Clipping Coupons: Redemption of Offers with Forward-Looking Consumers

Consumer redemption behavior pertaining to coupons, gift certificates, product sampling, rebates, and the like, has been the focus of much scholarly inquiry and the extant literature has documented two noteworthy empirical regularities - a bump in redemptions close to offer expiry and greater redemption with shorter redemption windows. In the extant work, these phenomena have been explained by invoking myopic consumers. Against this backdrop, we ask a simple question: can these phenomena survive if we assume rational, forward-looking consumers? Accordingly, we develop a model consisting exclusively of forward-looking consumers and incorporate two constructs highlighted in the literature - forgetting and stochastic redemption costs. We derive consumers' period-by-period redemption rule and subsequently illustrate the emergence of the two aforementioned empirical regularities

Trade Deals and/or On-Package Coupons

Producción CientíficaThe selection of either a pull or a push price promotion has mainly been investigated in contexts where manufacturers offer deals to consumers at the time of purchase or other trade deals toretailers. This paper extends this framework to where manufacturers can offer either trade deals or rebate-like promotions to consumers such as on-pack coupons that stimulate the fi rst and second purchases or a combination of the two promotion vehicles. It is demonstrated that the decision to implement either of the three promotion options critically depends, among other factors, on the percentage of first-time buyers who redeem their coupons at the second purchase. Particularly, a necessary condition to simultaneously offer both a trade deal and coupons is to have a positive coupon redemption rate. When possible, manufacturers prefer on-pack coupons over trade deals to take advantage of slippage and to further increase the overall demand via coupon-induced repeat purchase. Manufacturers are more likely to take the lion's share of channel profits.MICINN under projects ECO2008-01551/ECON and ECO2011-24352, co- financed by FEDER fund

Behavioral Biases in Marketing

Psychology and economics (the mixture of which is known as behavioral economics) are two fundamental disciplines underlying marketing. Various marketing studies document the non-rational behavior of consumers, even though behavioral biases might not always be consistently termed or formally described. In this review, we identify empirical research that studies behavioral biases in marketing. We summarize the key findings according to three classes of deviations (i.e., non-standard preferences, non-standard beliefs, and non-standard decision-making) and the marketing mix instruments (i.e., product, price, place, and promotion). We thereby introduce marketing researchers to the theoretical foundation of and terminology used in behavioral economics. For scholars from behavioral economics, we provide ready access to the rich empirical, applied marketing literature. We conclude with important managerial implications resulting from the behavioral biases of consumers, and we present avenues for future research

The Law, Marketing and Behavioral Economics of Consumer Rebates

This paper deals with mail-in consumer rebates — a significant, yet controversial marketing practices that has generated thousands of consumer complaints, inspired countless articles in major periodicals, and begun to attract the interest of state and federal legislators. The paper first aims to provide an understanding of the purposes of consumer rebate offerings. It then surveys the main categories of consumer rebate complaints, including that firms impose onerous rebate redemption requirements and that they fail to pay rebate rewards in a timely manner. The paper draws on recent marketing, psychological and behavioral economics research to address the potent claim that rebates exploit sub-optimal consumer behavior. The latter part of the paper evaluates several possible regulatory options for consumer rebates, including unfair and deceptive trade practices litigation, informational or de-biasing laws aimed at reducing sub-optimal consumer behavior, and legislation that sets mandatory rebate promotion terms. The paper also discusses how the market has already begun to respond to consumer dissatisfaction with rebate promotions. In the end, the paper argues that the most egregious rebate promotion abuses can be managed with a minimum level of paternalistic intervention while preserving the welfare-enhancing benefits of rebate promotions

Pari-mutuel betting markets: racetracks and lotteries revisited

This survey discusses the state of the art in research in racetrack and lottery investment markets. Market efficiency and the pricing of various wagers are studied along with new developments since the Thaler & Ziemba (1988) review. The weak form inefficient market pricing approach using stochastic programming optimization models changed racetrack betting from handicapping to a financial market allowing professional syndicates to operate as hedge funds. Topics discussed include arbitrage and risk arbitrage, syndicates, betting exchange rebates, behavioral biases, and fundamental and mispricing information in racetrack and lottery markets. Similar models can be used to successfully trade stock market anomalies. Supplemental Materials are included online

Cashback is cash forward: delaying a discount to entice future spending

The authors examine purchase behavior in the context of cashback shopping—a novel form of price promotion online where consumers initiate transactions at the website of a cashback company and, after a significant delay, receive the savings promised to them. Specifically, they analyze panel data from a large cashback company and show that, independent of the predictable effect of cashback offers on initial demand, cashback payments (1) increase the probability that consumers make an additional purchase via the website of the cashback company, and (2) increase the size of that purchase. These effects pass several robustness checks. They are also meaningful: at the average values in the data an additional $1.00 in cashback payment increases the likelihood of a future transaction by 0.02$0.32—figures that represent 10.03% of the overall impact of a given promotion. Moreover, the authors find that consumers are more likely to spend the money returned to them at generalists such as department stores than at other retailers. They consider three explanations for these findings, and the leading hypothesis is that consumers fail to treat money as a fungible resource. They also discuss implications for cashback companies and retailers

Essays in Behavioral and Experimental Economics

This dissertation consists of three essays examining the implications of human psychology for economic behavior and market outcomes

Essays on Decisions Involving Recurring Financial Events

This dissertation explores what influences consumer financial decisions with consequences that recur over time, such as mortgages and recurring payment plans in contracts. This dissertation investigates two questions: (1) How do individual differences in intertemporal preferences influence how consumers think about recurring financial events? (2) How does the aggregation level used to describe the recurring financial consequences impact how consumers mentally represent the purchase? Taken together, this dissertation explores how consumers mentally represent recurring outcomes and express these preferences through choice. The first essay explores the relationship between individual differences in time preferences and decisions involving recurring payments in the domain of mortgage choices. It relates two components of an individual's time preference, a present bias (overvaluing immediate outcomes), and a personal discount rate (the exponential component of time preferences), to mortgage selection and the decision to strategically abandon a home worth less than its mortgage. Combining insights from an analytic model and a survey of 244 mortgaged households augmented by zip-code market house price data, this essay proposes that consumers with greater present bias and exponential discounting are more likely to choose mortgages that minimize up-front costs and be underwater. This model also suggests that present bias decreases the likelihood of walking away, but that higher discounting increases that likelihood, a result consistent with the data. Time preferences remain robust predictors with individual and market-level controls, and alternate model specifications. The second essay explores how the aggregation level of a recurring price (e.g. on a daily vs. a yearly basis) impacts how consumers mentally account for a contract's benefits. For example, if consumers are told the daily price of a car lease, they imagine the daily benefits of the car, and when they are told a monthly price they imagine their broader use of the car. This essay builds on the "pennies-a-day" model (Gourville 1998), which posits that narrowly framed recurring costs can increase a consumer's willingness to purchase by making the cost of a purchase seem trivial. The essay will present evidence that triviality is neither a necessary nor sufficient condition for narrow framing to increase willingness to purchase and expand the domain of situations where such narrow framing increases purchase. Five web-based experiments suggest that scope insensitivity plays an important role in this effect since under recurring costs, consumers repeatedly "book" the most valued units, while under one-time costs consumers tend to experience less return to scale. Together, the two essays suggest that contracts involving recurring financial events are mentally represented differently from those with one-time financial events, and that content is then discounted based on intertemporal preferences