Would 'False' Promotions Be Profitable? Evidence from Experimental Data

• Activity Number: 604
• Type: Topic Contributed
• Date/Time: Thursday, August 4, 2011 : 8:30 AM to 10:20 AM
• Sponsor: Section on Statistics and Marketing
• Author(s): Yiting Deng*+
• Companies: Duke University
• Keywords: false promotion ; experimental study ; store ; choice ; profitability

Abstract

Retailers use various types of consumer promotions to attract customers to their stores. However, not all promotions are real. In this study, we examined the key factors that affect a store's decision of whether to apply real or false promotion from a profitability perspective. We first conducted two experimental studies. Each study is comprised of hypothetical online purchase occasions that involved both real promotions and false promotions. Empirical models built upon the two studies indicate that while the undetected false promotion can positively affect sales, the detected false promotion has negative effects on consumers' perception of the store and in turn lowers consumers' intention to purchase from the store. Moreover, such store perception can be carried over to affect subsequent purchases, and people are heterogeneous in their ability to identify stores' false promotions. Based on the empirical findings, we built an analytical model of duopoly firms to explain the prevalence of false promotion in practice.