Cents or Percent＿The Effects of Promotion Framing on Price Expectations and Choice

Devon DelVecchio, H. Shanker Krishnan, & Daniel C.Smith Cents or Percent? The Effects of Promotion Framing on Price Expectations and Choice Previous research has shown that the monetary value of a promotion (promotion depth) affects choice during the promotion period. However, as promotion depth increases, consumers might lower their expectations of future price, which in turn may threaten future choice when prices return to normal levels. This research examines how promotion frame (percentage off versus cents off) moderates the effect of promotion depth on postpromotion price expectations and choice. The findings indicate that compared with cents-off promotions, high-depth percentage-off promotions lead to higher postpromotion price expectations. Likewise, postpromotion choice is higher when highdepth promotions are framed in percentage-off than cents-off terms. The authors examine the process underlying the effect of promotion frame on price expectations and find that frame affects (1) consumers’ perceptions of the promoted price and (2) the weight they place on the promoted price. s a result of their ability to stimulate sales in the short run, the use of price-based promotions has risen steadily (Kahn and McAlister 1997; Mela, Gupta, and Lehman 1997). In addition to offering more promotions, manufacturers are deepening price discounts. Between 2001 and 2006, the average value of coupons increased by approximately 8% annually (Montaldo 2007). Moreover, the depth of the discount offered by manufacturers is often magnified by retailers that offer additional price incentives in an effort to maintain store loyalty. Increasing the depth of a promotion is attractive because choice is positively related to the face value of a promotion (e.g., Leone and Srinivasan 1996). However, discounts may come with a downside because promotions can reduce postpromotion choice. Price promotions may undermine future choice by lowering consumers’ perceptions of brand quality (e.g., Dodson, Tybout, and Sternthal 1978), by training consumers to wait for promotions (e.g., Mela, Jedidi, and Bowman 1998), or by lowering consumers’ price expectations for the brand (e.g., Monroe 1971). Deep promotions can be A Devon DelVecchio is Assistant Professor of Marketing, Richard T. Farmer School of Business, Miami University (e-mail: [email protected]). H. Shanker Krishnan is Associate Professor of Marketing (e-mail: [email protected]) and Daniel C. Smith is Clare W. Barker Chair of Marketing and Dean (e-mail: [email protected]), Kelley School of Business, Indiana University. The authors thank Scott MacKenzie and Shelly Jain of the Marketing Department and Edward Hirt of the Psychology Department at Indiana University, Joe Alba at the University of Florida, Tim Silk at the University of South Carolina, and the three anonymous JM reviewers for their helpful comments on previous drafts of this article. of particular concern. In a meta-analysis of the effects of promotion on postpromotion brand preference, DelVecchio, Henard, and Freling (2006) find that promotions in excess of 20% of the product’s value have a negative effect on postpromotion preference. Thus, managers must weigh the immediate benefits of deep promotions against their negative effects on subsequent purchase decisions (e.g., Anderson and Simester 2004; Greenleaf 1995). In developing price promotions, managers not only make decisions related to promotion depth but also decide how to frame the discount (Della Bitta, Monroe, and McGinnis 1981). Although there are many ways promotions can be framed, we focus on percentage-off and cents-off discounts. These discounts are commonly employed in practice (Yin and Dubinsky 2004) and studied in research (e.g., Chen, Monroe, and Lou 1998; Heath, Chatterjee, and France 1995). In the assessment of a promoted price, framing may affect consumers’ estimates of the promotion’s value (e.g., Krishna et al. 2002) and, thus, current choice. In addition, to the extent that a promotion frame affects perceptions of the promotion value, it should also affect perceptions of the product’s price. Perceived prices are key determinants of expectations of future prices, which in turn influence brand choice on subsequent purchase occasions. That promotion frame may affect both current and future choice leads us to consider four specific questions: 1. Can the promotion frame reduce the risk of consumers holding lower postpromotion price expectations, particularly following a deep promotion? 2. Does promotion frame affect choice during the period of the promotion? 3. If a particular promotion frame can uphold postpromotion price expectations following a deep promotion, will it also insulate choice share when price returns to prepromotion levels? Journal of Marketing Vol. 71 (July 2007), 158–170 To read and contribute to reader and author dialogue on JM, visit http://www.marketingpower.com/jmblog. © 2007, American Marketing Association ISSN: 0022-2429 (print), 1547-7185 (electronic) 158 Mazumdar. and Wittink 2003). and α = the weight placed on the perceived price.e. In a context analogous to the one we consider. as prior work has demonstrated (Alba et al. category expansion. In contrast. It follows from the anchoring and adjustment process that a lower perceived price is associated with lower postpromotion price expectations. Morwitz. a promotion that elevates choice share during the promotion period but does not affect postpromotion price expectations. This finding implies that 77% of the participants calculated or estimated the total price. Specifically. it is of value to position our work relative to recent research on promotions. Greenleaf. and Siddarth 2002. Krishna (1991) finds that more complex patterns of deal timing (e. but not all. PEijt = consumer i’s price expectation for brand j when entering the market at time t (before observing brand j’s time t price). Viswanathan and Childers (1996.. and Johnson (1998) report that 23% of their participants did not attempt to integrate a base price with a surcharge expressed in either dollar or percentage terms.e. Diamond and Campbell 1989).g. Gupta. However. Neslin. Lattin and Bucklin 1989. Raj. What is the information processing mechanism that underlies