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ISSN : 2288-4637(Print)
ISSN : 2288-4645(Online)
The Journal of Asian Finance, Economics and Business Vol.5 No.4 pp.101-105
DOI : http://doi.org/10.13106/jafeb.2018.vol5.no4.101

# The Effect of Post-Purchase Discount Format on Consumers’ Perception of Loss and Willingness to Return

Xueqing Luo,Jennifer J. Lee2
* The paper was presented initially at 2018 International Conference on Business and Economics (ICBE2018) and the 14th International Conference of KODISA that was held in Seoul, South Korea, June 25-27, 2018. The paper has been recognized as one of Best Paper Awards at ICBE2018 conference. This paper is a substantially revised and expanded version of the paper presented at ICBE2018 conference. The authors have taken into account the comments of Editors, Session Chairs and Reviewers in the revised manuscript. The authors greatly appreciate Editors, Session Chairs and Reviewers for their valuable comments, interest in and support of this research.
1 First Author. Graduate Student, Administrative Sciences Department, Metropolitan College, Boston University, Boston, USA. E-mail: fionaluo@bu.edu
2 Corresponding Author. Assistant Professor, Administrative Sciences Department, Metropolitan College, Boston University, Boston, USA [Postal Address: 1010 Commonwealth Avenue, 4th Floor, Boston, MA 02115, USA]. E-mail: leejen@bu.edu
May 30, 2018 July 15, 2018 July 30, 2018

## Abstract

Price discount is one of the commonly used promotion strategies to increase sales and revenue. If a discount is perceived before the purchase (i.e., pre-purchase discount), consumers are likely to perceive it as a potential gain. If it is noticed after making a regular-priced purchase (i.e., post-purchase discount), consumers may develop negative emotions and attitudes. Based on the rising transparency and omnipresence of price and discount information through web and mobile platforms, we attempt to tackle an understudied topic on the negative effect of post-purchase price discount. Specifically, post-purchase discount information may increase consumers’ perception of monetary loss, which may affect consumers’ decision to return the product, potentially increasing the operating costs borne by retailers. Based on a close scrutinization of the current market environment and previous academic literature, we suggest a novel conceptual framework to understand consumers’ perception, attitude, and behavior (perception of loss, willingness to return) upon perceiving various formats of discount promotion (absolute value vs. percentage discount) posterior to the purchase of a product. We also look at the effect of price level (low-priced vs. high-priced). For marketing practitioners, we intend to suggest optimal promotion formats that can alleviate consumers’ negative perceptions and prevent additional operation costs.

JEL Classification Code: M31, M37, M21.

## 1. Introduction

### 1.1. Industry Analysis

Over recent decades, e-commerce has been a fast-growing business field. From 2014 to 2017, worldwide retail e-commerce sales grew from $1336 to$2304 billion (The Statistics Portal, 2017). In 2017, U.S. e-commerce sales accounted for 13% of the total retail sales (Ali, 2018). Such radical development of the industry is also evidenced in the recent business cases such as Alibaba, a China-based multinational e-commerce conglomerate, having gone public in New York Security and Exchange, as well as Amazon’s acquirement of Whole Foods Market Inc. With speedy development of the Internet technology as well as the spread of e-commerce platforms, product and price information became more available. Consumers are constantly exposed to sales promotions and price discounts through websites and mobile channels. Although promotional communications nudge consumers and expedite future purchase, they may induce negative outcomes if a discount is noticed posterior to consumer’s regular-priced purchase. In other words, previous buyers who paid the full price may feel disappointed, regretful, or dissatisfied with the product and the seller.

As a consequence of negative perception and attitude under post-purchase discounts, consumers may decide to return the purchased products. Statistically, around 49% U.S. retailers offer free return policy and at least 30% of all products ordered online are returned, as compared to only 8.89% in brick-and-mortar stores (Saleh, 2016). Free return policies burden e-retailers with increased operation costs, such as stock and restock cost or lost parcels. Therefore, it is critical for firms to accurately forecast consumers’ return behaviors.

### 1.2. Research Questions and Objectives

Based on the increased availability of price information, this research focuses on the two research objectives: (1) to understand how discount information perceived posterior to the purchase may induce consumers’ negative perception and attitude toward the purchase, and (2) to predict consumers’ willingness to engage in return behaviors as a consequence of negative attitude described previously.

## 2. Literature Review

### 2.1. Positive Effect of Different Formats of Promotions

Previous studies advanced the literature by discovering effective promotional strategies that yield consumers’ positive perceptions of the product. Inman and McAlister (1993) indicated that retail price promotions influence consumers’ purchase decision and increase total sales volume. In the following studies, the effects of different formats (absolute value vs. percentage discount) of pre-purchase discount were investigated (e.g., Chen, Monroe, & Lou, 1998). Chen et al. (1998)’s study results suggested that for low-price products, (e.g., $9.95 computer disk), consumers perceived the savings more significantly when presented in percentage formats than in absolute dollar drops, and for high-price products (e.g.,$1,995 computer), the perceived savings were larger if presented in dollars compared to percentage (see Figure 1 and 2).

Figure 1:
Effect of different formats of pre-purchase discount for low-price product

Figure 2: Effect of different formats of pre-purchase discount for high-price product

### 2.2. Negative Effect of Different Formats of Promotions

From another perspective, scholars such as DelVecchio, Henard, and Freling (2006) proposed that while sales promotion induces current purchases, the increased sales may be offset by undermining preference for the brand when it is no longer promoted. Extensively, initial studies have also demonstrated that pre-purchase discount could yield negative side effects on consumers' loyalty, future price expectation and the likelihood of subsequent purchases (see Figure 3).

Firstly, if a brand is discounted at a high frequency, consumers tend to be trained to wait for discounts and ignore originally-priced products (Gedenk & Neslin, 1999). Such tactic is risky to retailers since it may negatively affect consumers’ brand attachment and loyalty. Thus, brands that are often on sale will only increase bargain-seeking consumers without successfully attracting loyal consumers attached to the brand (Gedenk & Neslin, 1999).

Secondly, absolute price was found to have positive association with both perceived price and perceived quality (Chang & Wildt, 1994). Accordingly, under price discounts, lowered absolute price reduces the perceived price and quality. Perceived prices are studied as the key determinants of future price expectation (Chang & Wildt, 1994; DelVecchio, Krishnan, & Smith, 2007). Hence, consumers tend to expect lower price when frequently exposed to price discount promotions (Monroe, 1971).

Lastly, by lowering perceived quality, increasing consumers’ inventories at home, and reducing future price expectations, discounts may undermine the likelihood of subsequent purchases (see Figure 4), (DelVecchio et al., 2007; Diamond, 1992).

Figure 3: Negative effect of frequent discounts on consumer reactions

Figure 4: Psychological and behavioral consequence of the execution of discount strategy

### 2.3. Positioning of the Research

While previous studies illustrated how the pre-purchase discount could positively affect consumers’ current perceptions and negatively affect consumers’ future expectations and behaviors, our study aims to discover an understudied area: How different formats of post-purchase discounts could influence the current perception (e.g., perception of loss) and purchase decision (e.g., the willingness to return the product).

## Reference

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