However, as the economy continues to improve, more people may choose to eat out which could cause the industry to marginally suffer. Additionally, Supermarketnews.com states, “…the 75

Figure 1. Supermarkets and Other Grocery (except Convenience) Stores Industry (U.S.) Analytics, Extensive Financial Benchmarks, Metrics and Revenue Forecasts to 2022, NAIC

Consumers respond to the "Buy One Get One Half Off" (or BOGO 1.5) sales promotion because it gives an impression of savings and serves as an incentive for the consumer to get two items for one and a half price. Perhaps, rational consumers evaluate their choices and act systematically to achieve their objectives. Marginal changes are incremental changes to the existing plan of action. The rational consumer can precede a better decision when thinking of the margin. They only act if marginal benefit exceeds the marginal cost. If acting on the promotions, the consumers will receive a better value by purchasing the products. On the other hand, if the consumers choose to forego the deals then the promotion does not support consumers' objectives.

The most recent major purchase made was during the Black Friday sales over the past Thanksgiving Holiday. The promotion was influential because while there wasn't anything that I necessarily needed, I was convinced to purchase items just because of the perception of making a deal. Like many others, the idea of saving money, even money that was never intended to be spent, is ideal enough to convince many people that they should head out into the crowds and craziness of Black Friday (Tuttle, 2017). Not only did we make major purchases, such as televisions, we also bout many smaller items as well.

The supermarket and hypermarkets are where tens of thousands of products are gathered in one location, in continuous, year-round supply. Global food retail sales are about $4 trillion annually, with supermarkets and hypermarkets accounting for the largest share of sales (www.ers.usda.gov/). At present vast changes are sweeping through the industry as major supermarkets such as Safeway and Kroger cut prices and lower operating costs

In the US, supermarkets are the first choice for customers because they offer a large number and different kinds of things to meet the needs of the consumers. In 2014, the annual value sales of supermarkets reached US$ 365.4 billion so that they remain the top in grocery retailing channel which account for above one third of grocery retailing value market. (Euromonitor International, 2015)

A lot is on the line; its win or lose at the retail retire. Studies demonstrate that when purchasers shop, they settle on decisions in as meager as 20 seconds. They likewise disregard up to 2/3 of classification items in retail situations. These insights clarify why such a variety of items fall flat.

People are impatient and discount (Asymmetric Discounting) future rewards more when they are asked to delay consumption than when they are offered the chance to accelerate consumption (Harass, 2004). Asymmetric discounting implies that consumers are relatively farsighted when making tradeoffs between rewards at different times in the future, but pursue immediate gratification when it is available (Camerer, 2006). Discounting is most likely to be found for products that involve immediate benefits with delayed cost such as the use of credit cards. People often make errors when choosing and using financial products, and can suffer considerable losses as a result. Using behavioral

Pricing strategies can vary from offering relatively stable prices across a wide range of products, which is known as Everyday Low Pricing (EDLP) or Promotional Pricing (PROMO) which involves emphasising deep and frequent discounts on smaller sets of goods (Ellickson and Misra, 2008). The EDLP store adopts a constant everyday low prices across a wide range of product categories, whereas PROMO or Hi-Lo stores occasionally price a category at the regular price or at a deep discount (Bell and Lattin, 1998). Ellickson and Misra (2008) argue that the concept of choosing the best pricing strategy is a complex process as it forces firms to balance the preferences of their consumers, as well as taking into account their competitors performances in terms of the store pricing and market share.

There is a large amount of literature about the pricing strategy or consumers’ behaviour for different sales promotion but there is surprisingly little research about the contributing factors that prompt customers’ buying behaviour. However by analysing consumers’ reaction to sales promotions, we can determine whether customers make their purchasing decisions based on internal or external factors. The internal factors would be customers’ initial needs, while external factors would include the influence of promotion advertising.

Having introduced the essence of the nature of impulse purchasing we can now look at the external factors that influence consumers at the moment of the decision to buy impulsively. In order to clarify what is meant by external, we should define what the external environment includes and what the internal environment includes. When we refer to the external environment we look at factors such as the weather,

In extant literature, there have been efforts to explain the framing effects of sales promotion by referring to mental accounting theory. Thaler and Johnson (1986) have proposed that consumers use hedonic rules to edit their mental accounts, therefore when they see a small gain (e.g., price discount) relative to a big loss (e.g., purchasing cost), they prefer to separate them psychologically into two different accounts rather than integrate them. This is the silver lining principle (based on prospect theory) and it also says that utility functions are concave for gains and convex for losses, and the curve for losses is steeper than that for gains. Because the size of a promotion is usually small relative to the purchasing cost, consumers should create a new account for the promotion rather than integrate it into the purchasing cost, regardless of the promotional types.