Retail pricing strategies: Do consumers prefer deep discounts or everyday low prices?

Jul 22, 2014

Sometimes finding the best bang for your buck feels like a wild goose chase. It's hard to know which stores offer the best prices at any given time. According to a new study in the Journal of Consumer Research, when trying to maximize savings, consumers will choose retailers they believe offer the lowest prices the majority of the time.

"We looked at the impact different strategies have on the stores people shop at when they do not know the product prices unless they visit the store," write authors Shai Danziger (Tel Aviv University), Liat Hadar (IDC Herzliya), and Vicki G. Morwitz (New York University).

To simulate 100 weekly purchases from a retail store, study participants were asked to purchase products from one of two competing retailers 100 different times. Participants were given a monetary incentive to minimize their total spending and were instructed to base their selections strictly on price.

On each shopping trip, participants first selected a retailer before they were shown the store prices for that week. The authors manipulated the , but in most cases, one retailer used deep-discount pricing while the competing retailer used everyday low pricing or frequent (but small) discounts. While the average price of the two retailers was the same for most experiments, results showed that people consistently tend to choose the retailer they believe is less expensive more often than the retailer they believe is cheapest on average. This pattern held whether or not the retailer used frequent discounts or an everyday low price guarantee.

These results offer insight for companies regularly using deep discounts or pricing their products lower than their competitors' average prices. The authors suggest a more effective strategy is to simply offer prices that are generally always lower than their competitors' prices. "One reason consumers find these retailers so attractive is that their product prices tend to be cheaper than those of their competitors on the majority of shopping trips. Consumers seem to prefer many small discounts to a few large ones and their perceptions of average prices do not drive their store choices," the authors conclude.

Explore further: Explaining the games gasoline retailers play

More information: Shai Danziger, Liat Hadar, and Vicki G. Morwitz. "Retailer Pricing Strategy and Consumer Choice under Price Uncertainty." Journal of Consumer Research: October 2014.

add to favorites email to friend print save as pdf

Related Stories

Explaining the games gasoline retailers play

Jun 20, 2014

(Phys.org) —When it's time to top up the tank, how much thought do you give to where you will buy gas? Maybe you drive around town, looking for the best deal. Chances are, you usually visit the same station in your neighbourhood, ...

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 ...

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.

Recommended for you

Industrial clusters fuel economies, according to study

5 hours ago

Experts have long theorized that having a cluster of firms within a given industry helps a region's economy grow. Now a study co-authored by an MIT professor shows empirically that clusters of almost all ...

Economic output less dependent on road transportation

5 hours ago

For the past 10 years, motorization in the U.S. has been on the decline, due mainly to more telecommuting, greater use of public transit, increased urbanization of the population and changes in the ages of drivers.

Economist outlines work on managing tasks and time

Dec 17, 2014

"When a man knows he is to be hanged in a fortnight," said Samuel Johnson, "it concentrates his mind wonderfully." Most of us, spared such an imperative, carry on in a less-concentrated state, but it holds ...

Companies do not use online HRM effectively

Dec 15, 2014

Professor Tanya Bondarouk of the University of Twente thinks it's embarrassing : many companies and organizations are still not making effective use of e-HRM systems. These online systems can be used for a wide range of HRM-related ...

User comments : 1

Adjust slider to filter visible comments by rank

Display comments: newest first

mikecalogridis
not rated yet Aug 10, 2014
Should be of no surprise that consumers want lower prices and want that retailer that will generally provide those lower prices. Having a few advertised SKU's that are deeply discounts may induce sales but it can be hit and miss on whether the consumer is shopping when those deep discounts are in place. Mike Calogridis - Pricing Expert. Author of Practical Pricing

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.