Cents or Percent＿The Effects of Promotion Framing on Price Expectations and Choice

7/29/2019 Cents or Percent The Effects of Promotion Framing on Price Expectations and Choice

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158Journal of Marketing

Vol. 71 (July 2007), 158170

2007, American Marketing Association

ISSN: 0022-2429 (print), 1547-7185 (electronic)

Devon DelVecchio, H. Shanker Krishnan, & Daniel C. Smith

Cents or Percent? The Effects ofPromotion Framing on Price

Expectations and ChoicePrevious research has shown that the monetary value of a promotion (promotion depth) affects choice during thepromotion period. However, as promotion depth increases, consumers might lower their expectations of futureprice, which in turn may threaten future choice when prices return to normal levels. This research examines howpromotion frame (percentage off versus cents off) moderates the effect of promotion depth on postpromotion priceexpectations and choice.The findings indicate that compared with cents-off promotions, high-depth percentage-offpromotions lead to higher postpromotion price expectations. Likewise, postpromotion choice is higher when high-depth promotions are framed in percentage-off than cents-off terms. The authors examine the process underlyingthe effect of promotion frame on price expectations and find that frame affects (1) consumers perceptions of thepromoted price and (2) the weight they place on the promoted price.

Devon DelVecchio is Assistant Professor of Marketing, Richard T. FarmerSchool of Business, Miami University (e-mail: [email protected]).H. Shanker Krishnan is Associate Professor of Marketing (e-mail:

[email protected]) and Daniel C. Smith is Clare W. Barker Chair ofMarketing and Dean (e-mail: [email protected]), Kelley School ofBusiness, Indiana University. The authors thank Scott MacKenzie andShelly Jain of the Marketing Department and Edward Hirt of the Psychol-ogy Department at Indiana University, Joe Alba at the University ofFlorida, Tim Silk at the University of South Carolina, and the three anony-mous JMreviewers for their helpful comments on previous drafts of thisarticle.

To read and contribute to reader and author dialogue on JM, visithttp://www.marketingpower.com/jmblog.

As a result of their ability to stimulate sales in theshort run, the use of price-based promotions hasrisen steadily (Kahn and McAlister 1997; Mela,

Gupta, and Lehman 1997). In addition to offering more pro-motions, manufacturers are deepening price discounts.Between 2001 and 2006, the average value of couponsincreased by approximately 8% annually (Montaldo 2007).Moreover, the depth of the discount offered by manufactur-ers is often magnified by retailers that offer additional priceincentives in an effort to maintain store loyalty.

Increasing the depth of a promotion is attractive because

choice is positively related to the face value of a promotion(e.g., Leone and Srinivasan 1996). However, discounts maycome with a downside because promotions can reduce post-promotion choice. Price promotions may undermine futurechoice by lowering consumers perceptions of brand quality(e.g., Dodson, Tybout, and Sternthal 1978), by training con-sumers to wait for promotions (e.g., Mela, Jedidi, and Bow-man 1998), or by lowering consumers price expectationsfor the brand (e.g., Monroe 1971). Deep promotions can be

of particular concern. In a meta-analysis of the effects ofpromotion on postpromotion brand preference, DelVecchio,Henard, and Freling (2006) find that promotions in excessof 20% of the products value have a negative effect onpostpromotion preference. Thus, managers must weigh theimmediate benefits of deep promotions against their nega-tive effects on subsequent purchase decisions (e.g., Ander-son and Simester 2004; Greenleaf 1995).

In developing price promotions, managers not onlymake decisions related to promotion depth but also decidehow to frame the discount (Della Bitta, Monroe, and

McGinnis 1981). Although there are many ways promotionscan be framed, we focus on percentage-off and cents-offdiscounts. These discounts are commonly employed inpractice (Yin and Dubinsky 2004) and studied in research(e.g., Chen, Monroe, and Lou 1998; Heath, Chatterjee, andFrance 1995). In the assessment of a promoted price, fram-ing may affect consumers estimates of the promotionsvalue (e.g., Krishna et al. 2002) and, thus, current choice. Inaddition, to the extent that a promotion frame affects per-ceptions of the promotion value, it should also affect per-ceptions of the products price. Perceived prices are keydeterminants of expectations of future prices, which in turninfluence brand choice on subsequent purchase occasions.

That promotion frame may affect both current andfuture choice leads us to consider four specific questions:

1. Can the promotion frame reduce the risk of consumersholding lower postpromotion price expectations, particu-larly following a deep promotion?

2. Does promotion frame affect choice during the period ofthe promotion?

3. If a particular promotion frame can uphold postpromotionprice expectations following a deep promotion, will it alsoinsulate choice share when price returns to prepromotionlevels?


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Promotion Framing and Price Expectations and Choice / 159

4. What is the information processing mechanism that under-lies frame effects on consumer expectations of future pricesand, in turn, postpromotion choice?

Taken together, the first three questions define an attractivepromotion scenario for managersthat is, a promotion thatelevates choice share during the promotion period but doesnot affect postpromotion price expectations, thus not jeop-ardizing share during postpromotion periods.

Before we answer these questions, it is of value to posi-tion our work relative to recent research on promotions.Several recent studies decompose the positive effect of pro-motion on choice due to brand switching, category expan-sion, and stockpiling (e.g., Gupta 1988; Pauwels, Hanssens,and Siddarth 2002; Van Heerde, Gupta, and Wittink 2003).In contrast, we focus primarily on the effects of promotionson consumers forward-looking responses to promotions(e.g., Sun, Neslin, and Srinivasan 2003). Researchers haveidentified several mechanisms that may cause promotions toaffect postpromotion choice of a brand (for a review, seeNeslin 2002). Our focus is on the possibility that thereduced price associated with a discount lowers future priceexpectations, thus threatening choice of the brand when it isno longer discounted. Specifically, we believe that the

greater difficulty associated with processing a promotionthat is framed in percentage-off rather than cents-off termswill attenuate a downward revision of price expectations,thus minimizing the negative effect of promotions on post-promotion brand choice. Applying a processing difficultyexplanation to postpromotion price expectations is consis-tent with literature on the effects of promotion on other out-comes. For example, Krishna (1991) finds that more com-plex patterns of deal timing (e.g., irregularly timeddiscounts) are associated with less accurate perceptions ofdealing frequency. Similarly, Alba and colleagues (1999)report that for the same average discount, more complexpatterns of discount values (e.g., rotating between several

discounted prices rather than repeating one discountedprice) lead to less accurate perceptions of the discountedprice. We begin to build on this research with a study (Study1) that examines how promotion frame moderates the effectof depth on (1) future price expectations for the brand and(2) choice during the period when the product is promoted(Research Questions 1 and 2).

