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Is There a Loyalty-Enhancing Effect of Retroactive Price-Reduction Schemes?

Authors
  • Bruttel, Lisa1
  • 1 University of Potsdam, Department of Economics and Social Sciences, August-Bebel-Str. 89, Potsdam, 14482, Germany , Potsdam (Germany)
Type
Published Article
Journal
Review of Industrial Organization
Publisher
Springer US
Publication Date
Aug 20, 2018
Volume
54
Issue
3
Pages
575–593
Identifiers
DOI: 10.1007/s11151-018-9653-9
Source
Springer Nature
Keywords
License
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Abstract

This paper presents an experiment on the effect of retroactive price-reduction schemes on buyers’ repeated purchase decisions. Such schemes promise buyers a reduced price for all units that are bought in a certain time frame if the total quantity that is purchased passes a given threshold. This study finds a loyalty-enhancing effect of retroactive price-reduction schemes only if the buyers ex-ante expected that entering into the scheme would maximize their monetary gain, but later learn that they should leave the scheme. Furthermore, the effect crucially hinges on the framing of the price reduction.

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