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Colin B. Gabler (Ph.D., University of Alabama), Assistant Professor of Marketing, College of Business, Ohio University, Athens,
OH, gabler@ohio.edu.
Kristy E. Reynolds (Ph.D., University of Alabama), Bruno Professor of Marketing, Culverhouse College of Commerce and Business
Administration, University of Alabama, Tuscaloosa, AL, kreynold@
cba.ua.edu.
Figure 1
Conceptual Model
CONCEPTUAL FRAMEWORK
Pricing, Discounts, and Expected-Utility Theory
The pricing literature demonstrates that when people expect
a price to rise, they buy now, and when they expect a price to
drop, they wait for the sale (Jacobson and Obermiller 1990).
But consumers view prices relative to what they paid in the
past and what they expect to pay in the future. In effect,
consumers create their own reference price or standard by
which they judge the price of an item (Monroe 1973), usu-
Figure 1
Conceptual Model
CONCEPTUAL FRAMEWORK
Pricing, Discounts, and Expected-Utility Theory
The pricing literature demonstrates that when people expect
a price to rise, they buy now, and when they expect a price to
drop, they wait for the sale (Jacobson and Obermiller 1990).
But consumers view prices relative to what they paid in the
past and what they expect to pay in the future. In effect,
consumers create their own reference price or standard by
which they judge the price of an item (Monroe 1973), usu-
consumption shows that people, in general, are forwardlooking (Hall 1978). Another reason for the theorys lack
of explanatory power is that money is not always the most
important outcome in consumer decisions (Bell 1982);
consider the people waiting in line for the newest release
at the Apple store. But the main reason that EUT does not
apply to many situations is that people do not always opt
to maximize their utility.
Numerous nonexpected-utility models have been developed to address this behavior. For instance, prospect theory
says that people tend to place more weight on outcomes
they consider to be certain than on those they consider to
be probable. Therefore, individuals will more often choose
a modest gain if it is a sure thing over some probability
of a larger gain. However, when forced to choose between
a certain modest loss and some probability of a larger loss,
individuals more often risk the larger loss (Kahneman and
Tversky 1979).
Suppose that Apple is selling iPads for $500 today and
$450 tomorrow. This pits the certainty of a modest gain
(full-price iPad) against the probability of a slightly larger
gain (discounted iPad). Given an infinite number of products, the rational individual would wait for the lower price,
as predicted by EUT. But what if there were 100 people who
wanted to buy 10 iPads? Then, an iPad is a scarce commodity, and the probability of obtaining one is 1 in 10, or
10percent. If there were 50 iPads, that probability would
increase to 50percent; however, if there was only one, it
would decrease to 1percent. Scarcity shares a theoretical
root with probability; the literature tells us that individuals
would perceive more value and desirability in the lone iPad
than 1 of the 10, and more in 1 of the 10 iPads than 1 of
the 50 (Cialdini 1993; Lynn 1989). Because people tend to
overweight outcomes based on their certainty (Kahneman
and Tversky 1979), and the probability of obtaining an item
changes with the probability, as scarcity increases, so does
purchase likelihood. Formally,
Hypothesis 1: Scarcity positively influences purchase.