Study 1: Does Frame AffectExpected Future Price and Current

Choice?

Promotion Depth Effects on Expected FuturePrice

Anchoring and adjustment theory has been widely used toexplain how consumers update their price expectations(e.g., Klein and Oglethorpe 1987; Yadav and Seiders 1998)and is implicit in marketing models that estimate expectedprices as weighted averages of previously observed prices(e.g., Lattin and Bucklin 1989; Mazumdar, Raj, and Sinha2005; Winer 1986). In equation form, the anchoring andadjustment process of expected price revision when con-

sumers are exposed to a price promotion can be expressedas follows:

(1) RPEi jt + 1 = PPijt + (1 )PEijt,

where

RPEijt + 1 = consumer is revised price expectation for brand jat future shopping trip at time t + 1,

PPijt = the promoted price for brand j at time t as per-ceived by consumer i,

PEijt

= consumer is price expectation for brand j whenentering the market at time t (before observingbrand js time t price), and

= the weight placed on the perceived price.

Prior research has assumed that estimates of the pro-moted price are accurate (i.e., the perceived price for a pro-moted product equals the actual promoted price) and thatboth the prior price expectation and the promoted price areweighted between zero and one. Consumers should recog-nize that deeper promotions result in lower prices (i.e., PPijtis lower in response to a large promotion than a smallerone). It follows from the anchoring and adjustment processthat a lower perceived price is associated with lower post-

promotion price expectations. Therefore, as prior work hasdemonstrated (Alba et al. 1999; Diamond and Campbell1989), larger discounts should produce lower future priceexpectations. Thus, our first hypothesis replicates priorwork, and the logic underlying it provides the foundationfor subsequent predictions:

H1: As promotion depth increases, consumers future priceexpectations decrease.

Frame Effects on Expected Postpromotion Price

Main effect of promotion frame. Because the priceexpectation for time t (PEijt) is formed in response to prices

observed before time t, the focal promotion will not affectPEijt. Thus, promotional frames affect price expectations tothe extent that they influence consumers perceptions of thediscounted price (PPijt) and/or the weight () placed on theperceived promoted price when updating expectations. Pro-motional framing can affect PPijt and by influencing howconsumers process discount information in three ways.First, promotion frame may affect whether consumers cal-culate the revised price. It appears that some, but not all,consumers calculate the revised price stemming from a pro-motion. Consumers may store discount values as a generalanalog value, such as big (e.g., Olson 1978; Viswanathanand Childers 1996), rather than integrate the discount intothe base price. However, Viswanathan and Childers (1996,p. 375) note that exact encoding does occur for numericinformation even in choice or judgment tasks (see alsoVanhuele, Laurent, and Drze 2006). Moreover, consumersseem to simply ignore price modifiers in some situations. Ina context analogous to the one we consider, Morwitz,Greenleaf, and Johnson (1998) report that 23% of their par-ticipants did not attempt to integrate a base price with a sur-charge expressed in either dollar or percentage terms. Thisfinding implies that 77% of the participants calculated orestimated the total price. Framing is likely to affect the like-


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160 / Journal of Marketing, July 2007

lihood of a discount being transformed into a revised pricerather than simply being encoded in general terms orignored altogether. When consumers are exposed to a pro-motion, the likelihood that they will compute the new priceis expected to be a function of the ease of calculating theprice. Calculating the new price resulting from a cents-offpromotion requires a consumer to read the regular price,read the discount, and subtract the discount from the regularprice. Subtraction is a relatively easy task that results in ahigh level of accuracy (Rhymer et al. 2002). Given compu-

tational ease, consumers are likely to calculate the priceassociated with a cents-off discount and should be accuratein their calculations.

Relative to a cents-off discount, a percentage-off dis-count requires an additional processing step; the percentagemust be multiplied by the base price to find the value of thediscount. Beyond requiring an additional step, the processrequired (multiplication) is relatively difficult, which makespercentage-off discounts harder to calculate than cents-offdiscounts (e.g., Estelami 1999, 2003). Such difficultyshould make consumers less likely to compute the revisedprice. In turn, consumers may be uncertain of the resultingprice because they do not engage in the mental arithmetic

needed to transform percentage-off frames into a price met-ric (see, e.g., Chen, Monroe, and Lou 1998; Heath, Chatter-jee, and France 1995; Yin and Dubinsky 2004).

Second, even if the revised price is calculated, thegreater difficulty of evaluating a percentage-off promotionmay result in lower confidence in the calculated price. Inthe face of such uncertainty, existing beliefs dominateevaluations (Deighton 1984; Pham and Muthukrishnan2002). Thus, when promotions are framed in terms of per-centages off, both failing to calculate the revised price andlower confidence in the accuracy of the calculation shouldresult in less weight being placed on the lower perceivedprice (i.e., is lower) resulting from the promotion.

