Identity discounts

Price discounts present a dilemma for managers. Despite being an effective lever for increasing sales, discounts elicit negative quality perceptions and thus ultimately damage the brand. However, discounts based on the customer's identity, such as senior citizen, military, veteran, student, teacher, first responder, and healthcare worker discounts, are becoming increasingly prevalent. As such, this investigation introduces identity discounts – i.e., price discounts made available to consumers based exclusively on an element of their identity– and explores their novel effects on consumer product responses. Across five studies we find that identity discounts elicit an association between the product and the self, resulting in the creation of psychological ownership. Thus, because psychologically owned and self-associated objects are better liked and receive more favorable evaluations, we find that identity discounts mitigate the otherwise harmful effects of discounting on quality perceptions. However, the present research also reveals that the novel effects of identity discounts are dependent on identity congruence, such that psychological ownership and enhanced product evaluations only result when the promoted identity is deemed desirable (congruent) by consumers. For example, senior citizen discounts create psychological ownership and improve product evaluations when offered to older consumers who embrace the senior citizen identity but are as damaging as traditional discounts when offered to younger seniors who do not. Therefore, while our research suggests retailers should continue to include identity discounts in their promotional toolbox as they can confer benefits that traditional discounts do not, it also offers a cautionary warning: as consumer identities are heterogenous, so too are the effects of identity discounts.