[Marketing] Xing Zhang - Menu-Induced Preference Cannibalization: A Field Study on Designing Probabilistic Price Promotions

Abstract<br /> <br /> An increasing number of companies adopt probabilistic price promotions, where consumer benefits depend on<br /> chance. Given that consumers vary in their risk preferences, should firms offer both fixed and probabilistic<br /> promotions in a menu to enhance self-selection, or stick with a single promotion type? This research examines<br /> how promotion menus affect purchase and post-purchase consumption. Across two field experiments and one<br /> preregistered online study, we find that offering a promotion menu reduces consumers&rsquo; purchase incidence<br /> compared to a single promotion scheme. However, conditional on purchase, consumers selecting from the menu<br /> demonstrate greater post-purchase consumption, indicating a stronger sunk cost effect. These findings indicate a<br /> preference cannibalization effect, where the perceived value of each option is reduced by the presence of<br /> alternative options. The results shed light on the design of price promotion strategies: while menus can reduce<br /> initial purchase incidence, they are less likely to diminish post-purchase engagement.

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[Marketing] Zhang Xing - Sunk Cost Effect, Self-control, and Contract Design

SKK GSB Professor Xing Zhang, with co-authors from China, Singapore, and the US, has published a paper titled &ldquo;Sunk Cost Effect, Self-control, and Contract Design,&rdquo; in the Journal of Marketing Research, a premier marketing journal<br /> <br /> <br /> <br /> Abstract&nbsp;<br /> <br /> Consumers often fall prey to the sunk cost fallacy, a canonical mistake &nbsp;in decision-making, when decisions are influenced by an irreversible (sunk) cost that has already been incurred. Prof.Zhang&#39;s paper uses the game theory to analyze the role of the sunk cost effect as a self-commitment device in counteracting self-control problems. Companies can leverage the sunk cost fallacy when designing pricing contracts: the upfront payment, often seen as a sunk cost, can serve as a powerful commitment device for consumers increasing their future engagement with service and maximizing companies&#39; profits.

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