Third, when consumers attempt to calculate revisedprices, discount frames may affect the accuracy of theircomputations. A systematic bias for a given frame wouldlead to higher or lower perceptions of the promoted priceand, in turn, higher or lower future price expectations.Extant research indicates that percentage-off frames tend toresult in percentage-off promotions being systematicallyundervalued. A common finding in anchoring and adjust-ment research is that the anchor is insufficiently adjusted inthe face of new information (e.g., Jacowitz and Kahneman1995; Tversky and Kahneman 1974). Consistent with this,Morwitz, Greenleaf, and Johnson (1998), who employ ananchoring and adjustment perspective to the integration ofbase prices and surcharges, find that consumers recall lower

prices (i.e., they undervalue the surcharge) when the sur-charge is expressed in percentage terms rather than in dollarterms (for corroborating evidence, see Lee and Han 2002).In the context of future price expectations, this suggests thatthe perceived promoted price (PPijt) will be higher for apromotion framed in percentage-off terms than one framedin cents-off terms.

The foregoing discussion indicates that a percentage-offpromotion is associated with perceptions of a higher pro-moted price on which consumers place less weight when

updating their price expectations than is the case for acents-off promotion. These two elements suggest thefollowing:

H2: Expected future prices are higher when price promotionsare framed in percentage-off terms than in cents-off terms.

Frame promotion depth interaction. Thus far, ourlogic implies that a cents-off frame leads to lower futureprice expectations than an equivalent percentage-off dis-count. However, when promotion depth is low, the differ-ence between the base and the promoted price is small, andthe potential difference between an accurate price estimate(i.e., as is expected with a cents-off promotion) and aninsufficiently adjusted estimate (i.e., as is expected with apercentage-off promotion) is modest. In addition to thisfloor effect, for a small discount, the integration of a pro-moted price into price expectations simply may not beworth the mental effort. As a result, when promotion depthis low, the updating of future price expectations is lesslikely to occur, thus eliminating any frame-based differ-ences in price expectations that would otherwise arise. Thisdiscussion leads to the prediction that consumers futureprice expectations will differ across promotional frames in

the case of high-depth, but not low-depth, promotions.

H3: For a high-depth promotion, future price expectations arelower for a cents-off frame than for a percentage-offframe. For a low-depth promotion, future price expecta-tions do not differ across frames.

Choice at the Time of the Promotion

If framing a promotion in percentage-off terms can helpuphold future price expectations (Research Question 1), aswe propose in H2 and H3, the next concern is whether it canalso lead to more (or at least not less) choice at the time ofthe promotion (Research Question 2). Promotion depth is

known to increase choice of the promoted brand (Leone andSrinivasan 1996). Thus, our focus is on the effect of frame,both directly and in unison with promotion depth, on choiceduring the promotion period. In terms of the main effect ofpromotion frame on current period choice, we find twocompeting lines of reasoning. On the one hand, when con-sumers are asked to provide their general sense (i.e., with-out engaging in any calculations) of whether a promotion islarge or small, they tend to perceive percentage-off promo-tions as larger than equivalent cents-off promotions (formeta-analytic evidence, see Krishna et al. 2002). Thus,when consumers do not calculate the value of a promotion,percentage-off promotions should lead to greater choice. Onthe other hand, when consumers are motivated to calculate

its value, the difficulty of estimating the value of apercentage-off promotion should result in uncertaintyregarding the resulting price. People tend to prefer highlycertain outcomes to ones that provide the same benefits (onaverage) but are not precisely known (Camerer and Weber1992; Winkler 1991). Thus, consumers should choose acents-off promotion more than a percentage-off promotionwhen they are motivated to calculate the promotions value.These counteracting effects may explain the failure ofextant research to find a frame effect on choice (Gendall,


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Hoek, and Pope 2005) or choice intentions (Chen, Monroe,and Lou 1998). However, by considering the motivatingrole of promotion depth, a frame effect may emerge.

As we noted previously, on initial exposure, consumersmay feel more favorable toward a promotion framed inpercentage-off terms. When consumers are motivated to gobeyond such casual processing and try to estimate thevalue of promotions framed in percentage-off terms, theytend to systematically undervalue the promotion (e.g., Mor-witz, Greenleaf, and Johnson 1998). Promotion depth is

expected to affect a consumers motivation to estimate thedollar value of a percentage-off promotion. For deep dis-counts, we expect that consumers are more likely to attemptto calculate the revised price. In turn, choice should begreater for promotions framed in terms of cents off than forthose framed as a percentage off because consumers aremore certain of the revised price and less likely to under-value the promotion. In contrast, smaller discounts may notmotivate consumers to calculate the dollar value of the pro-motion. If consumers do not attempt to calculate the valueof the promotion, we expect that their tendency to viewpercentage-off promotions as being perceptually larger thancents-off promotions will prevail. Thus, we expect that the

role of frame on choice differs depending on promotiondepth. Stated formally,

H4: For deep promotions, choice during the promotion periodis greater for cents-off promotions. For low-depth promo-tions, choice is greater for percentage-off promotions.

Methodology

General procedure. We tested the effects of promotiondepth and frame using an experiment in which participantsviewed experimental stimuli on a computer monitor andcompleted a set of measures in a response booklet. Theexperimental design was a 2 (promotion depth: high versus

low) 2 (promotion frame: percentage off versus cents off)between-subjects factorial. The stimuli consisted of simu-lated store shelves containing hypothetical brands of sham-poo. We focus on frequently purchased nondurablesbecause the cognizant tracking of prices to form priceexpectations is most likely to occur when consumers knowthat they will (re)purchase the good in the near future(Mazumdar, Raj, and Sinha 2005).

