Behavioral Aspects of Pricing

Buyers sometimes exhibit seemingly “irrational” behavior with respect to prices and use socially embedded heuristics to simplify their purchase decisions. In some cases small changes in prices can lead to much larger than anticipated changes in sales and profitability. Sellers need to understand the heuristics consumers use, the situations in which they emerge, and recognize how they can respond in markets where information and knowledge of product attributes and competitive prices is increasingly available via the Internet. This chapter explores consumers’ behavioral reactions to price through a review of contemporary literature in the field of pricing. The chapter delineates the nature and scope of these effects based upon a critical review of the most up-to-date empirical research in the field, and concludes by providing implications for innovation in pricing, and guidance for managers to reduce the disconnect between themselves and consumers

The effects of advertised exclusivity on consumer behavior

Retailers routinely counter price competition by matching or beating competitors\u27 prices. However, in addition to offering price-matching guarantees many retailers are increasingly adopting a differentiation or product assortment strategy of using advertised retailer exclusive products (AREPs) that are not directly comparable to competitor offerings. Such goods may offer added utilitarian and hedonic benefits to the consumer. With this tactic, products are advertised and labeled as exclusive, but the nature of the exclusivity may range no further than an exclusive label to more pronounced differences, such as unique or additional features. However, the effectiveness of such tactics at: (1) decreasing search motivations for lower prices and/or alternative versions of the product, (2) shaping perceived value (both utilitarian and hedonic), and (3) influencing consumers\u27 purchase decisions, is relatively unknown. Furthermore, while AREPs are a fairly new trend in retailing, the idea of exclusive products is a well-worn marketing idea. Luxury goods, in particular, are associated with exclusivity. However, exclusivity, especially the explicit, advertised exclusivity associated with AREPs, is different from the implied exclusivity of luxury goods. Therefore, this dissertation also presents a continuum and classification scheme of exclusivity to assist in differentiating between the types of exclusivity appeals and products. With the various forms of exclusivity classified, this dissertation gives a refined definition of exclusivity in a marketing context. Next, this dissertation discusses commonly accepted reference price models (e.g. Urbany et al. 1988, Alford and Engelland 2000) and suggests ways in which AREPs might influence these models and convince consumers to pay more for an exclusive product. An alternative model specifically addresses ways in which AREPs attempt to suppress or enhance parts of the traditional reference price model to increase purchase intention. AREPs, by their very nature, have no identical products available for comparison. However, other retailers may offer extremely similar versions of the same products. Rather than competing on price, AREPs use a combination of scarcity, whether real or perceived, prestige pricing, and additional hedonic (i.e. emotional) or utilitarian (i.e. practical) value to make the sale price more attractive. This unique combination of exclusive features and attributes may increase the likelihood of customer lock-in, in which customers must visit the retailer, and perhaps pay a slightly higher price, in order to obtain the additional exclusive attributes. Overall, this dissertation focuses on the nature of exclusivity in a marketing context, both in the retail marketplace and in the academic literature. While AREPs as a retailing strategy are discussed in-depth, other forms of exclusivity are also discussed to better define exclusivity and differentiate between the forms that exclusivity takes in the marketplace. Last, an experiment testing consumer reactions to exclusivity promotions provides insight into the effectiveness of such promotions and gives a better understanding of how consumers perceive exclusive product promotions. The experiment was conducted using a web survey at a university in the southern United States. After cleaning the data, 321 valid responses remained. MANCOVA was used to analyze the results of the survey, and exclusivity promotions alone appeared to have had little impact on consumer perceptions. When exclusivity and additional product attributes were both present, exclusivity promotions significantly lowered the subjects\u27 attitudes toward the product in some manipulations. Overall, exclusivity promotions and their effects seem related to the type of attributes that are combined with the exclusivity promotion, and these effects appear to vary across product class

Investigating antecedents and consequences of exploratory consumer behavior in the context of online fashion product rentailers

