Quality-adjusted price comparison of non-homogeneous products across Internet retailers

This study compares prices offered by multiple Internet retailers. This task is challenging because e-tailers cannot present their entire assortments to each consumer. Therefore, the quality of the product assortments presented by different e-tailers to each consumer is not directly comparable on an item-by-item basis, resulting in non-homogeneous offerings across retailers. We further consider the interaction between retailers (product information presentation format) and consumers (product information search strategies), which makes price comparisons among the retailers even more non-homogeneous. To grapple with this quality-adjusted price comparison problem for non-homogeneous products, we use a stochastic-frontier hedonic-price regression model to find the “lowest” theoretical price for a product given its characteristics. We then assess the price efficiency of the product as the ratio between this lowest price and the offered market price. This framework allows for the comparison of retailers in their ability to offer the “best deals” even when their actual assortments are not directly comparable in quality. Moreover, this framework provides Internet retailers with a relative measure of price efficiency. This helps them understand when and where they offer competitive prices to consumers. We illustrate our approach empirically in a comparison of price efficiency among three major Internet travel agents on a sample of posted itineraries and airfares. Furthermore, we demonstrate that the price efficiency of an Internet travel agent depends on the format of its website and on consumers' search strategies.     

To donate or not to donate? Product characteristics and framing effects of cause‐related marketing on consumer purchase behavior

The present study examines potential influences associated with donation framing, product price, product type, and donation magnitude on cause‐related marketing (CRM) campaigns, where money is donated to a charity each time a consumer makes a pur‐chase. In addition to the main effects of the aforementioned factors, experimental results indicate that beneficial effects of product type (i.e., frivolous products bundled with a cause are more effective than practical ones) occur when donation information is framed in absolute dollar terms. The effects of donation framing are found insignificant when the donation magnitude is high. Influences of donation magnitude on CRM effectiveness are limited in high‐priced items. When the donation magnitude is constant, a donation amount framed in absolute dollar value is more effective than that in percentage terms for low‐priced products, and the opposite is true for high‐priced items. In practice, marketers thus stand to gain not only by matching the donation magnitude in their advertised products with the right price but also by an appropriate “framing” of the offered bundles. © 2008 Wiley Periodicals, Inc.     

Posted price and name-your-own-price in a product line design problem

In this research, we address Name your own price (NYOP) as a mechanism to offer products with transparent, rather than opaque, quality levels. We compare posted price (PP) and NYOP in a product line design problem from a firm’s viewpoint. We first consider the firm offering two vertically differentiated products that each can be priced by NYOP or PP. The quality level of products is considered either as a decision variable or as a fixed predetermined value for the firm. A customer correspondingly decides which product to purchase and if applicable, the bid at NYOP. We characterize both the customer’s and the firm’s decisions under four possible pricing scenarios. The results show that, it is most profitable for the firm to use PP for both products. We then consider if each product is offered by a competitive firm, where quality levels might again be decision variables or fixed. Results show that both competitive firms prefer PP to NYOP when they can create quality differentiation. The firm that offers the product with a lower quality level prefers PP to NYOP for all combinations of fixed quality levels as well. The other firm, with a higher quality level, also usually prefers PP to NYOP; However, it can be better off using NYOP when fixed quality levels are large and close enough to each other. In this case, the preference of NYOP over PP increases as customers’ willingness to pay enhances.     

An experimental test of brand insulation against competitor attacks: Effects of consumer heterogeneity and residual desire

Price discounts generally move consumers from lower‐quality brands to higher‐quality brands more than from higher‐quality brands to lower‐quality brands. This asymmetry can reverse, however, to favor the lower‐quality brand when improvements are made to product quality. Whether such variations exist when the goal is to retain rather than steal customers remains untested and constitutes the focus of this study. Experimental results indicate that customer retention strategies tend to favor higher‐quality brands. Higherquality brands are able to retain customers by matching the form of the lower‐quality brand's attack (price reduction or quality improvement). For lower‐quality brands, matching is effective only in the case of a price attack by a higher‐quality brand. Furthermore, higher‐quality brands are able to effectively retain customers with price reductions that are smaller than the discount offered by a lower‐quality competitor, whereas lower‐quality brands must match the magnitude of a discount by a higher‐quality brand to retain customers. The findings suggest that differences in customer retention across quality levels arise from (1) heterogeneity among consumers of different quality levels in the relative weightings of price and quality, and (2) switching decisions based on reasons that are biased toward continuing to purchase, or moving to, higher quality products. © 2008 Wiley Periodicals, Inc.     

