Skip to main content
SpringerLink
Log in

Evaluating the impact of VAT-free promotion: the role of loyalty program membership and category characteristics

  • Published:
Marketing Letters Aims and scope Submit manuscript

This article has been updated

Abstract

This study examines the impact of value-added tax (VAT)–free promotions on sales performance. VAT-free promotions are a recently adopted form of price promotions where consumers are exempted from paying the VAT amount across almost all products in the assortment during a limited number of days. They are typically organized once per year and surrounded by a large amount of media attention from the involved retailer. To test the effects of this promotion on store and category sales, and investigate the differences between loyalty program (LP) members and non-LP members, the authors use scanner data from a Dutch durable goods retailer across a range of categories. The results show that VAT-free promotions positively impact store performance. Moreover, the findings indicate that more non-LP members are attracted to the store and that they increase the amount they spend in the store. While LP members also spend more in the store, this increase in shopping basket size does not compensate for the significant drop in the number of LP members that visit the store, leading to an overall decrease in sales coming from LP members during VAT-free days. We furthermore find that the positive effect of VAT-free promotions for non-LP members (rather than LP members) generalizes across all investigated categories. Our results provide key insights for retailers and direct marketers with regard to the effectiveness of VAT-free promotions in order to strategically segment the customer base.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Change history

  • 17 April 2021

    Springer Nature’s version of this paper was updated to reflect the correct format of Table 5.

Notes

  1. Note that the effective price discount during VAT-free days is actually less than the amount of VAT percentage that many consumers think they get, because it is calculated on the price of a product before taxes. For instance, for a VAT tax of 21%, consumers actually “only” get a price discount of 100/121=17.36%.

References

  • Ailawadi, K. L., Harlam, B. A., César, J., & Trounce, D. (2006). Promotion profitability for a retailer: the role of promotion, brand, category, and store characteristics. Journal of Marketing Research, 43(4), 518–535

    Article  Google Scholar 

  • Ailawadi, K. L., & Neslin, S. A. (1998). The effect of promotion on consumption: buying more and consuming it faster. Journal of Marketing Research, 35(3), 390–398

    Article  Google Scholar 

  • Ataman, M. B., Van Heerde, H. J., & Mela, C. F. (2010). The long-term effect of marketing strategy on brand sales. Journal of Marketing Research, 47(5), 866–882

    Article  Google Scholar 

  • Baker, J., & Wakefield, K. L. (2012). How consumer shopping orientation influences perceived crowding, excitement, and stress at the mall. Journal of the Academy of Marketing Science, 40(6), 791–806

    Article  Google Scholar 

  • Blattberg, R. C., & Neslin, S. A. (1989). Sales promotion: the long and the short of it. Marketing Letters, 1(1), 81–97

    Article  Google Scholar 

  • Blattberg, R. C., & Neslin, S. (1990). Sales promotion: concepts, methods, and strategies. Prentice Hall

  • Bolton, R. N., Kannan, P. K., & Bramlett, M. D. (2000). Implications of loyalty program membership and service experiences for customer retention and value. Journal of the Academy of Marketing Science, 28(1), 95–108

    Article  Google Scholar 

  • Chandon, P., Wansink, B., & Laurent, G. (2000). A benefit congruency framework of sales promotion effectiveness. Journal of Marketing, 64(4), 65–81

    Article  Google Scholar 

  • Clogg, C. C., Petkova, E., & Haritou, A. (1995). Statistical methods for comparing regression coefficients between models. American Journal of Sociology, 100(5), 1261–1293

    Article  Google Scholar 

  • De Bont, C. J. P. M., & Schoormans, J. P. L. (1995). The effects of product expertise on consumer evaluations of new-product concepts. Journal of Economic Psychology, 16(4), 599–615

    Article  Google Scholar 

  • Eroglu, S., Harrell, D., & Machleit, K. (1990). An empirical study of retail crowding: antecedents and consequences. Journal of Retailing, 66(2), 201–221

    Google Scholar 

  • Gijsbrechts, E., Campo, K., & Goossens, T. (2003). The impact of store flyers on store traffic and store sales: a geo-marketing approach. Journal of Retailing, 79(1), 1–16

    Article  Google Scholar 

  • Greene, W. H. (2012). Econometric analysis (7th ed.). Upper Saddle River: Prentice Hall

    Google Scholar 

  • Guyt, J., & Gijsbrechts, E. (2020). Evaluating the effectiveness of retailer-themed super saver events. Journal of Marketing, 82(2), 92–113

    Article  Google Scholar 

  • Hair, J. F., Anderson, R. E., Babin, B. J., & Black, W. C. (2010). Multivariate data analysis: A global perspective (Vol. 7): Pearson Upper Saddle River.

