Probabilistic selling a key for companies selling vertically differentiated products, UF Warrington study finds

GAINESVILLE, Fla. –  If you were in the process of booking a hotel room in Miami, but suddenly received a notification that you could potentially reserve a room with an ocean view while only paying the rate of a room with a view of the parking lot, would you be intrigued to learn more?

This selling technique is called probabilistic selling, which works by offering consumers a predetermined product assortment (a room with a view of the ocean or a room with a view of the parking lot), but the consumer doesn’t know which product they will receive until after making their purchase. Probabilistic selling is growing in popularity among companies because, as you might think, most customers would jump at the chance to receive a higher-quality product for a lower-quality product price, or in our example, a room with a view without having to pay top dollar.

According to new research from the University of Florida Warrington College of Business Information Systems and Operations Management Department, consumers who are attracted by offers like the hotel example exhibit salient thinking behavior, meaning they focus their limited attention on and overweigh the salient attribute of a product in their perception.

The study by Ph.D. alumnus and current Assistant Professor at the University of Science and Technology of China Quan Zheng, Assistant Professor Amy Pan and PricewaterhouseCoopers Professor Janice Carrillo suggests that probabilistic selling can improve a company’s profit with salient thinkers even when the strategy does not emerge with rational consumers for a vertically differentiated product. In fact, their study “Probabilistic selling for vertically differentiated products with salient thinkers,” finds that salient thinking enables a company to utilize the probabilistic product to transform consumers’ choice context favorably and direct their attention to quality.

“The results suggest that probabilistic selling, as a context management tool, can be more beneficial for sellers than previously shown by prior researchers,” Zheng, Pan and Carrillo write.

In our example, this suggests that consumers overweigh the value of the room with the ocean view, so are more willing to pay for a probabilistic product than room with the view of the parking lot.

“An important feature of this strategy is that the probabilistic products can change consumers’ local choice context,” the researchers write. “Consumers would overweight the quality attribute with the low-quality product (the parking lot view room) and probabilistic product having the same price, and increase their willingness-to-pay for the probabilistic product. We show that, indeed, probabilistic selling can improve the seller’s profit with salient thinkers even when this strategy does not emerge with rational consumers for a vertically differentiated market.”

This study is forthcoming in Marketing Science.