We used a five-step procedure in Study 1. First, partici-pants viewed six shampoo brands on a computer monitor.Period 1 established a baseline price expectation for thefocal brand (Evo), and thus this brand was not promoted.Two nonfocal brands were promoted at a depth of 24% inPeriod 1. Second, while viewing the simulated shelf, par-

ticipants indicated the brand that they would choose in theirresponse booklet. Third, participants advanced to a newcomputer screen that informed them that it is a coupleweeks later and they are returning to the store. Fourth, par-ticipants advanced to a computer screen that displayed arevised shelf that included the promotion depth manipula-tion for the focal brand. The focal brand promotionoccurred in Period 2 along with a moderate depth promo-tion for a nonfocal brand. Fifth, while viewing the revisedshelf, participants indicated their brand choice and the price

1Consumers who choose the focal brand may be more moti-vated to process price information and, in turn, to update priceexpectations, thus mitigating frame effects. We assessed two mod-els that employed choice of the focal brand as model factorsbefore including choice as a covariate. The first model tested theeffect of choice of the focal brand in Period 1 (when not pro-moted) on postpromotion price expectations, and the second testedthe effect of choice when promoted in Period 2. In neither modeldid choice have a significant main effect, nor was there a signifi-cant interaction between choice and promotion depth and/orframe.

they would expect for each brand the next time theyshopped.

Manipulations. We manipulated discount frame to beeither percentage-off or cents-off with simulated shelf tags.Consistent with prior research (e.g., Kalwani and Yim1992), we manipulated depth with shelf tags that indicateddiscounts of 13% ($.45 in the cents-off frame) or 43%($1.51). These discount values, along with a base price of$3.49, kept the focal brands price from being an extremebecause it was the third most expensive regular price andthe second least expensive price when offering a deep pro-motion. Furthermore, the deep discount is not so high thatpurchase intentions may fall because of the discounting ofdiscounts (Gupta and Cooper 1992). Figure 1 displays thestimuli for the high-depth percentage-off condition.

Measures. The primary dependent variables in Study 1are choice share for the focal brand when promoted inPeriod 2 and participants price expectations for the brandafter exposure to the promotion. In line with previous stud-ies (e.g., Jacobson and Obermiller 1990; Janiszewski andLichtenstein 1999; Puto 1987), the specific wording of theexpected price measure was as follows: Please indicate the

price that you would expect to pay for each of the followingbrands the next time you shop (in this simulated store). Toenable us to assess our logic that frame would affect the rateof calculation of the promoted price, participants concludedby indicating whether they calculated the new (promoted)price of the focal brand.

Results

One hundred ninety-six students at a large Midwestern uni-versity participated in Study 1. We converted price expecta-tions for the focal brand from absolute dollar values to apercentage of the regular price for the focal brand. Theresults are invariant to the change from a dollar to the per-centage metric.

Postpromotion price expectations. We tested the effectsof depth and frame on price expectations with an analysis ofcovariance (ANCOVA); choices of the focal brand (yes/no)in Periods 1 and 2 were the covariates.1 As Table 1 shows,consistent with H1, price expectations are lower following ahigh-depth promotion (.888, or 88.8%, of the regular price)than following a low-depth promotion (.967; F1, 195 = 11.68,p < .001). In support of H2, price expectations are alsolower in the cents-off frame condition (.902) than in thepercentage-off condition (.954; F1, 195 = 5.93,p < .01). Con-sistent with H3, a significant depth frame interaction


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FIGURE 1

Stimuli for the High-Depth Percentage-Off Condition of Study 1

emerges (F1, 195 = 4.16, p < .05). As we expected, priceexpectations do not differ across the cents-off (.961) andpercentage-off (.972) conditions when promotion depth islow (t = .63,p > .25). When promotion depth is high, priceexpectations are significantly lower when the promotion isframed as cents off (.844) than as a percentage off (.934; t =2.44,p < .05).

We expected that differences in postpromotion priceexpectations across frames would arise because of differ-ences in the rate of calculation across promotion frames.Consistent with our logic, 51.0% of participants exposed tothe cents-off promotion reported that they calculated arevised price, whereas only 30.6% in the percentage-offcondition calculated a revised price (2(1) = 8.31,p < .01).Furthermore, calculation of the promoted price was associ-ated with lower price expectations. Mean price expectationswere 89.3% of the regular price when the promoted pricewas calculated and 95.6% of the regular price when it wasnot calculated (F1, 195 = 7.10,p < .01). Controlling for cal-culation of the promoted price with an ANCOVA reduces(from F1, 195 = 5.93,p < .01) the effect of promotion frame(F1, 195 = 3.32,p = .07). Thus, price expectations are lowerfollowing a cents-off promotion, at least in part becauseconsumers are more likely to calculate the promoted price.

Promoted period choice. We assessed the effects ofdepth and frame on the rate of choice at the time of the pro-

motion with logit analysis for differences between group

proportions (SAS CATMOD). As Table 1 shows, a main

effect of promotion depth emerges in which choice is

greater for a deep promotion (57.3% share) than for a shal-

low promotion (32.0% share; 2(1) = 23.76,p < .001). Nei-

ther the main effect of frame (2(1) = .56,p > .20) nor the

depth frame interaction (2(1) = .95,p > .15) is signifi-

cant. Thus, H4 is not supported.

As with price expectations, we expected choice to vary

across depth and frame conditions because of a greater rate

of calculation of the revised price in the high-depth condi-

tion. Consistent with this logic, a calculation (yes/no) frame interaction effect on choice emerges (interaction

2(1) = 5.20,p < .05) in which choice is higher for a cents-

off promotion among participants who reported that they

calculated the revised price (54.0% choice versus 43.3%

choice) and for a percentage-off promotion among those

that did not calculate the price (44.1% versus 35.4%). How-

ever, choice did not vary across depth and frame conditions,

because the rate of calculation did not depend on promotion

depth, as we had expected (2(1) = .07,p > .35).


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TABLE 1

Postpromotion Price Expectations and Choice When Promoted in Study 1

A: Mean (Standard Deviation) Postpromotion Future Price Expectations in Study 1

Low Depth High Depth Frame Total

Percentage-off frame .972a (.077) .934 (.155) .954 (.122)Cents-off frame .961a (.104) .844 (.205) .902 (.172)Depth total .967a (.091) .888 (.187)

B: Focal Brand Choice When Promoted in Study 1Low Depth High Depth Frame Total

Percentage-off frame 16/51 (31.3%) 27/47 (57.4%) 43/98 (43.8%)Cents-off frame 16/49 (32.6%) 28/49 (57.1%) 44/98 (44.9%)Depth total 32/100 (32.0%) 55/98 (56.1%)

aPrice expectation relative to the base price of the focal brand ($3.49).

