Latest Seminars

The Long-term Effects of Price Promotions on Consumer Behavior: Evidence from A Field Experiment on a Retailing Platform

We study how promotions affect consumer behavior in the long term on a retailing platform. We focus on a specific promotion—offering consumers a coupon for products that have been in their shopping cart for more than one day. In a randomized field experiment involving more than 100 million customers with Alibaba Group, we randomly assigned half of eligible customers to a treatment condition where they might receive promotions for products in their shopping cart; the other half of eligible customers did not receive coupons. We document unintended consequences of this promotion program during the month following our treatment period.  
 On the positive side, our promotion program boosted consumer engagement. We causally estimate that using our shopping-cart coupons in the treatment period subsequently increased the daily number of products customers viewed on the platform by 120% in the post-treatment period. On the negative side, we find that our promotion program intensified strategic consumer behaviors in two ways. First, using a coupon in the treatment period increased the proportion of products that consumers added to the shopping cart upon viewing them by 65.43% in the post-treatment period, possibly due to customers’ anticipation of promotions targeted at products in their shopping cart. Second, using a coupon in the treatment period lowered the price customers paid for a product by 3.85% in the post-treatment period. This effect holds for products that did not offer shopping-cart promotions, suggesting that prior use of shopping-cart promotions made people more price sensitive and trained them to search for other promotion mechanisms beyond shopping-cart-specific promotions. Importantly, both the positive and negative long-term effects spilled over to sellers on the same retailing platform that did not previously offer promotions to consumers. Our findings suggest that price promotions may change expectations and reference points, which can further produce both a positive long-term effect on consumer engagement and a negative long-term effect on strategic behavior. We discuss the practical implications of our findings for platforms and retailers.

 

Speaker :
Prof. Hengchen DAI, UCLA Anderson
Venue :
LSK Rm6045
Date :
12.03.2018
Time :
3:00pm - 4:30pm