frame effects on consumer expectations of future prices and.. irregularly timed discounts) are associated with less accurate perceptions of dealing frequency. Applying a processing difficulty explanation to postpromotion price expectations is consistent with literature on the effects of promotion on other outcomes.g. Promotional framing can affect PPijt and α by influencing how consumers process discount information in three ways. thus minimizing the negative effect of promotions on postpromotion brand choice. thus not jeopardizing share during postpromotion periods.g. the focal promotion will not affect PEijt. postpromotion choice? sumers are exposed to a price promotion can be expressed as follows: (1) RPEijt + 1 = αPPijt + (1 – α)PEijt. and stockpiling (e. the anchoring and adjustment process of expected price revision when con- . more complex patterns of discount values (e. promotional frames affect price expectations to the extent that they influence consumers’ perceptions of the discounted price (PPijt) and/or the weight (α) placed on the perceived promoted price when updating expectations. where RPEijt + 1 = consumer i’s revised price expectation for brand j at future shopping trip at time t + 1. Consumers may store discount values as a general analog value. Sun. Laurent. We begin to build on this research with a study (Study 1) that examines how promotion frame moderates the effect of depth on (1) future price expectations for the brand and (2) choice during the period when the product is promoted (Research Questions 1 and 2). see Neslin 2002). PPijt = the promoted price for brand j at time t as perceived by consumer i. we believe that the greater difficulty associated with processing a promotion that is framed in percentage-off rather than cents-off terms will attenuate a downward revision of price expectations. Thus. PPijt is lower in response to a large promotion than a smaller one). Because the price expectation for time t (PEijt) is formed in response to prices observed before time t. such as “big” (e.. Pauwels.g. Olson 1978. For example.. Winer 1986). Consumers should recognize that deeper promotions result in lower prices (i. Gupta 1988. the first three questions define an attractive promotion scenario for managers—that is. promotion frame may affect whether consumers calculate the revised price. in turn. Researchers have identified several mechanisms that may cause promotions to affect postpromotion choice of a brand (for a review.. Alba and colleagues (1999) report that for the same average discount. 1999. Framing is likely to affect the likePromotion Framing and Price Expectations and Choice / 159 Study 1: Does Frame Affect Expected Future Price and Current Choice? Promotion Depth Effects on Expected Future Price Anchoring and adjustment theory has been widely used to explain how consumers update their price expectations (e. It appears that some. Therefore. Viswanathan and Childers 1996). Van Heerde. Yadav and Seiders 1998) and is implicit in marketing models that estimate expected prices as weighted averages of previously observed prices (e. and the logic underlying it provides the foundation for subsequent predictions: H1: As promotion depth increases. In equation form.g... Hanssens. Several recent studies decompose the positive effect of promotion on choice due to brand switching. 375) note that “exact encoding does occur for numeric information even in choice or judgment tasks” (see also Vanhuele. the perceived price for a promoted product equals the actual promoted price) and that both the prior price expectation and the promoted price are weighted between zero and one. our first hypothesis replicates prior work. and Srinivasan 2003). thus threatening choice of the brand when it is no longer discounted. Thus. and Drèze 2006). consumers seem to simply ignore price modifiers in some situations. we focus primarily on the effects of promotions on consumers’ forward-looking responses to promotions (e. First. p. Before we answer these questions. consumers’ future price expectations decrease. Moreover.4. Taken together. Frame Effects on Expected Postpromotion Price Main effect of promotion frame. rotating between several discounted prices rather than repeating one discounted price) lead to less accurate perceptions of the discounted price. and Sinha 2005. Similarly.. rather than integrate the discount into the base price. consumers calculate the revised price stemming from a promotion. Klein and Oglethorpe 1987. larger discounts should produce lower future price expectations.. Prior research has assumed that estimates of the promoted price are accurate (i. Our focus is on the possibility that the reduced price associated with a discount lowers future price expectations.g.g. 2002). this suggests that the perceived promoted price (PPijt) will be higher for a promotion framed in percentage-off terms than one framed in cents-off terms. the difficulty of estimating the value of a percentage-off promotion should result in uncertainty regarding the resulting price. Subtraction is a relatively easy task that results in a high level of accuracy (Rhymer et al. discount frames may affect the accuracy of their computations. e. the likelihood that they will compute the new price is expected to be a function of the ease of calculating the price. Chatterjee. Relative to a cents-off discount. the process required (multiplication) is relatively difficult. Morwitz. as is expected with a percentage-off promotion) is modest.e. a percentage-off discount requires an additional processing step. when promotion depth is low. 2002). promotions. Thus far. Jacowitz and Kahneman 1995. but not low-depth. both failing to calculate the revised price and lower confidence in the accuracy of the calculation should result in less weight being placed on the lower perceived price (i. Calculating the new price resulting from a cents-off promotion requires a consumer to read the regular price.. In turn. when consumers attempt to calculate revised prices. when consumers do not calculate the value of a promotion. higher or lower future price expectations. Tversky and Kahneman 1974). for a small discount... Thus. in turn. Second. A systematic bias for a given frame would lead to higher or lower perceptions of the promoted price and. On the other