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Differentiated effects of loss aversion
Source publication
This research aims to determine different levels of loss aversion in the context of price responsiveness and service bundling. Considering that nonlinearities in price responses may exist in a bundling strategy, this research tests the existence of different degrees of loss aversion, depending on whether an individual books one service independentl...
Contexts in source publication
Context 1
... case is in line with the better deal and time-efficiency that derive from the one-click effect proposed earlier, through which individuals could be more willing to accept a price which is higher than their expectations. Figure 1 depicts both effects and shows that the difference between the loss aversion existing in both types of reservations increases as the actual price moves further away from the reference point. ...
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Citations
... Consumer psychology is often more complex when they buy bundled products than a single product. Due to the influence of strategy, consumers' reaction to price is a nonlinear relationship [13,15]. Based on previous studies, they found that consumer repurchase is positively correlated with satisfaction and fewer complaints. ...
... Similarly, Nicolau and Sellers tested the loss of individual products and the single product included in a bundling product. They propose a one-button effect, using empirical analysis and logit models, and show that purchasing personal products is more loss averse than bundled products [15]. It can be seen that bundle pricing determines consumers' willingness to accept and even purchase. ...
With the informatization of versatile platforms, e-commerce has become the most popular promotional channel. As the key element of the marketing mix, price strategy plays an almost decisive role in a consumers willingness to pay and consumer satisfaction. Thus, this study will explore the impact of bundling strategy on consumer psychology in big data e-commerce. The result shows that the bundling strategy can take advantage of big data to maximize product value perception and consumer satisfaction. Through the previous literature, the article finds many complex psychological aspects of consumers in bundle pricing under big data e-commerce. However, there are few studies on the specific elements and degree of impact on consumer psychology. Therefore, future studies can focus on using qualitative analysis to explore the influence of bundling strategy on consumer psychology in big data E-commerce and focus on one of the e-commerce platforms.
... Concerning loss aversion, high cultural interest in a destination (Nicolau, 2011a), booking tourism packages through an intermediary (Nicolau, 2013), and bundling purchases (Nicolau & Sellers, 2020) has been shown to mitigate the negative effect of being in a loss domain with an actual price higher than the reference price, with age, household size, and marital status also affecting the degree of loss aversion when choosing a destination (Nicolau, 2012a). Fundamentally, Tang et al. (2016) asserted that the summed anticipatory affect intensity (i.e., an additive logic) better explains the formation of loss aversion than the offset of positive emotions by greater negative emotions (i.e., a subtractive logic). ...
Prospect theory has been an essential theoretical foundation for behavioral economics, as recognized with the Nobel Prize in economic sciences in 2002. The growing interest in behavioral economics among tourism researchers necessitates a systematic assessment of prospect theory and its application in tourism research to critically examine the current status of tourism decision-making studies. This study therefore clarifies the theoretical background of prospect theory and analyzes 93 published studies to examine how prospect theory has performed in explaining tourism decision-making. The study also evaluates the application of prospect theory in tourism research and provides future research directions with respect to under-researched dimensions, reference points, dynamic decision-making processes, and the logical continuity and systemization of prospect theory.
... Research has compared the effectiveness of add-on and bundling frames based on the combination of core and add-on/bundle product types in air travel booking (Song et al., 2021). However, most hospitality research on cross-selling centers around pricing bundling (e.g., Nicolau et al., 2020;Tanford et al., 2011). Hence, understanding how and when consumers make subsequent unplanned purchases is necessary to determine an effective add-on item sales strategy. ...
Purpose
Cross-selling becomes critical for business success as pent-up travel demand drives travelers to spend more on vacations. The primary purpose of this research is to identify if an unexpected discount leads to consumers' additional purchases online. This research proposes effective cross-selling strategies across hospitality sectors.
Design/methodology/approach
Two experiments were conducted to investigate factors that influence travelers' add-on spending. Study 1 determined the psychological mechanism of unexpected discounts on hotel customers' additional spending by individual thinking styles. A 2 (discount: none vs surprise) x 2 (thinking style: holistic vs analytic) quasi-experimental design was utilized. Study 2 applied the identified pricing strategy by individual thinking styles to cruise line add-on selling. A 2 (discount: none vs surprise) x 2 (product type: hedonic vs utilitarian) x 2 thinking style (holistic vs analytic) quasi-experiment was used.
Findings
The findings indicate that an unexpected discount increases holistic thinkers' overall travel spending, regardless of add-on types. Although the unexpected discount effect on analytic thinkers' overall spending was significant, an unexpected discount enhanced their intentions to purchase a hedonic add-on.
Practical implications
Hospitality operators can improve cross-selling strategies with a surprise discount offer. Offering add-on items in the same transaction with a cabin booking will increase add-on purchases. Hotels can make add-on purchases more appealing by emphasizing the experiential aspects of a hotel stay.
Originality/value
This research broadens knowledge of cross-selling by linking add-on purchases to discount pricing on a primary product. The findings provide new strategies to stimulate add-on purchases and maximize profitability.
