The ‘Big Four’ Price Promotions In Predicting Decision Utility and Efficacy Steen Tjarks Steen.tjarks.10@ucl.ac.uk A thesis submitted for the degree of Doctor of Philosophy University College London Department of Clinical, Education and Health Psychology Prepared under the supervision of: Dr. Dimitrios Tsivrikos and Dr. Gorkan Ahmetoglu August 2018 ABSTRACT One way that retailers help the consumer make choices is via promotions – price framing methods that explicitly offer a price reduction of value for money off the regular retail price (RRP). However, there is a growing body of research that has indicated that merely the word ‘promotion’ or ‘deal’ can increase purchase intentions despite the deal offering no savings. Despite these findings, almost no research has quantifiably considered which, how and to what extent different promotional methods can bias decisions. Furthermore, very little is known about how consumers go about making promotional decisions or which psychological factors impact the decision-making process. Considering a broad range of decision-making frameworks and psychological theories, this thesis aims to explore the extent that promotional practices influence decision-making outcomes. Furthermore, it will consider how psychological traits like financial literacy, experience and brand relationships moderate any found effects. To achieve these objectives the effect of the four most common promotional practices on decision utility will be tested in light of: the previous literature on decision-making and promotions (Chapter 1); expert interviews describing the traits or behaviours important in developing promotional strategies (Chapter 2); the effect of information processing on promotional decision making (Chapter 3); how prices are internalised (Chapter 4); and consumer relationships (Chapter 5). Finally, the results of each chapter will be used to create and test a framework of promotional decision-making. Creating and testing this framework in an experimental and more ecologically valid setting, i.e. a virtual supermarket will be the sole purpose of Chapter 6. The aim of creating and validating the framework will be to significantly contribute to: academia, by adding some novel research to the growing promotional literature; and practice, by considering how the practices specific effects to decision making can impact fair pricing practices and consumer education. 3 IMPACT STATEMENT Investigating promotional decision-making stems directly from a lack of literature on this topic; the applied insights potentially derived; and an explicit call for research to do so by both the UK government and scholars in the field. To date, promotions are moderately well addressed in the literature, but no work has yet gone about explicitly going discussing how and which specific promotional practices can bias decisions. Little is also understood about how engaging with promotions can moderate the effect of a consumer’s psychology on the decision-making process. Based on these research gaps this thesis could have a significant applied and theoretical impact. From the theoretical standpoint, the upcoming work shall provide evidence and directives for future research in the promotional literature. For many promotional practices, e.g. BOGOF the literature is still novel and has not yet considered how consumer behaviour helps to define the practice’s effectiveness at increasing sales. Looking at the four most relevant and salient promotional methods consumers' encounter will help develop further research around these. More specifically, explicitly focusing on the decision outcomes of these promotions and the psychological traits that can potentially moderate these outcomes, this work will help shed light into an unexplored area of this literature. Moreover, alongside considering how these four promotions can bias or aid the fulfilment of decision goals, e.g. saving money, it will compare the extent of these effects across these practices. By considering how a consumer's' psychology moderates promotional decision-making, the upcoming work also has implications to the consumer behaviour and decision literature. For instance, the findings will help provide support for the currently proposed models of consumer decision making and even help further develop them by proposing a decision model specific to promotional contexts. Furthermore, by considering by which psychological traits aid or impede the decision process the findings will help illustrate how important consumer behaviour is to decisions primarily defined by one key decision driver – in the case of promotions, price. Since most papers consider how promotions impact consumer behaviours, rather than the other way round, this thesis will also help show how well the findings, theories and models from broader literary contexts can be applied to newer, more novel, ones. 4 As well as theoretical implications this thesis may have a significant impact on policy- making, education initiatives and retailer strategy. Understanding how promotional decisions are made and if specific methods can bias decision outcomes can help inform pricing policy. As will be shown in Chapter 7 the current regulations around promotions are lax and could be significantly improved from the findings presented here. Moreover, the findings can be used to help retailers devise new promotional methods that can leverage consumer biases to increase their sales. On the other hand, by understanding how consumer behaviour impacts the decision process, it can help education officials devise initiatives to help consumers improve the critical skills needed to make well- considered, informed decisions, e.g., financial literacy. Taken together, this thesis can have considerable implications to both theory (by extending current reach, developing new insights and providing new research directions in the promotional space) and practice (by helping retailers devise new tactful promotional practices and policy-makers improve consumer decision-making through education initiatives and developing fair pricing policies). The full text of the impact to these areas will be discussed in Chapter 7. 5 ACKNOWLEDGEMENTS I would like to take the time to thank a handful of amazing people who have provided me with tremendous support throughout this endeavour. First, I would like to thank my academic mentor Adrian Furnham. You have always believed in me and given me the push I needed to succeed. Thank you for introducing me to the field, providing me with immense opportunities and taking the time to mentor me throughout my time at UCL. Your lectures and the time we spent together will always be cherished. Second, I would like to thank my family and friends. Throughout this whole endeavour you have been my foundation, providing me with support and advice when and wherever possible. Third, I would like to thank all my colleagues at UCL who have made this journey possible and a truly life-changing experience. Thank you, Hannah, for all the support you have given me over the last 7 years and to John who has worked behind the scenes to make this all possible. Thank you to all the UCL staff who have made the last 7 years a fantastic experience and for always pushing us to achieve excellence. Without the tremendous facilities, staff and research opportunities this really would have been a very different experience! Finally, my biggest thank you goes to my supervisor Dimitrios Tsivrikos. The knowledge, advise, and friendship you have given me will stay with me for life. Thank you for the opportunities you have provided me over the last four years and for the fantastic life skills you have taught me. I can genuinely say it has been an honour to work with you and thank you for being an extraordinary mentor both at an academic and personal level. I would like to dedicate this thesis to you and hope it inspires you to mentor and teach others in the same way. 6 CONTENTS CHAPTER 1: INTRODUCTION 11 1.1 Thesis Scope ........................................................................................................................ 11 1.2 Introduction to Consumer Decision-Making ................................................................... 18 1.2.1 Defining Decision Utility ..................................................................................................... 18 1.2.2 The Cognitive Decision Process .......................................................................................... 20 1.2.3 Cognitive Models Of Consumer Decision-Making .............................................................. 26 1.2.4 Quantifying Utilitarian Decision-Making ............................................................................ 33 1.2.5 Model Evaluation and Research Gap Identification ............................................................ 37 1.3 Introduction to Promotions ............................................................................................... 40 1.3.1 Defining Promotions and Promotional Effectiveness .......................................................... 40 1.3.2 Overview of Promotional Research in The Psychological Literature ................................. 42 1.3.3 Scope of Current Research Gaps in Promotional Research ................................................ 44 1.4 Mechanisms Underlying Promotional Purchasing ......................................................... 46 Heuristics .....................................................................................................................................
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