Price Promotions and Online Product Evaluations

Abstract

Price promotions increase sales, at least in the short term, but the effect of price promotions on consumers’ product evaluations is not well understood. We focus on the market for mobile apps, a category where price variation, including discounting to a zero price is common. We ask how price promotions affect the evaluations measured by star ratings posted subsequently online. Our results suggest that during price promotions, consumers evaluate the product less favorably than before the price promotions. This effect is especially pronounced for price promotions to a zero price. We provide evidence suggesting that lower prices, and especially zero prices, increase the likelihood that consumers with lower valuations will purchase the product. Notwithstanding the lower promoted price, the app still represents a bad fit to these consumers' tastes. As a result of the mismatch between a consumer's taste and product characteristics, consumers who purchased the app during a promotion rate it less favorably.