Price promotions occur all the time and often simply involve a straight price cut.  But sometimes the price reduction is in the form of a discount on a later purchase.  For example a promotion for a $1,000 laptop might be a $100 gift card or voucher to use on another purchase later.  Amazon offers a lot of deals in this way, offering “promotional credit”.

These sorts of price promotions arguably might have dual effects.  The customer feels they got a discount on the original purchase.  But then they use the gift card, voucher or promotional credit later – perhaps they feel they’ve received discount again!

Researchers Cheng and Cruyder (JMR 2018) researched this issue in a series of well-conducted experiments.  First they compared total purchasing across two occasions among (a) people who only got an immediate discount (b) people who got promotional credit of an equivalent amount, to use on a later purchase.  Total purchasing was higher in the promotion credit group.  Next they compared (in-survey, with no actual money spent) purchasing among people who got no discount, discount, or promotional credit.  Purchasing was about 20% higher in the promotional credit group.  Further testing suggested the explanation was that consumers given promotional credit feel as if they spend less in total across two purchases than those only given an (equivalent) discount.   Additional experiments suggested promotional-credit type deals work better than straight discounts, mail-in rebates or cash-backs, because the promotional credit is more easily linked to a subsequent purchase and there is a heightened tendency to feel that two discounts have been received. In total the study ran six experiments with convergent results.

The main “take-out” is that when consumers receive a Gift Card or promotional credit to use on a subsequent purchase, they feel like they are spending less over the two purchases than they would if they simply received a price discount on the first purchase.  The end result is that promotional credits tend to result in higher total spending (over two purchases) than straight discounts.

Reference:

ANDONG CHENG and CYNTHIA CRYDER (2018) Double Mental Discounting: When a Single Price Promotion Feels Twice as Nice Journal of Marketing Research, April p. 226-238.