hand. These counteracting effects may explain the failure of extant research to find a frame effect on choice (Gendall. existing beliefs dominate evaluations (Deighton 1984. This discussion leads to the prediction that consumers’ future price expectations will differ across promotional frames in the case of high-depth.g. Given computational ease. and Lou 1998. Choice at the Time of the Promotion If framing a promotion in percentage-off terms can help uphold future price expectations (Research Question 1). when consumers are asked to provide their general sense (i. Yin and Dubinsky 2004). which makes percentage-off discounts harder to calculate than cents-off discounts (e. For a low-depth promotion. the greater difficulty of evaluating a percentage-off promotion may result in lower confidence in the calculated price. future price expectations are lower for a cents-off frame than for a percentage-off frame. Heath. our focus is on the effect of frame. when consumers are motivated to calculate its value.e.g. percentage-off promotions should lead to greater choice. In terms of the main effect of promotion frame on current period choice. the percentage must be multiplied by the base price to find the value of the discount. consumers should choose a cents-off promotion more than a percentage-off promotion when they are motivated to calculate the promotion’s value.. they tend to perceive percentage-off promotions as larger than equivalent cents-off promotions (for meta-analytic evidence. Estelami 1999. both directly and in unison with promotion depth. Such difficulty should make consumers less likely to compute the revised price. as is expected with a cents-off promotion) and an insufficiently adjusted estimate (i. Thus. Third. H3: For a high-depth promotion. In the face of such uncertainty. and the potential difference between an accurate price estimate (i. People tend to prefer highly certain outcomes to ones that provide the same benefits (on average) but are not precisely known (Camerer and Weber 1992. find that consumers recall lower prices (i. the updating of future price expectations is less likely to occur. Extant research indicates that percentage-off frames tend to result in percentage-off promotions being systematically undervalued. even if the revised price is calculated.g. Frame × promotion depth interaction. the difference between the base and the promoted price is small. read the discount.lihood of a discount being transformed into a revised price rather than simply being encoded in general terms or ignored altogether.e. see Lee and Han 2002). These two elements suggest the following: H2: Expected future prices are higher when price promotions are framed in percentage-off terms than in cents-off terms. Winkler 1991). Consistent with this. and subtract the discount from the regular price. On the one hand. When consumers are exposed to a promotion. the integration of a promoted price into price expectations simply may not be worth the mental effort. However. on choice during the promotion period. future price expectations do not differ across frames. when promotion depth is low. consumers may be uncertain of the resulting price because they do not engage in the mental arithmetic needed to transform percentage-off frames into a price metric (see. our logic implies that a cents-off frame leads to lower future price expectations than an equivalent percentage-off discount. when promotions are framed in terms of percentages off. without engaging in any calculations) of whether a promotion is large or small. 2003). and France 1995. see Krishna et al. as we propose in H2 and H3.e.... the next concern is whether it can also lead to more (or at least not less) choice at the time of the promotion (Research Question 2). Pham and Muthukrishnan 2002). we find two competing lines of reasoning. thus eliminating any frame-based differences in price expectations that would otherwise arise. Greenleaf. Promotion depth is known to increase choice of the promoted brand (Leone and Srinivasan 1996). In the context of future price expectations. 160 / Journal of Marketing. consumers are likely to calculate the price associated with a cents-off discount and should be accurate in their calculations.. α is lower) resulting from the promotion. Beyond requiring an additional step. As a result. July 2007 . In addition to this floor effect. they undervalue the surcharge) when the surcharge is expressed in percentage terms rather than in dollar terms (for corroborating evidence. Thus. who employ an anchoring and adjustment perspective to the integration of base prices and surcharges. Thus.e. The foregoing discussion indicates that a percentage-off promotion is associated with perceptions of a higher promoted price on which consumers place less weight when updating their price expectations than is the case for a cents-off promotion. and Johnson (1998). Monroe. A common finding in anchoring and adjustment research is that the anchor is insufficiently adjusted in the face of new information (e. Chen. For deep discounts. The first model tested the effect of choice of the focal brand in Period 1 (when not promoted) on postpromotion price expectations. We tested the effects of depth and frame on price expectations with an analysis of covariance (ANCOVA).. In contrast. When consumers are motivated to go beyond such “casual” processing and try to estimate the value of promotions framed in percentage-off terms. by considering the motivating role of promotion depth. and thus this brand was not promoted. Raj. kept the focal brand’s price from being an extreme because it was the third most expensive regular price and the second least expensive price when offering a deep promotion. Measures. 