Promotional games at retail stores increase consumer spending
Shoppers who win retail discounts through scratch-off tickets or other games of chance are more likely to make a purchase, and spend more money, than customers offered standard discounts that apply to everyone, according to a new study led by the University of Connecticut.
Games of chance are potential goldmines for both brick-and-mortar stores and online retailers, said Stefan J. Hock, UConn assistant professor of marketing and the lead author of the study in the Journal of Consumer Research.
"Winning a discount affects perceptions of luck, which leads to positive store attitude, which, in turn, increases shoppers' likelihood of making a purchase and their overall spending," said Hock.
Surprisingly, even when the discount won from a promotional game is smaller than a traditional discount—say only 10% versus 20%—researchers still saw the same phenomenon.
Hock, together with professors Rajesh Bagchi of Virginia Tech University and Thomas M. Anderson of the University of Colorado, compared won discounts with straight discounts in terms of conversion rates (the likelihood of making a purchase) and overall spending, across seven studies in 2017 and 2018.
The largest study looked at the behavior of 1,073 customers of a mid-sized, U.S.-based e-commerce company that specializes in interactive video tutorial. All others examined the behavior of college students and ranged in size from about 200 to 500.
The researchers found that discounts obtained from promotional games always generated greater likelihood of purchase and overall spending, ranging from a 42% to 213% increase.
Of note, shoppers who believe in luck got a confidence boost from doing well in a game of chance and this 'lucky day' phenomenon seemed to give them greater buying confidence. That was particularly true when the shopper was looking for a self-indulgent item, versus a necessity.
The pleasure derived from scoring a discount at a retailer seems to have a lingering impact, with the shopper developing a good association with the retailer. In one study, Hock and his colleagues found shoppers said they would be willing to go farther to buy an identical item (in this case a candle) from the store that had offered the promotion, rather than selecting a closer competitor.
Retailers Should Use Games Strategically
In the U.S., discounts and promotions account for more than 25% of total sales of consumer goods.
But some large companies, including Forever 21 and J. Crew, frequently employ games of chance, with customers taking part in a game with uncertain outcome. In fact, it was a scratch card presented to Hock at a prominent clothing store that triggered his interest in the study.
The increase in sales was driven by more consumers buying rather than a smaller group of consumers each buying more. Because games of chance increase the likelihood that customers will buy, stores benefit from a larger customer base, which grows the retailers' long-term profitability.
"What we've learned is that this type of promotion can be cost effective for the merchant if the 'chance' discount is the same or even less as what a retailer would offer for a straight discount,'' Hock said.
Managers can use these games strategically as a cost-efficient way to enhance store loyalty and build brand equity. However, Hock cautioned, the tactic can be overused.
"My word of caution, though, is that it should be used sporadically. If I 'win' a discount every time I shop, there's no perception of luck or chance," Hock said. "Since many brick-and-mortar stores are struggling, this may be a small piece of the puzzle that helps them generate higher sales."