Online fashion product rentailer describes a retailer that offers fashion products for rental using an Internet website as the main shopping channel, which is deemed as one of retail activities given the new retail landscape of the 21st century. While cognitive motivations drive renting behavior towards freedom from ownership burdens, hedonic benefits also motivate consumers to rent as a means to explore high-priced or trend-based products, such as fashion clothing. Despite the emergence of apparel renting behavior and the success of such business, no published research has examined the antecedents and consequences of the online fashion product rentailing environment in one study. Thus, the purpose of this study was to propose and empirically investigate an integrative model of online consumer behavior in the context of online fashion product rentailers. Specifically, the relationships that may exist among characteristics of online fashion product rentailers (i.e., perceived product uncertainty, perceived transaction uncertainty, perceived brand assortment, perceived price, eWOM) and personality traits of potential renters (i.e., optimum stimulation level (OSL), risk-taking tendency, variety-seeking tendency, curiosity-motivated tendency) in order to understand consumer behavior (i.e., exploratory consumer behaviors, intent to visit and patronize online fashion product rentailers’ website) associated to online fashion product renting contexts were examined. Data were collected from the Amazon Mechanical Turk’s (mturk) online panel members. The final sample consisted of 352 participants who had visited and engaged in online shopping activities (e.g., browsing, renting) at an online fashion product rentailer’s website in the past six months. Of these, approximately 72% were female and 50% of participants were aged between 18 and 29 years old. In addition, approximately 52% of the participants had rented a product from one of the online fashion product rentailers. To assess the proposed hypothesized model consisted of 66-item 12-construct, the two-step approach was performed to establish measurement and structural model via LISREL 9.2. The confirmatory factor analysis (CFA) with the maximum likelihood technique was employed. The CFA results revealed a satisfactory goodness-of-fit index. After the structural model was established, the structural equation modeling (SEM) was performed. The model fit statistics indicated ?2= 4523.176, df = 2,053, p < .001, ?2/df = 2.20, RMSEA = 0.058, CFI = 0.94, NFI = 0.90, TLI = 0.94, and PNFI = 0.85, suggesting that the hypothesized structural relationships fit the data satisfactorily. In terms of the relationships between the characteristics of online fashion product rentailers and optimum stimulation level (OSL), SEM results revealed that perceived brand assortment, perceived price, and eWOM had a positive relationship with OSL. In addition, we found that OSL were related to risk-taking, variety-seeking, and curiosity-motivated tendencies. In regards to the relationship between personality traits and exploratory consumer behavior, a significant relationship between risk-taking, variety-seeking, and curiosity-motivated tendencies and exploratory acquisition of product (EAP) was found. Additionally, curiosity-motivated tendency was positively related to exploratory information seeking (EIS). Lastly, results revealed that intent to shop and patronize online fashion product rentailers’ website was positively influenced by EIS and EAP. Implications are provided. Limitations and future research directions are also discussed

The impact of multiple framing cues on promotion success: Evidence from an experiment in an online Pay What You Want context

The impact of multiple framing cues on promotion success: Evidence from an experiment in an online Pay What You Want contex

Pricing in Online Retailing: Understanding Drivers of Sales, Revenue, and Profit

This dissertation analyzes topics related to price decisions in online retailing that are relevant for both managers and researchers

Two essays on digital and multi-channel marketing pricing strategy

Pricing is the process whereby a business sets the price at which it will sell its products and must be considered as a core part of the business's marketing plan. In recent years, there has been a growing awareness of the complex nature of price as a determinant of consumer decision making process. Recent research indicates there is no simple explanation of how price influences firm performance and individual consumer purchase decisions. The pricing strategy in traditional brick-and-mortar stores has received consistent attention from both academia and industry. However, as the raising of digital technology, the evolving business circumstance changed, or even re-introduced, many practically and theoretically important questions. Given this importance, the two essays tackle the strategic pricing strategy in the two critical perspectives of marketing — advertising and retailing. In the first essay, I explore the effects of displayed product price on keyword advertising performance in online shopping websites, as well as on consumers’ decision processes. With a hierarchical Bayesian model using a unique data set from a leading electronic shopping platform and a simulated experiment, I empirically test the asymmetric effects of price rank on advertising performances (i.e., click-through rates and conversion rates) in study one and the underlying mechanism in study two. Specifically, I find that consumers tend to click more on extreme price options (i.e., highest or lowest) in the early phases of the purchase funnel, which serve as anchors to evaluate a broad range of options. Clicks at later stages, which tend to convert to purchases, instead are more likely for moderately priced options, which offer a compromise across different product features. The effects of price rank diminish among advertisements sponsoring more specific keywords but grow for those sponsoring more popular keywords. This essay demonstrates that the keyword advertisements provides a context for price comparison, which further influences consumers’ responses toward advertisements. While the first essay focuses on gaining competitiveness through enhancing the price competition in digital advertising context, the second essay focuses on avoiding price competition in multi-channel retailing context through switching the business focus. The second essay explores the causal effects of multi-channel retailer implementing cross-channel price integration. Leveraging a revised pricing policy implemented by one of the leading house appliance retailers, I empirically investigate how cross-channel price integration affects product sales and consumer preferences. This change of cross-channel pricing strategy reveals varying impact across time, products, channels, and customer segments. In the short term, price integration leads to a 14.70% decrease in sales of products without services but a 14.68% increase in sales of products with services. The price integration effect is more positive in the long run, such that sales of products increase by 10.07% without services and 36.07% with services. Further, using a latent class model with zero-inflated Poisson framework, I empirically differentiated the effects of price integration on three consumer segments with different preferences (i.e., lovers, haters and adaptors). The findings of the second essay contribute to the multi-channel pricing literature by providing an empirical examine of the effectiveness of cross-channel price integration and consumer migration. The findings of the two essays contribute to the pricing, keyword advertisements and multi-channel literature, and shed lights on the strategic implications of pricing activities. Specifically, the first essay connects the pricing literature, consumer search and keyword advertising literature by exploring the effects of contrast among displayed product prices in the keyword advertising context. This essay is among the first few to investigate how advertised product price affects advertising performance. The study suggests the advertised product price display two contrasting effects on consumers’ clicking and purchasing behaviors along their purchase funnel. In addition, the research extends understanding of two keyword characteristics by theoretically differentiating keyword specificity and keyword popularity. The second essay connects the multi-channel pricing literature and transaction value literature by empirically examine the effects of retailers implementing cross-channel price integration policy. Advancing prior research on perceived transaction value and multi-channel pricing literature, this research proposes two contrasting mechanisms (i.e., price change and pricing consistency), through which the cross-channel price integration affects the product sales and consumer sales. The empirical findings shed lights on managerial implications to multi-channel retailers

