1 Introduction
The Sugar Shop is a regional icon in the German city of Heidelberg that sells a wide variety of sugary confections. When one of the authors was still a child and had little pocket money, his schoolmates shared rumors about the legendary shop, which is stuffed with sweets from top to bottom. More than licorice sticks, wine gums, and chocolate, his friends reported that the quirky owner determined an item’s price by throwing dice with customers. The author did not receive this tip exclusively: When Prince William and his wife Kate visited Heidelberg in 2017, a digital magazine (Kendi-Prill
2017) asked local citizens which sights the royals should not miss; the Sugar Shop (Heidelberger Zuckerladen) was ranked in second place after the famous Heidelberg Castle.
What differentiates the Sugar Shop from other stores is that when items are placed on sale, customers are not offered a fixed discount percentage (e.g., 10% discount). Instead, they are offered an unknown and gambled discount (e.g., items are free-of-charge for customers who roll triple sixes). For these promotions, the savings amount is, as the name suggests, vaguely defined at the time of purchase and can differ between customers.
Recent studies have shown that in-store price promotions with unknown discounts can have numerous advantages over promotions with fixed outcomes. For example, companies can achieve the same profits with lower costs (Dhar et al.
1995). Furthermore, customers tend to favor unknown discounts over regular discounts when the expected value of either discount type is statistically identical (Goldsmith and Amir
2010; Ailawadi et al.
2014; Mazar et al.
2017).
While the previous research has shown that consumers prefer to buy from sellers when promotions with unknown discounts are present, much less is known about the effect of gambled promotions on customers’ postpurchase evaluations after participating and learning the actual outcome of the promotion. However, like other components in the marketing mix, promotions and prices can also influence consumer attitudes, intentions, and behaviors, which, in turn, can affect the firm’s profitability in the long run.
Two processes might impact consumers’ postpurchase evaluations in promotions with unknown consequences: On the one hand, customers who enjoy the diversion of the promotion or who enjoy gambling per se might find such a promotion appealing or entertaining. Unusual promotions, such as the one from the Sugar Shop, might be better retained in long-term memory, and shoppers might come to associate the seller with positive feelings. This outcome can, in turn, engender higher customer satisfaction and increased word-of-mouth (WOM). On the other hand, gambled promotions inevitably produce winners (e.g., the customer with triple sixes in the above example) and losers (e.g., the customer who rolls any other number). Thus, a small proportion of customers can profit from gambled promotions whereas the majority of customers would have profited from the fixed outcome promotion. Consequently, consumers who feel that they have won might enjoy participation in promotion more while those who believe that they have lost might experience feelings of unhappiness or regret. Therefore, the positive experiential effects of the promotion and, therefore, customer satisfaction and WOM might be mitigated by the outcome of the gamble.
This paper contributes to the literature by examining how customers perceive price promotions with unknown discounts after their participation and whether they transfer their corresponding experiences to the evaluation of the store and their WOM intention.
The structure of the remainder of this paper is as follows. Section 2 reviews the existing research on promotions with unknown discounts and presents the hypothesis development. Section 3 describes two field studies, section 4 discusses the findings of these field studies, and section 5 concludes.
4 Discussion and Conclusion
Study II did not reveal a positive effect of gambled price promotion on customer satisfaction. Nevertheless, the experimental and control groups appeared to differ in this respect. The different distributions of customer satisfaction indicated that both customers who were more dissatisfied and those who were more satisfied existed in the EG while satisfaction was bell-shaped for the CG. Consequently, as a result of the promotional event, more people appraised the store either very favorably or very badly. This could not be linked to entertainment benefits. However, discount evaluation had an influence on customer satisfaction. Consumers who evaluated the discount more positively were also more satisfied with the seller. However, with higher stakes, entertainment value becomes less important for customer satisfaction. This, in turn, might imply a need to manage consumers’ assessments of the outcome of the gamble by the seller.
As products of quasi-experimental field studies, the studies show high external validity and are based upon realistic samples. The candy shop of Study I primarily targeted wealthier and older customers. The management of the furniture chain of Study II successfully addressed mass markets rather than niches, which permits the results to be generalized to more diverse populations, at least in the country of investigation.