Impact of product information on the use of price as a quality cue

The use of price in subjective product quality evaluations is influenced by the nature and availability of other product information. Empirical investigation of this proposition indicated that the utilization of price as a quality cue diminished in relation to the quantity and quality of intrinsic attribute information. However, for one of the two products investigated this diminished influence reversed when a large amount of information was provided. © 1996 John Wiley & Sons, Inc.     

Retailers' control of reference price given product category and level of competition

This paper examines the conditions that make reference price manipulation beneficial to retailers. The paper offers a modelling approach that is based on two distinct dimensions: product category, and degree of market competition. The model shows that reference price manipulation in a competitive market is less beneficial to retailers than it is in a monopolistic market. Reference price manipulation of a specific product is most advantageous to retailers when it is a frequently purchased, low-priced product in a monopolistic market. For an infrequently purchased, high-priced product in a competitive market, reference price manipulation is less beneficial. The analysis gives rise to policy implications that could potentially improve consumer welfare.     

The effect of exogenous product familiarity on endogenous consumer search

When a consumer is familiar with one product but not its competitor, she is faced with a decision: either buy what she knows, or engage in search to learn more. When search is costly, competing firms may attempt to encourage or discourage search by adjusting prices. In this paper we consider how competitive dynamics between two quality differentiated firms are affected if one product enjoys a familiarity advantage. Familiarity is defined as a consumer’s ex-ante knowledge of fit for a particular product. An increase in the level of familiarity for one product allows a firm to charge higher prices since there are more consumers with information on that product relative to the competition. We call this the direct effect of familiarity. However, an increase in familiarity also has an indirect effect, since it gives the rival firm a stronger incentive to decrease price in order to encourage searching, in turn increasing overall competition. The effect of familiarity on profits depends on the magnitudes of these effects, and it is moderated by the level of quality differentiation between products. For very high or very low levels of differentiation, the results are relatively straightforward. However, when the level of differentiation is moderate, the results are more nuanced, with the higher-quality firm realizing higher profits from more familiarity, even if it must lower prices due to the indirect effect. We also find that, contrary to conventional wisdom, overall competition may be higher when firms are more quality differentiated. This is driven by the fact that higher quality differences bolster the indirect effect, with a lower quality firm providing deeper price cuts to counter increased familiarity of a high quality rival. We conclude by examining how changes in the cost of searching impact equilibrium outcomes.

     

Retail price discount depth and perceived quality uncertainty

This study analyzes the impact of retail price discount depth on consumer perception of quality uncertainty and its implications. While the extant research finds a negative relationship between perceived mean quality (indicated by the mean of quality perception) and price discount, we suggest an inverted-U-shaped relationship between perceived quality uncertainty (indicated by the variance of quality perception) and price discount. The underlying mechanism for this phenomenon is that consumer attribution of price promotion varies by discount depth. Specifically, when provided with a moderate discount (compared with a low or high discount), consumers cannot ascertain whether the discount is related to product quality; thus, they perceive a higher level of quality uncertainty and correspondingly rely more on other cues, such as country of origin and product popularity information, to make inferences about quality. Those findings have implications for setting the depth of retail price discounts and providing product quality-related information in the context of price promotion.     

Retailers’ Merchandise Organization and Price Perceptions

Retailers’ presentation of merchandise to consumers is often organized by brand or by price to facilitate comparison and processing of competitive information. While such organization of product information is presumed to assist consumer decision-making, we suggest that sorting of alternatives on brand names strain cognitive resources more than a price sort, leading to differences in sensitivity to prices for a target product accompanying these two sorts. We conduct three studies to examine this issue and find that sorting of alternatives interacts with consumers’ motivation and influences price perceptions. Our results add nuance to the findings from previous studies examining how assortment affects consumers’ price sensitivity, and suggest that retailers whose appeal is not primarily price-based could benefit by presenting merchandise information sorted by brand name so as to increase perceptions of quality and value.     

A paradox of price–quality and market efficiency: a comparative study of the US and China markets

The price–quality schema rests on an assumption that price is credible information about product quality. However, the credibility of price information varies across different markets. In an inefficient market, consumers would believe in the price–quality relationship to a lesser extent because price information is less credible. Paradoxically, in such a market, sometimes consumers have to rely more on price to infer quality because other product information is less available. With a cross-national perspective, this study investigated the influences of market efficiency and consumer risk aversion on the price–quality schema between the China and the US markets. We found that due to the inefficient market environment, Chinese consumers possess a weaker price–quality schema than American consumers. Chinese consumers are more risk averse than their American counterparts. However, in China, risk-averse consumers are more likely to use price to infer product quality. Implications for global marketing are discussed, and directions for future research are suggested.     

