The influence of expectation for a future deal on the effectiveness of a current price promotion : an application of prospect theory

Price promotion has become an integral part of American market culture. In highly promotion-driven market environments, consumers' purchase decisions can be influenced not only by the current price of a product, but also by the price they expect in the future. The purpose of this dissertation is to investigate the influence of the expectation for a future deal on the effectiveness of a current price promotion. Through a series of three experiments, the expectation for a future deal was tested in terms of expected future discount depth, future discount timing, and future product availability. The effectiveness was operationalized as the perception of transaction value, the perception of acquisition value, and purchase intention. Empirical evidence was found that a consumer's expectation for a future deal can change the value perception and purchase intention for a current deal. When buyers have an expectation for future deals, their response to a current deal can be weakened, compared to when they do not have such an expectation. The findings of this dissertation supported a proposed conceptual model adopted from Prospect Theory. The perception of transaction value as increased by a discounted price, yet reduced by the expectation for a future deal, results from two reference prices working in the opposite ways. Managerial implications for retailers and theoretical implications are discussed. Suggestions for future research are presented, and limitations are explained.