Retailers are encouraged to focus on the entertainment quality of the campaign, especially when running a low-stakes gamble. Our research suggests that increasing the entertainment or experiential quality of shopping by extending the fun nature of the promotional campaign (e.g., throwing the dice in a public setting) is beneficial for the seller (e.g., Pine and Gilmore
1999). Anecdotal evidence from personal interviews with retail managers and consumers supports this view. The CEO of the furniture retail chain endorsed such views by indicating that he believed that customers enjoyed the games for the sake of playing a game rather than for the potential discount. Such a characteristic engenders positive responses in customers during and after the promotion, even when they are not among the lucky winners. Content issues, such as perceived time pressure (i.e., the time available for the respective shopping task), might be of importance.
In high-stakes contexts, the seller should seek to alleviate the grief of some customers who feel that they have lost in the game. A remedy to this problem might be to have more consumers “winning” in the game. On the one hand, this could be achieved by paying higher discounts. However, this is costly. On the other hand, we observed that customers’ assessments of the discount could be considered to not be very rational. Perceiving an outcome as “satisfactory” or “unsatisfactory” appeared to be subjective. Therefore, sellers should engage in the framing of the outcome of the promotion and try to influence the subjective assessments of discounts selling all outcomes as “wins”. Furthermore, recent findings have identified boundaries for risk and uncertainty involving price promotions. When consumers focus on the details of a gamble or promotion rather than the big picture of the promotion, they have a stronger preference for risky and uncertain gambles (Duke et al.
2018). Therefore, more entertaining promotions that focus on the aspects of the game rather than the discount might be more promising.
The field study design limited the refinement of internal validity, and the complete control of many other potential drivers of customer approval of the store could not be established. The nature of field studies also accounts for the lack of a random assignment of subjects to different experimental conditions and for the moderate sample sizes. This limitation offers avenues for future research to utilize laboratory settings for better control of conditions. Furthermore, the constraints of the cooperation partners limited our research design to a brief questionnaire and, therefore, to single-item measures.
This paper investigated two specific frames of gambled price promotions (i.e., a “wheel of fortune” and a dice game). Clearly, many alternative settings are possible. Managers might increase the gambling aspect of the promotion. As an example, scratch cards or a slot machine could be perceived as even more amusing than spinning a wheel or throwing dice. When matching symbols determine the discount, shoppers might experience a loss as a near-win (e.g., two matches but one mismatch) (Gilovich and Douglas
1986). Furthermore, other types of promotions with unknown discounts could be investigated. Some retailers run promotions where the discount is determined by external events (Ailawadi et al.
2014) or given without active consumer participation (e.g., every 10th customer receives a discount by 100%). Future research could investigate such types of framing effects and manipulate the entertainment value of the promotion experimentally.
This paper examined gambled promotions that are genuinely risky in giving each participant the same objective expected discount. As an alternative, the seller could add a skill-based component in the promotion. This could be achieved by incorporating a low-to-moderate difficulty ball game (e.g., scoring a goal, hitting a target) or card game (e.g., blackjack). Consumers who are provided with an unknown reward for performing a specific action are more likely to engage in repeat purchases (Shen et al.
2019). Further studies regarding the role of the degree of consumer participation on customer satisfaction and WOM intention would be worthwhile.
Previous studies have found that price promotions hurt brand loyalty (Gedenk and Neslin
2000). As customer satisfaction is an important antecedent of loyalty (Oliver
1999), increasing customer satisfaction through gambled price promotions might help to mitigate the negative effect of price promotions on store loyalty. Further research should be carried out to establish these potential downstream implications.
There are also contributions that point to boundary conditions of promotions with unknown consequences. Consumers might reject these offers because they are reactant (Bertini and Aydinli
2020), because they want to maintain their freedom of choice (Briley et al.
2018) or because they engage in cognitive decision making (Laran and Tsiros
2013). Further research might investigate how these aspects influence customer satisfaction and WOM in this context.
Finally, investigating the long-term effects of such gambled promotions is likely to yield thought-provoking inquiries in this area.