The anticipated regret of a lost opportunity: When adding a second-period incentive reduces the appeal of a one-period promotion

Abstract

Economic theory assumes that an improvement in the financial benefit of a promotional offer should increase the appeal of the offer (e.g., $25 incentive >$20 incentive). Four studies show that this assumption does not always hold. A two-period promotion (e.g., $20 off a purchase today plus $5 off a purchase made next month) is valued less than a one-period promotion (e.g., $20 off a purchase today), with an identical first-period incentive, when the second-period incentive has a limited benefit relative to the first-period incentive. Second-period incentives negatively impact the perceived value of a two-period promotion when consumers anticipate a low likelihood of redeeming the second-period incentive. The negative impact of the second-period incentive can be remedied by making the second-period incentive financially larger or by reducing the perceived restrictiveness of redeeming the second-period incentive.