Journal of Product & Brand Management

Framing online promotions: shipping price inflation and deal value perceptions
Patrali Chatterjee,
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Patrali Chatterjee, (2011) "Framing online promotions: shipping price inflation and deal value perceptions", Journal of Product &
Brand Management, Vol. 20 Issue: 1, pp.65-74, doi: 10.1108/10610421111108030
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 Pricing strategy & practice

Framing online promotions: shipping price

inflation and deal value perceptions
Patrali Chatterjee
School of Business, Montclair State University, Upper Montclair, New Jersey, USA

Abstract
Purpose This research seeks to examine differences in perceived shipping charge inflation associated with online promotions presented as reducing
base product price, reducing shipping surcharge, or reducing all-inclusive price and its impact on deal values for shipping charge skeptics and non-skeptics.
Design/methodology/approach Drawing from research on multi-component pricing and mental accounting, a laboratory experiment investigates
if shipping charge skeptics differ in their perceptions of shipping charge inflation for different presentations of online promotions from non-skeptics, and
if they differ in perceived deal value of economically equivalent promotions presented as reduced product price, reduced shipping charge promotion, or
reduced all-inclusive price for high and low priced items with small or large shipping fees at retail websites.
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Findings Analyses show that shipping charge skeptics differ from non-skeptics in their perceptions of shipping charge inflation and deal values for
different online promotions only when the surcharge is large relative to the base price. Reduced price promotions are most attractive for high-priced
items with low surcharge but least attractive for large surcharge sizes. For large surcharge sizes, shipping charge skeptics prefer reduced all-inclusive
price promotions to reduced shipping promotions, while non-skeptics prefer reduced shipping promotions to reduced all-inclusive price promotions.
Research limitations/implications The results suggest that the effectiveness of various promotion frames at online stores differ based on base
price, surcharge size, and consumer skepticism of shipping charge. Robustness of the results obtained at different levels of discount sizes need
investigation.
Practical implications Online retailers that have to charge high shipping fees can use promotions to shift the referent price component used by consumers
to calculate savings and mitigate perceptions of shipping or base price inflation. For equivalent dollar savings, retailers can use reduced shipping charge
promotions to communicate higher deal values to shipping charge non-skeptic consumers than reduced base price or reduced all-inclusive promotions.
Originality/value This research examines how consumer perceptions of deal values differ, even though objective savings and financial outlay is the
same, when promotions are presented as reducing product price versus surcharge.

Keywords Prices, Accounting, Retailing, Electronic commerce

Paper type Research paper

Introduction charges, taxes etc. It is also of particular relevance to

There is considerable published research documenting that
different implementations or semantic presentation of the
same retail price reduction can change consumers perception
of a promotion offer (Sinha and Smith, 2000; Gilbride et al.,
2008; DelVecchio et al., 2009). When prices have a single
component, base price of the product, savings associated with
sales promotions reduce the base price thus communicating
superior transaction value to consumers. However, if the price
of a product is made of multiple components, a retailer has
the flexibility of presenting the promotional offer to reduce
one or more price components (not just base product price).
There are many examples of multi-component pricing in the
marketplace: warranty and services associated with products,
cell phone purchase along with activation fees, service
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
20/1 (2011) 65 74
q Emerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/10610421111108030]
purchases in remote channels like catalogs or the internet
where consumers pay a base product price and a shipping
surcharge (for product delivery). This research focuses on
surcharge components that are mandatory (e.g. shipping
charges for non-digital products purchased online that cannot
be consumed otherwise) but not components that consumers
can purchase separately (e.g. salesperson suggests optional
replacement plan when consumers purchase household
appliances), and are strategically managed by retailers (e.g.
while sales tax is a mandatory surcharge, consumers perceive
it to be outside the control of the retailer).
In remote retail channels, shipping charge is a mandatory
price component in addition to base product price when
consumers purchase non-digital products. This offers retailers
multiple possibilities of presenting the various components of
price. It does not add any tangible value to the physical
product but provides the means to transport the product to
the customer (Schindler et al., 2005). Retailers can offer or
change how promotional offers are presented in real-time to
improve their positions on shopbots and compete on the basis
of price. Various shopbots differ in how they order products in
their listings, some use product price, whereas others use
landed price (base product price plus shipping and handling).