The results of Study 1 speak to Research Questions 1and 2 and suggest that promotion framing can be used tominimize the negative effects of promotions. For high-depth

promotions, a cents-off frame leads to lower postpromotionprice expectations, apparently by allowing consumers tocalculate a revised price more easily. In contrast,percentage-off promotions both signal value (and thus drawas much choice share as cents-off promotions) and lead toless downward revision of price expectations. The lack of asignificant frame effect on choice during the promotionperiod implies that using a percentage-off frame does notweaken the short-term benefits when the brand is promoted.

Study 2: Does Frame AffectPostpromotion Choice?

Ultimately, price expectations are important to the extentthat they influence choice. Therefore, Study 2 tests whetherpromotional frame affects choice after the promotion isrevoked (Research Question 3). Price expectations havebeen shown to affect choice such that a price that is higher(lower) than the expected price decreases (increases) thelikelihood of brand choice (e.g., Papatla and Krishnamurthi1996; Winer 1986). In Study 1, a cents-off (versuspercentage-off) frame was associated with lower priceexpectations for the high-depth promotion. When the pro-motion ends and price returns to its original level, con-sumers likely face a price that is higher than their expecta-tions. The discrepancy between the actual and the expectedprices should be greater in the cents-off frame conditionthan in the percentage-off condition, thus leading to lowerpostpromotion choice. Because price expectations do notdiffer across frame conditions for the low-depth promotion,postpromotion choices should be equivalent across frames.Thus, the effect of frame on future choice should mirror thatof its effect on price expectations.

H5: When promotion depth is high, a cents-off frame leads tolower postpromotion choice. When promotion depth islow, postpromotion choice does not differ by promotionframe.

2As an alternative to a price expectations explanation, lowerpostpromotion choice may arise as a price-signaling effect, inwhich lower perceived prices following a high-depth cents-offpromotion than following a high-depth percentage-off promotionare used to infer lower quality (Rao and Monroe 1989; Scitovszky1945). We undertook two steps to rule out this explanation. First,

Methodology

Study 2 employs a 2 (depth) 2 (frame) between-subjectsfactorial design that follows Study 1 with a few exceptions.The most notable change is that Study 2 adds a third choiceperiod in which the focal brand is no longer discounted.This additional choice period provides the dependentvariable of interestnamely, the rate of choice of the focalbrand after the promotion has been rescinded. To avoidresults arising from characteristics of a particular focalbrand, the focal brand in Study 2 is Lustre. The focal brandis again priced at $3.49 (Evo, the focal brand in Study 1,assumes Lustres Study 1 price of $3.19). To avoid demandartifacts, we did not measure price expectations beforePeriod 3 choice.

Results

Two hundred thirty-nine undergraduate students at a largeMidwestern university participated in Study 2. We testedthe effects of promotion depth and frame with logit log-linear analysis (SAS CATMOD) for differences in the post-promotion choice share for the focal brand. To control forany differences in baseline choice shares in Period 1 (whenthe focal brand was not promoted), we included choice ofthe focal brand in Period 1 (yes/no) as a covariate.

Consistent with H5, postpromotion (i.e., when pricereturns to its normal level) choice share following the high-depth percentage-off promotion (44.6%) is greater than thatfollowing the high-depth cents-off promotion (25.0%; Z =2.11,p < .05). Choice share in the period following the low-

depth cents-off (32.8%) and percentage-off (34.9%) promo-tions does not differ (Z = .25, not significant). Overall, H5 issupported at p = .06 (depth frame interaction: 2(1) =3.53).2


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In Study 1, a percentage-off (versus cents-off) frame inthe high-depth condition led to higher price expectations. Inturn, as Study 2 demonstrates, the percentage-off frameresults in higher choice share for the brand after the promo-tion is removed. Thus, as an answer to Research Questions13, managers can use percentage-off frames to insulatetheir brand against lower price expectations and lower sub-sequent period choice stemming from a deep promotionwithout undermining choice during the promotion period.Study 3 addresses Research Question 4 by more directly

testing the process by which promotional frame affects per-ceptions of the promoted price and the weight placed on theperceived price.

Study 3: How Does Frame AffectPrice Expectations?

Recall that the process of updating price expectations canbe described with Equation 1. The price expectation fortime t (PEijt) is formed in response to prices observedbefore time t. Therefore, lower price expectations may arisebecause of the effect of promotion frame on the perceivedpromoted price (PPijt), the weight placed on the perceived

price (), or both. Specifically, the perceived promotedprice could be higher and the weight placed on the per-ceived price could be lower for a high-depth percentage-offpromotion. Study 3 tests these potential drivers of theeffects of promotion frame on price expectations.

Methodology

To estimate the weights placed on existing price expecta-tions (PEijt) and the perceived promoted price (PPijt) whenconsumers update their price expectations, we constrain theweights placed on PEijt and PPijt to be nonnegative (i.e.,lower existing price expectations and/or lower perceived

promoted prices do not lead to higher future price expecta-tions). Given this constraint, estimating the weight () thateach participant places on the promoted price and on theexisting price expectation (1 ) is contingent on definingtheir prepromotion price expectation (PEijt), the perceivedpromoted price (PPijt), and their postpromotion price expec-tations (RPEijt + 1).