But what if there is a limited number and an upcoming
discount? Prospect theory suggests that the overweighing
of certainty favors the risk averse in the domain of gains
and the risk seeking in the domain of losses (Kahneman and
Tversky 1979). Risk aversion is a personality trait that, like
scarcity and pricing discounts, influences the probability
that an individual will accept uncertainty over certainty
(Burton et al. 1998). In an experiment, individuals preferred
a definite one-week vacation to England to a 50 percent
chance of a three-week vacation to England, France, and
STUDY 1
Sample and Procedure
Based on a pretest, we developed manipulations for high
and low scarcity as well as the choice of product for the
main study. The sample consisted of 247 undergraduate
students at a large southeastern university. The students
completed the survey in class using paper and pencil. When
finished, they were given extra credit and debriefed about
the purpose of the study. Their average age was 21 with a
range from 18 to 35, with 45percent male and 55percent
Measures
Laurent and Kapferers (1985) three-item scale (=0.85)
was used to measure involvement with the product class and
Sweeney and Soutars (2001) five-item scale (=0.91) was
used to measure perceived emotional value. As discussed,
certain individuals are more prone to buy on impulse than
others. For that reason, Rook and Fishers (1995) modified
impulse buying scale ( = 0.91) was included as a covariate so that the emotional response of scarcity could be
isolated. Consumers also differ on their general aversion
to risk. Therefore, Burton et al.s (1998) four-item risk aversion scale (=0.76), which measures the degree to which
an individual avoids taking risks in life, was included as
a covariate. The survey also contained a manipulation
check for scarcity (The number of CDs at the flea market
is...) using a seven-point scale ranging from (1=low)
to (7=high). AppendixA contains the scenario and scale
items after purification. Purchase was measured as a binary
response variable (yes/no).
Control Variables
Risk Aversion
Impulse Buying
Independent Variable
Scarcity
Mediator Variable
Perceived Emotional Value
Adjusted R2 or Nagelkerke R2
F(df) or (df)
0.185
0.054
0.167**
Step 2: IV DV
S.E.
VIF
0.060*
0.055
1.000
1.000
0.135
1.000
0.054
5.668 (3, 242)**
0.060
0.115
0.898***
S.E.
Step 3: IV/Med DV
S.E.
0.122
0.113
0.030
0.094
0.131
0.117
0.273
0.771*
0.282
0.068
12.499 (2, 244)*
0.505***
0.141
0.141
26.804 (3, 243)***
Notes: IV = independent variable; Med = mediator variable; DV = dependent variable; VIF = variance inflation factor; S.E. = standard error; df=degrees
of freedom. Listwise n=247. Standardized betas are reported. * p < 0.05; ** p < 0.01; *** p < 0.001.
STUDY 2
Study 2 was conducted to assess how the relationships from
Study1 might change when the level of discount is also
manipulated. A more traditional retail setting (shopping
for jeans in a department store) was chosen to increase
generalizability.
Suppose that the iPad, originally priced at $500, sold
for $375 the next day. This pits the certainty of a modest
gain (just the iPad) against the probability of an even larger
gain (iPad+ 25percent discount). Finally, imagine that the
iPad sold for $250 the next day. This pits the certainty of
a modest gain (just the iPad) against the probability of a
much larger gain (iPad+ 50percent discount). Based on
weighted probabilities, the first prospect remains the same
while the second prospect gains value as the incentive, or
discount, increases (Kahneman and Tversky 1979). Consequently, the value of the first prospect decreases relative to
the second. At some threshold, the value added of prospect
two outweighs the certainty of prospect one.
Consumers use the level of perceived risk as a factor in
product decision making (Bettman 1973), and individuals
use availability to estimate that level of risk (Tversky and
Kahneman 1973). We predict that when there is a lot of the
product in stock and the manager puts that product on a
high future discount, the risk is low, and thus the incentive
to wait is large. If the discount was low, the possible savings
would not be worth the wait; if fewer products were available, the risk that they would be purchased would be high
(Folkes 1988). In both cases, the incentive to wait decreases.
Therefore, the most ideal time to wait for the sale is when the
scarcity is low and the future discount is high. Conversely,
the most ideal time for a consumer to buy the productor
when the incentive to wait is smallestis when the product
is scarce and the future discount is low. Formally:
Hypothesis 5: Those in the low-scarcity and high future
discount condition are least likely to purchase while those
in the high-scarcity and low future discount condition
are most likely to purchase.