65
 Framing online promotions
Patrali Chatterjee
Studies have shown that when retailers offer shipping
promotions, they achieve the highest customer satisfaction
ratings and are the most influential aspect in ones decision to
make a purchase online (Vascellaro, 2006). While there is
considerable research documenting that different
implementations or framing of the same retail price
reduction (cents off, percentage off, or discounted price)
can change consumers perception of a promotion offer
(DelVecchio et al., 2009), research is lacking on consumer
perception of different presentations of shipping promotions.
Differences in the framing of base product price, shipping
charges, and promotions can impact purchase incidence and
lead to differences in retailer profitability and is the focus of
this research.
Consider a product with base price $20, shipping cost $4
(surcharge 20 percent of base price) and a $3 off promotion
(discount size of 15 percent of base price). Consumers infer
total price (base price 2 promotional savings shipping) to
calculate the total monetary outlay for the purchase of a
product at an online store. A retailer can frame the final
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purchase price of $21 as one of the following ways reduced
base price promotion, reduced shipping promotion, or
reduced all-inclusive price promotion as shown in Table I. If
the promotional discount equals or exceeds the shipping fee,
the free shipping promotion and reduced shipping promotion
would be the same. Since the financial outlay and dollar value
of savings is the same for all promotion frames, rational
analysis of costs in comparison to regular (unpromoted price)
should not lead to any differences in deal values across
consumers.
However, given that relative savings differ dramatically
based on whether product price or shipping is used as the
referent (see columns 3 and 4 in Table I) regular price, multi-
component pricing, price partitioning theory, and reference
dependence theory would suggest that consumers will differ
in their perceived deal value and inferences of shipping charge
inflation for each promotion frame. Online retailers face the
challenge of selecting promotion frames that maximize deal
evaluations for high and low priced products and for high and
low level of shipping charge relative to base product price.
There is considerable research indicating that different
presentations of promotions with the same product price
reduction can change consumers perception of a promotion
offer (Lichtenstein and Bearden, 1989; Yadav and Monroe,
Table I Promotional frames used by online retailers
Promotion frame mechanism As displayed to consumers ($)
Promotion offered on bundled/ Price: 24
all-inclusive price S/H: 0
Save: 3 off total price
Partitioned prices
Sale or reduced product price Price: 20
savings reduce base price $ off: 3 on product price
S/H: 4
Reduced shipping savings Price: 20
reduce shipping surcharge S/H: 4
$ off: on shipping
Journal of Product & Brand Management
Volume 20 Number 1 2011 65 74
1993; Sinha and Smith, 2000). However, prior research has
not examined if consumers differ in their perceptions of
equivalent promotions presented as reduced product price
promotions versus reduced surcharge promotions. Prior
research on price framing has documented the deleterious
impact of reduced price promotions on internal reference
prices and product quality inferences (Grewal et al., 1998).
However it is unknown if those negative inferences persist for
reduced shipping promotions. This paper examines if
consumers differ in their perceptions of deal value and
shipping charge perceptions for economically equivalent
promotions presented as reducing shipping charges (reduced
shipping promotions), or product price (reduced product
price) or as reduced all-inclusive price and if these perceptions
differ for large versus small shipping surcharge size for high
and low priced products.
This paper contributes to the literature on promotion
framing by examining how consumers differ in their
evaluations of promotions offered on product base price
versus shipping charges, since both can be strategically
managed by retailers. Are economically equivalent reduced
shipping promotions more or less attractive compared to
reduced base price promotions? Given that costs of product
delivery are high for retailers in some product categories, do
consumers differ in their perceptions of shipping charge
inflation across promotion formats for low-priced versus high-
priced products? Further, this research contends that
consumers differ in their framing of shipping promotions
compared to monetary promotions based on the relative size
of surcharge to base product price. As more retailers wield
shipping charges and shipping promotions as a competitive
tool to increase purchase incidence at their sites
(Mangalindan, 2006), examination of consumer responses
to shipping promotions in relation to other commonly used
promotion frames is warranted.
Theoretical background
Presenting a price promotion in different ways is similar to the
framing of purchase decisions provided the benefits received
by consumers from the promotion are constant. Research on
how consumers process and internalize the price stimulus in
purchase situations has examined such issues as reference
price, deal framing, price recall accuracy, encoding, and
storage. One key generalization from this literature is that
Change to price component after Change to price component after
promotion (%) promotion ($)
Price: 212.5 Price: 2 3
Price: 215 Price: 2 3
S/H: 0 S/H: 0
Price: 0 Price: 0
S/H: 2 75 S/H: 2 3
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 Framing online promotions
Patrali Chatterjee
consumers are highly sensitive to context, including semantic
cues in promotion offers. We draw upon prior research in
partitioned or multi-component pricing and mental
accounting that have implications on this research.
Partitioned prices versus bundled or all-inclusive prices
Price partitioning involves separating the total cost (or
bundled price) into a base price and one or more
surcharges (Morwitz et al., 1998). Prior research on
consumer evaluation of multiple versus single prices suggest
that consumers perceive multiple gains as more rewarding and
multiple losses as more punishing than a single gain or a single
loss of the same amount respectively. This is suggested by
prospect theory (Kahneman and Tversky, 1979) and mental
accounting theory (Thaler, 1985). Price components
represent losses, thus suggesting that consumers prefer a
single bundled price (loss) as less punishing than multiple or
partitioned prices (losses). Researchers suggest two additional
moderating factors, consumers knowledge of product prices
and relative magnitudes of prices being evaluated (Mazumdar
and Jun, 1993).
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When one price component is significantly smaller than the
other, the cognitive cost of integrating price components can
be perceived to be larger than the benefit to be gained from
the effort. Research in price partitioning suggests that
consumers often ignore the surcharge while arriving at their
purchase decision, when the surcharge is small relative to the
base price (Sheng et al., 2007) or surcharge is effortful to
process such as when the surcharge is presented as a
percentage of the base price (Morwitz et al., 1998). When
surcharge is perceptually large relative to the base price, prior
research suggests that price components should be bundled or
be presented as all-inclusive, so surcharge is not explicitly
stated to mitigate perceptions of unfairness (Sheng et al.,
2007).
Perception of benefits from base product versus
surcharge
Research on multi-component pricing suggests that
surcharges presented separately from product price actually
draw attention to product characteristics associated with it
(e.g. the reliability of the product if the surcharge is for an
extended warranty; Chakravarti et al., 2002). Further, there is
an inverse relationship between perceived benefit and
consumers price sensitivity, consumers prefer partitions in
which they pay less for components that have low perceived
benefits and more for components that have high perceived
benefits (Hamilton and Srivastava, 2008).
Extrapolating to the context of shipping charges in online
retailing, if consumers perceive shipping charges to provide
lower consumption benefit to that of the core product, they
are likely to evaluate shipping price versus benefits separately
from product price versus benefits in their evaluations of a
deal. Though shipping and labor are both perceived as
providing less benefit than the product (auto part), Hamilton
and Srivastava (2008) found that participants preferred
partitions in which shipping was 0 percent of the total price
but not partitions in which labor was 0 percent of the total
price. Since consumers are more likely to be exposed to free
shipping offers (0 percent of the total price) rather than free
labor on services, it indicates that preferences for partitions
allocating no charge to the low-benefit component may
depend on marketplace norms.
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Journal of Product & Brand Management
Volume 20 Number 1 2011 65 74
Hypothesis
The principal dependent variable in this study is perceived
transaction value of the deal, which represents a consumers
evaluation of the financial terms of the deal per se and is equal
to internal reference price (from memory or based on normal
prices charged) minus the purchase price, while controlling
for the acquisition value of the offer (Thaler, 1985; Yadav and
Monroe, 1993). One major difference of this research from
previous studies is that it examines the effect of different
promotional representations on deal value perceptions where
underlying financial outlay and objective savings is the same.
Previous articles have focused on the main effects of semantic