Consistent with prior research (e.g., Chang, Siddarth,and Weinberg 1999; Mayhew and Winer 1992), we esti-mated each participants existing price expectation (PEijt) as

the focal brand price ($2.68) in the first shopping period.This assumes that the regular price (the only price to whichparticipants had been exposed) is adopted as the expectedprice. This assumption is supported by price expectationsfor the nonpromoted brands in Study 1 being within 1% ofregular prices (price expectations were .994, or .6%, underthe regular price). Because we define the prepromotionprice expectation as the regular price, estimating the weightthat each participant places on his or her existing priceexpectation and on the price he or she perceives when thebrand is promoted calls for defining his or her perception ofthe promoted price (PPijt) and the resulting (postpromotion)price expectation (RPEijt + 1). Study 3 is designed to mea-

sure these values directly.Study 3 mirrors Study 1 except for three notable differ-

ences. First, we chose a different product category. Weselected spaghetti sauce because it offers a different set ofbenefits from the previously employed focal category(shampoo). Second, to avoid our results being limited toodd or highly complex discount values, the focal brand inStudy 3 (Prima) employs promotion values of 15% and40% rather than 13% and 43%. Third, in addition to collect-ing price expectations after the promotion (RPEij t + 1), wealso directly measure perceptions of the promoted price(PPijt). After indicating their postpromotion price expecta-tion (RPEijt + 1) as in Study 1, participants advanced to a

screen that displayed the focal brand along with its promo-tion, and they were given five seconds to indicate their per-ceptions of the revised price (PPijt). We imposed the five-second time limit to (1) prevent participants who had notundertaken thoughtful efforts to estimate the revised priceduring the choice period from doing so post hoc while (2)allowing recall of the revised price from memory for thosewho calculated it during the choice task. Figure 2 displaysthe stimuli for the low-depth cents-off condition.

Results

One hundred twenty-three undergraduate students from alarge Midwestern university participated in Study 3. For the

results of Study 3 to be pertinent to the interpretation ofStudies 1 and 2, the depth frame interaction effect onprice expectations observed in Study 1 must emerge again.Therefore, we first assessed postpromotion price expecta-tions with an ANCOVA; choices of the focal brand (yes/no)in Periods 1 and 2 were the covariates. As Table 2 shows, adepth frame interaction (F1, 122 = 3.25, p = .07) emergesthat is the result of lower price expectations following thehigh-depth cents-off promotion (.773, or 77.3%, of the baseprice of $2.68) than following the high-depth percentage-

Study 2 participants concluded by indicating their perceptions offocal brand quality on a four-item scale (e.g., low quality/highquality, bad/good; = 84). Perceptions of the focal brandsquality have a direct effect on choice (2(1) = 18.97,p < .001), butcontrolling for quality perceptions does not attenuate the effect ofpromotion frame (2(1) = 5.81,p < .05) or the interaction of frameand depth (2(1) = 3.52,p = .06) on postpromotion brand choice.Second, we collected additional data for the two high-depth condi-tions of Study 2. Specifically, we had undergraduate students (n =57) engage in the same choice task and quality evaluation as inStudy 2. We then had them indicate (with open-ended responses)the factors that led to their evaluation of the focal brands quality.A total of 13 of 29 (45%) respondents in the cents-off conditionmentioned the discount as a criterion on which they based their

evaluation of quality, whereas 13 of 28 (46%) respondents men-tioned the discount in the percentage-off condition (Z = .08,p >.45). Furthermore, although using the discount as a basis for eval-uating brand quality led to quality ratings that approached beingsignificantly lower (perceived quality = 6.21/9.0 for those whomentioned the discount, and 6.73 for those who did not; F = 2.36,

p < .15 [two-tailed]), it did not interact with promotional frame toaffect quality perceptions (discount frame interaction: F = .001).Thus, although promotions may lead to lower evaluations of abrands quality, they do not appear to affect evaluations of qualitydifferentially on the basis of their frame.


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FIGURE 2

Stimuli for the Low-Depth Cents-Off Condition of Study 3

TABLE 2

Mean (Standard Deviation) Postpromotion Price Expectations in Study 3


Percentage-off frame .927a (.081) .880 (.171) .904 (.135)n = 31 n = 31

Cents-off frame .909a (.075) .773 (.192) .878 (.145)n = 35 n = 26

Depth total .918a (.078) .831 (.187)

aPrice expectation relative to the base price of the focal brand ($2.68).

off promotion (.880; t = 2.22,p < .05). Price expectationsdo not differ across the cents-off (.909) and percentage-off

(.927) frames when promotion depth is low (t = .94, p >.35). Thus, Study 3 replicates the effects of frame on priceexpectations that we observe in Study 1.

Perceptions of the promoted price. Next, we consider

the effect of promotion depth and frame on our (direct)measure of the perceived promoted price with a 2 (depth) 2 (frame) ANCOVA; choices in Periods 1 and 2 were the

covariates. As Table 3 shows, both promotion depth and

frame affected participants perceptions of the promoted

price. However, the main effects are qualified by a signifi-

cant depth frame interaction (F1, 122 = 10.67, p < .001).

When promotion depth is low, the mean perceived pro-

moted price is $2.27 (actual price = $2.28) for both the

cents-off and the percentage-off frames (t = .05, p > .90).

For a deep promotion, a cents-off frame is associated with a

lower perceived price (perceived price = $1.60, and actual


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TABLE 3

Perceived Prices and the Weight Placed Thereon in Study 3

A: Mean (Standard Deviation) Perceived Promoted Prices in Study 3


Percentage-off frame $2.27 (.12) $1.82 (.34) $2.05 (.34)Cents-off frame $2.27 (.04) $1.60 (.04) $1.99 (.34)Depth total $2.27 (.08) $1.72 (.28)

B: Mean (Standard Deviation) Weight Placed on the Perceived Promoted Price in Study 3Low Depth High Depth Frame Total

Percentage-off frame .476 (.454) .320 (.399) .398 (.431)Cents-off frame .586 (.487) .547 (.459) .569 (.472)Depth total .534 (.472) .423 (.438)

price = $1.61) than a percentage-off frame (perceivedprice = $1.82; t = 3.23,p < .01).3

Controlling for perceptions of the promoted price withan ANCOVA in our assessment of the effects of depth andframe on price expectations eliminates the depth frameinteraction (F1, 122 = 1.00, p > .30). Thus, the frame-baseddifferences in price expectations and future choice in Stud-ies 1 and 2 appear to be the consequence of variations inperceived promoted prices. However, this finding does notpreclude the weight placed on the perceived promoted pricefrom also differing across promotion frames and influenc-ing price expectations and future choice.

