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Introduction
The concept that the perceived value of a product has a direct impact on
behavior has been well substantiated by both marketing academics and
practitioners. Because product quality and price directly influence value, it is
no surprise that the efforts of marketers have focused on improving product
quality and reducing price in order to enhance perceptions of value, and
consequently purchase intentions (Dodds et al., 1991; Grewal et al., 1998).
Tactical approaches Considerable strategic effort has to be undertaken to make improvements in
product quality and offer reductions in price (via cost reductions) in order to
enhance perceived value. Tactical approaches, like presenting price
information in a bundled vs. unbundled format and alternative forms of
promotions (e.g. free options, conventional discounts and rebates), also
influence perceptions of value and behavioral intentions (Grewal and
Compeau, 1992; Compeau and Grewal, 1998). Therefore, marketers must
consider both strategic actions that result in actual improvements as well as
tactical acts that improve perceptions of value by presenting their products
and promotions in the most favorable light.
This research investigates the effects of different promotional price formats
on perceptions of price, quality, value, and purchase intentions, while
holding the absolute magnitude of the sales reduction constant. It extends
previous research by proposing that these perceptions are indeed influenced
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 10 NO. 3 2001, pp. 185-197, # MCB UNIVERSITY PRESS, 1061-0421 185
by two advertising message characteristics: price presentation method (the
level of bundling of item prices) and the promotional method (free options,
conventional discounts and rebates).
function is steeper for losses than for gains relative to deviations from the
reference point.
Perceived as gain Thaler (1985) proposed that multiple gains should be separated since a set of
small gains will be perceived to be greater in total value than the sum total of
those gains presented by itself. He bases this conclusion on the premise that
the value function is concave for gains. It must be noted that price reductions
are likely to be perceived as gains (see Monroe, 1990). A price reduction is
likely to be viewed as a gain as the consumer is likely to compare the
reduced price (or sale price) against the original price (or reference price).
Thus, the reduction in the price that the consumer has to pay would be
perceived as a gain. This gain has been defined as transaction value in the
literature (see Grewal et al., 1998).
On the basis of this argument, one would expect that separating a
promotional discount into multiple discounts would result in more favorable
perceptions of the value of the savings (gain) (Kaicker et al., 1995). For
example, Kaicker et al. (1995) found that when consumers were exposed to
multiple gains, they preferred component pricing to bundle pricing.
Bundling vs. unbundling Based on the above discussion, we hypothesize that the bundling vs.
unbundling of the promotional discounts will affect consumers' perceptions
of price, quality, value and purchase intentions. Because unbundling
involves separating the gains, they will be perceived more favorably than the
same total discount amount presented in a more bundled form.
H1: Promotional discounts that are presented in an unbundled form will be
viewed more favorably than the same discount presented in a bundled
form.
Methodology
Experimental design
A 2 (price presentation: 2 levels of unbundling) 3 (promotional frame: free
options, conventional discounts, rebates) between-subjects design was used
to test the hypotheses. An automobile was chosen as the product because
they frequently use these variations in price promotions and are a category
familiar to the subjects.
Two levels of unbundling were used. In the less unbundled option, subjects
were presented the price for the standard equipment ($10,320), premium
equipment ($388), comfort equipment ($1,222), power equipment ($595),
Subjects
A sample of 204 students participated in the experiment. Students were
recruited from two universities, one a large Midwestern university and the
other a small university in the Northeast. The students who participated were
either in their junior or senior year at college. Subjects were assigned
randomly to each of the six treatment conditions.
High level of processing It was expected that a large proportion of the students in the sample might be
considering the purchase of an automobile within a relatively short time.
This should have helped in stimulating a sufficient level of involvement in
the research in order to assure a fairly high level of processing the
information as might occur in the early stages of information search in the
automobile purchase process. Since an automobile purchase was a decision
that students might face in the near future, it lent credibility to the cover
story.