  • Kassaye, W. (1990). The role of haggling in marketing: an examination of buyer behavior. Journal of Consumer Marketing, 7(4), 53–62

    Article  Google Scholar 

  • Krishna, A., Briesch, R., Lehmann, D. R., & Yuan, H. (2002). A meta-analysis of the impact of price presentation on perceived savings. Journal of Retailing, 78(2), 101–118

    Article  Google Scholar 

  • Lam, S. Y., Vandenbosch, M., Hulland, J., & Pearce, M. (2001). Evaluating promotions in shopping environments: decomposing sales response into attraction, conversion, and spending effects. Marketing Science, 20(2), 194–215

    Article  Google Scholar 

  • Leenheer, J., van Heerde, H. J., Bijmolt, T. H. A., & Smidts, A. (2007). Do loyalty programs really enhance behavioral loyalty? An empirical analysis accounting for self-selecting members. International Journal of Research in Marketing, 24(1), 31–47

    Article  Google Scholar 

  • Liao, S. L., Shen, Y. C., & Chu, C. H. (2009). The effects of sales promotion strategy, product appeal and consumer traits on reminder impulse buying behaviour. International Journal of Consumer Studies, 33(3), 274–284

    Article  Google Scholar 

  • Liu, Y. (2007). The long-term impact of loyalty programs on consumer purchase behavior and loyalty. Journal of Marketing, 71(4), 19–35

    Article  Google Scholar 

  • Mehta, R., Sharma, N. K., & Swami, S. (2013). The impact of perceived crowding on consumers’ store patronage intentions: role of optimal stimulation level and shopping motivation. Journal of Marketing Management, 29(7-8), 812–835

    Article  Google Scholar 

  • O’Guinn, T. C., Tanner, R. J., & Maeng, A. (2015). Turning to space: social density, social class, and the value of things in stores. Journal of Consumer Research, 42(2), 196–213.

    Google Scholar 

  • Stilley, K. M., Inman, J. J., & Wakefield, K. L. (2010). Planning to make unplanned purchases? The role of in-store slack in budget deviation. Journal of Consumer Research, 37(2), 264–278.

    Article  Google Scholar 

  • Swilley, E., & Goldsmith, R. E. (2013). Black Friday and Cyber Monday: understanding consumer intentions on two major shopping days. Journal of retailing and consumer services, 20(1), 43–50

    Article  Google Scholar 

  • Vafainia, S., Breugelmans, E., & Bijmolt, T. (2019). Calling customers to take action: the impact of incentive and customer characteristics on direct mailing effectiveness. Journal of Interactive Marketing, 45, 62–80

    Article  Google Scholar 

  • Vaidyanathan, R., & Aggarwal, P. (2003). Who is the fairest of them all? An attributional approach to price fairness perceptions. Journal of Business Research, 56(6), 453–463.

    Article  Google Scholar 

  • van Heerde, H. J., & Bijmolt, T. H. A. (2005). Decomposing the promotional revenue bump for loyalty program members versus nonmembers. Journal of Marketing Research, 42(4), 443–457

    Article  Google Scholar 

  • Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data. MIT press

Download references

Acknowledgements

We thank Michael Haenlein (ESCP Business School), Bart Larivière (KU Leuven, Belgium), Kay Peters (University of Hamburg, Germany), and Anne ter Braak (KU Leuven, Belgium) for their feedback.

Code availability

Software codes will be provided upon request.

Funding

This study was funded by KU Leuven, Belgium.

Author information

Authors and Affiliations

  1. ESCP Business School, 79 avenue de la République, 75011, Paris, France

    Saeid Vafainia

  2. KU Leuven, Faculty of Economics and Business, Hendrik Conscienceplein 8, B-2000, Antwerp, Belgium

    Els Breugelmans

  3. University of Groningen, Faculty of Economics and Business, Nettelbosje 2, NL-9747AE, Groningen, The Netherlands

    Tammo H. A. Bijmolt

Authors
  1. Saeid Vafainia
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Els Breugelmans
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Tammo H. A. Bijmolt
    View author publications

    You can also search for this author in PubMed Google Scholar

Contributions

All authors contributed to the study conception and design. The first draft of the manuscript was written by Saeid Vafainia and all authors commented on previous versions of the manuscript. All authors read and approved the final manuscript.

Corresponding author

Correspondence to Saeid Vafainia.

Ethics declarations

Conflict of interest

The authors declare no competing interests.

Additional information

Publisher’s note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Supplementary Information

ESM 1

(DOCX 29 kb)

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Vafainia, S., Breugelmans, E. & Bijmolt, T.H.A. Evaluating the impact of VAT-free promotion: the role of loyalty program membership and category characteristics. Mark Lett 32, 455–476 (2021). https://doi.org/10.1007/s11002-021-09565-9

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11002-021-09565-9

Keywords

Search

Navigation