The underlying thesis of this paper is that consumers will infer that the costs of production of a product that is offered free are low, and this will reduce the price they are willing to pay for the product when it is a stand‐alone offering.
Two laboratory experiments examine how consumers respond to products that have been offered as “free gifts with purchase” of another product.
Study 1 shows, that when an economically identical offer is framed as a joint bundle (Buy X and Y for $), compared with when it is framed as a “Buy one, get one free” offer, consumers are willing to pay less for the product offered “free.” Study 2 shows that, when a product is given away “free,” then consumers are willing to pay less for it as a stand‐alone product, especially when the original promotional offer does not include the price of the free gift.
Results imply that the design and communication of consumer promotions affect the price consumers are willing to pay for a product.
Managerial implications for the design and communication of consumer promotions are discussed.
The paper adds to the growing body of research that shows that a price promotion has more than just an economic effect; it also has an informational effect through which it affects consumer responses.
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