Consumer Value-Maximizing Sweepstakes and Contests

Sweepstakes and contests are some of the most frequently used promotional tools. Consumers participating in sweepstakes or contests have an opportunity to win prizes through a random draw. The authors examine how commonly used sweepstakes formats that vary in the number of winners and the allocation of the total reward money among the winners affect consumer valuations of the promotion. Given a fixed amount of reward money, the authors examine alternative reward formats based on the promotional objectives, consumer risk aversion, and degree of subadditivity. They test the analytical results using an experimental approach.