Naïve theories of price: A developmental model

A model of the development of naïve theories of price is presented and tested. The criterion used to account for price variations within a product category is product features at age five, product features and quality at age ten, product quality and buyer utility at age thirteen, and a combination of supply considerations and buyer utility/demand in adulthood. Five-year-olds do not justify their use of product features as a price criterion; however, older respondents all justify their price criterion by referring to a source of value. At age ten, variation in the amount of manufacturing inputs is the source of value which justifies the use of product features as a price criterion; at age thirteen, variations in the quality of manufacturing inputs justify the use of product quality as a price criterion; and in adulthood, relative scarcity and buyer preferences justify the use of cost and demand as price criteria.     

“身份”特征差异对收入差距影响的经济学分析

根据雇佣要素的生产者均衡模型可得:准入管制下的非竞争性许可权收入份额远大于普通居民竞争性供给要素收入份额,如出租车行业约为6:4,而银行业管制租份额更高。主要机理是管制影响需求价格弹性,且更严格的管制降低了要素供给弹性,导致消费者支付高价、要素供给者不得不接受低价。     

Consumer Response to Package Downsizing: Evidence from the Chicago Ice Cream Market

It is common among producers of consumer packaged goods to reduce the volume of product per package such that the new size replaces the old one. This tactic is commonly referred to as package downsizing. In this article, we investigate the extent to which consumers have different sensitivities to package price and package size in order to shed light on the managerial implications of package downsizing. To do so, we estimate a random utility model of demand to measure consumer response to price and package size using household scanner panel data on bulk ice cream purchases in Chicago. The estimation framework involves modeling household heterogeneity, addressing price endogeneity and accounting for unbalanced choice alternatives. Our main finding is that consumers are less responsive to package size than to price; the demand elasticity with respect to package size is approximately one-fourth the magnitude of the demand elasticity with respect to price. This result implies that marketing managers can use downsizing as a hidden price increase in order to pass through increases in production costs, that is, cost of raw materials, and maintain, or increase, their profits.     

What drives competitive webrooming? The roles of channel and retailer aspects

ABSTRACT

Competitive webrooming, the phenomenon in which consumers gather product information online but ultimately purchase the product in an offline store of a competing retailer, has gained traction and become a major threat for retailers. To gain a deeper understanding of its drivers, we surveyed 1081 retail customers about their most recent consumer electronic product purchase to examine the impact of channel-related aspects as well as retailer-related aspects – a dual approach that has not been applied previously. A channel’s anticipated after-sales service and price level are the strongest predictors for webrooming. Moreover, retailer aspects determine whether customers simultaneously switch retailer when webrooming. A retailer’s assurance of delivery, including payment modalities, return policies, and product obtainment, as well as competitive product prices motivate consumers to switch retailer when webrooming. These results suggest that customers have a fundamental need for certainty within and after the buying process, which can be satisfied by both channel and retailer. Additionally, this is the first study to empirically test for interactions between channel and retailer aspects, as they are likely to occur in real shopping situations. We identified two interactions: First, a retailer’s assurance of delivery can compensate for an anticipated lack of a channel’s after-sales service, dampening the impact of the latter on competitive webrooming. Second, retailer’s price attractiveness acts in a similar vein. Hence, to steer customers into channels and/or keep them with the company, retailers should emphasize their price attractiveness as well as assurance of delivery.     

A Chain-Type Price Index for New Business Jet Aircraft

This paper presents a price index constructed to measure the real price and real output of corporate business jet aircraft. It employs a chained price index methodology to properly account for the effect of changes in aircraft quality and product lines on the price index. The index indicates that the average price level of corporate jets has significantly outpaced the general price level measured by the GDP deflator, nearly doubling the real price of the product over a 35-year period from 1968 to 2003, which could have negatively affected the demand for the product. Because the GDP deflator significantly understates the price increase in corporate jets, the industry’s real output is overstated when its nominal sales are deflated with a general price index. The paper suggests that an industry-specific price index allows more accurate analyses of real economic activity of an industry. The methodology used in this paper could be useful for other industries where product price movements vary significantly from the changes in the general price level. JEL Classification L160,L620     

Product quality,attributes, and brand name as determinants of price: The case of consumer electronics

