Tiered discounts as multiple reference points for spending

Abstract

Tiered discounts offer larger discounts as consumers meet higher spending thresholds (e.g., spend $100+, receive 10% off; spend $200+, receive 20% off). This research investigates how consumers treat these multiple dollar thresholds as reference points for spending. We find that tiered discounts with smaller increments between thresholds encourage higher spending compared to those with larger increments. This effect occurs because consumers treat thresholds as motivational spending goals when the distance to higher thresholds is smaller (vs. larger). Consistent with this reasoning, signaling goal progress (i.e., displaying cart amount while shopping) attenuates the spending difference smaller versus larger increment sizes yield. Additionally, the effect of tier increment size on spending is more prominent for maximizers. From a theoretical perspective, this work contributes to our understanding of how individuals process multiple reference points within a single promotion and identifies that spending thresholds in price promotions may be treated as spending goals. From a managerial perspective, this work investigates the relationship between tiered discount design and consumer spending.