cues (other than reduced shipping promotions) and
magnitude of surcharge relative to base price on preferences
for partitioned or bundled price components. This research
posits that in addition to magnitude of surcharge relative to
base price, the magnitude of base price itself, and individual
differences in valuation of shipping benefits will moderate the
relationship of promotion frame on deal evaluations as we
discuss next.
Role of promotion framing in presence of surcharge
Many online retailers offer promotions to increase purchase
incidence. A typical promotion offered on product price
represents a small gain relative to a larger loss (i.e. price paid),
or a mixed loss (Thaler, 1985). Research on price perception
suggests that reference states or prices influence deal
evaluations and consumers evaluate proportional (or
relative) deviations rather than objective (or raw) deviations
from reference states (Heath et al., 1995). Consumers
perception of deal value will depend on whether the
promotion is presented as reducing product price (similar to
past research), or reducing shipping charges (which has not
been investigated in prior research) or reducing total price.
We posit that a promotion can make the price component
associated with it salient, and induce perception of savings
with respect to that component rather than the other.
Reduced price promotions reduce the total cost of
acquiring a product as well as the base price of the product.
Prior research indicates that reduced price promotions that
are available to all buyers lead to negative quality inferences,
lower internal reference price and increase regular price
inflation perceptions (Chen et al., 1998). In contrast, reduced
shipping promotions reduce the total cost of acquiring a
product without reducing the base price of the product, but it
is not known if they lead to perceptions of regular shipping
price inflation. Even if reduced shipping promotions are
available to all buyers, we do not expect them to lead to
negative quality inferences or internal reference price. When
prices are presented as all-inclusive, consumers do not know
the prices of individual components. Reduced all-inclusive
promotions reduce total price but do not indicate which or
any price component was reduced. In real life situations,
consumers will rely on memory, use information accessible at
point of sale, or search for product and/or shipping costs for
same or related products (Johnson and Levin, 1985).
Shipping charges as a price component are perceived to be a
disutility by consumers since they increase the cost of
acquiring the product but do not add to the core value of the
product (Schindler et al., 2005). Reluctance in accepting
shipping and handling fees may be due to a perception that
the fees may contribute to the firms profit rather than just
 Framing online promotions
Patrali Chatterjee
cover the incurred cost (Xia et al., 2004). When surcharge is
large relative to base price and prices are partitioned
consumers are more likely to be skeptical of the retailers
pricing tactics and ascribe unfair profit motives to the retailer
leading to inferences of price inflation when prices are
partitioned (Sheng et al., 2007). This does not occur when
price components are bundled.
Commercial reports suggest that online retailers offer
shipping promotions to partially offset the pain of shipping
surcharges on products associated with high transportation
costs (Mangalindan, 2006). However, if they lead to
suspicions that retailers inflate regular shipping charges
before offering shipping promotions to preserve their profit
margins, it will lower effectiveness of shipping promotions,
similar to price discounts (Chen et al., 1998). Since most
comparison shopping websites order retailers on the basis of
product price, retailers may avoid inflating product price for
competitive reasons and instead choosing to inflate shipping
charges. Hence:
H1. Consumers will perceive higher likelihood of regular
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shipping charge inflation for reduced shipping
promotions followed by (a) reduced all-inclusive
promotions and (b) least for reduced price promotion
when presented with large surcharge size relative to
base price.
Role of shipping charge skepticism
Individual differences in valuation of benefits from shipping
services will interact with perceptions of shipping charge
inflation from reduced price, shipping, and all-inclusive
promotions. Consumer skepticism regarding shipping charges
is defined as the degree to which consumers tend to believe
that shipping charges are used as a means to enhance sellers
revenues and profits rather than simply as a means for getting
the product to the consumer. Shipping charge skeptics do not
believe that having products shipped to their door is a service
worth paying for and that shipping provides no consumption
benefit (Schindler et al., 2005). In contrast, shipping charge
non-skeptics believe shipping provides a benefit which may be
lower compared to that of the core product (Schindler et al.,
2005). Shipping-charge skeptics tend to view shipping charges
as unfair sources of profit for direct marketers and will like
reduced shipping promotions less when shipping charges are
made salient via a partitioning strategy. Compared to
reference (regular or unpromoted) prices that state shipping
charges, skeptics will prefer reduced all-inclusive promotions
that explicitly state savings but hide shipping charges to
reduced price and shipping promotions.
Most consumers do not know the true cost of shipping a
product even after completing their purchase of a product
with an all-inclusive price. However, consumers realize that
shipping charges have to be incurred by the retailer even when
no shipping charges are specified in reduced all-inclusive
promotions. While reduced all-inclusive promotions might be
the answer to reduce perceived shipping charge inflation for
skeptics, non-skeptic consumers may suspect that it is easier
for retailers to inflate all-inclusive prices to mask absorption of
shipping costs, especially when regular or reference prices
indicate large surcharge size. Non-skeptics tend to interpret
shipping charges as just covering the sellers costs of getting
the ordered items to the consumers doorstep. They will feel
less pain of paying the shipping charge when they can more
68
Journal of Product & Brand Management
Volume 20 Number 1 2011 65 74
accurately assess the offers value, and thus would prefer an
reduced base or shipping promotion over a reduced all-
inclusive price promotion, hence:
H2. For large surcharge size, the difference in perceptions
of shipping charge inflation for skeptics versus non-
skeptics will be higher for reduced shipping promotion
compared to (a) reduced all-inclusive promotion and
(b) reduced base price promotion in comparison to
regular price.
Impact of base product price level and relative
surcharge size
Consumers perceive lower consumption benefits from
shipping charges than from the base product (Schindler
et al., 2005; Hamilton and Srivastava, 2008). This finds
support in reports of backlash in response to the proliferation
of surcharges by online firms and reports of shipping charges
being the primary cause of shopping cart abandonment online
(Keogh, 2006). Prior research on multi-component pricing
suggests that when prices are partitioned, consumers are likely
to evaluate each price component separately in relation to the
consumption benefit provided by each (Chakravarti et al.,
2002). If the price of one product component (e.g. shipping)
is small relative to the price of other components (e.g. base
product price), consumers may be relatively insensitive to the
price of the lower-price component (Monroe, 1990),
especially if it is perceived to provide lower benefit than the
large price component. Price partitioning theory suggests that
a surcharge is relatively low consumers are likely to ignore
shipping surcharge (Morwitz et al., 1998) and evaluate deal
value on the basis of recalled price for reduced price
promotions (base product price promotional savings) and
shipping promotions (base product price). Darke et al. (1995)
suggest that for low-priced products consumers are more
likely to use simple heuristics and are unlikely to integrate
promotional savings (especially for low discount sizes) since
there is little benefit from extensive processing. Hence, we do
not specify any hypothesis for small surcharge size.
If the low-benefit price component (e.g. shipping) is
proportionally larger (large surcharge size) to the high-benefit
price component (e.g. base product price), consumers will
place undue importance on the low-benefit component
(Hamilton and Srivastava, 2008). Further, the effect of
promotion frame and surcharge size relative to base price on
deal evaluations is moderated by the base price of the
product. Darke et al. (1995) suggest that for low-priced
products consumers are more likely to use simple heuristics
and are unlikely to process the multiple price components
(surcharge and promotional savings) extensively since they
expect to derive little benefit from further processing.
However for high-priced products, consumers will
extensively process price and promotion information since it
involves a larger monetary outlay and the benefits from
extensive processing are higher than the costs of a wrong
choice. Consumers will have the incentive to integrate the
promotional savings since the additional money saved from
price reductions in high-priced products offer greater latitude
to spend it for some other purpose than low-priced products.
Consumers are likely to perceive a higher transaction value
from price promotions for higher-priced products than low-
priced products, hence deal value for reduced price
promotion (base product price promotional savings) will
 Framing online promotions Journal of Product & Brand Management
Patrali Chatterjee Volume 20 Number 1 2011 65 74

