The boomerang effect of zero pricing: when and why a zero price is less effective than a low price for enhancing consumer demand

Abstract

AbstractPrior literature has demonstrated the power of zero pricing to boost consumer demand, but the current research shows a novel “boomerang effect”: a zero (vs. low, nonzero) price can lower demand when the offer comes with high incidental costs (e.g., the time cost in commuting to an offline class; the physical risk of getting a new vaccine). Five studies show that zero pricing, relative to low pricing, has a boosting (boomerang) effect on demand when incidental costs are low (high). The diverging effects of zero pricing on demand are explained by a dual-process model with a positive affective pathway and negative scrutiny pathway. Zero pricing triggers both positive affect and cognitive scrutiny of incidental costs; when incidental costs are high, the scrutiny pathway overrides the affective pathway and decreases demand. The finding has managerial implications as incidental costs often vary widely between marketing channels and over a product’s life cycle.