Precise versus imprecise promotional rewards at small probabilities:: Moderating from purchase value and promotion budget

This paper aims to try to investigate how consumers respond to precise versus imprecise promotional rewards at varied probabilities, including small ones and whether the effect is contingent on purchase value and promotion budget.

Based on reviewing the literature on the ambiguity effect, the certainty effect and small probabilities, the hypotheses are tested by three experimental studies.

The experiments show that at a small winning probability, promotion with imprecise reward is more attractive than with precise reward. For high value purchases, a small‐probability promotion with imprecise reward performs better than an equally costly 100 percent‐probability promotion with precise reward. However, the difference is shortened for low value purchases. Furthermore, as the promotion budget increases, the ambiguity effect becomes stronger. As a result, the small‐probability promotion with imprecise reward is preferred to the 100 percent‐probability promotion with precise reward at both low and high budget levels.

The present study provides a starting‐point for further research on how to design an effective marketing promotion program with precise or imprecise promotional rewards at varied probabilities.

This research extends previous research on tensile versus precise prices to the region of very low or small probabilities, enriches the literature on “overweighting of small probabilities,” and also significantly enriches the existing theories on decision making under ambiguity.