When Retailing and Las Vegas Meet: Probabilistic Free Price Promotions

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 sur...

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Bibliographic Details
Published in:Management science 2017-01, Vol.63 (1), p.250-266
Main Authors: Mazar, Nina, Shampanier, Kristina, Ariely, Dan
Format: Article
Language:English
Subjects:
Analysis
Consumers
Discounts (Sales)
Employee promotions
gamble
Gambling
Intuition
Marketing
perception
Prices
Pricing
probability weighting
prospect theory
Retail industry
Retail stores
Retailing
Sales promotions
uncertainty
value
Weber–Fechner
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Summary: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. This paper was accepted by Yuval Rottenstreich, judgment and decision making .
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.2015.2328