Managing Service Expectations in Online Markets: A Signaling Theory of E-tailer Pricing and Empirical Tests |
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Authors: | Debanjan Mitra Scott Fay |
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Institution: | a Department of Marketing, Warrington College of Business Administration, University of Florida, P.O. Box 117155, Gainesville, FL 32611-7155, United States b Department of Marketing, Whitman School of Management, Syracuse University, 721 University Avenue, Syracuse, NY 13244-2450, United States |
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Abstract: | Expectations play a significant role in determining customer perceptions and satisfaction. Accordingly, retailers seek to manage customers’ service expectations. However, the tangible signals of service quality that are available to brick-and-mortar retailers (such as location, store appearance, and salespersons’ behavior) may not be available in online markets. Using a signaling model, we obtain conditions when Internet retailers (e-tailers) use price to manage their customers’ service expectations. In contrast to extant theory, we find that it is possible for both low and high service e-tailers to use price in signaling their service levels. Further, we develop an appropriate deductive test of our theory based on price-ending patterns as an artifact of the signaling process. Based on this test, we find evidence that e-tailers indeed manage service expectations using price. Interestingly, we also find preliminary evidence that suggests customers implicitly associate price-ending patterns with a retailer's expected service level. We discuss several other implications of our findings for researchers and managers. |
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Keywords: | Expectations Internet marketing Pricing Price-ending Signaling Separating and pooling equilibrium Retailing |
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