195 = 5. The primary dependent variables in Study 1 are choice share for the focal brand when promoted in Period 2 and participants’ price expectations for the brand after exposure to the promotion. choice during the promotion period is greater for cents-off promotions. Postpromotion price expectations. Puto 1987). For low-depth promotions. We converted price expectations for the focal brand from absolute dollar values to a percentage of the regular price for the focal brand. nor was there a significant interaction between choice and promotion depth and/or frame. and Sinha 2005). the specific wording of the expected price measure was as follows: “Please indicate the price that you would expect to pay for each of the following brands the next time you shop (in this simulated store). price expectations are lower following a high-depth promotion (. they tend to systematically undervalue the promotion (e.. In turn. participants indicated their brand choice and the price Results One hundred ninety-six students at a large Midwestern university participated in Study 1. Manipulations. Greenleaf. Promotion Framing and Price Expectations and Choice / 161 . First. we expect that the role of frame on choice differs depending on promotion depth. We tested the effects of promotion depth and frame using an experiment in which participants viewed experimental stimuli on a computer monitor and completed a set of measures in a response booklet.” To enable us to assess our logic that frame would affect the rate of calculation of the promoted price. choice is greater for percentage-off promotions. In neither model did choice have a significant main effect. on initial exposure. We used a five-step procedure in Study 1.1 As Table 1 shows. Consistent with prior research (e. Third. Furthermore. If consumers do not attempt to calculate the value of the promotion. they would expect for each brand the next time they shopped. to update price expectations. Morwitz. F1. a significant depth × frame interaction 1Consumers who choose the focal brand may be more motivated to process price information and. Monroe.51). along with a base price of $3.49. and Pope 2005) or choice intentions (Chen. a frame effect may emerge. Second. Methodology General procedure. Period 1 established a baseline price expectation for the focal brand (Evo). choice should be greater for promotions framed in terms of cents off than for those framed as a percentage off because consumers are more certain of the revised price and less likely to undervalue the promotion.888. p < . thus mitigating frame effects. consistent with H1. F1. p < . Janiszewski and Lichtenstein 1999. We focus on frequently purchased nondurables because the cognizant tracking of prices to form price expectations is most likely to occur when consumers know that they will (re)purchase the good in the near future (Mazumdar. choices of the focal brand (yes/no) in Periods 1 and 2 were the covariates. in turn. The stimuli consisted of simulated store shelves containing hypothetical brands of shampoo. Kalwani and Yim 1992). Two nonfocal brands were promoted at a depth of 24% in Period 1. consumers may feel more favorable toward a promotion framed in percentage-off terms. we expect that their tendency to view percentage-off promotions as being perceptually larger than cents-off promotions will prevail.001). Fourth. price expectations are also lower in the cents-off frame condition (. participants concluded by indicating whether they calculated the new (promoted) price of the focal brand. Figure 1 displays the stimuli for the high-depth percentage-off condition. Jacobson and Obermiller 1990. or 88.01). the deep discount is not so high that purchase intentions may fall because of the “discounting of discounts” (Gupta and Cooper 1992). Promotion depth is expected to affect a consumer’s motivation to estimate the dollar value of a percentage-off promotion.g. Fifth.8%. The experimental design was a 2 (promotion depth: high versus low) × 2 (promotion frame: percentage off versus cents off) between-subjects factorial. while viewing the revised shelf. The results are invariant to the change from a dollar to the percentage metric. The focal brand promotion occurred in Period 2 along with a moderate depth promotion for a nonfocal brand. Stated formally. participants indicated the brand that they would choose in their response booklet. participants viewed six shampoo brands on a computer monitor. These discount values.g. participants advanced to a computer screen that displayed a revised shelf that included the promotion depth manipulation for the focal brand. and the second tested the effect of choice when promoted in Period 2.93. In line with previous studies (e. while viewing the simulated shelf.902) than in the percentage-off condition (. As we noted previously. We manipulated discount frame to be either percentage-off or cents-off with simulated shelf tags. we expect that consumers are more likely to attempt to calculate the revised price. we manipulated depth with shelf tags that indicated discounts of 13% ($.68.. In support of H2. H4: For deep promotions. Consistent with H3. smaller discounts may not motivate consumers to calculate the dollar value of the promotion. and Lou 1998).967. 195 = 11.45 in the cents-off frame) or 43% ($1. and Johnson 1998). Thus. However. participants advanced to a new computer screen that informed them that it is “a couple weeks later” and they are returning to the store. of the regular price) than following a low-depth promotion (.g.954. We assessed two models that employed choice of the focal brand as model factors before including choice as a covariate.Hoek. 1% versus 35.4%). price expectations are significantly lower when the promotion is framed as cents off (. p = .05) in which choice is higher for a centsoff promotion among participants who reported that they calculated the revised price (54.31. Mean price expectations were 89. a calculation (yes/no) × frame interaction effect on choice emerges (interaction χ2(1) = 5. As we expected. p > .934.20.0% of participants exposed to the cents-off promotion reported that they calculated a revised price. p < . Controlling for calculation of the promoted price with an ANCOVA reduces (from F1. calculation of the promoted price was associated with lower price expectations. p < .6% in the percentage-off condition calculated a revised price (χ2(1) = 8. 195 = 7. July 2007 Promoted period choice. p > .01).FIGURE 1 Stimuli for the High-Depth Percentage-Off Condition of Study 1 emerges (F1.35). . 51. As Table 1 shows. Thus. as we had expected (χ2(1) = .20) nor the depth × frame interaction (χ2(1) = .32.44.3% share) than for a shallow promotion (32. We assessed the effects of depth and frame on the rate of choice at the time of the promotion with logit analysis for differences between group proportions (SAS CATMOD).76.07. 