Clawing Your Way Back from a Discount

Retailers typically follow one of two approaches on price promotions: They’ll discount that PDA to $349 for awhile and then bump it all the way back up to its regular price of $499, or they’ll tout their “everyday low prices” and leave it at $449 indefinitely. But a third tactic beats both, new research indicates.

A store can generate more revenue after a $349 promotion by raising the price in several intermediate steps before returning it to its original level, argue Michael Tsiros of the University of Miami and ALBA Graduate Business School and David M. Hardesty of the University of Kentucky in the Journal of Marketing. Here’s why the tactic works: It raises the expected future price in consumers’ minds and increases shoppers’ anticipation of what’s known as “inaction regret.”

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