MESSAGE FRAMING EFFECTS ON PRICE DISCOUNTING Philip Gendall, Janet Hoek and Tracy Pope Massey University, Palmerston

North

Abstract Though the long-term value of price discounting is questionable, it remains a common marketing practice. When price discounts are implemented there are different ways in which the same discount can be expressed, or 'framed', and this may affect consumers' reactions. This paper reports the results of a study designed to examine the effect on consumers' choice behaviour of framing the same price discount as a percentage or as a dollar amount, for lowpriced and high-priced items. For 'low-priced' items, cola drinks and potato chips, the framing of a price discount had little or no effect. Only for potato chips was there any evidence to support the hypothesis that a percentage discount would be more effective than a cents-off discount and this evidence was very weak. However, for two 'high-priced' items, computers and stereos, framing a discount as a dollar value was significantly more effective than expressing the same discount as a percent off. The implication for retailers and manufacturers is that, as a general policy, they are better to express price discounts as dollars or cents off rather than as a percentage, particularly if the absolute value of the discount is non-trivial.

Introduction Price discounts are popular because they stimulate immediate purchase of the promoted product, resulting in a sharp sales spike, their effects are observable and measurable, and, because they help to increase store traffic, they may aid in maintaining manufacturers' relationships with retailers, ensuring that the brand is well stocked and has adequate shelf space. A price discount provides a brand with a feature that enhances its salience and encourages consumers to consider that brand over others in their brand repertoire (Schultz, Robinson and Petrison 1998; Ehrenberg, Hammond and Goodhardt 1994). However, Ehrenberg et al (1994) have shown that price promotions are unlikely to attract new buyers or result in any long term after-effects, since most of the consumers purchasing a discounted brand are existing buyers who already have the brand in their consideration set. Nevertheless, price discounting remains a popular form of instore promotion; in fact there is evidence that the use of price promotions is increasing (Bearden and Urbany 1998). Thus the most effective way of implementing a price discount is a relevant issue for most retailers and many manufacturers, and one aspect of this is the way in which a price discount is expressed, or 'framed'. The fact that cognitive judgements are influenced by the way in which decision problems are framed is well established (see Kahneman and Tversky 1979) and several researchers have confirmed that the presentation, or framing, of messages about products affects consumers' purchase intentions or behaviour. For example, Levin et al (1995, cited in Levin and Garth

1998) found that consumers' likelihood of purchasing ground beef was higher when the ground beef was described (framed) in terms of its percent-lean rather than its percent-fat. Similarly, Ganzach and Karsahi (1995) reported that message framing affected the behaviour of credit card holders. A negatively-framed message (the loss incurred by using a cheque instead of a credit card) produced higher card utilisation and charges than a positively-framed message (the gains from using a credit card). The relevance of message framing for price discounting is that there are different ways in which the same price discounted can be expressed. For example, the same price discount can be expressed as either a percentage amount off or a dollar amount off. In some cases there are several ways of expressing the same discount, for example, "50% off", "buy one, get one free", or "two for the price of one". The effect of these framing alternatives will depend on how consumers process and interpret them. Chen, Monroe and Lou (1998) hypothesised that, for high-priced items, consumers will see a price reduction framed in dollar terms as more significant than when it is expressed in percentage terms, and that the opposite would be true for low-priced products. Their rationale was that, for a given percentage discount, the absolute value of the price reduction is higher for higher-priced products, whereas, for a given absolute price discount, the relative percentage reduction is higher for lower-priced products. Chen et al tested this proposition in a study that used a $1595 personal computer and a $7.95 box of floppy disks. The study confirmed their hypothesis. However, while the framing of the price discounts affected respondents' evaluation of them, it did not have a significant effect on their purchase intentions. Chen et al's study was limited by the fact that it considered only one product in each product category and made no allowance for brand effects. The research reported here replicates Chen et al's study but extends it to two product categories at each price level and to three brands within each product category.

Methodology A stated-preference choice modelling experiment was conducted for two low-priced and two high-priced product categories: cola drinks and potato chips, and computers and stereos. Each product was represented by three brands and three price levels, including equivalent percent and dollar discounts. The brands and price levels chosen are shown in Table 1. Table 1 Product Cola Product attributes and levels tested Levels Pepsi Save 15c Bluebird Save 8c IBM Save $420 Aiwa Save $135

Attributes Brands Prices Chips Brands Prices Computers Brands Prices Stereos Brands Prices

Coca Cola $1.00 ETA .80c Compaq $2,800 Sony $899

Foodtown Cola Save 10% Krispa Save 15% Advantage Save 10% Phillips Save 15%

The choice sets constructed contained the three brands of each product, each at a specified price or with the specified price crossed out and a price discount indicated by the words "SPECIAL OFFER SAVE X ($ or c value, or %)". The same design, with six choice sets, was used for each product, representing a total of 24 choice sets. However, to overcome the potential problem of respondent fatigue, two versions of the questionnaire were produced, each containing only two products (either cola drinks and computers, or potato chips and stereos) and 12 choice sets. The sample for the study consisted of 322 shoppers, selected by mall intercept in a Palmerston North shopping centre in August 2000. Respondents were randomly allocated to one of the two alternative questionnaire versions, giving sample sizes of 161 respondents for each product category. Respondents were told to assume they were shopping for the particular product shown and that the brands on the showcard were the only ones available ; they were then asked to choose one of the three brands. Age, sex, education, brand awareness and purchase information were also collected from respondents. This allowed us to establish that the composition of the sub-samples was similar and to conclude that demographic or consumption differences between the sub-samples would not affect product comparisons.