195 = 5.01) the effect of promotion frame (F1. Consistent with this logic. t = 2.25).3% of the regular price when the promoted price was calculated and 95. whereas only 30. p < .972) conditions when promotion depth is low (t = .95.0% choice versus 43.05). choice did not vary across depth and frame conditions.001).15) is significant. at least in part because consumers are more likely to calculate the promoted price. We expected that differences in postpromotion price expectations across frames would arise because of differences in the rate of calculation across promotion frames. χ2(1) = 23. p < . Furthermore. p < . H4 is not supported. Thus.844) than as a percentage off (.05). Consistent with our logic.3% choice) and for a percentage-off promotion among those that did not calculate the price (44. 195 = 4. p < . price expectations do not differ across the cents-off (. we expected choice to vary across depth and frame conditions because of a greater rate of calculation of the revised price in the high-depth condition.01).93. p < . price expectations are lower following a cents-off promotion.0% share.6% of the regular price when it was not calculated (F1. p > .961) and percentage-off (. because the rate of calculation did not depend on promotion depth.10.56. 195 = 3. p > . Neither the main effect of frame (χ2(1) = . When promotion depth is high. As with price expectations.07). 162 / Journal of Marketing.16. However.63. a main effect of promotion depth emerges in which choice is greater for a deep promotion (57. we included choice of the focal brand in Period 1 (yes/no) as a covariate. we did not measure price expectations before Period 3 choice. The results of Study 1 speak to Research Questions 1 and 2 and suggest that promotion framing can be used to minimize the negative effects of promotions.. Scitovszky 1945). The most notable change is that Study 2 adds a third choice period in which the focal brand is no longer discounted.0%. Study 2: Does Frame Affect Postpromotion Choice? Ultimately. price expectations are important to the extent that they influence choice. Therefore.122) .0%) expectation relative to the base price of the focal brand ($3. Choice share in the period following the lowdepth cents-off (32.06 (depth × frame interaction: χ2(1) = 3. To control for any differences in baseline choice shares in Period 1 (when the focal brand was not promoted). The discrepancy between the actual and the expected prices should be greater in the cents-off frame condition than in the percentage-off condition. postpromotion choice does not differ by promotion frame.205) . the focal brand in Study 1. We undertook two steps to rule out this explanation.077) . Consistent with H5. apparently by allowing consumers to calculate a revised price more easily.961a (.954 (. the rate of choice of the focal brand after the promotion has been rescinded. thus leading to lower postpromotion choice. a cents-off frame leads to lower postpromotion choice. a cents-off frame leads to lower postpromotion price expectations.104) . postpromotion choices should be equivalent across frames. Winer 1986). not significant).g. lower postpromotion choice may arise as a price-signaling effect. Overall. For high-depth promotions.888 (. assumes Lustre’s Study 1 price of $3.05). The lack of a significant frame effect on choice during the promotion period implies that using a percentage-off frame does not weaken the short-term benefits when the brand is promoted.4%) 28/49 (57. percentage-off promotions both signal value (and thus draw as much choice share as cents-off promotions) and lead to less downward revision of price expectations.9%) promotions does not differ (Z = . the focal brand in Study 2 is Lustre. In Study 1.53). postpromotion (i. When the promotion ends and price returns to its original level.8%) and percentage-off (34.967a (.25. This additional choice period provides the dependent variable of interest—namely.972a (.e.1%) 55/98 (56.187) Frame Total .11. in which lower perceived prices following a high-depth cents-off promotion than following a high-depth percentage-off promotion are used to infer lower quality (Rao and Monroe 1989. p < .2 2As an alternative to a price expectations explanation.934 (. the effect of frame on future choice should mirror that of its effect on price expectations. In contrast. To avoid demand artifacts. a cents-off (versus percentage-off) frame was associated with lower price expectations for the high-depth promotion. Methodology Study 2 employs a 2 (depth) × 2 (frame) between-subjects factorial design that follows Study 1 with a few exceptions.49 (Evo. Results Two hundred thirty-nine undergraduate students at a large Midwestern university participated in Study 2. Papatla and Krishnamurthi 1996. Promotion Framing and Price Expectations and Choice / 163 .TABLE 1 Postpromotion Price Expectations and Choice When Promoted in Study 1 A: Mean (Standard Deviation) Postpromotion Future Price Expectations in Study 1 Low Depth Percentage-off frame Cents-off frame Depth total . The focal brand is again priced at $3. Z = 2.19).6%) is greater than that following the high-depth cents-off promotion (25. when price returns to its normal level) choice share following the highdepth percentage-off promotion (44.8%) 44/98 (44.902 (. H5: When promotion depth is high.844 (. To avoid results arising from characteristics of a particular focal brand.172) B: Focal Brand Choice When Promoted in Study 1 Low Depth Percentage-off frame Cents-off frame Depth total aPrice High Depth 27/47 (57. H5 is supported at p = .091) High Depth . Price expectations have been shown to affect choice such that a price that is higher (lower) than the expected price decreases (increases) the likelihood of brand choice (e.. Study 2 tests whether promotional frame affects choice after the promotion is revoked (Research Question 3).155) . Thus. We tested the effects of promotion depth and frame with logit loglinear analysis (SAS CATMOD) for differences in the postpromotion choice share for the focal brand.6%) 32/100 (32.1%) Frame Total 43/98 (43. When promotion depth is low.3%) 16/49 (32. First.49). Because price expectations do not differ across frame conditions for the low-depth promotion.9%) 16/51 (31. consumers likely face a price that is higher than their expectations. as an answer to Research Questions 