The downsides of price promotions and price negotiations on brand relationships

Abstract

This dissertation's overall objective is to contribute to the understanding of the negative consequences certain sales approaches can have in retail settings. Specifically, two essays examine the effects of price promotions and price negotiations on customer, and salesperson perceptions. Many firms implement price promotions and negotiations because both provide economic incentives for customers to purchase. While there are a number of positive outcomes related to these tactics, this dissertation identifies conditions under which they can backfire for firms. The first essay investigates how price promotions can backfire for firms, while the second essay, examines how price negotiations between customers and salespeople can backfire. The first essay contributes to both theory and practice by providing insights into the effects of customers resisting price promotions. Four controlled laboratory experiments reveal consumers who resist a competing brand's price promotion increase their loyalty to their incumbent brand. This effect is rooted in resistance theory, suggesting that when consumers forgo a persuasive offer, their perceptions of resistance are both diagnostic and affirming, which can change their attitudes and behaviors. Ultimately, Essay One suggests marketing managers likely overestimate the benefits of their firm's price promotions if they fail to account for increasing consumer loyalty and spending toward competitor brands. The second essay evaluates how retail price negotiations between a salesperson and customer are impacted by the customer’s form of payment (e.g., cash, financing). Across two controlled laboratory experiments and a secondary dataset, this research finds that customers who pay with more transparent payment forms (e.g., cash or debit card) obtain more substantial price concessions during price negotiations. Specifically, I find salespeople perceive customers who pay with more transparent payment forms as having greater negotiation power than those who pay with less transparent payment forms, and thus concede greater price concessions. Ultimately, Essay Two demonstrates a customer's payment form may negatively impact a firm's profit margins; additionally, this essay provides managerial insights on how to mitigate these effects.