Learning, Forgetting, and Sales

Sellers of almost any product or service rarely keep their prices constant through time and frequently offer price discounts or sales. This paper investigates an explanation of sales as a way for uninformed consumers to be willing to experience the product, and learn about its fit, and where informed consumers may forget about (or change) their preferences. We investigate the role of the rate of consumer forgetting on the timing between sales, and of the rate of consumer learning and menu costs on the length of a sale. The rate of consumer forgetting can be linked to the length of purchase cycle and the level of consumer involvement. We show that the discount frequency and the discount depth are increasing in the rate of consumer forgetting, and that the discount frequency is increasing in the learning rate. The duration of a sale is increasing in the rate of consumer forgetting and the rate of consumer learning.

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