The influence mechanism of free gift promotion on purchase intention of gifts: A moderated mediation model

Abstract

Previous research has examined the effects of free gift promotion on purchase intention of the main products, but its effects on purchase intention of products offered as gifts have been neglected. Based on the theory of transaction utility, this paper proposes a moderated mediation model, aiming to study the impact of free gift promotion on purchase intention of gifts and its internal mechanism. Two experiments are conducted to test the hypothesis. The results are presented as follows: Firstly, free gift promotion reduces purchase intention of gifts. Secondly, transaction utility of gifts has a complete mediating effect on the relationship between free gift promotion and purchase intention of gifts. Thirdly, brand value of main products moderates the negative impacts of free gift promotion on transaction utility of gift. Fourthly, brand value of main products also moderates the indirect impacts of free gift promotion on purchase intention of gifts via the mediating effect of transaction utility. This research not only enriches the literature of free gift promotion, but also provides managerial implications for marketing managers. Corresponding author: Wenguo Shen Email address for the corresponding author: Mnsshwg@mail.sysu.edu.cn First submission received: 25th February 2019 Revised submission received: 17th March 2019 Accepted: 9th April 2019 Acknowledgements The fund project, the National Natural Science Fund of China (#71772186) and the National Natural Science Fund of Guangdong Province of China (#2018A030313862) Introduction Free gift promotion is one of the main strategies for enterprises to lift sales of products. In cases of free gift promotion, the products given to consumers for free are called gifts, while the promoted ones are the main products. In order to improve the effects of free gift promotion, retailers are giving away branded products as gifts in free gift promotions. For example, consumers purchasing mobile phones on JD.com will get Yoobao power banks for free. Many manufacturers, in order to boost the overall sales of their products, are offering certain free products with purchase of other products many manufacturers, such as people who have bought Mi mobile phones will receive free Mi power banks. Previous studies have shown that, the more appealing gifts are to consumers, the more the free gift promotions will contribute to the rising sales of main products (Harlam and Lodish, 2012). However, it is unknown whether purchase intention of these gifts will change, when they are sold as independent products after the promotions. Plenty of studies have analyzed the impacts of free gift promotion on purchase intention of main products, brand switching, and sales in both the short and long run (Chandon, Wansink and Laurent, 2000; Gilbert and Jackaria, 2002). Few of them explored how free gift promotions may influence purchase intention of gifts. As more and more branded products are playing the role of gifts, it is worth to study how purchase intention of these products may be impacted by free gift promotions when they are sold separately. This paper will study the impact of free gift promotion on purchase intention of gifts and its internal mechanism, based on the theory of transaction utility, and the contributions to theoretical advances and management implications is also discussed. Journal of Business and Retail Management Research (JBRMR), Vol. 13 Issue 4 July 2019 www.jbrmr.com A Journal of the Academy of Business and Retail Management (ABRM) 234 Theoretical Background Transaction Utility Thaler (1985) puts forward the theory of transaction utility, postulating that in business transactions, the perceived utility of products can be divided into two types: acquisition utility and transaction utility. The former depends on the value of products received compared to their prices, while the latter depends solely on the perceived value of the deal per se, namely the difference between the selling price and the reference price expected by consumers. When consumers pay less than the reference price, the perceived financial savings would bring a sense of pleasure and satisfaction to consumers—this is how transaction utility works (Zhang and Xie, 2015). Thaler (1985) presents the theory with the following model: W (z, p, p*) = v (p, -p) + v (-p: -p*) In this equation, W (z, z, p*) is the total utility from a purchase of products. P is the selling price of product z,p is defined as the value equivalent of z, and p* stands for the expected price for z. In this way, v (p, -p) is the acquisition utility, namely the net utility that accrues from the trade of p to obtain z (which is valued at p); v (-p: -p*) is the transaction utility, which depends on the price an individual pays (p) compared to some reference price (p*) (Thaler, 1985). Thaler (1985) states that the transaction utility of a product can be either positive or negative. When