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.
The study, “Segmented Switchers and Retailer Pricing Strategies,” was published in the May issue of Journal of Marketing. It was co-authored by Dr. Cenk Kocas, associate professor of marketing at Sabanci University in Istanbul, Turkey.
“Segmented Switchers and Retailer Pricing Strategies”
Authors: Dr. Jonathan D. Bohlmann, North Carolina State University; Dr. Cenk Kocas, Sabanci University
Published: May 2008, Journal of Marketing
Abstract: Empirical studies reveal a surprisingly wide variety of pricing strategies among retailers, even among Internet sellers of undifferentiated homogenous goods such as books and music CDs. Several empirical findings remain puzzling, particularly that within the same market some small retailers decide to deeply discount, while other small retailers forgo the price-sensitive switchers and price high. We present theoretical and empirical analyses that address these varied pricing strategies. Our model of three asymmetric firms shows that under multiple switcher segments, where different switchers compare prices at different retailers, firm-specific loyalty is not sufficient to explain the variety of pricing strategies. We demonstrate that a retailer’s strategy to discount deeply or frequently is driven by the ratio of the size of switcher segments for which the retailer competes to its loyal segment size. The relative switcher-to-loyal ratios among retailers explain when a small retailer finds it optimal to price high, despite having few loyals, or to discount and go for the switchers. The results of two empirical studies confirm our model’s predictions for varied pricing strategies in the context of Internet booksellers. Our analyses also present several implications. A small retailer can sometimes benefit from strategically limiting its access to switchers in order to soften price competition. A mid-sized retailer can benefit from targeting its switcher acquisition activities towards its larger rival, given the more shallow discounts involved. When most switchers widely compare prices, a large retailer should offer few shallow discounts since other firms will more aggressively discount. The importance of switcher segmentation suggests that managers should carefully measure switching behavior in devising pricing strategies.
Matt Shipman | Newswise Science News
Diagnoses: When Are Several Opinions Better Than One?
19.07.2016 | Max-Planck-Institut für Bildungsforschung
High in calories and low in nutrients when adolescents share pictures of food online
07.04.2016 | University of Gothenburg
Researchers from the Institute for Quantum Computing (IQC) at the University of Waterloo led the development of a new extensible wiring technique capable of controlling superconducting quantum bits, representing a significant step towards to the realization of a scalable quantum computer.
"The quantum socket is a wiring method that uses three-dimensional wires based on spring-loaded pins to address individual qubits," said Jeremy Béjanin, a PhD...
In a paper in Scientific Reports, a research team at Worcester Polytechnic Institute describes a novel light-activated phenomenon that could become the basis for applications as diverse as microscopic robotic grippers and more efficient solar cells.
A research team at Worcester Polytechnic Institute (WPI) has developed a revolutionary, light-activated semiconductor nanocomposite material that can be used...
By forcefully embedding two silicon atoms in a diamond matrix, Sandia researchers have demonstrated for the first time on a single chip all the components needed to create a quantum bridge to link quantum computers together.
"People have already built small quantum computers," says Sandia researcher Ryan Camacho. "Maybe the first useful one won't be a single giant quantum computer...
COMPAMED has become the leading international marketplace for suppliers of medical manufacturing. The trade fair, which takes place every November and is co-located to MEDICA in Dusseldorf, has been steadily growing over the past years and shows that medical technology remains a rapidly growing market.
In 2016, the joint pavilion by the IVAM Microtechnology Network, the Product Market “High-tech for Medical Devices”, will be located in Hall 8a again and will...
'Ferroelectric' materials can switch between different states of electrical polarization in response to an external electric field. This flexibility means they show promise for many applications, for example in electronic devices and computer memory. Current ferroelectric materials are highly valued for their thermal and chemical stability and rapid electro-mechanical responses, but creating a material that is scalable down to the tiny sizes needed for technologies like silicon-based semiconductors (Si-based CMOS) has proven challenging.
Now, Hiroshi Funakubo and co-workers at the Tokyo Institute of Technology, in collaboration with researchers across Japan, have conducted experiments to...
14.10.2016 | Event News
14.10.2016 | Event News
12.10.2016 | Event News
24.10.2016 | Power and Electrical Engineering
24.10.2016 | Life Sciences
24.10.2016 | Life Sciences