Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

New Study Shows It Pays To Shop Around Online

27.10.2008
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.

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
Further information:
http://www.ncsu.edu

More articles from Studies and Analyses:

nachricht Win-win strategies for climate and food security
02.10.2017 | International Institute for Applied Systems Analysis (IIASA)

nachricht The personality factor: How to foster the sharing of research data
06.09.2017 | ZBW – Leibniz-Informationszentrum Wirtschaft

All articles from Studies and Analyses >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Neutron star merger directly observed for the first time

University of Maryland researchers contribute to historic detection of gravitational waves and light created by event

On August 17, 2017, at 12:41:04 UTC, scientists made the first direct observation of a merger between two neutron stars--the dense, collapsed cores that remain...

Im Focus: Breaking: the first light from two neutron stars merging

Seven new papers describe the first-ever detection of light from a gravitational wave source. The event, caused by two neutron stars colliding and merging together, was dubbed GW170817 because it sent ripples through space-time that reached Earth on 2017 August 17. Around the world, hundreds of excited astronomers mobilized quickly and were able to observe the event using numerous telescopes, providing a wealth of new data.

Previous detections of gravitational waves have all involved the merger of two black holes, a feat that won the 2017 Nobel Prize in Physics earlier this month....

Im Focus: Smart sensors for efficient processes

Material defects in end products can quickly result in failures in many areas of industry, and have a massive impact on the safe use of their products. This is why, in the field of quality assurance, intelligent, nondestructive sensor systems play a key role. They allow testing components and parts in a rapid and cost-efficient manner without destroying the actual product or changing its surface. Experts from the Fraunhofer IZFP in Saarbrücken will be presenting two exhibits at the Blechexpo in Stuttgart from 7–10 November 2017 that allow fast, reliable, and automated characterization of materials and detection of defects (Hall 5, Booth 5306).

When quality testing uses time-consuming destructive test methods, it can result in enormous costs due to damaging or destroying the products. And given that...

Im Focus: Cold molecules on collision course

Using a new cooling technique MPQ scientists succeed at observing collisions in a dense beam of cold and slow dipolar molecules.

How do chemical reactions proceed at extremely low temperatures? The answer requires the investigation of molecular samples that are cold, dense, and slow at...

Im Focus: Shrinking the proton again!

Scientists from the Max Planck Institute of Quantum Optics, using high precision laser spectroscopy of atomic hydrogen, confirm the surprisingly small value of the proton radius determined from muonic hydrogen.

It was one of the breakthroughs of the year 2010: Laser spectroscopy of muonic hydrogen resulted in a value for the proton charge radius that was significantly...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

ASEAN Member States discuss the future role of renewable energy

17.10.2017 | Event News

World Health Summit 2017: International experts set the course for the future of Global Health

10.10.2017 | Event News

Climate Engineering Conference 2017 Opens in Berlin

10.10.2017 | Event News

 
Latest News

Terahertz spectroscopy goes nano

20.10.2017 | Information Technology

Strange but true: Turning a material upside down can sometimes make it softer

20.10.2017 | Materials Sciences

NRL clarifies valley polarization for electronic and optoelectronic technologies

20.10.2017 | Interdisciplinary Research

VideoLinks
B2B-VideoLinks
More VideoLinks >>>