Consumers are affected by discounts, even after the discount is retracted

Imagine that new stereo you are considering buying has a hundred-dollar discount. Now imagine that the pre-fabricated stereo stand you are also considering buying is half price, from fifty dollars down to twenty-five dollars. Do we regard these discounts any differently? An article in the December 2004 issue of the Journal of Consumer Research says that we do.

In the article, Luc Wathieu of the Harvard Business School, and his colleagues, note that "higher quality, higher regular price brands are less likely to be chosen after posting and retracting a price discount, whereas lower quality, lower regular price brands will continue to divert buyers away from higher quality brands after the discount is retracted with no detrimental impact on their own initial customer base."

The authors explain that previous research has not investigated the idea of different quality brands and effect of discounts on subsequent consumer behavior. The research summarized reflects four experiments that sought to explore this issue more deeply.

In addition to the general findings regarding the disparity of quality with regard to discount, the authors also note other applications for the research. "Beyond highlighting the detrimental effects of promotions on higher quality brands, this research (perhaps more interestingly) suggests that temporary discounts can be used by cheaper brands to permanently divert consumers away from high-end competitors," the article states. "An implication of these findings is that retailers who seek to create an enduring advantage for their store brands might be best advised to encourage in-store discounting by national brands."

From The Asymmetric Effect of Discount Retraction on Subsequent Choice. LUC WATHIEU, A. V. MUTHUKRISHNAN, BART J. BRONNENBERG.

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