This paper proposes and illustrates an approach to measuring one aspect of brand equity, viewed as a price premium and defined as the increment that a brand name contributes to the price of a product above and beyond that justified by its quality (where quality is determined by an assessment of the relevant attributes, features, or characteristics). Two illustrative studies apply the proposed measure to consumer-electronics products found in home-theater or audio-video entertainment centers. Study 1 uses data presented byConsumer Reports to regress market price on overall quality and on dummy variables coded to represent brand names. Here, the results for home-theater products suggest a conspicuous absence of incremental brand-name effects. Study 2 generalizes this result by analyzing data for various electronic products offered by theCrutchfield Catalog. Across six product categories, when controlling for differences in an attributes-based index of product quality, a significant brand-related price premium appears to occur only for Carver. This finding again casts doubt on the importance of brand equity in the market for consumer electronics.The author gratefully acknowledge the support of the Columbia Business School's Faculty Research Fund.     

The value of private label brands to U.S. consumers: An objective and subjective assessment

This study investigates the value of private label brands to consumers using two approaches: First, subjective evaluations of the perceived relationships between price and quality for private label (PL) brand and national brand (NB) products based on survey responses; and second, objective measures of price and quality for PLs and NBs widely available in the U.S. Price was generally perceived to be a signal of quality for NBs, but not for PLs, an indication that consumers' knowledge may not have kept pace with quality improvement in PLs. Objective estimation of the quality gap potentially existing between PLs and NBs determined that the “quality premium” of NBs observed in the past has largely disappeared. Consumers, notwithstanding, sought a lower purchase price for PLs. In turn, the higher price they were willing to pay for NBs accorded with estimates of the actual “price premium” associated with NBs.     

Effects of distribution channel structure in markets with vertically differentiated products

This study examines how the structure of distribution channels may influence firms’ quality and price strategies and how they may in turn affect consumer welfare. It treats product quality as a decision variable so that the degree of product substitution becomes endogenous rather than exogenous as in previous studies. We find that, with vertically differentiated firms, the changes in channel structure have asymmetric effects depending on whether they occur in the high-quality channel or in the low-quality channel. The product quality of the high-quality channel decreases when it decentralizes unilaterally. However, product quality of the low-quality channel would increase when it decentralizes. The high-quality manufacturer and its channel suffer more from decentralization in comparison with their low-quality counterparts, and the low-quality manufacturer actually receives greater profits when both channels are decentralized. An important driver behind these asymmetries is the interaction between firms’ pricing incentives in integrated versus decentralized channels and what consumer segments they serve. Our analysis indicates that decentralization may reduce consumer welfare, but decentralization in the high-quality channel hurts consumers more than that in the low-quality channel. Therefore in a competitive environment where firms make both quality and price decisions, channel integration would have significant welfare enhancement effects through the elimination of double marginalization, especially if it happens in the high-quality channel. Moreover, we demonstrate that once quality is endogenized, integration is the only equilibrium of channel structure choices. This suggests that the private incentives of firms may actually benefit consumers but do not have to be in line with the general preference of industry regulation for decentralization.     

Quantity Surcharges: Are They Important in Choosing a Shopping Strategy?

Instead of making value-price comparisons for all members of a product set, consumers may decide to adopt simple purchase decision rules such as larger sizes are better buys. When the unit price of a larger size is greater than the unit price of a smaller size, a quantity surcharge exists. Previous research has established that consumers do frequently encounter quantity surcharges in purchasing grocery products. However, estimates of the amount of the surcharge, the goal of this research, have not previously been reported. In this study the expected return from using the larger-size rule was estimated. The estimation procedure made use of price and size information gathered for all available packages of 23 products sold in 15 grocery stores in one rural Illinois community in October 1981. Nineteen of the 23 grocery products were found to have surcharges, with the mean amount ranging from less than one cent to 65 cents. Tuna fish was the only product for which the expected value of the return from buying a larger size rather than a smaller size was negative. Implications for consumers' choice of shopping strategies are discussed.     

Consequences of personalized product recommendations and price promotions in online grocery shopping

Shopping convenience can be turned into a competitive advantage for online grocery retailers. Consequently, we study how personalized product recommendations (recommendation agents) and price promotions (algorithmic pricing) compensate for the negative impact that consumer's perceived cognitive effort causes on loyalty. By default, the relationship from perceived cognitive efforts to attitudinal and behavioral loyalty is negative, yet these results demonstrate that personalized price promotions lessen the negative impact, while personalized product recommendations do not have such an influence. The findings contribute to a better understanding of personalized marketing activities in today's data-driven online grocery retailing.