When and how should retailers rationalize the size and duration of price discounts?

ContextPrice discounts are common retail promotional tools that are defined by their size and duration. Consumers possess a general schema in which they believe that retailers are motivated to associate larger price discounts with shorter durations and smaller price discounts with longer durations. However, factors influencing promotion management frequently lead retailers to present discount size/duration combinations that are incongruent with this schema. What are the consequences for retailers of presenting consumers with such discounts, and what can retailers do to overcome detrimental effects of incongruent discount terms?ObjectiveThis research examines how incongruent pairings of discount size and duration affect consumer evaluations of the offer (i.e., perceptions of retailer credibility, product quality, retailer opportunism, and purchase intentions). Further, can retailers impact consumer evaluations by presenting rationales for incongruent discounts? If so, how should these rationales be constructed?MethodA preliminary study (n = 480) validates the critical assumption that, across a variety of products, consumers expect discount size and duration to be inversely related. Two experiments (n = 190, n = 226) assess the effects of discount size, discount duration, and rationales on consumer offer evaluations.ResultsThe experiments reveal that schema-incongruent (versus schema-congruent) price discounts diminish consumers' purchase intentions even when the incongruence reflects an ostensibly superior offer. Consistent with a theory-of-mind account of how consumers interpret retailers' behaviors, perceptions of retailer credibility and product quality mediate these effects. Addressing questions of whether and how retailers should provide rationales for incongruent discounts, analyses show that the same rationale can attenuate or exacerbate consumers' negative responses depending on how the rationale influences perceptions of discount congruency.ConclusionFailing to consider the interactive effects of discount size and duration may lead retailers to design ineffective promotions. Further, while rationales can help overcome detrimental effects of incongruent discount size/duration pairings, improperly constructed rationales exacerbate these negative effects.