Purpose Discounts may erode consumers’ internal reference prices, thereby undermining the attractiveness of products at their original prices. This paper aims to propose a viable solution by highlighting the benefits of conditional discounts – specifically those designed for customers with a history of patronage. Design/methodology/approach They conducted three experiments, reported in the main text and two supplementary experiments, detailed in the Web Appendix. These studies empirically examine the differential effects of discount types (i.e. conditional vs unconditional), explore the underlying psychological mechanisms and assess the moderating roles of condition type and product category. Findings The findings reveal that conditional discounts, compared to unconditional discounts, lead to higher internal reference prices. This effect occurs by reducing the perceived typicality of the sale price and enhancing the perceived credibility of the original price. However, the positive impact of conditional discounts on internal reference pricing diminishes when the discount amount is based on a customer’s time investment rather than monetary spending or when applied to search goods rather than experience goods. Research limitations/implications Future research could explore alternative formats of conditional discounts, investigate additional downstream effects and product-category moderators, and use field experiments to validate these findings in real-world settings. Practical implications Marketing practitioners can leverage conditional discounts to mitigate the adverse effects of price discounts, particularly for firms offering monetary conditional discounts and selling experience goods. Originality/value This paper demonstrates how conditional discounts influence internal reference prices and identifies key moderating factors that shape their effectiveness.
Peng et al. (Wed,) studied this question.