Results The effects of message framing on price discounting were estimated using the multinomial logit model. To estimate the model, respondents' choices were combined to produce aggregate frequencies for each brand in each choice set. These aggregate frequencies were then regressed against the matrix of attribute variables, which included brand, whether or not the brand was discounted, and the way in which the discount message was framed. Models of varying degrees of complexity were fitted; the regression coefficients and values for these models are shown in Tables 2 and 3. Table 2 Multinomial Logit Regression Results : Low-priced Products Cola Drinks t 8.0 8.4 7.0 5.1 Variable Coca Cola Foodtown Cola Discounted Coca Cola Discounted Pepsi Discounted Foodtown
2

Potato Chips Variable B ETA 0.72 Bluebird 0.75 Discount % 0.60 Discount Value 0.45
1

B 1.69 -0.81 1.23 0.23 -0.31 X2 ,6df = (p<.05)

t 4.8 -3.5 5.0 0.7 -0.7 1281.5

Model Fit

X2 , 4df (p<.10)

141.9

Note: 1. Baseline brand is Krispa; baseline discount is No Discount 2. Baseline brand is Pepsi; baseline discount is No Discount. For potato chips, a discount expressed as a percentage was marginally more attractive than a discount framed in dollar terms (and both were more attractive than no discount). By contrast, the type of discount had no effect on respondents' choice of cola drinks, though the effect of discounting per se varied from brand to brand. Discounting makes Coca Cola significantly

more attractive, Pepsi more attractive (though not significantly) and Foodtown Cola less attractive (though, again, not significantly). Table 3 Multinomial Logit Regression Results : High-priced Products Computers t 10.0 0.6 13.6 9.3 Variable IBM Compaq Advantage $ Discount IBM $ Discount Compaq $ Discount IBM % Discount Compaq % Discount Advantage % Discount
2

Stereos Variable B Sony 0.87 Aiwa 0.06 Discount Value 1.41 Discount % 0.99
1

B 1.66 1.47 2.16 1.58 1.43 1.04 0.96 0.92

t 4.5 3.9 6.0 7.7 6.7 5.7 4.7 2.3

Model Fit

X2 ,4df = 354.1 (p<.0001)

X2 , 8df = 505.7 (p<.05)

Note: 1. Baseline brand is Phillips; baseline discount is No Discount 2. Baseline brand is Advantage; baseline discount is No Discount. For stereos, the effect of the alternative discount messages was clearly significant: a discount expressed in dollar terms was more attractive than one expressed in percentage terms, and both discounts outweighed any brand effect. Similarly, for personal computers there was a significant difference between the attractiveness of the two discounts in favour of the discount framed in dollar terms. Unlike the stereos, however, the strength of this effect varied depending on the brand concerned. For example, the effect was more marked for the Advantage brand than for either of the other two brands (possibly because Advantage was the least popular of the three brands tested).

Discussion and Conclusions This study was designed to test the hypothesis that it is more effective to express a price discount for low-priced products as a percentage off the normal price, rather than as the actual monetary value of the discount, and vice versa for high-priced products. The results provide partial support for this hypothesis. For the two low-priced products tested, the way in which the discount was framed had little effect. For cola drinks, the discount framing had no effect at all, while for potato chips, the discount was marginally more effective when expressed as a percentage than as cents amount off. Though this difference was not significant, it was consistent with the results of Chen et al's (1998) study and their hypothesis about discount message framing for low-priced products. For both high-priced products tested, the price discount was significantly more attractive when expressed as a dollar amount off than as a percentage amount off. This is consistent with Chen et al's (1998) results and provides support for their hypothesis about discount message framing for more expensive products.

One explanation for the difference in results for potato chips and cola drinks is that respondents were influenced by the relative absolute size of the discount in each case. For the potato chips, the absolute value of the cents off amount was less than the absolute value of the percentage amount off (8 cents versus 10%). By contrast, for the cola drinks, the cents-off amount was greater than the absolute value of the percent-off amount (15 cents versus 10%). If respondents reacted to these numbers, it would explain the greater attractiveness of the percent discount for potato chips. But the same reasoning would suggest that the cents-off discount should have been more attractive for the cola drinks, and it was not. (For cola drinks, the utility of the Coca Cola brand effectively swamped all other effects.) There are some limitations to this research. First, stereos and computers are infrequentlybought products. If a respondent was in the market for either of these products, they would be likely to have more knowledge about the technical features and quality of the different brands, and brand may be more important than suggested in our experiment. Nevertheless, for computers at least, there was a strong interaction between brand and price discount, which suggests that respondents responded to brand as well as price and discount level in this product category. Second, although choice modelling experiments simulate reality, they do not replicate actual purchase situations. In reality, discounted brands may be promoted with special signs to emphasise the fact that they are discounted, and respondents may react differently to such stimuli than to the presentation of the discounts in our experiment (though this should not have affected the comparison of the alternative message framing approaches). Despite these limitations, the practical implication for retailers and manufacturers using price discounting seems clear. As a general policy, it is better to express price discounts as dollars or cents off rather than as a percentage off. For high-priced products this conclusion is unequivocal, for low-priced products it is less well-supported, but since there is little evidence that percentage discounts are more effective, manufacturers and retailers can be reasonably confident in using cents-off discounts for these products as well.

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