Experimental procedure
Subjects were processed in small groups of four to 12 subjects each, although
a small number of students were processed individually. Each of the
conditions was represented in each group session. Subjects were told that the
purpose of the study was to ascertain their attitudes toward a specific
automobile that was for sale.
Results
Analysis of covariance ANCOVA procedures were used to test the hypotheses. The means are
provided in Table I. The analysis of covariance results from evaluating H1
and H2 are summarized in Table II. Gender was treated as a covariate in our
analysis. The interaction term was not significant in all four ANCOVAs.
H1: We expected that unbundled options would be viewed more favorably
than partially bundled deals. We found support that the unbundled
format was viewed more favorable than the bundled format for
consumers' perceptions of quality (p < 0.05) and their purchase
intentions (p < 0.10). However, bundling vs. unbundling did not
significantly affect price acceptability or value perceptions.
H2: The effects of the price-promotional frames indicated that they
significantly affected price acceptability (p < 0.05), quality (p < 0.10),
Purchase
Df Price Quality Value intentions
Covariate-sex 1 8.81*** 1.09 0.39 0.33
Bundling 1 0.44 4.36** 1.67 3.40*
Frame 2 4.21** 2.76* 2.91* 3.38**
BF 2 0.09 0.53 0.17 1.94
Error 197
Notes: * p < 0.10; ** p < 0.05; *** p < 0.01;
value (p < 0.10) and purchase intentions (p < 0.05). The results
supported our hypotheses that rebates would be perceived least
favorably and free options most favorably. The only variable where the
plot of means was not in the right direction was for perceived quality.
The perceived quality of the rebate was viewed no differently than the
conventional discount condition.
Regression analysis Conceptual model linkages. We also examined the effects of price and
quality perceptions on value perceptions using regression analysis. The
results suggest that the model is significant (F(2,201)=124.72, p < 0.001,
adjusted R2 = 0.55). As predicted, both price acceptability and quality had
significant effects on perceptions of value (price acceptability: std. = 0.31,
t = 6.43, p < 0.001, quality: std. = 0.61, t = 12.51, p < 0.001). Regression
results were also used to examine the effects of price acceptability, quality
and value on consumers' purchase intentions (F(3,200) = 53.10, p < 0.001,
adjusted R2 = 0.44).
Mediation test. Procedures suggested by Baron and Kenny (1986) and
Hastak and Olson (1989) were followed to assess whether perceived value
mediates the effects of promotional frames and promotional bundles on
purchase intentions. Baron and Kenny (1986) recommended that three
conditions need to be satisfied between the independent variables
(promotional variables), mediator (perceived value) and the dependent
variable (purchase intentions) to establish mediation.
First, the independent variables (bundling and frame) need to affect the
mediator (perceived value). The previous results provide evidence that
References
Baron, R.M. and Kenny, D.A. (1986), ``The moderator-mediator variable distinction in social
psychological research: conceptual, strategic, and statistical considerations'', Journal of
Personality and Social Psychology, Vol. 51 No. 6, pp. 1173-82.
The caveat ± once you have given a free gift you cannot stop giving
The problem with free offers is that the consumer comes to expect them. Look
at some of the fast food chains. These firms keep on offering free product
because they are trapped into the need to do so. When we make strategic
decisions about sales promotions we need to recognise that the fact of the
promotion will affect the consumers' overall perception of our offer.
When we go into the burger bar, we take the meal deal. Why? Because we
are not going to pay for the drink as it is always rolled into the meal deal for
free. My son assumes he will get a free lolly at our local restaurant because
he has always been given one. It is part of the deal, part of the consumer's
expectations. The free offer ceases to be a promotion and becomes a core
part of your product or service offer.
So, when we step down the road of making free offers we must be prepared to
accept the fact that some consumers will come to expect the deal. Otherwise,
we should be wary about making such offers too frequently. In truth, the
sales promotion always affects brand perceptions and the stronger the
promotional offer the more it will influence the brand. If you don't want to be
known as a service that always offers a deal, don't do too many promotional
offers and when you do, target them carefully.