... Considering that risk is an inherent component of the tourism experiences (Holm, Lugosi, Croes, and Torres 2017), a body of tourism research tested loss aversion and diminishing sensitivity in the context of tourist destination choice behaviours (e.g., Lee and Choi 2020;Nguyen 2016;Nicolau 2011aNicolau , 2011bNicolau , 2012Oh 2003;Olya and Han 2020;Sönmez and Graefe 1998;Zou and Petrick 2020). However, only limited research examines loss aversion and diminishing sensitivity in the context of the airline industry (Nicolau 2011a;Nicolau and Sellers 2020). Since most research, investigates these phenomena of consumer behaviour in experimental settings or via self-administered surveys, it remains questionable if it retains its accuracy in real-world settings (Barberis 2013). ...
... For example, Nicolau (2011b) incorporated tourist characteristics in relation to loss-averse consumer behaviour in destination choice and found that people with higher levels of cultural interest in destinations are less loss-averse. Most recently, an empirical examination (Nicolau and Sellers 2020) showed that travellers exhibit different levels of loss-averse tendency depending on tourism product characteristics (i.e., independent flight tickets versus tickets being a part of bundles). ...
... In order to incorporate reference dependence so that loss aversion can be tested, we built the gain and loss variables described earlier by using the airfare for each flight operating on the selected routes and the expected airfare measured by the mean airfare (Nicolau and Sellers 2020). Key to any analysis of reference dependence is the identification of an accurate reference point which is, the expected airfare in our case. ...
While most businesses actively adopt a data-driven approach for revenue management decisions, understanding how air travelers perceive and behave differently to pricing strategies is essential for yielding optimal financial outcomes. This study analyzes the loss aversion and diminishing sensitivity mechanisms of prospect theory in economy and business cabin classes. With rich longitudinal airfares, regression models and revenue data (15,868 observations from the top-10 aviation routes in the world) from 2014 to 2019, this study finds that lower-(higher-)than-expected airfares have a positive (negative) impact on revenue. When the effect of loss-coded and gain-coded tickets were compared, the extent to which passengers avoided losses (vs. welcomed gains) had a greater impact on revenue, supporting that loss aversion applies to the airline revenue, especially for business passengers. This study contributes to the further refinement of prospect theory by showing that the loss aversion and diminishing sensitivity mechanisms manifest differently in each cabin class.
... Also, people with different demographic traits can react in varied ways in their consideration of online information and reviews towards their final purchasing decisions. Moreover, some studies have revealed how risk-taking and risk aversion impact consumer purchasing decisions and how people with different attributes react differently towards taking more or less risk (Nicolau and Sellers, 2019;Reniers et al., 2016;Rundmo and Nordfjaern, 2017;Sohaib et al., 2018). The following applied factors will be further elaborated in this study: information dimensions and information adoption, risk and risk-taking and demographic traits. ...
... In other words, the rage that people feel when losing a $100 bill is greater than the pleasure of finding a $100 bill; although the amount is the same in both situations, the negative outcome is greater than the positive feeling. The importance of loss aversion will be increased when the outcome will create long-term consequences (Nicolau and Sellers, 2019). ...
... According to the importance of a particular product or service, people tend to respond differently based on their personalities to risk-taking and risk aversion while making a buying decision. Literature review and previous studies such as Filippin and Crosetto (2016), Nicolau and Sellers (2019) and Sohaib et al. (2018) unveiled that risk-taking and risk aversion can impact on consumer purchasing decisions and people's response in different ways towards selecting a product/service based on their perceived risk, demographic traits, importance of product/service regarding short-term or long-term consequences, and so on. ...
... Also, people with different demographic traits can react in varied ways in their consideration of online information and reviews towards their final purchasing decisions. Moreover, some studies have revealed how risk-taking and risk aversion impact consumer purchasing decisions and how people with different attributes react differently towards taking more or less risk (Nicolau and Sellers, 2019;Reniers et al., 2016;Rundmo and Nordfjaern, 2017;Sohaib et al., 2018). The following applied factors will be further elaborated in this study: information dimensions and information adoption, risk and risk-taking and demographic traits. ...
... In other words, the rage that people feel when losing a $100 bill is greater than the pleasure of finding a $100 bill; although the amount is the same in both situations, the negative outcome is greater than the positive feeling. The importance of loss aversion will be increased when the outcome will create long-term consequences (Nicolau and Sellers, 2019). ...
... According to the importance of a particular product or service, people tend to respond differently based on their personalities to risk-taking and risk aversion while making a buying decision. Literature review and previous studies such as Filippin and Crosetto (2016), Nicolau and Sellers (2019) and Sohaib et al. (2018) unveiled that risk-taking and risk aversion can impact on consumer purchasing decisions and people's response in different ways towards selecting a product/service based on their perceived risk, demographic traits, importance of product/service regarding short-term or long-term consequences, and so on. ...
Purpose
The purpose of this study is to examine consumer behaviors toward a bundle of tickets and lodging using two different message framing: (1) scarcity framing for a high demand event, the All-Star Game, and (2) discount framing for a lower demand event, an MLB mid-week game.
Design/methodology/approach
Data were collected through two online surveys of 836 sport consumers in total on Amazon Mechanical Turk (MTurk) and were analyzed using a mix of analysis of variances (ANOVAs) and analysis of covariance (ANCOVA).
Findings
Consumers are likely to buy products separately in a scarce situation. When discounts are offered as benefits of choosing a bundle, consumers with high willingness to pay (WTP) have higher purchase intentions (PI) and perceived value toward cumulative discounts.
Originality/value
This is the one of few studies that investigate (1) price bundling of products from two disparate industries where consumer demands fluctuate, (2) the effects of scarcity in a bundle, and (3) all possible discount messaging in a bundle.
