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 shows that shoppers who compare prices at multiple online retailers will not only find the best value, but will also likely contribute to driving down prices for that product at other retailers.

Bohlmann, an associate professor of marketing at NC State, explains that there are basically two types of shoppers: "switchers" and "loyals." Switchers compare prices from multiple online retailers, while loyals are committed to a particular store and don't bother with comparison-shopping. Bohlmann explains that the higher the number of switchers relative to the number of loyals – or the so-called switcher/loyal ratio – the higher the pressure a retailer faces to discount products in order to remain competitive.

However, it's not quite that simple. An online retailer doesn't only look at its own switcher/loyal ratio; it has to consider the ratios of its competitors. Bohlmann explains that a retailer with a high switcher/loyal ratio may keep prices high if its competitors have an even higher ratio. These ratios, and the size of the retailers, are all considerations that are taken into account when stores set their prices.

Retailers can have a variety of responses to increased pressure from switchers to discount their prices. For example, the study shows that some smaller retailers may try to focus on the loyal market – and higher prices – by avoiding price comparison Web sites and other tools used by switchers who shop around. Meanwhile, mid-sized retailers may take yet another approach, choosing to compete only against larger rivals – essentially trying to beat the big retailers' prices while still charging more than some smaller stores.

But all of this comparison-shopping could be bad news for those shoppers who are loyal customers of large retailers. The study's findings suggest that if there are a lot of switchers widely comparing prices, big stores should limit themselves to a few small discounts – since other companies are likely to offer more aggressive price incentives.

Reference: "Segmented Switchers and Retailer Pricing Strategies", Dr. Jonathan D. Bohlmann, North Carolina State University; Dr. Cenk Kocas, Sabanci University, Published: May 2008, Journal of Marketing

Source: North Carolina State University

Explore further: Freedom and responsibility of science

add to favorites email to friend print save as pdf

Related Stories

Recommended for you

When it comes to how pizza looks, cheese matters

17 hours ago

Most consumers have an idea what they want their pizza slice to look like. Golden cheese with that dark toasted-cheese color scattered in distinct blistery patches across the surface with a bit of oil glistening in the valleys. ...

Freedom and responsibility of science

23 hours ago

Yesterday, the German Research Foundation (DFG) and the Leopoldina National Academy of Sciences presented their recommendations for "The Freedom and Responsibility of Science" in Berlin. Both research organizations appeal ...

What I learned from debating science with trolls

Aug 20, 2014

I often like to discuss science online and I'm also rather partial to topics that promote lively discussion, such as climate change, crime statistics and (perhaps surprisingly) the big bang. This inevitably ...

Activists urge EU to scrap science advisor job

Aug 19, 2014

Nine major charities urged the European Commission on Tuesday to scrap a science advisor position it says puts too much power over sensitive policy into the hands of one person.

User comments : 2

Adjust slider to filter visible comments by rank

Display comments: newest first

noosfractal
not rated yet Nov 24, 2008
Loyals = rich people.
Doug_Huffman
not rated yet Nov 24, 2008
Predicting the end of supply-and-demand economics? Only for a gullible market.