Weight placed on the promoted price. Measuring pre-and postpromotion price expectations (PEijt and RPEijt + 1)and perceptions of the promoted price (PPijt) allows for theestimation of the weight () that each participant places onPPijt when updating his or her price expectations. After we

estimated this weight, we tested differences in with anANCOVA; choices in Periods 1 and 2 again served ascovariates. The results (see Table 3) indicate that greaterweight is placed on the perceived promoted price when thepromotion is framed in cents ( = .569) than when it isframed as a percentage ( = .398; F1, 122 = 4.22, p < .05).The main effect of depth (F1, 122 = .42, p > .20) and thedepth frame interaction are not significant (F1, 122 = .52,p > .40). Thus, the weight placed on the promoted priceshows only a main effect of frame.

That the depth frame interaction on the weight placedon the promoted price is not significant suggests that per-ceptions of the promoted price are the primary driver of theeffects of frame on price expectations (Research Question

4). Underlying this result is the argument that differences inprocessing difficulty between cents-off and percentage-off

promotions lead to promotion frame effects. We test thisassumption more directly in Study 4, and in doing so, weassess how percentage-off frames might be designed to bemost effective.

Study 4: How Should ManagersFrame a Percentage-Off

Promotion?We contend that the effects of promotion frame on priceexpectations (and, in turn, choice) arise from the difficultyof processing percentage-off discounts. This implies thatframe effects will not emerge when discount values are easyto compute. For example, knowing that the value of a 50%discount can be ascertained by dividing the price by tworequires a low level of procedural math knowledge. Whenpaired with a base price that is a round number (e.g., $3.00),division by two is likely to be as easy as subtraction of

$1.50. As evidence that round prices are easier to process,Estelami (1999) reports that the time people take to multi-ply two price components (a monthly payment and thenumber of payments) when both components are roundnumbers is one-third the time needed when at least one ofthe values is not round. Thus, the assessment of the effect offrame on postpromotion price expectations when prices anddiscounts are round numbers enables us to test the process-ing difficulty explanation for frame effects. Specifically, ifframe effects arise because of differences in processing dif-ficulty, the effects should disappear when the percentage-offpromotion is easy to calculate. If the processing difficultyexplanation holds, the implication is that managers should

use percentage-off frames that are relatively difficult to cal-culate to insulate postpromotion price expectations.

Methodology

The method we used to collect data in Study 4 is identicalto that of Study 3, with the exception that we altered thefocal brand price and discount values to round values.Specifically, in Study 4, the focal brand has a base price of$3.00 and is discounted at a depth of either 10% ($.30) or50% ($1.50). Participants provided price expectations for

3In addition to being undervalued on average, the modalresponse is to undervalue the high-depth percentage-off promo-tion; 64.5% of respondents in this condition estimated the revisedprice to be greater than the actual price of $1.61. In contrast, only3.8% of respondents exposed to the high-depth cents-off promo-tion estimated the price to be greater than $1.61 (80.8% listed aprice of $1.61 or $1.60).


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the focal brand and completed the measure of perceivedpromoted price as in Study 3.

Results

One hundred sixteen students at two large Midwestern uni-versities participated in Study 4. We designed Study 4 toprovide discounts that were as easy to calculate in percent-age terms as in cents-off terms. Consistent with this desire,a 2 (depth) 2 (frame) analysis of variance indicates thatperceived promoted prices (see Table 4) did not differ as afunction of discount frame (main effect: F1, 115 = .51, p =.48; depth frame interaction: F1, 115 = 1.37, p > .20).Equivalent accuracy across frame conditions lends credenceto our belief that the focal discounts are equivalent (ornearly so) in terms of processing difficulty.

We tested the effects of discount depth and frame onprice expectations with an ANCOVA; choices of the focalbrand (yes/no) in Periods 1 and 2 were covariate variables.As Table 4 shows, a main effect of depth emerges in whichprice expectations are lower following a deep discount(.826, or 82.6%, of the regular price) than following a low-depth discount (.958; F1, 115 = 28.22,p < .001). Frame doesnot have a direct effect on postpromotion price expectations

(F1, 115 = .88, p = .35), nor does it interact with promotiondepth to affect price expectations (depth frame inter-action: F1, 115 = .11, p = .74). Thus, the use of easy-to-compute discount values eliminates the effects of promotionframe on price expectations (found in Studies 1 and 3) andsupports the belief that the effects of promotion frame aredue to the greater difficulty of processing (most)percentage-off discounts.

General DiscussionIn Studies 1 and 3, we observed a reliable frame depthinteraction on price expectations. In the high-depth condi-

tion, a cents-off frame led to lower price expectations than apercentage-off frame; we found no differences acrossframes in the low-depth condition. The moderating role offrame on depth shown for price expectations held true forpostpromotion choice as well (Study 2). Studies 3 and 4

examined the process by which frame effects arise. Study 3showed that a large percentage-off promotion was underval-ued (and the resulting price was overestimated). We alsofound that a percentage-off promotion was weighted lessheavily than a cents-off promotion when participantsupdated price expectations. Study 4 demonstrated that con-ditions that allow revised prices to be easily derived elimi-nate the effect of frame on price expectations. Thus, for allbut the simplest of promotions, the cognitive costs of pro-cessing percentage-off promotions lead to less downward

adjustment of price expectations. In turn, choice shareretention following the retraction of a deep promotionframed in percentage-off terms is greater than when the pro-motion is communicated in absolute dollar terms.

