The effect of brand loyalty and loss aversion on competitive trade-in strategies

Qin Zhou, Kum Fai Yuen, Yusen Ye*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Citations (Scopus)

Abstract

Trade-in promotions allow consumers to turn in old products and receive a discount for purchasing a new item. Firms usually price discriminate consumers based on their purchase history (i.e. new or existing customers). However, behavioural research has shown that consumers exhibit loss aversion and brand loyalty after consuming a product that may influence economic outcomes. This paper examines the impact of consumers’ loss aversion and brand loyalty behaviour on firms’ trade-in promotion pricing strategy, profits, consumer surplus, and social welfare. Contrary to prior game theory research that generally shows that price discrimination based on purchase histories eventually results in lower profits for all firms, we find that firms’ profits from conducting price discrimination can increase with consumers’ loss aversion behaviour. We consider two scenarios where firms recognise and do not recognise consumers’ loss aversion and brand loyalty behaviour. We find that the profit with behaviour recognition is higher than that without behaviour recognition under the condition that consumers’ loss aversion concerns are sufficiently strong. However, both loss aversion and brand loyalty decrease consumer surplus. Besides, consumers’ loss aversion and brand loyalty behaviour can increase social welfare because they can reduce inefficient switching.

Original languageEnglish
Pages (from-to)1084-1112
Number of pages29
JournalTotal Quality Management and Business Excellence
Volume33
Issue number9-10
DOIs
Publication statusPublished - 2022
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2021 Informa UK Limited, trading as Taylor & Francis Group.

ASJC Scopus Subject Areas

  • General Business,Management and Accounting

Keywords

  • brand loyalty
  • dynamic pricing
  • loss aversion
  • price discrimination
  • trade-in promotions

Fingerprint

Dive into the research topics of 'The effect of brand loyalty and loss aversion on competitive trade-in strategies'. Together they form a unique fingerprint.

Cite this