As discussed, involvement is the importance of a decision based on an individuals specific needs, values, and
interest in that product (Zaichkowsky 1985). An unimportant purchase decision is then, by definition, uninvolving
(Richins and Bloch 1986). Scarcity implies a perceived risk,
which would heighten the relevance of that product to ones
values and interests (Bloch and Richins 1983). Similar to
Figure 2
Moderating Effect of Involvement for Study 1
Low Scarcity
High Scarcity
Measures
Laurent and Kapferers (1985) three-item scale (=0.91)
was again used to measure the involvement with the product
Model 2
Model 3
Variable
Coefficient
Wald
Coefficient
Wald
1/exp()
Constant
Impulse Buying
Scarcity
Discount
Scarcity Discount
Model c2 (df)
Block c2 (df)
Hosmer and Lemeshow
c2 (df)
Percent Correct
Predictions
Nagelkerke R2
0.439
0.290***
2.78
15.22
0.492
0.310***
0.289**
0.304*
3.39
16.66
7.47
5.63
1.36
1.34
0.74
16.01 (1)
9.78 (8)
63.6
0.05
Coefficient
Wald
3.57
16.94
7.29
5.46
0.64
29.21 (3)
13.13 (2)
5.70 (8)
0.507
0.314***
0.286**
0.300*
0.103
29.85 (4)
0.64 (1)
14.94 (8)
66.7
66.3
0.09
0.09
Notes: The Wald statistics are distributed chi-square with 1 degree of freedom. *p<0.05; **p<0.01; ***p<0.001.
block, which included the interaction term, was not significant and actually had less predictive power (66.3percent),
allowing interpretation of coefficients from model 2. To
achieve probabilities, we used the formula, P=1/exp(b),
where the expected beta is the effect of the independent
variable on the odds ratio. The resulting probability is
the change in likelihood that an individual will purchase
given an increase in that variable. As seen in Table2, those
in the high scarcity condition were 1.36 times more likely
to buy than those in the low-scarcity condition (p<0.01),
which replicates H1 from Study1. Those in the high future
discount condition were 0.74 times less likely to buy than
those in the moderate future discount condition, who were
0.74 times less likely to buy than those in the low future
discount condition (p<0.01).
We used a difference of proportions test to analyze H5.
Each of the six conditions produced a proportion of those
who chose to buy the jeans. Comparing this proportion to
the overall proportion determined if there was a significant
difference in any one condition. The low-scarcityhigh
future discount condition yielded the lowest purchase
probability (48.5percent), which represents a significant
difference (p<0.05) from the average of 62.6percent. The
high-scarcitymoderate future discount condition yielded a
slightly larger purchase probability (72.4percent) than the
high-scarcitylow future discount condition (71.2percent).
Because these two percentages are not significantly different
from one another and the high-scarcitylow future discount
is significantly different from the low-scarcityhigh future
GENERAL DISCUSSION
Theoretical Implications
While demographics and personal characteristics certainly
influence purchase behavior in a retail setting, this research
asserts that the purchase scenario itself can have a major
impact on the decision. Mazumdar, Raj, and Sinha (2005)
suggest that context plays an important role in the purchase
process, and discount and scarcity certainly fall into that
category. Auction research has examined scarcity and future
price increases (Campbell 1999), but in this research we set
out to investigate the counteracting effect of scarcity and
a future price discount in the same scenario.
Theoretically, we demonstrate another instance in which
EUT fails to predict choice behavior. We find that prospect
theory better explains the way consumers react to the
Table 3
Proportion of Subjects Who Chose to
Purchase for Study 2
Scarcity
Discount
Low
(Percent)
High
(Percent)
Total
(Percent)
Low
Moderate
High
Total
66.2
56.5
48.5+
57.2
71.2**
72.4**
60.3
67.9
68.8
64.5
54.6
62.6
Managerial Implications
Promotional discounts are effective because most consumers want to purchase products at the lowest price possible.
However, firms generally want to sell products at the highest price possible and as soon as possible. Our study shows
that by framing the purchase scenario with the dual aspects
of scarcity and future discount, consumers will generally
forsake small discounts to avoid missing the opportunity
to purchase the product. This means that firms can either
manipulate their inventory, their pricing schedule, or both,
in order to maximize profitability. Suppose a retailer has a
large stock of a product it needs to sell to make room for
incoming merchandise. When creating the pricing structure
for this item, our results suggest that the retailer will sell
more of that product at full price by advertising a low future
discount on the product. However, if that product is scarce,
a larger discount will yield a higher full-price purchase
rate, and therefore maximize profit margin on the product.
