How price complexity takes its toll: The neglected role of a simplicity bias and fairness in price evaluations

Marketing managers commonly employ complex price plans. Surprisingly, limited and conflicting evidence reports how customers perceive and react to complex prices. This study examines perceptions about price complexity and shows that customers tend to prefer simple prices. Two experimental studies show that perceived price complexity negatively affects customer perceptions of price fairness and influences product choice because customers negatively evaluate the transparency of the firm's pricing practices and infer higher total prices. Customers comparing alternate offerings may therefore prefer simple over complex prices, even when the latter are less expensive. Study results suggest limiting price plan variations positively affects customer inferences about transparency and fairness, and thus customer choice.     

Price and quality decisions in a vertically-differentiated supply chain with an “Online-to-Store” channel

Because of the prevalence of “Online-to-Store (OS)” channel, customers can purchase differentiated products online and pick up in-store. We develop a Stackelberg game-theoretic model to study the impact of an OS channel on quality levels, demands, prices, and profits of a manufacturer and a retailer in a supply chain. We assume that the retailer acts as a Stackelberg leader, and the manufacturer acts as a Stackelberg follower. The manufacturer produces and sells two products with vertically-differentiated quality levels to the retailer who in turn sells the products to customers through a Store channel, an Online channel, or an OS channel. The retailer incurs a handing cost if the OS channel is available, and consumers bear a shipping cost and a transaction cost when the products are purchased from the Online and Store channels, respectively. We find that the manufacturer should reduce both products’ quality levels and wholesale prices, whereas the retailer can increase the selling prices for a relatively small shipping cost and a not too small handling cost. When the products are available both online and in-store, however, the quality levels, wholesale prices and selling prices might increase for a small shipping cost and a not too small handling cost. Compared to the case in which both products are available online only with the OS channel, adding the Store channel is always beneficial for both parties. The intuition behind these results hinges on the trade-off between the handling cost and the increased market demand for the retailer. Moreover, the quality levels, the wholesale prices of both products, and the selling price of the low-quality product would decrease, while the selling price of the high-quality product increases for a sufficiently low transaction cost and a not too small shipping cost.     

One firm,one product,two prices: Channel-based price differentiation and customer retention

Every multichannel retailer must decide whether and how to apply channel-based price differentiation. This study identifies channel-related price differentiation instruments and considers their effects on customer retention. It empirically tests hypotheses using a laboratory experiment and analytically investigates feasibility conditions. Results show that channel-based price differentiation positively affects customers through perceived value but harms retention through price unfairness and limited self-determination. The mobile communications retailer in this study would require 5.1% lower operating costs online to ensure its profitability. These results indicate that multichannel retailers with channel-based price differentiation should carefully select their price instruments and meet the feasibility conditions.     

Value‐driven Internet shopping: The mental accounting theory perspective

When faced with competition and the ease with which customers can compare prices across sellers, Internet vendors often lower prices in a bid to increase sales. However, recent research reports that even price‐sensitive customers do not always purchase from Internet vendors offering the lowest prices. In contrast, value has been considered a key motivator of customer decision making in economics and marketing. However, little is known about the role and effect of value in Internet shopping. This study examines online customer purchase decision making from the value perspective based on mental accounting theory. This study also identifies monetary (perceived price) and non‐monetary (perceived risk, convenience, and pleasure) determinants of value. This study further explains how the individual determinants affect online purchase decision making directly and indirectly though value perception. The findings of this study offer Internet vendors practical suggestions for increasing online sales. This study, with its results, also helps advance knowledge of electronic commerce. © 2009 Wiley Periodicals, Inc.     

Do Farmers' Market and Specialty Food Store Customers Differ in the Effects of Perceived Utilitarian and Hedonic Shopping Values?

