Price Promotions and Online Reviews

Price promotions increase sales, at least in the short term, but the effect of price promotions on consumers’ product evaluation is not well understood. We focus on the market for mobile apps, a category where price variation, including discounting to a zero price is common. We ask how price promotions affect the evaluation in reviews posted subsequently online. Our results suggest that during price promotions, consumers rate the product less favorably than before the price promotions. This effect is especially pronounced for price promotions to a zero price. We provide evidence suggesting that lower prices, and especially zero-prices, increase the likelihood that consumers with lower valuations will purchase the product. Notwithstanding the lower promoted price, the app still represents a bad fit to these consumers' tastes. As a result of the mismatch between a consumer's tastes and product characteristics, consumers who purchased the app during a promotion rate it less favorably.