The Role of Sale Signs

• DOI: 10.1287/mksc.17.2.139
• Publication Date: 2008-10-31T22:41:46Z
• Authors: Eric T. Anderson; Duncan I. Simester
• Keywords: Sale Signs, Retailing, Pricing, Promotion Signals, Signal Jamming; 0502 economics and business; 05 social sciences

Sale signs increase demand. The apparent effectiveness of this simple strategy is surprising; sale are inexpensive to produce and stores generally make no commitment when using them. As a result, they can be placed on any products, as many prefer. If place or all their why effective? We offer an explanation for the by arguing that inform customers about which products have relatively low prices, thus helping decide whether purchase now, visit another store, perhaps return same store in future. This raises two additional issues. First, do prefer truly priced (stores could use demand products)? Second, how should use; limit just also them some higher products? paper addresses each these questions doing so investigates much information reveal. Our arguments illustrated formal game-theoretic model competing sell imperfect substitutes two-period overlapping seasons. Stores choose price sign strategies new arrive period immediately delay future (to different store). Customers who purchasing risk product will not available following incur transportation cost return. Two factors balance costs. correctly anticipate lower if next period. may find better suits needs. In deciding respond, cues update expectations Stores' entirely endogenous model, impact our discussion we highlight revealed signs, including source its credibility, sensitivity number used, resulting shift customer point key results. show underlying signal self-fulfilling: believe with more likely priced, then firms products. demonstrate self-regulating. introduce noise placing expensive However, customers' sensitive without cost. Using reduce other already signs. unique several respects. describe multiple signals communicate recognize vary learn from signal. Price alone resolves uncertainty customers, but both prices resolve uncertainty. although previous signaling models recognized noisy (not always accurate), typically exogenous, uncontrolled environmental distortions. endogenously only partially reveal discounted. explanations supported examples. Although focus fashion findings application market uncertain relative levels.