The Long-term and Spillover Effects of Price Promotions on Retailing Platforms: Evidence from a Large Randomized Experiment on Alibaba

Dennis J. Zhang (), Hengchen Dai (), Lingxiu Dong (), Fangfang Qi (), Nannan Zhang (), Xiaofei Liu (), Zhongyi Liu () and Jiang Yang ()
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Dennis J. Zhang: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130
Hengchen Dai: Anderson School of Management, University of California, Los Angeles, California 90095
Lingxiu Dong: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130
Fangfang Qi: Tmall Business Unit, Alibaba Group, Inc., 310023 Hangzhou, China
Nannan Zhang: Tmall Business Unit, Alibaba Group, Inc., 310023 Hangzhou, China
Xiaofei Liu: Tmall Business Unit, Alibaba Group, Inc., 310023 Hangzhou, China
Zhongyi Liu: Tmall Business Unit, Alibaba Group, Inc., 310023 Hangzhou, China
Jiang Yang: Tmall Business Unit, Alibaba Group, Inc., 310023 Hangzhou, China

Management Science, 2020, vol. 66, issue 6, 2589-2609

Abstract: Dynamic pricing through price promotions has been widely used by online retailers. We study how a promotion strategy, one that offers customers a discount for products in their shopping cart, affects customer behavior in the short and long term on a retailing platform. We conduct a randomized field experiment involving more than 100 million customers and 11,000 retailers with Alibaba Group, one of the world’s largest retailing platform. We randomly assign eligible customers to either receive promotions for products in their shopping cart (treatment group) or not receive promotions (control group). In the short term, our promotion program doubles the sales of promoted products on the day of promotion. In the long term, we causally document unintended consequences of this promotion program during the month after our treatment period. On the positive side, it boosts customer engagement, increasing the daily number of products that customers view and their purchase incidence on the platform. On the negative side, it intensifies strategic customer behavior in the posttreatment period in two ways: (1) by increasing the proportion of products that customers add to their shopping cart conditional on viewing them, possibly because of their intention to get more shopping cart promotions, and (2) by decreasing the price that customers subsequently pay for a product, possibly because of their strategic search for lower prices. Importantly, these long-term effects of price promotions on consumer engagement and strategic behavior spill over to sellers who did not previously offer promotions to customers. Finally, we examine heterogeneous treatment effects across promotion, seller, and consumer characteristics. These findings have important implications for platforms and retailers.

Keywords: dynamic pricing; platform operations; retail operations; field experiment; reference point (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:66:y:2020:i:6:p:2589-2609

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