An Examination of the Effects of Scarcity and Discounting on Purchase Decision Regret

Abstract

In a post-recession American shopping landscape, discounting has become even more prominent as a sales promotion tool. Consumers understand this tactic, but one needs only watch the television show, Extreme Couponing, to understand the importance of saving money. Similarly, one must only watch the 2012 “Enough. Is. Enough.” J.C. Penney commercial to realize the possible negative consequences of discounting. Seasonal discounting, in particular, is a managerial technique utilized to unload excess inventory and make room for newer merchandise. The Steadily Increasing Discount (SID) model is a pricing strategy that manipulates scarcity (availability of the product) and the upcoming discount schedule to maximize purchase intent (Gabler and Reynolds 2013). While the SID model has been shown to have a positive impact on purchase intent, the possible negative side effects have not been examined. The current research investigates the decision regret associated with such a strategy. Specifically, we explore two types of regret: action regret, or the regret associated with making a purchase and later discovering a missed discount; and inaction regret, or the regret associated with waiting for a discount to take effect and then missing out on the product itself. Using Expected Utility Theory and the omission bias effect, we design and implement an experimental scenario to test these relationships. We uncover that both the level of discount and the number of available products influence the regret felt after a purchase decision. By examining the negative consequences of the SID model, this research serves as a cautionary tale for managers who implement such a model. While persuading people to purchase products is an important goal, considering the need to establish loyalty and customer lifetime value, the risk of alienating, upsetting, or angering customers is one that managers must consider when developing their pricing schedules.