Boomerang Effects of Low Price Discounts: How Low Price Discounts Affect Purchase Propensity

Abstract

Abstract We show that providing a low (vs. no) price discount can lower purchase propensity of low-priced products under certain conditions—when purchases are nonessential and purchase volume is small. Based on the theory of purchase value (Grewal, Monroe, and Krishnan 1998; Thaler 1983), we argue that offering a low price discount for nonessential purchases decreases perceived transaction value that in turn lowers consumers’ purchase propensity. However, this boomerang effect reverses when purchase volume is larger or when the purchase is essential. We demonstrate this effect with secondary scanner panel data sets (with six different product categories) and in five laboratory experiments (with real purchases). We also document the process and delineate boundary conditions.