The Moderating Role of Promotional Benefit Level and Brand Awareness on the Effectiveness of Price Discount and Premium

AbstractThis research uses a cross-sectional experiment to manipulate promotional benefit level, type of promotion, brand awareness and measures consumers' value perceptions and purchase intentions. The results obtained suggest that at high benefit levels and moderate benefit level, price discounts are more effective than premiums, also at high brand awareness level and low brand awareness level, price discounts are more effective than premium.Keywords: Premiums, Price Discounts, Promotional Benefit level, Brand awareness.IntroductionSales promotion has become a pivotal element in the marketing communication mix because it is very effective in the short term (sales volume increasing) and in the long term (brand equity building) and supports the other element in promotional mix like advertising. Kotier and Armstrong11 show that advertising offers reasons to buy a product or service whereas sales promotion offers reasons to buy now.The marketers spend long time in designing their promotional strategy because there are many variables to moderate the effective sales promotion tools.1. Variables related to promotional offer like Promotional benefit level16 and Promotion offer frame6.2. Variables related to product like Product type3, Brand type13, Perceived performance risklz.3. Variables related to consumer like Deal Proneness19, Price consciousness15.Consumer response to monetary and nonmonetary promotionsSales promotions have often been classified by researchers as monetary or nonmonetary3, for example, a price discount (e.g. 50 percent off) would be a monetary promotion and free gift would be a nonmonetary promotion. Zheng et al24 for example argue that price discount is a temporary reduction of the list price of the product, while d'Astous et al5 show that free gift is simply a product or a service offered free or at a relatively low price in return. The implications of Prospect Theory Value Function10 for sales promotions provide plausible explanations for different consumer reactions to different promotional framings.Based on this theory, consumers perceive a promotion relative to a subjective reference point (e.g. the reference price of the product). Then it is probable that a monetary promotion would be considered as a reduction in the "loss" because it reduces the purchase price while a nonmonetary promotion would be viewed as a "gain" obtained in the transaction.The logic of this reasoning is clear. People tend to evaluate price discounts in relative terms because both the purchase price and the change are expressed in monetary terms. However, when consumers are offered a free gift, they do not have an accurate understanding of its pecuniary value which makes it more difficult to discount its value from the product price. This may inhibit consumers' tendency to evaluate the promotion in relation to the focal product or its price.Therefore, the type of promotion determines the mental accounting conducted which is a segregate evaluation in the case of free gift and an integrate evaluation when analyzing price discounts. These notions of integration or segregation resemble the types of reasoning suggested by Nunes and Park14 in a sales promotions context. The use of discounts places a greater emphasis on price, leading people to assess the incentive relative to what they pay (relativistic and quantitative reasoning) while free gift takes the focus away from price (absolute and qualitative reasoning). Consequently, the fact that the promotional framing (monetary or nonmonetary) determines the difficulty of its analysis leads to the conclusion that two promotional tools with an equal promotional benefit are evaluated differently. For example, Sinha and Smith20 showed that the transaction value for three economically equivalent promotions could be different, being highest for price promotion (50% oft), followed by extra-product promotion (buy one, get one free) and finally mixed promotion (buy two, get 50% off). …