Scarcity-Based Price Promotions: How Effective are they in a Revenue Management Environment?

Abstract

Two key characteristics of revenue management (RM) environments–fixed capacity and the application of variable pricing–have the potential to influence consumers’ reactions to scarcity-based price promotions. In this study, we explore consumer reaction to two types of restrictions on price promotions-limited-time scarcity (LTS) and demand-driven limited-quantity scarcity (LQS)-in the RM context. We propose a moderated mediation model, wherein perceived consumer competition, perceived price uncertainty, and anticipated regret mediate the price promotion type (restricted vs. unrestricted)-booking intentions relationship, and booking lead-time moderates the relationship of price promotion type with perceived consumer competition and price uncertainty. Our findings suggest that LTS and LQS are effective in driving consumers’ perceptions of competition for available inventory and price uncertainty when booking lead-time is long. In turn, heightened perceptions of competition and price uncertainty amplify anticipated regret, leading to a positive effect on booking intentions. Conversely, when booking lead-time is short, restrictions-based price promotions do not differ significantly from nonrestricted promotions in terms of their effect on consumers’ booking intentions. This research provides guidance for hospitality marketing managers regarding how, and when, to employ scarcity-based price promotions to influence consumers’ booking behavior.