Ending a Price Promotion: Retracting It in One Step or Phasing It Out Gradually

Using the literature on both pricing and regret, the authors develop a conceptual model of purchase likelihood and propose a pricing tactic that appears to have marketplace potential. Sellers currently using a hi-lo pricing tactic discount a product for a limited time and then raise the price back to its original level in one step. Here, the authors investigate whether sellers should return prices to their prepromotion levels all at once or in steps. They propose that sellers should consider an alternative tactic, labeled "steadily decreasing discounting" (SDD). This alternative tactic requires that the seller offer one or more additional discounts that are less than the prior discount before returning the product to its original price. Study 1 is a laboratory experiment that tests the proposed underlying mechanisms (future price expectations and anticipated inaction regret) influencing likelihood to buy. In Study 2, an additional laboratory experiment is undertaken to provide further empirical support in favor of the SDD tactic, to address alternative explanations for the findings, and to demonstrate that there are no negative perceptions associated with using SDD. Study 3 is a field experiment that assesses the effectiveness of SDD, and Study 4 examines scanner panel data to evaluate its generalizability.