These results support our hypotheses that are developed from the dual information processing theories. Our study is the first in the marketing literature to provide
evidence that, under different market environments, consumers’
purchase decisions are influenced by the two types
of price expectations in different ways. The results also help
retailers to understand the impact of different pricing and
promotion strategies and offer important managerial
takeaways. We use the results to explain why a promotion
scheme with deep discounts may increase store sales more
than several shallow discounts over a longer duration. We also
show that deep discounts may switch consumers to the IF
class, whose purchase decisions are mainly driven by the
PRIOR. Finally, we illustrate the importance of managing
price expectations when running a price promotion. To maximize
the sales increase, it is important for stores to maintain
consumers’ PRIOR and POST unchanged.
We have acknowledged some of the limitations of our
analysis, including ignoring the competitive effects from other
products and that it is conditional on the list of products that
our participants plan to purchase, and discussed mitigating
actions. We also realize that our setup gives high internal
validity but somewhat limited external validity. Field experiments
in real stores would provide a good reality check of our
results. It is important for future research to address these
issues.