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Sometimes “Fee” Is Better Than “Free”: Token Promotional Pricing and Consumer Reactions to Price Promotion Offering Product Upgrades

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  • Mao, Wen

Abstract

Conventional wisdom suggests that for price promotions offering product upgrades, the best promotional price to maximize promotion effectiveness is to offer product upgrades for free (e.g., buy an 8″ birthday cake, upgrade to 10″ for free). This research examines a counterintuitive pricing scheme coined “token promotional pricing (TPP)”, showing that a price promotion can be more effective and can generate greater sales when the upgrade is offered at a small, token price (e.g., upgrade the cake for 1¢) rather than free. Results from Studies 1 and 2 attest to the robustness of the TPP effect involving hypothetical and real product purchase, and help rule out several alternative explanations of the TPP effect. Consumers’ more positive reaction to a token-priced than a free upgrade is hypothesized to be a contrasting effect from consumers’ comparing the upgrade's regular retail price against a disproportionally small (but non-zero) promotional price. Accordingly, asking consumers to articulate deal savings prior to evaluating the deal, which disinhibits relative thinking and encourages consideration of absolute values, renders a token-priced upgrade no more attractive than a comparable, free upgrade (Study 3). The article concludes by discussing research implications and limitations, and offers suggestions for followup study.

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  • Mao, Wen, 2016. "Sometimes “Fee” Is Better Than “Free”: Token Promotional Pricing and Consumer Reactions to Price Promotion Offering Product Upgrades," Journal of Retailing, Elsevier, vol. 92(2), pages 173-184.
    • Handle: RePEc:eee:jouret:v:92:y:2016:i:2:p:173-184
    DOI: 10.1016/j.jretai.2015.09.001
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    2. Xiaomeng Fan & Fengyan Cindy Cai & Galen V. Bodenhausen, 2022. "The boomerang effect of zero pricing: when and why a zero price is less effective than a low price for enhancing consumer demand," Journal of the Academy of Marketing Science, Springer, vol. 50(3), pages 521-537, May.

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