Online retail is a highly competitive sector that pushes retailers to be innovative to stay ahead of competitors. Some current innovations include using bots for customer service, moving to an omnichannel model, loyalty programs, and novel promotion strategies. One such strategy is hidden price promotions, a practice where the discount or promotion is not mentioned when the customer encounters the product. It is revealed when the customer adds the product to the cart. However, since the effectiveness of this practice is unclear, a study attempts to answer the question: Do hidden price promotions increase or reduce consumer purchase intention?
Consumer purchase intention refers to the inclination or tendency of a consumer to buy a product. The study found that hidden promotions can have a positive influence on purchase intention because they appeal to emotions such as mystery, curiosity, and excitement. For example, a person looking to buy a bicycle online comes across a product that is on sale, but the discount amount is hidden. By adding the bicycle to their cart, the customer learns that the discount is, say, 15%. The fun and mystery involved in the process encourage the customer to add the product to the cart, and the discount encourages them to purchase it.
However, there is a risk attached to these promotions. Customers tend to have overly optimistic expectations of such promotions, so they expect large discounts. Only when the actual discount meets or exceeds the inflated discount expectation customers are likely to make a purchase. In the example above, for instance, if the discount is only 2%, and the customer hopes for a discount of at least 8%, they will probably not purchase the bicycle.
Interestingly, there is a difference in how hidden price promotions work for cognitive purchases. Cognitive purchases are purchases made on the basis of rational analysis of available information about products rather than feelings about them. Utilitarian products such as groceries, for example, are more cognitive in nature. For these purchases, even without a very large discount, hidden discounts have a positive effect on purchase intention as the decision to purchase is based on a rational analysis of the benefits of the discount. So, hidden promotions become as effective as traditional promotions for cognitive purchases.
This study has relevant insights for retailers considering the use of hidden price promotions. To use hidden price promotions effectively, retailers should manage customers’ discount expectations. They can do this by suggesting that the discount is within a specific range instead of keeping the discount a complete surprise.
Also, the level of discounts should depend on the overall pricing and discount strategy. If the retailer follows an everyday low-price strategy and rarely gives discounts, low hidden discounts will enhance purchase intention. If the retailer follows a high-low pricing strategy (price is high when the product is introduced, but is gradually lowered over time as demand decreases) and offers discounts frequently, high hidden discounts will enhance purchase intention, while low hidden discounts can backfire.
Finally, since hidden price promotions are most effective for cognitive purchases, retailers of utilitarian products like office supplies, groceries, or medicines can implement hidden price promotions without concern for adverse effects. On the other hand, retailers of products that appeal to emotions, such as holidays, high-end appliances, or jewellery, should avoid such promotions.