the selling price is higher than the expected price, the transaction utility is negative; otherwise, it is positive. The reference price of a product perceived by consumers is how much they normally expect to pay for it (Zhang and Xie, 2015), and it may be impacted by various factors, such as previous purchase experience, previous prices of the product (Kalyanaram, 1994; 1995), the variety of the product, sales promotions (Folkes, 2013), selling price of alternative products (Kalyanaram, 1995), and price variation trend of the product (Kalwani, Morrison and Chi, 2014). Many researchers have studied the impacts of transaction utility on consumers’ purchase decisions. Based on the statistics from retail stores, Winer (2007) finds out that evaluation of the transaction utility of coffee may significantly influence their purchase intention and brand choices for coffee。Urbany (1988) hold that, if the perceived transaction utility of a product can be lifted, consumers will be more likely to buy it. Value-Discounting Hypothesis in Free Gift Promotion Prior literature has shown that, sales promotions may not only influence purchase decisions, but also prompt consumers to speculate on the motivation of enterprises; meanwhile, their conclusions will serve as an important aid in their future decisions (Inman, Mcalister and Hoyer, 1990). Raghubir (2004) discusses the impact of gift promotion on the perceived price of gifts when they are offered as stand-alone products and proposes the value-discounting hypothesis. He finds that, by virtue of being offered as free gifts, consumers are willing to pay lesser for these products. It is also found that this effect may be moderated by (a) whether the price information of gifts is present to consumers, and (b) the value of the promoted products. According to the study, the price information of gifts presented by enterprises is usually an aid for consumers to make judgments about the value of gifts. The presence of price information of gifts should undermine the value-discounting effect. Raghubir also points out that, without knowing the value of gifts, consumers tend to compute the value of gifts based on the value of main products and a certain range of expectations about discount rates (e.g. 20%–40%). They also believe that the main products with high value boast higher profit margins and are able to offer more costly gifts along with purchase. Hence, the value-discounting effect of gifts is weaker when they are offered along with purchase of higher-priced products as compared to lower-priced ones (Raghubir, 2004). Brand Value of Main Products Brand value is a core concept in brand management theories. Many scholars advocate viewing brand value from the perspective of consumers. In this sense, the value of a brand originates from consumer recognition for it, which depends on the impacts of previous brand marketing efforts on the psychology of consumers (Fan, 2000). Ke11er (1993) argues that brand value is established upon consumer perceptions of brand promotions, and these perceptions will give rise to the difference in their knowledge of various brands. Previous studies of free gift promotion have shown that the effect of free gift promotion on main products will be significantly moderated by their brand value (Mccarthy and Norris, 1999). Will Journal of Business and Retail Management Research (JBRMR), Vol. 13 Issue 4 July 2019 www.jbrmr.com A Journal of the Academy of Business and Retail Management (ABRM) 235 the impacts of free gift promotion on purchase intention of gifts be moderated by the brand value of main products? It will be explored in the paper. Hypotheses Free Gift Promotion and Transaction Utility As discussed before, free gift promotions will lower the expected price of gifts (Kamins, Folkes and Fedorikhin, 2009; Raghubir, 2004). According to the transaction utility theory, transaction utility is composed of the selling price and the expected price Thaler (1985). If the selling price of gifts remains the same, the transaction utility of gifts will decline. H1: Free gift promotions reduces the transaction utility of gifts. The Mediating Effect of Transaction Utility Winer (2007) revealed that, transaction utility significantly influences purchase intention. Free gift promotion reduces the transaction utility of gifts, which will further undermine purchase intention of gifts. Lai, Doong and Yang (2006) found that the transaction utility in the most-probable case being most strongly correlated with the intention to join group buying. Hence, this paper holds that free gift promotions will decrease purchase intention of gifts via the mediating effect of transaction utility. H2: Free gift promotions decreases purchase intention of gifts. H3: Transaction utility has a mediating effect between free gift promotions and purchase intention of gifts. The Moderating Effect of Brand Value of the Main products Brand value is a core element in the intangible assets of enterprises (Davcik, Vinhas and Hair, 2015). The higher the