be higher than reduced shipping promotion (base product
price).
For large shipping surcharge, consumers perceive relatively
higher monetary sacrifice due to the shipping price
component ($10 S/H: $20 base price or $50 S/H: $100
base price, in our experimental design Table II) which offers
lower consumption benefit than the core product. Perceptions
of disutility associated with shipping fees will dominate
consumer perceptions of deal value and consumers are
unlikely to ignore them even for low-priced items. The
persuasion knowledge model suggests that consumers try to
defend themselves by being vigilant (Friestad and Wright,
1994), hence consumers will extensively process information
for both high- and low-priced products.
Predictions from multi-component pricing research suggest
that consumers will prefer partitions in which the price of the
low benefit component is lower (Chakravarti et al., 2002).
When consumers compare regular prices with reduced
shipping promotions ($7 S/H: $20 base price or $35 S/H:
$100 base price), the monetary sacrifice for shipping (the
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reduced all-inclusive promotion should be preferred to a
reduced base price promotion or reduced shipping price
promotion for skeptic consumers. Non-skeptic consumers
associate all-inclusive promotions with higher perceived
shipping price inflation relative to reduced shipping
promotion, hence we hypothesize:
H3. When surcharge is large relative to base price,
perceived deal values for high and low priced items
will be: (a) Highest for all-inclusive price promotions,
followed by reduced shipping promotions, and then
reduced base price promotions for (shipping) skeptic
customers; (b) Highest for reduced shipping
promotions, followed by all-inclusive price
promotions, and then reduced base price promotions
for (shipping) non-skeptic customers.
Experimental context
Design and procedure
The data for the empirical study were obtained from a