1–3. Mayhew and Winer 1992). as Study 2 demonstrates.0 for those who mentioned the discount. although using the discount as a basis for evaluating brand quality led to quality ratings that approached being significantly lower (perceived quality = 6. or both.e. and their postpromotion price expectations (RPEijt + 1). estimating the weight that each participant places on his or her existing price expectation and on the price he or she perceives when the brand is promoted calls for defining his or her perception of the promoted price (PPijt) and the resulting (postpromotion) price expectation (RPEijt + 1).773. a depth × frame interaction (F1. or .g. After indicating their postpromotion price expectation (RPEijt + 1) as in Study 1. We selected spaghetti sauce because it offers a different set of benefits from the previously employed focal category (shampoo). Third. a percentage-off (versus cents-off) frame in the high-depth condition led to higher price expectations. the perceived promoted price (PPijt). Study 3 mirrors Study 1 except for three notable differences. and they were given five seconds to indicate their perceptions of the revised price (PPijt). Perceptions of the focal brand’s quality have a direct effect on choice (χ2(1) = 18. Given this constraint. This assumption is supported by price expectations for the nonpromoted brands in Study 1 being within 1% of regular prices (price expectations were . Second.6%.45). we chose a different product category. or 77. p < . 122 = 3.. Second. First.07) emerges that is the result of lower price expectations following the high-depth cents-off promotion (. lower price expectations may arise because of the effect of promotion frame on the perceived promoted price (PPijt). p = . Therefore. p > .15 [two-tailed]). F = 2. We then had them indicate (with open-ended responses) the factors that led to their evaluation of the focal brand’s quality.25. Furthermore. Study 3 tests these potential drivers of the effects of promotion frame on price expectations. and Weinberg 1999. participants advanced to a screen that displayed the focal brand along with its promotion. Study 3: How Does Frame Affect Price Expectations? Recall that the process of updating price expectations can be described with Equation 1. estimating the weight (α) that each participant places on the promoted price and on the existing price expectation (1 – α) is contingent on defining their prepromotion price expectation (PEijt). the perceived promoted price could be higher and the weight placed on the perceived price could be lower for a high-depth percentage-off promotion. This assumes that the regular price (the only price to which participants had been exposed) is adopted as the expected price. lower existing price expectations and/or lower perceived Study 2 participants concluded by indicating their perceptions of focal brand quality on a four-item scale (e. and 6. In turn.73 for those who did not.3%. Specifically. “low quality/high quality.g. p = . the depth × frame interaction effect on price expectations observed in Study 1 must emerge again. although promotions may lead to lower evaluations of a brand’s quality. For the results of Study 3 to be pertinent to the interpretation of Studies 1 and 2. promoted prices do not lead to higher future price expectations).68) in the first shopping period. whereas 13 of 28 (46%) respondents mentioned the discount in the percentage-off condition (Z = . Study 3 is designed to measure these values directly.81. we collected additional data for the two high-depth conditions of Study 2. under the regular price). Specifically.. Chang. Methodology To estimate the weights placed on existing price expectations (PEijt) and the perceived promoted price (PPijt) when consumers update their price expectations. but controlling for quality perceptions does not attenuate the effect of promotion frame (χ2(1) = 5. Results One hundred twenty-three undergraduate students from a large Midwestern university participated in Study 3. we also directly measure perceptions of the promoted price (PPijt). Because we define the prepromotion price expectation as the regular price. The price expectation for time t (PEijt) is formed in response to prices observed before time t. they do not appear to affect evaluations of quality differentially on the basis of their frame.08. to avoid our results being limited to “odd” or highly complex discount values. of the base price of $2. choices of the focal brand (yes/no) in Periods 1 and 2 were the covariates. Figure 2 displays the stimuli for the low-depth cents-off condition. the percentage-off frame results in higher choice share for the brand after the promotion is removed. α = 84). As Table 2 shows.06) on postpromotion brand choice. it did not interact with promotional frame to affect quality perceptions (discount × frame interaction: F = . Siddarth..68) than following the high-depth percentage- 164 / Journal of Marketing. July 2007 .” “bad/good”. Therefore. p < .001).21/9. we estimated each participant’s existing price expectation (PEijt) as the focal brand price ($2.001). we had undergraduate students (n = 57) engage in the same choice task and quality evaluation as in Study 2. managers can use percentage-off frames to insulate their brand against lower price expectations and lower subsequent period choice stemming from a deep promotion without undermining choice during the promotion period. A total of 13 of 29 (45%) respondents in the cents-off condition mentioned the discount as a criterion on which they based their evaluation of quality. p < .In Study 1. Consistent with prior research (e.994. Thus.05) or the interaction of frame and depth (χ2(1) = 3.97.52. the weight placed on the perceived price (α). in addition to collecting price expectations after the promotion (RPEijt + 1). Thus. we first assessed postpromotion price expectations with an ANCOVA. the focal brand in Study 3 (Prima) employs promotion values of 15% and 40% rather than 13% and 43%. Study 3 addresses Research Question 4 by more directly testing the process by which promotional frame affects perceptions of the promoted price and the weight placed on the perceived price.36. we constrain the weights placed on PEijt and PPijt to be nonnegative (i. We imposed the fivesecond time limit to (1) prevent