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Effectiveness of trade-ins and price discounts: A moderating role of substitutability

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  • Xu, Xiaobing
  • Chen, Rong
  • Zhang, Jin

Abstract

This paper investigates the effects of price discounts and trade-ins on the probability of replacement purchase. Based on economic and psychological criteria, the authors propose that the effectiveness of these two promotional tools is contingent on the extent to which the new product can substitute for the old one. Study 1 demonstrated that at a “high” substitutability level, trade-ins were more effective than price discounts. However, this effect was mitigated when the substitutability level decreased. Study 2 showed that at a “low” substitutability level, trade-ins were inferior to the no-promotion condition. Using a different product and a real purchase situation, Study 3 provided more evidence that the effectiveness of trade-ins and price discounts was contingent on the level of substitutability between the product owned and the one that was going to be purchased. Study 3 also provided evidence for the potential mechanism for the observed effects. Theoretical contributions and marketing implications are discussed.

Suggested Citation

  • Xu, Xiaobing & Chen, Rong & Zhang, Jin, 2019. "Effectiveness of trade-ins and price discounts: A moderating role of substitutability," Journal of Economic Psychology, Elsevier, vol. 70(C), pages 80-89.
    • Handle: RePEc:eee:joepsy:v:70:y:2019:i:c:p:80-89
    DOI: 10.1016/j.joep.2018.10.007
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