lowest benefit component) is lowered by 30 percent [(10-7)/

10 or ((50-35)/50)]. Not only do reduced base price
promotions not reduce the relative monetary sacrifice for
shipping, they increase the proportion of price accounted for
shipping to 58 percent ($10 S/H: $17 base price, $50 S/H:
$85 base price) compared to that of regular price 50 percent
($10 S/H: $20 base price, $50 S/H: $100 base price). Prior
research shows consumers are more sensitive to changes in
surcharges than to changes in base prices (Smith and
Brynjolfsson, 2001), hence we expect deal values for
reduced shipping promotions will be higher than reduced
price promotions in the presence of high surcharge for all
consumers.
Skeptic consumers prefer a single all-inclusive price as less
punishing than partitioned prices and are less likely to have
perceptions of regular shipping price inflation. For
economically-equivalent promotions, promotional savings an
all-inclusive price represent small gains from promotional
savings segregated from a larger loss the regular all-inclusive
price. The silver-lining effect (Thaler, 1985) suggests that
controlled experiment involving undergraduate students at a
Northeastern US university. The three treatment factors (base
product price, shipping charge size relative to base product
price, and promotion frame) were manipulated across these
subjects. To maintain task interest and involvement, students
considered the purchase of a fictitious brand of notebook bag
at two fictitious retailers to control for the possible
confounding effects due to brand or retailer reputation. The
choice of notebook bags is motivated by the fact that students
are familiar with purchase of notebook bags and the product
prices range from $15 to $525 at several online boutique and
office supply retailers (there is a wide variation in shipping
charges).
Research assistants conducted a survey of notebook bags
offered by retailers to guide selection of stimuli. Based on a
pretest with 30 students not in the final sample, two notebook
bags were selected as stimuli, one priced at $20 (low base
price) and the other executive version priced at $100 (high
base price). Further, survey of shipping charges by online
retailers indicated that standard shipping charges vary from

Table II Experimental stimuli

Item base price Low ($20) High ($100)
Shipping size Low ($4) High ($10) Low ($20) High ($50)
Regular price Price: $20 Price: $20 Price: $100 Price: $100
Shipping: $4 Shipping: $10 Shipping: $20 Shipping: $50

Promotion frames
Reduced all-inclusive Price: $24 Price: $30 Price: $120 Price: $150
promotion Shipping: $0 Shipping: $0 Shipping: $0 Shipping: $0
Savings: $3 off all-inclusive Savings: $3 off all-inclusive Savings: $15 off all-inclusive Savings:$15 off all-inclusive
price price price price
Reduced shipping Price: $20 Price: $20 Price: $100 Price: $100
Shipping: $4 Shipping: $10 Shipping: $20 Shipping: $50
Savings: $3 off shipping Savings: $3 off shipping Savings: $15 off shipping Savings:$15 off shipping
Reduced base price Price: $20 Price: $20 Price: $100 Price: $100
promotion Savings: $3 off product price Savings: $3 off product price Savings: $15 off product price Savings:$15 off product price
Shipping: $4 Shipping: $10 Shipping: $20 Shipping: $50
Purchase price $21 $27 $105 $135

