Document Type

Dissertation

Degree

Ph.D.

Degree Granting Department

Marketing

Major Professor

James R. Stock

Keywords

Face Value Plausibility, Mental Budget, Pain of Prepayment, Spending-Decision

Abstract

Traditional economic theory suggests that consumers are likely to prepay for a product/ service that appears to be heavily discounted. However, in reality, many consumers do not think and act to achieve that goal. This is evident in consumer's psychological and behavioral responses toward a new type of price promotion, namely social coupons (SCs) (i.e., online coupons that offer consumers a substantial discount with a long redemption period when they prepay for a retailer's products/services). Such responses generate vital impacts not only on consumers themselves in terms of saving maximization but also on service retailers (e.g., sit-down dining restaurants) and SC providers (e.g., Groupon and LivingSocial) in terms of revenue maximization generated from offering SC campaigns. This dissertation aims to provide insights to the literature in price promotions, specifically SCs. Guided by mental accounting theory (i.e., consumers open a mental account when costs are incurred and close a mental account when benefits are received), this dissertation is structured in the form of two separate empirical essays. While Essay 1, "Prepaying Less is Preferable to Saving More: The Role of Pain of Prepayment Aversion in Social Coupon Purchasing Decision", focuses on opening a SC mental account (i.e., cost incurred), Essay 2, "Superfluous Spending: The Role of Neglected Mental Budget Depletion in Spending Decision when Redeeming Social Coupons", focuses on closing a SC mental account (i.e., benefit received).

Essay 1 explored why consumers purchase SCs featuring a low-implausible face value (i.e., a face value that is lower than the normal price range expected by consumers for a particular type of service)? Findings across five experiments revealed that consumers' likelihood of purchasing SCs featuring a low-implausible (vs. plausible) face value was greater when a coupon price for SCs featuring a low-implausible face value was lower than willingness-to-prepay for a SC (WTPP-SC), while a coupon price for SCs featuring a plausible face value was higher than WTPP-SC. Furthermore, consumers' likelihood of purchasing SCs featuring a low-implausible face value was greater when a coupon price was lower (vs. higher) than WTPP-SC. Pain of prepayment (i.e., the disutility/imputed cost, painful feeling, generated from the thought of prepaying amount of money required for a SC) aversion was an underlying process. That is, consumers experienced greater pain of prepayment when a coupon price was higher (vs. lower) than WTPP-SC. Pain of prepayment, in turns, negatively influenced consumers' likelihood of purchasing SCs featuring a low-implausible face value. Moreover, consumers' likelihood of purchasing such SCs was greater when time pressure was present (vs. absent) and when semantic cues were abstract (vs. concrete). Finally, when being exposed to multiple SC deals for the same service, which vary in terms of face value plausibility (Option 1: low-implausible face value vs. Option 2: plausible face value), consumers were more likely to choose a SC deal featuring a low-implausible face value (Option 1) when a coupon price for a SC deal featuring a low-implausible face value was lower than WTPP-SC but a coupon price for a SC deal featuring a plausible face value (Option 2) was higher than WTPP-SC. In contrast, when coupon prices for both SC deal options were lower than WTPP-SC, consumers were more likely to choose a SC deal featuring a plausible face value (Option 2).

Essay 2 explored why consumers spend a great additional amount of money beyond a SC face value? Findings across three experiments revealed that the amount of money spent beyond a SC face value was greater when consumers redeem SCs featuring a low-implausible (vs. plausible) face value. Neglected mental budget depletion (i.e., the instance in which consumers neglect the fact that the budget assigned to a particular SC mental account as a spending self-control is already depleted) was an underlying process. That is, consumers had a greater tendency to neglect mental budget depletion when redeeming SCs featuring a low-implausible (vs. plausible) face value. Neglected mental budget depletion, in turns, positively influenced the amount of money spent beyond a SC face value. Furthermore, concrete (vs. abstract) semantic cues and far (vs. near) distance between purchasing and redeeming a SC intensified neglected mental budget depletion effect, which in turns, increased the amount of money spent beyond a SC face value when redeeming SCs featuring a low-implausible face value.

In conclusion, this dissertation provides theoretical insights on consumers' psychological responses, and their behavioral responses toward SCs during two SC stages, which results in sub-optimal SC decision-makings: (1) purchasing SCs featuring a low-implausible face value (Essay 1); and (2) spending additional money beyond a SC face value when redeeming SCs at a service retailer (Essay 2). The empirical findings across two essays add to the growing body of the literature in price promotions, specifically SCs. This dissertation also provides managerial insights regarding how managers can design and strategically implement SC campaigns that can maximize the number of SC being purchased and the great amount of money consumers spend beyond a SC face value when they redeem a SC at a service retailer.

Included in

Marketing Commons

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