This study explored differences in the effects of perceived utilitarian and hedonic shopping values on customer satisfaction for the two separate groups of the agricultural product marketing channel: farmers' markets and specialty food stores. Empirical data were collected from customers of agricultural product retailers located in Taiwan (N = 412). The results show that different agricultural product marketing channels provide different values to their customers. Farmers' market customers experience a greater hedonic value, and specialty food store customers experience a greater utilitarian value. In addition, the perceived utilitarian and hedonic shopping values of farmers' market customers are more highly positively associated with customer satisfaction than are those of specialty food store customers.     

I guess that is fair: How the efforts of other customers influence buyer price fairness perceptions

Past research has demonstrated that consumers' price fairness judgments are influenced by comparisons between the offer price they receive and the prices paid by other consumers for the same product offering. In today's digital age, reference points for purchases are more prevalent than ever. However, investigations on how certain inputs of the transaction affect these judgments is lacking. Specifically, extant research has failed to account for how the purchase efforts of other consumers can influence one's own price fairness evaluations. Moreover, relatively little empirical research has endeavored to understand the simultaneous cognitive and affective processes that explain how consumers arrive at price fairness judgments. To address these gaps in the literature, we introduce two studies aimed at understanding the process through which the salient efforts of referent consumers serve to mitigate perceptions of price unfairness when two customers pay different prices for the same product. The findings support a dual‐process model whereby the efforts of other (referent) customers serve to simultaneously reduce buyer anger and increase buyer understanding of the price disparity, ultimately mitigating perceptions of price unfairness.     

Understanding registration influences for electronic banking

Abstract

The growth in online or e-banking has resulted in customers interacting with their banks through remote technological channels to a greater extent. That said, there is much variation in online banking registration and adoption levels and little is understood about actual customer motivators and perceived barriers to registration for online banking services. As part of a larger study exploring the impact of the Internet on bank – customer relationships, this paper reports on key findings which shed light on such motivators and inhibitors for online banking registration. The results show that convenience (through 24-hour banking access) and reassurance about security are the most important considerations for customers in registering for e-banking within the case bank. Marketing implications for the case bank, as well as the broader industry, are discussed.     

Better or Worse? Effects of online promotion habits on customer value: An empirical study

Online frequent and uninterrupted price discounts easily cause customers to form general tendencies to purchase promotions, or ‘online promotion habits’. Compared with offline promotion shopping, the distinct features of online promotion shopping make customer behaviours highly changeable and leave the effects of online promotion habits on customer value a puzzle. Using a dataset of real transactions from a leading online apparel retailer in China, this study makes continuous observations of customers’ online promotion habits. Drawing on the behavioural learning theory, we empirically investigate the dynamic effects of online promotion habits on customer value. The results reveal that after customers form online promotion habits, their customer value increases significantly. Furthermore, among customers with online promotion habits, online promotion habits exert an inverted U-shaped effect on customer value. Namely, as online promotion habits strengthen, customer value increases accordingly, yet negative outcomes show if online promotion habits exceed a certain level. We discuss the theoretical and managerial implications of our findings, which will enable researchers and practitioners to measure and dynamically manage customers’ online promotion habits.     

Why is Price Dispersion Higher Online than Offline? The Impact of Retailer Type and Shopping Risk on Price Dispersion

When physically similar products, of similar quality, are offered by retailers both online and offline, we often observe that the dispersion in prices of these products online is greater than the price dispersion offline. This observation runs counter to early theories that suggested price dispersion online would be smaller than that offline due to the ease of search and information availability online. This paper investigates and provides an explanation for this puzzling phenomenon by examining the impact of two important drivers of price dispersion: retailer type and consumers’ shopping risk. Retailer type refers to whether a retailer is a pure offline, pure online, or dual channel retailer. Shopping risk is defined as the product of consumers’ perceived risk of shopping and the transaction uncertainty related to shopping at different types of retailers.A game-theoretic approach is adopted to model consumers’ price search and product purchase, as well as price competition within and across retailer types in online and offline markets. Equilibrium pricing strategies are derived for different retailer types competing for different consumer segments with different levels of perceived shopping risk. The impact of retailer type and shopping risk on online versus offline price dispersion are quantified, and conditions when price dispersion is greater online than offline are identified.Results indicate that price dispersion is greater online when the number of pure online retailers is sufficiently large and is increasing in the number of pure online retailers. In addition, a reduction in online shopping risk may actually increase online price dispersion. Results further suggest that even without any online sales, dual channel retailers should maintain their online presence for the purpose of information dissemination, which justifies the importance for pure offline retailer to incorporate webrooming strategies, where consumers can search for prices online but purchase offline.     

