Non-Integrated Price Promotions Increase Consumer Premium  Product Choices

How Non-Integrated Promotions Drive Premium Product Choices

When designing a promotional strategy, businesses often focus on the size of the discount or the percentage-off figure. However, recent research by Jia et al. highlights an underexplored factor that can have a profound impact on consumer behavior: the format of the promotion itself. Specifically, non-integrated price reductions, such as discounts delivered via coupons, can be far more effective than traditional integrated discounts at encouraging customers to choose higher-priced, premium products.

Integrated vs. Non-Integrated Promotions

Promotions typically fall into one of two categories:

• Integrated promotions, where the discount is included directly on the price tag and the final, reduced price is displayed alongside the original price.
• Non-integrated promotions, where the discount is delivered separately, often through a coupon or promotional code, requiring the customer to calculate the final price themselves.

At first glance, these formats might seem functionally equivalent. After all, a $10 discount on a product remains $10 regardless of how it is presented. However, this research reveals that the psychological impact of these two approaches is remarkably different. Non-integrated promotions, in particular, exploit a cognitive quirk that can subtly alter how consumers perceive price differences.

The Psychology of Price Perception

The study introduces a fascinating concept known as final price neglect, which explains why non-integrated promotions often outperform integrated ones in boosting consumer choice for premium products. When customers encounter non-integrated discounts, they are less likely to engage in the mental arithmetic required to calculate the final price of a product. Instead, they rely on the more readily available original price as their point of comparison. This cognitive shortcut leads them to underestimate the true difference in price between higher-priced and lower-priced options.

Consider the following example using prices of two vertically differentiated products A and B. Under integrated price promotions consumers contrast and compare the price difference between A and B  by comparing the Price Difference to the Final Price making Product B 60% more expensive (15/25). In contrast, under non-integrated price promotions consumers contrast and compare the price difference between An and B by comparing the Price Difference to the List Price making product B only 43% more expensive (15/35). This psychological effect, known as final price neglect, makes the gap between premium and lower-priced items seem smaller, nudging shoppers toward the higher-value choice.

Key Findings from the Research

Across seven experiments conducted in both real-world and controlled settings involving over 2,000 participants, the research demonstrates that non-integrated promotions—such as coupons—are significantly more effective than integrated promotions at increasing purchase choice of higher-priced items. The authors of the study confirmed the final price neglect by comparing the non-integration price promotion to an integrated price promotion and no-promotion at all using two products (see visual). The results clearly show an increase in the purchase incidence for higher priced products.

To test the robustness of the final price neglect effect, the authors tested if the effect remained (i) when the product comparison expanded from two to three products, (ii) if the final price is removed from the integrated price promotion and (iii) if the non-integrated price promotion is applied to a single product. The results showed that the price neglect phenomena was observed when test subjects were asked to choose between three products as well, however was weakened when the final price was removed from the integrated price and or when it was applied to a single product.

Practical Implications for Businesses

For marketers and business leaders, the implications of this research are clear: the way you present your promotions can be just as important as the discount itself. Non-integrated promotions can be a powerful tool for shifting demand toward higher-margin, premium products. If your goal is to promote multiple products at different price points, such as a basic and a premium option, non-integrated discounts are likely to yield better results by narrowing the perceived price difference between low- and high-priced products. On the other hand, integrated promotions remain effective for single-product discounts, where simplicity and transparency are key.

Furthermore, this research underscores the importance of numerical cognition in purchase decisions. By accounting for cognitive biases like final price neglect, businesses (retailers and CPG-companies) can design price promotions that support company growth objectives, ultimately driving greater revenue and profitability.

Together, we will achieve extraordinary outcomes.