Consumer Perceptions of Extra-free Product Promotions and Discounts: The Moderating Role of Perceived Risk

Purpose – The purpose of this paper is to examine how perceived performance risk moderates consumers’ evaluations of different types of promotions, including extra free product promotions (e.g., buy-one-get-one-free deals or BOGOFs) and price discounts (e.g., 50% off). Some evidence shows that consumers prefer extra free products to discounts because of mental accounting, and the way that these different types of promotions are framed. This research explores a new moderating link in the consumer behavior literature by showing that perceived performance risk, through its effect on a consumer’s tendency to stockpile, moderates consumers’ evaluations of extra free product promotions and price discounts.

Design/methodology/approach – This research uses a cross-sectional experiment to manipulate perceived performance risk, type of promotion and promotion size, and measures consumers’ value perceptions and purchase intentions. The experimental method provides greater internal validity and addresses calls in the literature for more experimental research in pricing and sales promotion studies.

Findings – The results indicate a clear and strong moderating effect for perceived risk on consumer value perceptions and preferences for extra free product promotions and price discounts. Specifically, for products low on performance risk consumers tend to attribute higher value to extra free product promotions than they do to discounts. The reverse occurs for products high on performance risk where consumers attribute higher value perceptions towards price discounts than they do to extra free product promotions. These findings have implications for a variety of different product categories including innovative new products, products with higher absolute promotion levels, and other categories where perceived risk is likely to vary.

Research implications – These findings are consistent with and extend the literature on sales promotions by showing that existing theory holds for products low on performance risk, but that the theory should be extended for products high on performance risk. Therefore, retailers and managers should think carefully about how to frame promotions based on consumer perceived risk. The findings here highlight and present a more complete picture of the implications of different promotional types.

Originality/value – A variety of studies have examined consumer response to the design of a promotional offer (e.g., discount size, absolute versus relative amounts etc.). Yet few studies have compared and examined consumer response to monetary and nonmonetary promotions. This study is the first study to examine the moderating role of perceived performance risk on consumer perceptions of different promotional frames and contributes by integrating literature in the area of perceived risk with literature in the area of sales promotions to provide a broader theory of consumer response to different promotional deals.