participants who had not undertaken thoughtful efforts to estimate the revised price during the choice period from doing so post hoc while (2) allowing recall of the revised price from memory for those who calculated it during the choice task. As Table 3 shows.927a (.880 (. p > .927) frames when promotion depth is low (t = .67.35). However. Study 3 replicates the effects of frame on price expectations that we observe in Study 1. When promotion depth is low. Price expectations do not differ across the cents-off (.171) n = 31 . t = 2.28) for both the cents-off and the percentage-off frames (t = .909a (. For a deep promotion.94.05).904 (.90). a cents-off frame is associated with a lower perceived price (perceived price = $1.880.773 (. we consider the effect of promotion depth and frame on our (direct) measure of the perceived promoted price with a 2 (depth) × 2 (frame) ANCOVA. Thus.05.918a (. choices in Periods 1 and 2 were the covariates.078) expectation relative to the base price of the focal brand ($2.22. the main effects are qualified by a significant depth × frame interaction (F1. Next.909) and percentage-off (.68). p < . Perceptions of the promoted price.187) Frame Total .FIGURE 2 Stimuli for the Low-Depth Cents-Off Condition of Study 3 TABLE 2 Mean (Standard Deviation) Postpromotion Price Expectations in Study 3 Low Depth Percentage-off frame Cents-off frame Depth total aPrice High Depth .075) n = 35 . p > . 122 = 10.878 (.135) .60. and actual Promotion Framing and Price Expectations and Choice / 165 .27 (actual price = $2. p < .831 (.001).192) n = 26 . the mean perceived promoted price is $2. both promotion depth and frame affected participants’ perceptions of the promoted price. off promotion (.145) .081) n = 31 . 61.50. If the processing difficulty explanation holds. in turn. Participants provided price expectations for 166 / Journal of Marketing.60 (.22.569 (.50). with the exception that we altered the focal brand price and discount values to round values.534 (. Estelami (1999) reports that the time people take to multiply two price components (a monthly payment and the number of payments) when both components are round numbers is one-third the time needed when at least one of the values is not round.40). Thus. the frame-based differences in price expectations and future choice in Studies 1 and 2 appear to be the consequence of variations in perceived promoted prices.399) .61) than a percentage-off frame (perceived price = $1. if frame effects arise because of differences in processing difficulty. 122 = 1.99 (. F1.72 (.438) Frame Total . For example. p > . The main effect of depth (F1. Specifically.82. 122 = .27 (.TABLE 3 Perceived Prices and the Weight Placed Thereon in Study 3 A: Mean (Standard Deviation) Perceived Promoted Prices in Study 3 Low Depth Percentage-off frame Cents-off frame Depth total $2. Weight placed on the promoted price.61 (80.82 (.472) price = $1.28) Frame Total $2.30) or 50% ($1.547 (. However. When paired with a base price that is a round number (e. July 2007 .05).60). p > . That the depth × frame interaction on the weight placed on the promoted price is not significant suggests that perceptions of the promoted price are the primary driver of the effects of frame on price expectations (Research Question 4).12) $2.8% listed a price of $1. p < ..423 (. the weight placed on the promoted price shows only a main effect of frame. Study 4: How Should Managers Frame a Percentage-Off Promotion? We contend that the effects of promotion frame on price expectations (and.454) . we tested differences in α with an ANCOVA. the effects should disappear when the percentage-off promotion is easy to calculate.08) High Depth $1. p < .04) $2. t = 3. in Study 4. This implies that frame effects will not emerge when discount values are easy to compute. division by two is likely to be as easy as subtraction of $1. Thus.05 (.27 (. Specifically.00 and is discounted at a depth of either 10% ($. only 3. this finding does not preclude the weight placed on the perceived promoted price from also differing across promotion frames and influencing price expectations and future choice.398 (.52. Methodology The method we used to collect data in Study 4 is identical to that of Study 3.27 (.431) .23. choice) arise from the difficulty of processing percentage-off discounts. the assessment of the effect of frame on postpromotion price expectations when prices and discounts are round numbers enables us to test the processing difficulty explanation for frame effects.61 or $1.20) and the depth × frame interaction are not significant (F1.01). the modal response is to undervalue the high-depth percentage-off promotion.34) $1. knowing that the value of a 50% discount can be ascertained by dividing the price by two requires a low level of procedural math knowledge.569) than when it is framed as a percentage (α = . $3.459) . 64.00).5% of respondents in this condition estimated the revised price to be greater than the actual price of $1.3 Controlling for perceptions of the promoted price with an ANCOVA in our assessment of the effects of depth and frame on price expectations eliminates the depth × frame interaction (F1. 3In promotions lead to promotion frame effects.g.8% of respondents exposed to the high-depth cents-off promotion estimated the price to be greater than $1. and in doing so.34) B: Mean (Standard Deviation) Weight Placed on the Perceived Promoted Price in Study 3 Low Depth Percentage-off frame Cents-off frame Depth total . 