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Price discounts vs. awarding points: Verification of sales promotion effect in Japanese supermarket

Authors
Mr. Masakazu Ando
Senshu university ~ human science
Koji Kosugi
Senshu University
Abstract

A frequent shoppers program is a sales promotion strategy used by retailers worldwide. Awarding points can be said to be similar to price discounts in the sense that a return for the amount of money. However, there are disadvantages to awarding points such as restriction of use, expiration date, and use after the next time. Price discount doesn’t have this demerits. From a rational perspective, consumers should be more likely to prefer discounts than points. Which has the higher perceived value between price discounts and equivalent amount points? Regarding this, Nakagawa (2015) showed that the relationship between the perceived value of awarding points and price discounts is switched depending on the amount of purchase. This phenomenon can be explained by mental accounting theory(Thaler, 1985) and magnitude effect. Mental accounting theory is based on the value function of Prospect theory, and when the purchase amount is small, awarding points have higher perceived value than price discounts. Magnitude effect is an effect in which decision making and behavior change depending on the amount of money. When the Purchase amount is large, price discounts have higher perceived value than awarding points. Therefore, we investigated how the perceived value of price discounts and awarding points in a supermarket with changes in the purchase price. This study aims to detect the amount of money where switching subjects preference of price discounts and awarding points by fitting linear or non-linear regression models. As a result, it is possible to consider which sales promotion is effective for each amount.

Tags

Keywords

mental acounting theory
magnitude effect
consumer heterogeneity
latent class model
bayesian modeling
behavioral economics

Topics

mental acounting theory
magnitude effect
consumer heterogeneity
latent class model
bayesian modeling
behavioral economics
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