Marketers’ Choice of Conditional Promotion Formats: When and How Does It Matter?

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“Buy a Fire TV and receive an Amazon Echo Dot for free!”

On Cyber Monday 2019, Best Buy offered the above conditional promotion, which directly offered a free Amazon Echo Dot upon purchasing an Amazon Fire TV. As an alternative to offering a direct gift at the time of purchase, Best Buy could have offered customers a gift voucher for the Echo Dot to redeem sometime in the future. Like Best Buy, many retailers offer conditional promotions, either through a direct gift or a gift voucher, to entice consumers to purchase a product. Although deciding which conditional promotion to use may seem like an inconsequential choice for marketers, a recent study suggests that the format of the promotion (i.e., direct gift or gift voucher) does, in fact, influence a consumer’s purchase decision.

Through a series of laboratory and field experiments, Yu Ding and Yan Zang discovered that the choice of conditional promotion format should be carefully considered. Generally, conditional promotions are effective in boosting sales if consumers can easily assess the value of the promotion (e.g., the price of the Echo Dot). They make such assessments by comparing the value of the promotion with the value of the main product. If the relative value of the gift or gift voucher is deemed appropriate and meets or exceeds consumers’ expectations, then the promotion may enhance their likelihood to purchase the product. In such a case, the formatof the conditional promotion (i.e., a direct gift or a gift voucher) should not affect consumers’ purchase intentions differentially.

However, in the authors’ study, they found that consumers have difficulty making such judgments regarding gift vouchers. Redeeming a gift voucher in exchange for a gift requires an additional mental step for consumers. Even if redeeming the voucher requires minimal time and/or effort, this additional step reduces consumers’ ability to compare the relative value of the voucher against their expectations, which in turn decreases the likelihood of them purchasing.

To better understand this phenomenon, the authors compared high-value and low-value conditional promotions for both direct gifts and gift vouchers, which resulted in two main findings:

• When marketers offer high-value promotions that exceed consumer expectations (e.g., Amazon Echo Dot with purchase of Amazon Fire TV), offering a gift voucher deemphasizes the high value of the promotion and results in reduced likelihood of purchasing the product being promoted. Thus, when offering a high-value promotion, marketers would be better off including a direct gift as the conditional promotion format.
• When marketers offer low-value promotions that fall short of consumer expectations (e.g., candy bar with purchase of Amazon Fire TV), offering a gift voucher distracts the customer from the low value of the promotion and results in greater likelihood of purchasing the product being promoted. Thus, when offering a low-value promotion, marketers would be better off including a gift voucher as the conditional promotion format.

Importantly, marketers must place special consideration into the design of a gift voucher when used in a low-value conditional promotion. Specifically, making the value of the gift more salient to the consumer reduces their purchase intentions. Thus, marketers offering low-value promotions should refrain from (1) highlighting the value of the gift voucher (e.g., Redeem for a candy bar worth $3.99) and (2) prompting consumers to consider the value of the gift voucher before purchasing.

Insights for Academic Researchers

Origin of the Idea

We asked the authors about the inspiration for their study. The authors responded that they were very interested in understanding the effect of non-numerical (i.e. promotions other than % discount, BOGO, etc.) promotions on consumers’ purchase behavior. While discussing various ideas in this domain, a personal anecdote regarding a conditional promotion in Bugis+ in Singapore that was offering gift vouchers for purchases above $200 sparked the idea for this study.

Study Design Highlights

The authors’ study combined multiple laboratory experiments and a field experimentation to test the hypothesized relationships. In order to observe the consumer’s actual behavior in a laboratory setting, authors set up a scenario in which participants had to spend time and effort in order to receive the gift. Although it is possible to ask participants to spend money (e.g., spend the dollar amounts they receive for participating in the study), they may be reluctant to spend cash. Hence, the authors used effort and time expenditure as substitutes for cash expenses – a validated method for measuring the actual behavior of consumers instead of relying on survey questions to assess consumer purchase intentions.

For their field study, the authors collaborated with a local pastry shop to run a randomized promotion on their social media platform, WeChat. Half of the pastry shop’s followers were randomly selected to receive one of four promotions while the remaining half did not receive a promotion. The four promotions included either a gift voucher or a direct gift of a low (1 piece of chocolate) or high value (3 pieces of chocolate). The pastry shop used their signature 4-inch cake as the promoted product. Consumers were able to participate in the promotion by showing the promotional message to the pastry shop and making the purchase of the cake. The customer then received either the gift voucher or direct gift. The result of this field study, using both the number of cakes sold and the purchase rate, supported their laboratory studies, and provided external validity to their findings.

Evolutionary Journey of the Research

We asked the authors how their original idea evolved and if receiving feedback from colleagues, conferences, and/or the review process helped shape their idea into its final format. The authors informed us that they found “lab meetings and invited talks are the most precious opportunities to improve an ongoing work.” Hearing new insights, opinions, and feedback from others had challenged them to think about their research from different perspectives and had ignited new ideas on how to alter the design of their experiments. They added that feedback received through the peer evaluation of their manuscript by the journal reviewers helped polish and clarify some of the main points of their paper.

Research Implications and Future Horizon

We also asked the authors how marketers and other researchers can use the insights from this study and expand on their findings. The authors explained that vouchers used in conditional promotions function as intermediaries. They separate (“decouple”) the connection between the cost of the main product and the benefits accrued by receiving the gift. Therefore, marketers should be mindful of situations that create separation between the costs and benefits.

This effect may also hold in contexts beyond gift vouchers. The authors note, “Many marketing tools that introduce additional steps into the purchase process (e.g., offering customers membership to a program when they make a purchase, which subsequently provides a given benefit) might function similarly, making consumers’ purchase decisions less sensitive to the actual benefit brought about by the purchase.”

Referenced article:

Yu Ding and Yan Zhang (2020), “Hiding Gifts Behind the Veil of Vouchers: On the Effect of Gift Vouchers Versus Direct Gifts in Conditional Promotions,” Journal of Marketing Research, 57 (4), 739–54.