122 = 4.04) $1. We test this assumption more directly in Study 4. we assess how percentage-off frames might be designed to be most effective. After we estimated this weight. Underlying this result is the argument that differences in processing difficulty between cents-off and percentage-off addition to being undervalued on average.34) $1. the focal brand has a base price of $3. p > .586 (. As evidence that round prices are easier to process. Measuring preand postpromotion price expectations (PEijt and RPEijt + 1) and perceptions of the promoted price (PPijt) allows for the estimation of the weight (α) that each participant places on PPijt when updating his or her price expectations.476 (. The results (see Table 3) indicate that greater weight is placed on the perceived promoted price when the promotion is framed in cents (α = . Thus. 122 = .00. the implication is that managers should use percentage-off frames that are relatively difficult to calculate to insulate postpromotion price expectations.42. In contrast.30).472) High Depth .487) .398.320 (. choices in Periods 1 and 2 again served as covariates. p > . the cognitive costs of processing percentage-off promotions lead to less downward adjustment of price expectations.059) . We tested the effects of discount depth and frame on price expectations with an ANCOVA.958 (.001). Results One hundred sixteen students at two large Midwestern universities participated in Study 4.54 (. or 82.187) . Gupta.52 (.13) Frame Total $2.056) . of the regular price) than following a lowdepth discount (. Study 3 showed that a large percentage-off promotion was undervalued (and the resulting price was overestimated). The results beg the question of the prevalence of different promotion frames in practice.179) Promotion Framing and Price Expectations and Choice / 167 . We designed Study 4 to provide discounts that were as easy to calculate in percentage terms as in cents-off terms. F1. a cents-off frame led to lower price expectations than a percentage-off frame. promotions.20). 115 = 1. An implication of the results is that future price expectations. choice share retention following the retraction of a deep promotion framed in percentage-off terms is greater than when the promotion is communicated in absolute dollar terms. for all but the simplest of promotions. they may also undermine preference for the brand when they are removed.826 (. As Table 4 shows. by offering deep. Frame does not have a direct effect on postpromotion price expectations (F1.813 (.71 (.19) $1.. The moderating role of frame on depth shown for price expectations held true for postpromotion choice as well (Study 2).72 (. choices of the focal brand (yes/no) in Periods 1 and 2 were covariate variables.901 (. the use of easy-tocompute discount values eliminates the effects of promotion frame on price expectations (found in Studies 1 and 3) and supports the belief that the effects of promotion frame are due to the greater difficulty of processing (most) percentage-off discounts.958. and thus postpromotion choice. the brand is also protected in terms of the “training” mechanism.88. In the high-depth condition. p < . Managerial Implications Although large promotions may help meet sales goals during the promotion. and Lehmann 1997). we observed a reliable frame × depth interaction on price expectations. nor does it interact with promotion depth to affect price expectations (depth × frame interaction: F1. 115 = . this solution is less attractive in light of evidence that frequent exposure to promotions may train consumers to wait for discounts.839 (.62) $2. Furthermore. examined the process by which frame effects arise. Data on the use of these types of promotions are difficult to locate.13 (.71 (.06) High Depth $1. The results indicate that cents-off (believed to account for approximately 40% of promotions) and revised price offers (approximately 25% of promotions) appear to be more common than percentage-off promotions (approximately General Discussion In Studies 1 and 3. p = .11. a 2 (depth) × 2 (frame) analysis of variance indicates that perceived promoted prices (see Table 4) did not differ as a function of discount frame (main effect: F1.the focal brand and completed the measure of perceived promoted price as in Study 3.888 (. Thus. Thus.6%. Equivalent accuracy across frame conditions lends credence to our belief that the focal discounts are equivalent (or nearly so) in terms of processing difficulty. Managers may consider solving this dilemma by offering more frequent.37.958 (.242) . p = .14 (.238) Frame Total . thus undermining the ability to attract a premium price (e.61) B: Mean (Standard Deviation) Postpromotion Price Expectations in Study 4 Low Depth Percentage-off frame Cents-off frame Depth total .238) .22. In turn. However. 115 = 28. but less frequent. we asked a small sample of consumers (n = 20) from across the United States to visit their regular grocery store and report their perceptions of the use of various discount frames.06) $2. Therefore.74). We also found that a percentage-off promotion was weighted less heavily than a cents-off promotion when participants updated price expectations. Mela. Studies 3 and 4 TABLE 4 Perceived Prices and Price Expectations in Study 4 A: Mean (Standard Deviation) of the Perceived Promoted Price in Study 4 Low Depth Percentage-off frame Cents-off frame Depth total $2.958 (.826. but less valuable. promotions to both increase sales and protect their brand. 115 = .50 (.35). we found no differences across frames in the low-depth condition. Consistent with this desire.g. 115 = .057) High Depth .48. can be protected when offering a deep discount by framing the discount in percentage terms. a main effect of depth emerges in which price expectations are lower following a deep discount (.05) $2. Study 4 demonstrated that conditions that allow revised prices to be easily derived eliminate the effect of frame on price expectations. p = .51.00) $1. depth × frame interaction: F1. Rajendram and Tellis 1994. Sharma. Chang. 325–70. our logic seems to hold implications beyond the tested frames.g. However... a percentage-off discount frame) to interpret accurately and assimilate new price information into existing beliefs. Urbany (1999). For example. 99–114.10% of promotions). Ann Arbor. and Weinberg 1999. As part of efforts to do so.. Implications for Theory Development The theoretical implications of our research must be viewed in light of the limitations that arise from the limited range of discount sizes and promotional frames we employ. Carl F.e. In part. Chang. the weight on the most recent price is 1. Dickson and Sawyer 1990). Although “regular” prices for brands vary. “The Accuracy of Price Knowledge: Issues in Research Methodology.g. Raj. Conversely. Siddarth. Terence A. and price expectations have been shown to play an important role in determining consumers’ brand choices (Lattin and Bucklin 1989. However..g. other research (e.” Journal of Risk and Uncertainty. The first stems from a marriage of the topics of price expectations and discount framing. 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