Price matching and product differentiation strategies considering showrooming

Showrooming, a phenomenon in which customers use brick-and-mortar stores to assess products and then purchase them from online retailers (o-retailers) for lower prices, is considered a great threat to traditional retailers (t-retailers). To combat showrooming, many t-retailers have executed price matching which enables customers to pay o-retailers' lower prices for the identical product. To avoid direct competition with t-retailers who execute price matching, many o-retailers have begun to sell differentiated products from t-retailers, which weakens the information advantage to customers from practicing showrooming. Motivated by these observations, we construct a duopoly game, where a t-retailer and an o-retailer sell products in a same category, to study the profitabilities of product differentiation and price matching in the context of showrooming. The results show that in the scenario without price matching, the o-retailer is likely to benefit from product differentiation only when the o-retailer's differentiated product is more popular with customers than the t-retailer's product. However, in the price matching scenario, the o-retailer also has the opportunity to benefit from product differentiation when the o-retailer's differentiated product is less popular with customers than the t-retailer's product, and product differentiation can be a win-win strategy for the two retailers under certain conditions. Considering the o-retailer's product differentiation decision, the t-retailer is only likely to execute price matching if the non-digital attributes of the product category sold by two retailers are not very obvious.     

Assessing customers’ perceived value of the online channel of multichannel retailers: A two country examination

Given the constant and often dramatic technological advancements that facilitate retailing, especially online channel adoption by industry and customers, research focusing on customers perceived value of the online channel of multi-channel retailer’s requires conceptual and empirical elaboration. This study advances understanding of customer perceived online channel value and how customer perceptions of value effect online channel satisfaction and online channel loyalty. Using data from a multi-country study, we provide a deeper understanding for multi-channel retailers of how to balance investments in various value drivers to enhance online channel satisfaction and customer loyalty.     

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.     

EDITOR'S COMMENTS

ABSTRACT

The key to improving pricing methods lies in establishing a clear relationship between the price paid by customers and the value received. A company's understanding of how a decision in its pricing policy will affect the perceptions its potential consumers will have of these prices, is fundamental if it wishes to make sure that its offer is properly perceived. Thus, if companies identify the rules used by purchasers to price their products, they will be successful in getting the objective signal they send via their communication strategies to be perceived in the desired manner. This analysis shows that both monetary and non-monetary costs are considered by consumers when determining the final cost perception associated with the acquisition of a good, and that the understanding of the internal reference price is essential for determining the nominal price effect on the monetary component of total sacrifice.     

The effect of shipping fees on customer acquisition, customer retention, and purchase quantities

The growth of the e-commerce sector has highlighted the importance of shipping fees. We empirically study the effects of shipping fees and marketing activities on customer acquisition, customer retention, and average expenditures using data from an online grocer. We find that shipping fees greatly influence order incidence rates and graduated shipping fees significantly affect average expenditures. The analysis indicates that customer acquisition is more sensitive to order size incentives while retention is more influenced by base shipping fee levels. Furthermore, a profitability analysis suggests that shipping policies that provide incentives for larger order sizes may outperform free shipping promotions and standard increasing fees structures.     