Furthermore, because individuals attach emotional value
to scarce products, managers can use this knowledge to lay
out the message in the most emotion-provoking way.
Model 2
Coefficient
Wald
Coefficient
Wald
1/exp()
0.407
0.228*
1.43
5.11
0.532
0.274**
0.445**
0.214
2.28
6.82
9.45
1.47
1.31
1.56
5.26 (1)
16.72 (3)
11.46 (2)
8.12 (8)
64.8
0.10
7.29 (8)
58.9
0.03
Notes: The Wald statistics are distributed chi-square with 1 degree of freedom. *p<0.05; **p<0.01; ***p<0.001.
Table 5
Logistic Regression Results for High Involvement for Study 2
Dependent Variable: Purchase
Model 1
Variable
Constant
Impulse Buying
Scarcity
Discount
Scarcity Discount
Model c2 (df)
Block c2 (df)
Hosmer and Lemeshow c2 (df)
Percent Correct Predictions
Nagelkerke R2
Model 2
Coefficient
Wald
Coefficient
Wald
0.352
0.320*
0.683
7.78
0.233
0.300**
0.081
0.194*
0.286
6.63
0.26
5.09
8.35 (1)
4.59 (8)
62.7
0.06
1/exp()
1.35
0.65
13.76 (3)
5.41 (2)
4.23 (8)
67.8
0.10
Notes: The Wald statistics are distributed chi-square with 1 degree of freedom. *p<0.05; **p<0.01; ***p<0.001.
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Appendix A
Scenario and Items for Study 1
A lot of people have a favorite musical band or artist. Think about your favorite band or artist and write it here
__________________.
About how much would you be willing to spend for a live CD of this band or artists first-ever performance? Please
write the amount here __________________.
Now imagine that this Saturday morning you go your local flea market and find that CD [three of them in fact] except
it is priced $5 higher than what you wrote above. You know that the flea market has a policy of selling any unsold items
at half off the following Saturday, but you have no idea if [any of] the CD[s] will still be there next week. You cannot hide
a CD, place one on hold, or do anything of that nature. Would you purchase a CD that day or come back the following
Saturday with the hope that at least one was left and you could buy it for half off?
Table A1
Scale Items with Factor Loadings and Reliabilities for Study 1
0.85
0.91
0.88
0.85
0.91
0.85
0.86
0.89
0.90
0.81
0.76
0.74
0.82
0.85
0.60
0.91
0.80
0.85
0.86
0.86
0.80
0.67
0.72
0.56
0.72
Appendix B
Scenario and Items for Study 2
Imagine that you need a new pair of jeans, and that this Saturday you go to the mall in search of a pair. A lot of people
have a favorite or go-to brand when it comes to jeans. Think about your favorite brand or a brand you like and write
it here________________________.
Imagine that the brand you wrote above sells one pair of jeans that has the exact style, fit, color, etc., that you are
looking for. About how much would you be willing to spend for a pair of these jeans? Please write the amount
here________________________. (If you cannot think of a specific brand, write how much youd pay for a really nice pair
of jeans with the exact style, fit, color, etc. you like)
Now imagine that you enter a store that is running a promotion on the brand of jeans that you wrote above. You soon
find a table display with 10 [2] pairs of the exact style, fit, color, etc., that you are looking for in your size. Above the table
hangs a sign that reads, All jeans 50% off [25% off, 10% off] next Saturday. Keeping in mind that this pair of jeans will
not be available in other stores or online, you begin to debate purchasing the jeans today or coming back next Saturday for
the discount.
Table B1
Scale Items with Factor Loadings and Reliabilities for Study 2
0.91
0.85
0.85
0.82
0.94
0.79
0.86
0.85
0.86
0.83
0.80
0.82
0.78