69
 Framing online promotions
Patrali Chatterjee
15 to 50 percent of base price of items on average. The
practice of using order value to determine shipping charges is
well-established in the direct marketing industry (DMA,
2004, p. 75). Academic researchers have chosen 18.5 and
23.1 percent of base price as shipping costs (Morwitz et al.,
1998; Schindler et al., 2005), we choose 20 percent which is
within this range as well as credible based on a survey of offers
for notebook bags at various retail websites. Promotion
discount size was maintained at 15 percent of base price.
Other researchers have selected 10 percent (Hardesty and
Bearden, 2003) to 16.7 percent (Grewal et al., 1996) of base
price as low promotion level in their research. To avoid
potential confounding effects from perceptions of price
inflation due to high discount size (Chen et al., 1998) we
consider only moderate and small discount sizes since the
focus of this research is on shipping price inflation and not
perceived inflation due to promotion or discount levels.
A total of 24 versions of the experimental website were
created and hosted locally with consistent site appearance and
design across conditions (see Table II). Pre- and post-
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experiment questionnaires were integrated so responses could
be electronically recorded. On submitting their preliminary
questionnaire the experimental website was displayed. All
subjects read the same cover story on the computer screen.
Subjects were provided with the empirical scenario that you
are selected to represent your school at a prestigious National
Collegiate Case Competition. You need to buy a notebook
bag for the presentation and see the following offer for an
online retailer. Please click next to view the offers. This was
followed by information on a particular product item and its
regular price, e.g. Brand A notebook bag. Regular Price:
$20.00, Shipping: $4.00. Subsequently, Advertised Deal:
presented one of the three deal types [reduced price
promotion, reduced shipping promotion and reduced all-
inclusive price promotion] as the focal deal.
We used a 2 2 3 2 between-subject design to examine
the effect of base price level of product (2 conditions high,
low), shipping charge size (2 conditions small, large),
promotion-type (3 conditions reduced price promotion,
reduced shipping promotion, reduced all-inclusive price)
regular price order (first, second). This ensures that subjects
have a cognitive anchor in evaluating the deal value of the
focal promotion.
Participants were 234 male and 262 female undergraduate
students in two north-eastern universities. A total of 11
subjects did not complete their questionnaires and their
responses were not considered for analysis, leaving us with
485 usable questionnaires with 20 or 21 subjects in each cell.
Subjects were randomly allocated to one of the 24 conditions,
with approximately 20 subjects in each cell. Respondents
answered the pre-experiment survey, viewed experimental
stimuli and then clicked on go to next step to answer the
post-experiment questionnaire. Subjects provided responses
for dependent measures, price perception measures, shipping
charge manipulation check measures, and several measures
assessing potential alternative explanations for our results. All
respondents were thanked for their participation and
debriefed.
Measures
Dependent variables
Perceived value of deal was measured using a three-item,
seven-point semantic differential scale, bad deal-good deal,
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Journal of Product & Brand Management
Volume 20 Number 1 2011 65 74
worthless-valuable, and unattractive to me-attractive to me
with promoted prices as focal deal and regular price referent
(a 0:89, p , 0.001) (Grewal et al., 1998). An overall index
was computed by averaging these items. Higher scores
indicated higher deal value. Subjects indicated on a seven-
point Likert scale the likelihood that the retailer had inflated
the regular shipping price (1 being very unlikely and 7 very
unlikely). Shipping-charge skepticism was measured using five
items measures of the shipping-charge skepticism scale
(a 0:92, p , 0.01) as discussed in Schindler et al. (2005).
Subjects were asked to recall (or estimate in all-inclusive
condition) shipping charge and the total purchase price after
they responded to all other questions. Note that they could
not turn back to the instructions or experimental stimuli.
Other measures
Subjects also provided fair shipping charge perceptions (two
items: average price elsewhere, shipping fee if service provided
at cost) and effort to evaluate promotions (Diamond, 1992).
Purchase intention was measured as a three-item, seven-point
semantic differential scale, would purchase the product,
consider purchase at this price, probability I would
consider buying (internal consistency, a 0:91, p , 0.001)
(Dodds et al., 1991). The credibility of each of the offered
deals and shipping charge was tested on a seven-point
semantic differential scale with endpoints of not believable
and believable.
Results
Manipulation checks
To test whether base price level manipulation was successful,
a one-item base price manipulation check was included for all
promotion frame conditions. The measures were evaluated on
a seven-point scale: 1-small to 7-large. An ANOVA indicated
that base price manipulation check varied across promotion
frames (F 21:34, df 23 and 461, p , 0.01). Each pair-
wise comparison (e.g. high vs low) was significant (all
p , 0.01). Similarly, shipping charge level manipulation was
examined using one-item manipulation check and was found
to be successful in that the ANOVA across promotion frames
varied (F 32:46, df 23 and 483, p , 0.01). Finally, the
deal conditions were perceived as believable (overall
mean 5.94). Each of the individual deal evaluations
exceeded the neutral point, and these credibility ratings
ranged between 6.14-4.71. We examined perceived effort
required to evaluate the reduced all-inclusive price relative to
reduced shipping and reduced price promotion. Subjects
reported higher degrees of effort (mean 8:21) when
evaluating all-inclusive price promotion compared to
reduced shipping promotion (mean 4.92; t 5.18,
df 479, p , 0.01), and reduced price promotion
(mean 3:79; t 7:11, df 479, p , 0.01).
ANOVA results
No order effect was detected across various variables in the
study. Therefore, all analyses were conducted based on the
pooled sample. To test the effect of shipping charge
skepticism on consumer perceptions of different promotion
presentations, a median split was performed to dichotomize
consumers as either high or low in terms of shipping charge
skepticism. Then, an ANOVA was conducted on consumers
perceived likelihood of shipping charge inflation and
perceived deal value as a function of promotion type
 Framing online promotions
Patrali Chatterjee
(reduced price promotion, reduced shipping promotion, and
reduced all-inclusive price), shipping-charge skepticism (high,
low), surcharge size (large, small), base product price (high,
low) and all possible interactions (F 9.74, df 12 and 461,