Managerial Implications

Although large promotions may help meet sales goals dur-ing the promotion, they may also undermine preference forthe brand when they are removed. Managers may considersolving this dilemma by offering more frequent, but lessvaluable, promotions to both increase sales and protect theirbrand. However, this solution is less attractive in light ofevidence that frequent exposure to promotions may trainconsumers to wait for discounts, thus undermining the abil-ity to attract a premium price (e.g., Mela, Gupta, andLehmann 1997). An implication of the results is that futureprice expectations, and thus postpromotion choice, can beprotected when offering a deep discount by framing the dis-count in percentage terms. Furthermore, by offering deep,but less frequent, promotions, the brand is also protected interms of the training mechanism.

The results beg the question of the prevalence of differ-ent promotion frames in practice. Data on the use of thesetypes of promotions are difficult to locate. Therefore, weasked a small sample of consumers (n = 20) from across theUnited States to visit their regular grocery store and report

their perceptions of the use of various discount frames. Theresults indicate that cents-off (believed to account forapproximately 40% of promotions) and revised price offers(approximately 25% of promotions) appear to be morecommon than percentage-off promotions (approximately

TABLE 4Perceived Prices and Price Expectations in Study 4

A: Mean (Standard Deviation) of the Perceived Promoted Price in Study 4


Percentage-off frame $2.72 (.06) $1.50 (.00) $2.13 (.62)Cents-off frame $2.71 (.05) $1.54 (.19) $2.14 (.61)Depth total $2.71 (.06) $1.52 (.13)

B: Mean (Standard Deviation) Postpromotion Price Expectations in Study 4


Percentage-off frame .958 (.059) .813 (.242) .888 (.187)Cents-off frame .958 (.056) .839 (.238) .901 (.179)Depth total .958 (.057) .826 (.238)


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10% of promotions). Furthermore, there is high variancebecause the estimate for each frame ranged from less than10% to greater than 35% of at least one stores promotions.Thus, in practice, there appears to be little consensus on thebest way to frame promotions among those responsiblefor their implementation.

In part, the variance in the use of frames may reflect dif-ferent motivations regarding their use. Retailers may wishto convey an image of low price (e.g., Cox and Cox 1990).The results of Study 3 indicate that consumers perceive

prices as being lower when a promotion is framed in cents-off terms. Conversely, manufacturers are more likely to beinterested in insulating price expectations and thereforeshould frame direct-to-consumer promotions in percentage-off terms and should push retailers to adopt percentage-offdiscount framing. As part of efforts to do so, manufacturersmay point out that framing does not appear to alter choice atthe time of the promotion, and thus retail sales at the time ofthe promotion will not suffer from such a switch.

Implications for Theory Development

The theoretical implications of our research must be viewedin light of the limitations that arise from the limited range of

discount sizes and promotional frames we employ. Con-sumers may view very large discounts (>50%) with suspi-cion (Gupta and Cooper 1992), thus compressing the effectof discount depth on price expectations beyond some dis-count depth threshold. Regarding the range of promotionalframes, our logic seems to hold implications beyond thetested frames. For example, a revised price frame makesderiving the price unnecessary, and thus we expect thatprice expectations following such a promotion will be lowerthan those following a promotion for which the price ismore difficult to discern. Conversely, the greater complexityof calculation associated with a quantity-at-a-single-priceframe should lead to higher price expectations.

Despite these limitations, this research offers severaltheoretical implications regarding postpromotion choice.The first stems from a marriage of the topics of price expec-tations and discount framing. Each of these topics hasreceived considerable attention, but there has been littleattempt to integrate these two important and related topics.If brand prices are stable, price expectations will gravitateto the market price, expected prices will equal observedprices, and price expectations will play a minimal role indetermining choice. However, prices fluctuate, and price

expectations have been shown to play an important role indetermining consumers brand choices (Lattin and Bucklin1989; Mazumdar, Raj, and Sinha 2005; Winer 1986).Although regular prices for brands vary, the prevalence ofprice promotions results in promotions being the cause ofmost of the price changes consumers observe. Thus, under-standing how consumers update price expectations inresponse to new prices is largely an issue of understandinghow they integrate promotional prices into price expecta-tions. The results indicate that such understanding cannot

arise without considering the issue of promotion frame.Second, an anchoring and adjustment account of price

expectation revision would in spirit, if not strict definition,suggest that both existing price expectations and the newprice are positively weighted when consumers update theirprice expectations. Research often indicates that this isindeed the case (e.g., Niedrich, Sharma, and Wedell 2001;Rajendram and Tellis 1994; Winer 1986). However, otherresearch (e.g., Chang, Siddarth, and Weinberg 1999; Jacob-son and Obermiller 1990) finds that the current price domi-nates existing price expectations (i.e., the weight on themost recent price is 1.0). The latter studies assessed priceexpectations following changes in prices that were not iden-

tified as promotions. The mean weights placed on the pro-moted price (.471) and the existing price expectation (.529)in Study 3 support an anchoring and adjustment process ofprice expectation revision. Furthermore, the lower weightplaced on the promoted price rather than on price changesthat are not associated with promotions (i.e., those reportedby Chang, Siddarth, and Weinberg [1999] and Jacobson andObermiller [1990]) indicates that consumers are hesitant toview promoted prices as the norm.

Third, accurate knowledge of prices is commonlyassumed in models of expected price effects (e.g., Lattinand Bucklin 1989; Winer 1986). However, this assumptionis inconsistent with research that indicates that consumers

level of processing of promotional information may be rela-tively low (e.g., Conover 1986; Dickson and Sawyer 1990).We provide a middle-ground view in which shoppers attendto price information but lack the motivation to overcomeobstacles (i.e., a percentage-off discount frame) to interpretaccurately and assimilate new price information into exist-ing beliefs. Research on additional barriers to processingpricing information (e.g., promotion intensity and the num-ber of brand in the category) can help better specify modelsof the effects of price expectations.

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Documents

Cents or Percent＿The Effects of Promotion Framing on Price Expectations and Choice