The effect of price promotions on customer utilisation in retail banking

Abstract

The aim of this research study is to determine the effect of price promotions on customer channel utilisation in retail banking and how different types of message framing improve the effectiveness of price promotions. The goals of this research are to: 1) provide additional empirical evidence of whether the prospect theory’s loss aversion is applicable in price promotions; 2) to identify the most effective message framing/s in price promotions. Price promotions have been identified as the most effective mean of increasing sales and utilisation by retailers. It is well accepted that price promotions increase in effectiveness when coupled with the appropriate type of message framing. This research confirmed the effect of price promotions to be true and applicable in the retail banking industry. It showed that different types of message framing can improve the results of price promotions. An experiment was conducted with four groups to test the main effects of the different types of message framing. The results of the study confirmed the first research hypothesis, demonstrating that price promotions have a significant effect on the customer channel utilisation mean. A significant increase in mean customer channel utilisation was observed for both the positive goal-framed price promotion and the risky choice framed price promotion (where promotion benefits are static and known upfront by all customers). The original ‘loss aversion’ premise of prospect theory (which postulates that customers are more prone to take up negative-framed promotions than positiveframed promotions) was refuted by the results. The implications of the study for retail bank executives and marketing managers are discussed in the final chapter. Recommendations are provided for the bank executives and marketing managers. Recommendations are also provided for how to carry out future research.