p , 0.01).
Moderating role of shipping charge skepticism on perceptions of
retailer tactics
ANOVA did not yield a statistically significant main effect of
promotion type (F 1.07, df 1 and 461, p . 0.05) or base
product price for perceived likelihood of shipping charge
inflation (F 2.11, df 2 and 461, p . 0.05). Overall,
neither reduced price promotion, nor reduced shipping
promotion or reduced all-inclusive promotion themselves
lead to significant differences in perceived likelihood of
shipping price inflation.
There was a statistically significant main effect of shipping-
charge skepticism (F 18.72, df 1 and 461, p , 0.0001)
and surcharge size (F 14.65, df 1 and 461, p , 0.0001) on
perceived likelihood of shipping charge inflation. As expected,
shipping-charge skeptics perceived significantly higher
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likelihood of shipping charge inflation than non-skeptics
(MSkeptics 5:81, MNon skeptics 2:47, t 2:97, df 240,
p , 0.05) and perceptions of shipping charge inflation were
significantly higher for large surcharge than small surcharge
sizes (MLargeSurcharge 6.04, MSmallSurcharge 2.01, t 3.14,
df 240, p , 0.05). Surprisingly, the two-way interaction
effect between promotion-type and surcharge size (F 1.17,
df 2 and 461, p , 0.01) was insignificant. For small and
large surcharge sizes, there were no significant differences in
perceived shipping charge inflation between the three
promotion types thus rejecting H1a and H1b.
There was a significant three-way interaction effect between
promotion-type, shipping charge skepticism, and surcharge
size for perceived likelihood of shipping charge inflation
(F 8.71, df 2 and 461, p , 0.01). For small surcharge,
there were no significant differences in perceived shipping
charge inflation between the three promotion types
for skeptics (MSkeptics 4:2; 4:4; 3:8) and non-skeptics
(MNon
skeptic 1:7; 2:0; 1:9). For large shipping surcharge,
skeptics and non-skeptics differ in their perceptions of
shipping charge inflation for the three promotion types (see
Figure 1). The difference in perceived likelihood of shipping
charge inflation for skeptics compared to non-skeptics is
significantly higher for reduced shipping promotion compared
Figure 1 Large surcharge: shipping charge skepticism x promotion type
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Journal of Product & Brand Management
Volume 20 Number 1 2011 65 74
to all-inclusive price promotion (M 1:82 vs M 0:35;
t 1.98, df 236, p , 0.05) providing support for H2a, but
not for reduced price promotion (M 1:91, t 2:01,
df 236, p , 0.05). Hence H2b is not supported.
Deal value perceptions
The four-way ANOVA on perceived deal value yielded an
significant main effect of base price (F 2:2, df 1 and 479,
p . 0.05), significant main effect of surcharge level (F 9:7,
df 1 and 479, p , 0.01), and significant main effect of
shipping charge skepticism (F 5:8, df 1 and 479,
p , 0.05) as expected. More importantly the three-way
interaction of promotion type, surcharge level, and base
price level (F 11:9, df 2 and 473, p , 0.01), and three-
way interaction of promotion type, surcharge level, and
shipping-charge skepticism (F 8:1, df 2 and 473,
p , 0.01) were significant. The main effect of promotion
type was insignificant (F 1:03, df 2 and 479, p . 0.05),
so no particular promotion frame was perceived to be
significantly more attractive relative to the others in all
conditions. We discuss these findings in detail in the order of
our proposed hypothesis.
A 2 (base price level) 3 (promotion type) ANOVA was
conducted separately for small and large surcharge size. As
expected, for small surcharge size, there was a significant
interaction between base price level and promotion type for
perceived deal value (F 5:89, df 2 and 236, p , 0.05).
Perceived deal value will be lower for reduced all-inclusive
promotion compared to both reduced price and shipping
promotion. The direction of cell means support the prediction
from prior research that there will be no difference in
perceived deal values for reduced base price, all-inclusive, and
shipping promotion at low base price and small surcharge (see
Figure 2).
For large surcharge size, there was an insignificant
interaction between base price level and promotion type for
perceived deal value (F 2:01, df 2 and 238, p . 0.05),
hence we do not expect to find any significant differences in
deal values of the three promotion types for low and high
priced products. A 2 (shipping charge skepticism) 3
(promotion type) ANOVA was conducted separately for
small and large surcharge size. For large surcharge size, there
Figure 2 Base price level promotion type (surcharge size: small)
 Framing online promotions
Patrali Chatterjee
was a significant interaction between shipping charge
skepticism and promotion type for perceived deal value
(F 12:89, df 2 and 238, p , 0.001). However, for small
surcharge size, there was insignificant interaction between
shipping charge skepticism and promotion type for perceived
deal value (F 1:55, df 2 and 238, p . 0.05).
As predicted, in the large surcharge condition, shipping
charge skeptics perceive significantly higher deal value for
reduced all-inclusive promotion than reduced shipping
promotion (t 2:53, df 168, p , 0.05) and reduced
shipping promotion is significantly higher than reduced base
price promotion (t 2:12, df 168, p , 0.05) as Figure 3
indicates, thus supporting H3a. Shipping charge non-skeptics
perceive significantly higher deal value for reduced shipping
promotion than reduced all-inclusive promotion (t 2:94,
df 168, p , 0.05) and significantly lower deal value for
reduced price promotion compared to reduced shipping
promotion (t 0:53, df 168, p . 0.05) but insignificantly
lower deal than reduced all-inclusive promotion (t 0:53,
df 168, p . 0.05), thus partially supporting H3b.
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Perceptions of regular product price inflation
Since promotion size is small, we do not expect consumers to
infer regular base price inflation. To confirm that the
unexpected finding that reduced price promotion leads to
perceptions of regular shipping price inflation and is not
confounded with base price inflation, we examine if shipping
charge skepticism, base product price level, and promotion
type impacts consumer perceptions of regular product price
inflation. A three-way ANOVA yields a significant main effect
of base price level (F 4:69, df 3 and 477, p , 0.05) for
base price inflation, high-priced products are more likely to
lead to perceptions of regular base price inflation but not
shipping price inflation (as found earlier) compared to low-
priced products. The main effect of surcharge size (F 4:15,
df 3 and 477, p , 0.05) was significant for base price
inflation, large surcharge size is more likely to lead to
perceptions of regular base price inflation than low surcharge.
Figure 3 Shipping-charge skepticism promotion type (surcharge
size: large)
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Journal of Product & Brand Management
Volume 20 Number 1 2011 65 74
There was an insignificant two-way interaction effect of
