What is the real cost of discounting retail items?

Nov 08, 2013

Discounting retail items reduces the tendency to shop around, which leads to less competitive outcomes and potentially higher prices, according to University of Adelaide School of Economics' Associate Professor Ralph Bayer.

In new research published in the Journal of Economic Psychology, Associate Professor Bayer studied how price framing (the way in which a price is presented) influences consumer shopping behaviour.

In a two-shop consumer search experiment conducted in a computer laboratory, participants were exposed to both net and gross prices with a discount.

It was found that shoppers purchased more often in the first shop, without searching, regardless of where discounts were offered. Even when consumers knew the second shop offered a discount and the first didn't, they were more likely to buy from the first shop.

"There are many aspects that influence consumers to buy a product including marketing and idiosyncratic preferences, but in this study we were able to remove those influences and isolate how price framing influences consumer search behaviour," Associate Professor Bayer says.

"The results of this study imply the knowledge that there are discounts elsewhere (in shop two in this case) does not, as one might expect, lure people into shopping around if the actual prices are unknown.

"This suggests that when a shopper sees a discount in a store they overvalue it, while a discount they are expecting to see in another store is undervalued."

According to Associate Professor Bayer, these research findings also tell a larger story about retail competitiveness and prices.

"It is largely known that any business practice that reduces consumers' willingness to shop around reduces competition and ultimately leads to higher prices. Examples are loyalty programs, reward cards and, as our study now shows, discounts.

"Our study also shows that the decision biases are linked to price uncertainty. For this reason the easiest way to prevent being influenced by price framing is to research prices online before hitting the shops," Associate Professor Bayer says.

Explore further: Why do discounts backfire when you make consumers wait?

More information: The full paper, Discounts and Consumer Search Behavior: The Role of Framing, can be access online at: www.sciencedirect.com/science/article/pii/S0167487013001037

add to favorites email to friend print save as pdf

Related Stories

Why do discounts backfire when you make consumers wait?

Oct 15, 2013

Consumers like to reap the benefits of discounts immediately (not later), according to a new study in the Journal of Consumer Research. Consumers enjoy discounted products much less if they have to wait for them.

New study shows it pays to shop around online

Nov 24, 2008

Holiday shopping season has arrived, and tough financial times mean that more people will probably be shopping around for the best price. But a new study co-authored by North Carolina State University's Dr. Jonathan D. Bohlmann ...

Loyalty is trump: New study on price reduction

Feb 18, 2013

A skilful negotiator can save a lot of money when shopping in his favourite store. This was found out by researchers at the Ruhr-Universität Bochum (RUB) in a large-scale study. An extra five percent discount is, on average, ...

Recommended for you

Which foods may cost you more due to Calif. drought

Apr 17, 2014

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

Apr 16, 2014

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 0

More news stories

Study finds law dramatically curbing need for speed

Almost seven years have passed since Ontario's street-racing legislation hit the books and, according to one Western researcher, it has succeeded in putting the brakes on the number of convictions and, more importantly, injuries ...

Health care site flagged in Heartbleed review

People with accounts on the enrollment website for President Barack Obama's signature health care law are being told to change their passwords following an administration-wide review of the government's vulnerability to the ...

Airbnb rental site raises $450 mn

Online lodging listings website Airbnb inked a $450 million funding deal with investors led by TPG, a source close to the matter said Friday.