Interactions between price and price deal

Abstract

PurposeThe purpose of this study is to examine the interactive effect of price and price deal. Specifically, it desires to measure how consumers' behavioral intentions toward the brand are affected for a high‐priced brand and a low‐priced brand when a price deal is offered.Design/methodology/approachA two (price level: high versus low; between) by two (price deal: absent versus 40 percent off; between) experimental design was used. Study 1 tested the hypotheses for two existing brands, whereas Study 2 did so for a fictitious brand.FindingsThe analysis confirmed a strong interactive effect between price and price deal: price deals do not have a uniform effect across brands but a different effect depending on the price level of the brand. Specifically, for a high‐priced brand, a negative effect of price deals on behavioral intentions (brand equity, brand loyalty, and purchase intention) was found. On the contrary, for a low‐priced brand, a positive effect of price deals on each of the same behavioral intention variables was found.Research limitations/implicationsFuture research needs to study different types of products and samples to enhance the external validity of the findings. Real market data that recorded price changes and price deal offerings over time need to be examined to confirm the findings of the study.Practical implicationsA managerial implication is that high‐priced brands should avoid price deals, whereas low‐priced brands could benefit from price deals.Social implicationsWhen the findings are extended to the public‐sector or governmental services, providing costly services at a discounted price (e.g. universal healthcare) may not be welcome, as that policy is likely to make fellow citizens underestimate the value of the services and doubt the quality.Originality/valueThe study is very original because it does not repeat any past research, but taps into a problem not previously investigated. The value of the study is very straightforward for brand and promotional managers.