When Retailing and Las Vegas Meet: Probabilistic Free Price Promotions

Nina Mazar (), Kristina Shampanier () and Dan Ariely ()
Additional contact information
Nina Mazar: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada
Kristina Shampanier: Analysis Group, Boston, Massachusetts 02199
Dan Ariely: Duke University, Durham, North Carolina 27705

Management Science, 2017, vol. 63, issue 1, 250-266

Abstract: A number of retailers offer gambling- or lottery-type price promotions with a chance to receive one’s entire purchase for free. Although these retailers seem to share the intuition that probabilistic free price promotions are attractive to consumers, it is unclear how they compare to traditional sure price promotions of equal expected monetary value. We compared these two risky and sure price promotions for planned purchases across six experiments in the field and in the laboratory. Together, we found that consumers are not only more likely to purchase a product promoted with a probabilistic free discount over the same product promoted with a sure discount but that they are also likely to purchase more of it. This preference seems to be primarily due to a diminishing sensitivity to the prices. In addition, we find that the zero price effect, transaction cost, and novelty considerations are likely not implicated.

Keywords: perception; gamble; uncertainty; prospect theory; probability weighting; value; Weber–Fechner (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:63:y:2017:i:1:p:250-266

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