Consumer Perception of Deals: Biasing Effects of Varying Deal Prices

Abstract

Some brands in the market opt to offer a single "deal" price (e.g., Pepsi brand soft drink at $1.09 every alternate week), whereas others opt to offer 2 or more deal prices (e.g., Coca-Cola brand soft drink at $0.99 in Week 1 and $1.19 in Week 3). It was hypothesized that offering multiple deal prices is likely to result in underestimation of deal frequency and average deal price, which will bias the price consumers are willing to pay for the brand. Results from 3 laboratory experiments, a longitudinal experiment, and a survey support the hypotheses. In addition, consumers are likely to be willing to pay more for the brand when it is offered at 2 deal prices with a small difference compared with a single deal price. Implications of these findings for consumer welfare and pricing policy are discussed.