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November 7, 2013

Do Delays Undermine Discounts?

Price promotions can be a double-edged sword, new research shows.


A customer decides to buy a bestselling book from an online store. As she browses, she sees a banner ad announcing that all bestsellers are currently 20 percent off. Will receiving this discount increase her enjoyment of her purchase? And does this depend on whether she downloads the book and begins reading it immediately or receives the book several days later in the mail?

New research shows that a delay in consumption can negate the positive effects of a discount and even render the consumption experience less enjoyable. “People are quick to take advantage of promotions — whether for economic reasons or to justify the purchase of something that they want to buy but don’t really need,” says Professor Leonard Lee, who worked on the study with Claire I. Tsai of the University of Toronto. “The conventional wisdom is that if you like discounts, you’re going to enjoy the product even more with a promotion. In fact, that tends to happen only when the product is consumed immediately after it is paid for.”

Discounts and promotions, an enormously popular marketing strategy, crowd e-mail inboxes and are on prominent display in retail stores. For consumers, these offers have tangible benefits: financial savings, an increased willingness to try new products, and the emotional rewards of taking advantage of a good deal. And for marketers, promotions are an easy way to increase demand from both existing and new customers, at least in the short term, and can help ward off competition by making it harder for smaller companies to enter the marketplace. However, past research has shown that promotions often have negative effects: consumers learn to expect promotions from frequent discounters and may resist future price increases from the seller. And as Lee’s research shows, the timing of consumption after a purchase can also influence a consumer’s experience, often with unintended results.

The reason for this, Lee explains, is that both emotional and cognitive forces are at work when a consumer takes advantage of a discount. When the product is consumed immediately after payment, emotional forces tend to dominate the experience. “The positive mood that you’re in after enjoying a discount can play a very large role when you consume a product right away — whether that is watching a video on demand or buying a fast-food meal,” Lee says. But over time, these positive emotions tend to decline. Cognitive forces have a greater influence if consumers have the DVD shipped or take home that fast-food special. And in these cases, timing is relative — for example, a 20-minute drive home, rather than eating in a restaurant, would have a similar effect to a three-day wait for a DVD to arrive in the mail, rather than watching the movie instantly. If a consumer purchased a product at a reduced price, she might feel less motivated to recover the “investment” of its cost.

Lee and his research partner explored the relationship between consumption and enjoyment in four experiments involving products such as chocolates and music downloads. In one such experiment, participants were given $1 and asked to buy one of two types of truffles — both of which were in fact the same. All of the participants were told that the truffles had a retail price of $1, but half received a 50 percent discount and purchased the chocolate for 50 cents. In addition, half of each category of participant — discount or no discount — ate a truffle as soon as it was paid for, while the others received a truffle a week later. (All of the truffles consumed were actually purchased just one day before consumption, to control for freshness and taste.) The researchers found that when the truffles were eaten immediately, the promotion enhanced the consumption experience. However, when payment and consumption are decoupled by a time delay, the effect was reversed.

“Marketers want consumers to buy their products, and promotions can be a way to loosen purse strings,” Lee says. “But if you consider the consumer relationship from a long-term standpoint, in terms of customer satisfaction and brand loyalty, you might want to pay more attention to whether the customers are truly enjoying the consumption experience.” When a discounted product is consumed after a delay and the experience is therefore less enjoyable, a customer may become less likely to buy the product again or to recommend the brand to friends, he cautions. And for consumers, this research shows that getting a great discount doesn’t always increase happiness. Shoppers who plan on consuming a product later might be better off resisting that promotion and holding onto their money.

Leonard Lee is associate professor of marketing at Columbia Business School.