An Alternative Explanation for Lower Repeat Rates after Promotion Purchases

Abstract

Several authors have observed that average repeat rates are lower after a promotion purchase. One interpretation of this result is that a media-coupon or cents-off promotion undermines the consumer's repeat purchase rate. The authors describe an alternative explanation. The explanation is that the promotion temporarily attracts a disproportionate number of households with low purchase probabilities. When the repeat rates of these households are averaged with the repeat rates of those that would have bought the brand even without a promotion, the average rate after a promotion purchase is lower. This effect is demonstrated by means of a numerical example, a closed-form equation for repeat rates, a Monté Carlo purchase simulation, and a logit choice model. An exploratory empirical analysis supports these arguments. Implications for marketing management, research methodology, and future research are discussed.