Research Insight: When Conditional Promotions Backfire
Discounts ideally provide win−win situations for both consumers and businesses. But not all discounts are equally effective: This Journal of Marketing Research study shows that certain conditional promotions, which require consumers to meet a specific condition before qualifying for a discount, can hurt more than they help.
Imagine that a retailer offers a $700 discount on a $1,000 smartphone, but only if the customer activates a new two-year service plan costing $1,200 ($50/month). Although the $700 discount can initially seem attractive, the study finds that the high cost of the precondition ($1,200) can deter customers from taking the deal.
Overall the research shows that conditional promotions with high precondition costs and high discounts are the most likely to decrease total sales of the promoted product. In contrast, promotions with low precondition costs and high discounts tend to increase sales. In addition, the mere existence of a steep discount can make the full-price version seem less appealing, reducing sales even when no promotion is applied.
Firms should understand that the structure of a promotion matters just as much as the size of the discount. Businesses should carefully consider both the costs and psychological impact of conditional offers—otherwise they may backfire.
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What You Need to Know
- Conditional promotions are price promotions that require consumers to meet a precondition to qualify for a discount.
- Conditional promotions with a low precondition cost and high discount are the most likely to increase total sales of the promoted product.
- Conditional promotions with a high precondition cost and high discount are the most likely to decrease total sales of the promoted product.
Abstract
Conditional promotions are price promotions that require consumers to meet a precondition to qualify for a discount. While research shows that conditional promotions can increase sales of the promoted product compared with no promotion (i.e., sales at the regular price), this article identifies the conditions under which conditional promotions can decrease sales of the promoted product compared with no promotion. Across five studies, the authors find that conditional promotions with a high precondition cost and high discount are the most likely to decrease total sales of the promoted product. The authors theorize that this decrease occurs because the high precondition cost deters consumers from purchasing the promoted product under the promotion, while the high discount and corresponding decrease in transaction utility deter consumers from purchasing the promoted product at the regular price. These findings contribute to the promotions literature by identifying when and why conditional promotions help or hurt total sales of the promoted product.
Andong Cheng and Ashley Stadler Blank, “The Conditional-Promotion Paradox: When and Why Conditional Promotions Decrease Total Sales of the Promoted Product,” Journal of Marketing Research, 62 (3), 526–42. doi:10.1177/00222437241309324.