Does Friendship Help in Personal Selling? The Contingent Effect of Outcome Favorability

Although widespread belief holds that salespeople can leverage their personal relationships with prospective customers to gain business, previous research has not investigated the implications of friendships between salespeople and customers for customers’ postpurchase satisfaction and fairness judgment. Findings from two experiments show that friendships benefit salespeople only when the outcome of the transaction is unfavorable. Specifically, when salespeople and customers are close friends rather than acquaintances, the customers perceive an unfavorable outcome as relatively more fair and satisfactory, but such an effect does not occur when the outcome of the transaction is favorable. This paper also shows that customers’ perceived fairness mediates the interaction effect between friendship and the favorability of transaction outcome on customer satisfaction. In summary, this paper advances the understanding of the implications of salesperson–customer friendships for customers’ postpurchase evaluations.     

Acquiring customers through online marketplaces? The effect of marketplace sales on sales in a retailer's own channels

Online retailers are increasingly using third-party online marketplaces (e.g., Amazon, Taobao) as an alternative sales channel to their website. While cross-channel sales elasticities have been established for many sales channel combinations (e.g., adding bricks to clicks), we lack an understanding of whether the use of third-party marketplaces grows or cannibalizes a retailer's sales. Practitioners argue that firms can build their e-commerce business through acquiring customers by selling on the marketplace. Indeed, a marketplace could complement a retailer's offering (e.g., acquiring new customer segments), although inventory effects might mitigate this complementarity. Alternatively, cannibalization might occur from losing customers from one's website to the online marketplace. The present research investigates which of the two opposing forces prevails using a time series of category sales data from one of the largest global marketplace sellers. The authors use vector autoregressive modeling to show that marketplace sales increase sales on a retailer's website (0.014% for every 1% in marketplace sales). This effect is strongest for categories with large choice and low product prices. Acquiring customers through the marketplace might be cheaper than through other sources (estimated at 24% of initial sales). However, online retailers should be aware that this strategy strengthens the marketplace and may have potential negative long-term consequences (e.g., through marketplace control of the customer relationship).     

The effects of multi-channel assortment integration on customer confusion

Abstract

The effects of assortment strategy on customer confusion have been discussed for singular channels in the past. However, multi-channel retailers also have to coordinate their assortment across channels. Recent literature has started to investigate which assortment integration strategy is most favourable for retailers, but theoretical and empirical research is still scarce. Until today, customer confusion has not been considered in this discussion. This article seeks to identify the impact of a retailer’s assortment integration on customer overload confusion, assortment perception and their consequences. In an experiment, we manipulate assortment integration internally (online and offline channel of the focal retailer; full and asymmetrical integration) and externally (online channel of the focal retailer and a competing online retailer; full, asymmetrical and no integration). The results indicate that both internal and external assortment integration have an impact on overload confusion and assortment perception. Asymmetrical internal integration induces less overload confusion in terms of its cognitive and affective components and leads to superior assortment perception. Full and asymmetrical external integration evoke less confusion with regard to its cognitive component. Eventually, overload has detrimental short- and long-term effects for the retailer. Multi-channel retailers should consider our results when implementing an assortment integration strategy.     

The multichannel pricing dilemma: Do consumers accept higher offline than online prices?

Whether to unify or discriminate prices in offline and online channels is a controversial topic that can be central to whether offline retailers survive in the marketplace. Field data evidence from a large multichannel retailer reveals a sobering picture. On average, only offline price premiums of approximately 2% seem feasible, and such premiums vary largely by product categories and price levels. High-priced products, which consumers perceive as risky, tend to allow offline price premiums, as do low-priced, takeaway items. However, in between these two extremes, the results show no potential for offline price premiums. Drawing on price fairness theory, we further explore consumer responses to higher offline prices in three experimental studies. In contrast with the assumptions of price fairness theory, the provision of purchase advisory services and communication of the price motive hardly stimulate consumer acceptance of higher offline prices in our context. However, the findings reveal important heterogeneity in consumer responses depending on their market segment, because some market segments indeed respond less negatively to higher offline prices. In addition, consumers accept offline price premiums for unplanned purchases.