TY - JOUR
T1 - The Effect of Permanent Product Discounts and Order Coupons on Purchase Incidence, Purchase Quantity, and Spending
AU - Liu, Huan
AU - Lobschat, Lara
AU - Verhoef, Peter C.
AU - Zhao, Hong
N1 - data source:
PY - 2020/12/18
Y1 - 2020/12/18
N2 - This paper examines the influence of a permanent discount strategy on customer purchase behavior, i.e., purchase incidence in each week, purchase quantity (in units), and total order spending (in CNY). Permanent discounts are defined as discounts continuously provided by retailers. We identify two types of permanent discounts, namely, product-specific price discounts (PD) and order coupons (OD, which can be redeemed for a total order). We collect transactional data from a Chinese online retailer and empirically examine the effects of the two types of permanent discounts and customers’ expectations of PD and OD. We find nonlinear relationships between permanent discounts and customer purchase behavior. PDs negatively influence spending when they are lower than 19% but show a positive effect beyond this threshold, hence depicting a U-shaped relationship. They also affect purchase quantity positively but at a decreasing rate. Customer expectations of PD influence purchase incidence, spending, and purchase quantity following a U-shaped patter with a positive influence appearing when PD expectations are high than 31%, 27%, and 18% respectively. On the other hand, ODs influence spending and purchase quantity positively at an increasing rate. Customer expectations of OD influence purchase incidence, spending, and purchase quantity following a U-shaped relationship where the positive influence on purchase incidence shows beyond OD expectations of 426 CNY, and the positive effect appearing on spending and purchase quantity when these expectations are higher than 34 CNY. We also find that customer expectations of discounts interact with current discount levels in their influence on spending. Combining these results and considering that order coupons negatively affect the profit margin of the total basket, we suggest that retailers should offer order coupons with relatively low value but product-specific price discounts with high discount depth.
AB - This paper examines the influence of a permanent discount strategy on customer purchase behavior, i.e., purchase incidence in each week, purchase quantity (in units), and total order spending (in CNY). Permanent discounts are defined as discounts continuously provided by retailers. We identify two types of permanent discounts, namely, product-specific price discounts (PD) and order coupons (OD, which can be redeemed for a total order). We collect transactional data from a Chinese online retailer and empirically examine the effects of the two types of permanent discounts and customers’ expectations of PD and OD. We find nonlinear relationships between permanent discounts and customer purchase behavior. PDs negatively influence spending when they are lower than 19% but show a positive effect beyond this threshold, hence depicting a U-shaped relationship. They also affect purchase quantity positively but at a decreasing rate. Customer expectations of PD influence purchase incidence, spending, and purchase quantity following a U-shaped patter with a positive influence appearing when PD expectations are high than 31%, 27%, and 18% respectively. On the other hand, ODs influence spending and purchase quantity positively at an increasing rate. Customer expectations of OD influence purchase incidence, spending, and purchase quantity following a U-shaped relationship where the positive influence on purchase incidence shows beyond OD expectations of 426 CNY, and the positive effect appearing on spending and purchase quantity when these expectations are higher than 34 CNY. We also find that customer expectations of discounts interact with current discount levels in their influence on spending. Combining these results and considering that order coupons negatively affect the profit margin of the total basket, we suggest that retailers should offer order coupons with relatively low value but product-specific price discounts with high discount depth.
KW - digital channels
KW - permanent discounts
KW - product-specific price discounts
KW - order coupons
KW - customer spending
UR - https://www.sciencedirect.com/science/article/abs/pii/S0022435920300890#abs0015
U2 - 10.1016/j.jretai.2020.11.007
DO - 10.1016/j.jretai.2020.11.007
M3 - Article
JO - Journal of Retailing
JF - Journal of Retailing
SN - 0022-4359
ER -