promotion type and shipping charge skepticism size on
likelihood of base price inflation for large surcharge
(F 4:77, df 2 and 168, p , 0.05). This suggests that
promotional savings presented with large surcharge lead to
inferences of shipping price inflation but not base price
inflation.
Discussion and future research
Predictions from mental accounting theory would suggest that
consumers would integrate monetary price components with
promotional savings and encode them as reduced loss. This
would suggest that deal values associated with economically-
equivalent promotions presented as reduced shipping
promotion, reduced price promotion, and reduced all-
inclusive promotion would be equivalent. However, contrary
to expectations, results from our experiment show that
shipping charge skeptic and non-skeptic consumers differ in
their perceptions of regular shipping price inflation and deal
value perceptions for the three promotion presentations for
large surcharge but not when surcharge is small.
Economically equivalent deals offer the opportunity to
separate the pure semantic effect of deal description as
the monetary value of the deals and financial outlay are held
constant across the deals.
For equivalent dollar savings, when base price and shipping
costs are low, consumers perceive no differences between
reduced base price promotions and reduced shipping
promotions, and between reduced shipping promotions and
reduced all-inclusive promotions. Reduced base price
promotions convey higher deal values compared reduced
shipping promotions and reduced all-inclusive price
promotions for high-priced products with low surcharge.
When base price and shipping costs are low consumers have
little motivation to integrate the multiple price components
and use the largest price component, base product price, to
evaluate the attractiveness of an offer. Reduced shipping
offers are wasted in such situations since consumers ignore
shipping charges anyway. Retailers have some flexibility to
compete by reducing the base price and increasing shipping
charges within limits to recoup margins.
Shipping charges dominate perceived deal values of
promotions offered on high and low priced products with
large shipping surcharge. Skeptics and non-skeptics differ in
the inferences they draw from promotions which impacts deal
values. Reduced shipping promotions convey higher deal
values than other promotions among non-skeptics, since they
draw inferences of shipping charge inflation when presented
with all-inclusive promotions. In contrast, reduced all-
inclusive price promotions convey higher deal values
compared to reduced shipping and reduced base price
promotions among skeptics, who infer shipping price
inflation when presented with reduced base price promotion
or reduced shipping promotions.
This research contributes to the literature on promotion
framing by examining differences in perceived deal values of
promotions when prices are partitioned into base price and
surcharge. The size of surcharge relative to base price are a
source of information that consumers use to make inferences
about retailers tactics which impacts the deal values
associated with promotions. This has been demonstrated in
the context of online promotions, specifically reduced
 Framing online promotions
Patrali Chatterjee
shipping promotions, reduced base price promotions and
reduced all-inclusive price promotions for the first time.
The article also sheds light on how presentation of
promotional savings to price components in partitioned price
format changes the referent used in calculation of savings. If
consumers differ in their valuation of benefits for the price
components, it leads to differences in inferences about retailer
tactics. The explicit allocation and reduction of shipping costs
in reduced shipping promotions reduces (increases)
perceptions of shipping charge inflation among non-skeptics
(skeptics). In fact, the presence of any promotion with a
shipping surcharge triggers suspicions of shipping charge
inflation among skeptics, which explains our surprising finding
that reduced price promotions triggered shipping charge
inflation but not product price inflation. Examining boundary
conditions for such processing to take place, like providing
external reference price for base price only, shipping price only,
or all-inclusive price is a topic for future research.
In our experiment, consumers evaluated deal values of
promotional offers in comparison to regular price of the same
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brand. Incidentally, we find a significant main effect of base
product price on deal value. Promotions on high-priced
products have higher deal values than low-priced products, a
category-specific finding given that students use laptop bags
for public activities and use it to convey professionalism.
Quality of laptop bags across brands is more difficult to
compare across online stores. Future research should be
directed to examine the validity of these findings for shopping
versus experience products.
We find that reduced base price promotions are more
attractive than other promotions for high-priced products
with small surcharge size. Findings in the pricing literature
suggest that reduced base price promotions lead to lower
quality perceptions and increase price sensitivity which lowers
deal values (Chen et al., 1998). We control for changes in
quality inferences by restricting comparison to the same
brand. Future research should consider quality inferences in
comparisons across brands since online medium increases
comparison shopping behavior among consumers.
Future research can investigate whether the demonstrated
effects are robust when monetary promotions of moderate
and high levels are offered and for fixed shipping and for
value-contingent shipping offers (free shipping with minimum
purchase thresholds). Subjects in our experimental study were
students; replications with mainstream buying population will
provide useful managerial insights. High shipping charges are
cited as the most important reason that trigger shopping
abandonment among 46 percent of online shoppers
(eMarketer, 2009). Clearly, anecdotal evidence suggests that:
.
consumers are highly responsive to shipping policies;
.
there is room for improvement in how policies are crafted;
and
.
little is known about consumer trade-offs that lead to the
observed behaviors.
This study suggests that shipping charges appear to be a lens
through which prices and promotions are processed online.
Shipping charges that are a significant proportion of base
product price invite more scrutiny and inferences that retailers
are inflating shipping fees to bolster their profits. Astute
online retailers must use promotions selectively while keeping
in mind that shipping fees can change how consumers value
monetary promotions.
73
Journal of Product & Brand Management
Volume 20 Number 1 2011 65 74
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Corresponding author
Patrali Chatterjee can be contacted at: chatterjeep@mail.
montclair.edu
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