Behavioral Biases in Marketing

Psychology and economics (the mixture of which is known as behavioral economics) are two fundamental disciplines underlying marketing. Various marketing studies document the non-rational behavior of consumers, even though behavioral biases might not always be consistently termed or formally described. In this review, we identify empirical research that studies behavioral biases in marketing. We summarize the key findings according to three classes of deviations (i.e., non-standard preferences, non-standard beliefs, and non-standard decision-making) and the marketing mix instruments (i.e., product, price, place, and promotion). We thereby introduce marketing researchers to the theoretical foundation of and terminology used in behavioral economics. For scholars from behavioral economics, we provide ready access to the rich empirical, applied marketing literature. We conclude with important managerial implications resulting from the behavioral biases of consumers, and we present avenues for future research

An Empirical Investigation of the Existence and Causes of Noticeable Price Difference in Multi-Channel Retailers

Pricing strategy is one of the greatest difficulties facing multi-channel retailers (Gupta, Ting & Tiwari, 2019) as many retailers have switched to a multiple channel system (Ailawadi & Farris, 2017). Retailers are using their price strategies to encourage consumers to use either online or offline channels. Therefore, in many cases retailers want consumers to notice the price difference between channels. However, in some circumstances, retailers do not want consumers to notice the differentiation. Therefore, this thesis will answer two main research questions: How should optimal pricing be set for multiple channels that will make consumers more/less likely to notice price differentiation? What types of price presentation format are more/less likely to make consumers notice price differentiation? Prior investigations have studied noticeable price differences by using differential price thresholds in a single channel (e.g., Cheng & Monroe, 2013a; Sirvanci, 1993) rather than studying differential price thresholds for a single product when there is one retailer and two channels. Multi-channel retailers use different monetary and non-monetary promotions as price presentation formats. Previous researchers have studied the roles of monetary and non-monetary promotions in the price-framing effect. However, so far no study has investigated the price effect of different promotion presentation formats on noticing differentiation. This thesis integrates just noticeable difference theory and prospect theory to investigate consumers’ ability to notice price differentiation in different price presentation formats. It does so by conducting two experimental studies, each with 720 participants. It investigates the antecedent factors that influence the noticing of price differentiation in multiple channels. The results of the thesis have important implications for the multi-channel literature and for managerial practice. They show that consumers are more likely to notice price differentiation when the difference between the (online and offline) regular prices is 20%. The results also suggest that there is a difference in noticing price differentiation in different monetary promotional formats. The thesis can guide marketing managers to set optimal prices for single products when there is one retailer and two channels. They can decide whether to use the same price in both channels or different prices in the different channels depending on whether their strategy is to attract consumers and increase purchase intentions by making the price difference noticeable or not

Towards the formation and measurement of ethnic price perception

This research is the outcome of a preeminent interest in the topic of price perception. Pointedly, the perception of prices is part of the purchasing process, the same willingness to pay and the actual purchase behaviour, and is indubitably a perceptual construct. As such, perception is problematic to measure as it does not relate to an observable behaviour. On the other hand, pricing is regarded as an important variable in the marketing mix. This research contributes to theory by augmenting the current knowledge on the perception of prices including the methods used in the measurement of such perception. Moreover, this research addresses a gap in the understanding of how diverse ethnic groups perceive prices. The relationship set in this study between ethnicity and price perception is thought-provoking as it contributes to the current discussion around diversity in the marketplace. For example, the literature shows advances in areas such as multicultural and ethnic marketing and this research makes a significant contribution to these areas from price perception. Accordingly, this study involved a systematic review of the literature and presented a framework that suggested that the formation of price perception is affected by external factors such as culture and ethnicity. Furthermore, a qualitative study examined the formation of price perception around ethnic groups. Next, this research used a quantitative study that sought differences in price perception among ethnic groups. Thus, the quantitative study used a price perception scale (Lichtenstein et al., 1993) and a choice-based conjoint analysis. Also, the study adopted structural equation modelling (SEM) to measure differences among scales and the multinomial logit model to analyse the choice-based conjoint analysis. The findings of both the quantitative and the qualitative studies link to the systematic review and support the framework for the formation and measurement of price perception originally proposed