Retailers are frustrated. In recent years, their brick-and-mortar stores are facing such heated competition that, in some cases, they are becoming showrooms for online shoppers. Yet some consumers carry information gleaned online into stores to help them shop, and retailers have been using that same information to their advantage—setting prices or offering price-matching guarantees.
My new research, with colleagues H. Onur Bodur of Concordia University in Montreal and Noreen M. Klein of Virginia Tech, examines the impact of price comparison websites on offline price evaluations. Our empirical findings offer several useful insights for retailers.
Consumers are increasingly relying on Internet price comparison sites (PCS) to gain knowledge about the market. The idea is that shoppers go online to a site such as PriceGrabber.com and use the information gathered there to help them make offline, in-store purchases, or “web-to-store” shopping. The detailed information presented in PCS search results (e.g., retailer ratings, frequency of retailers offering the product at the same price, retailer price level) likely influence subsequent price evaluations.
In our research, we evaluate a PCS search result for a Garmin Forerunner heart-rate monitor with a wide price distribution that ranges from $200 to $300. Some of those retailers are highly rated, and some are not. So the question is, if you step into a Dick’s Sporting Goods store and see a price of $250, how do you evaluate that?
How do these online comparisons influence the attractiveness of the in-store price? We find that the distribution shape of prices matters. Sometimes it’s widely dispersed and that affects the attractiveness of the price.
But there is another factor: retailer ratings—those stars that tell you what other consumers think about their interaction with the seller.
It’s a complex piece of information. It’s not only what price you can get, but also what the rating is from the retailer that offers that price. In our research, we introduce the concept of price validity—the degree to which consumers believe a listed price to be genuine and obtainable in the marketplace. We explore how price validity is attained and how it influences shoppers’ evaluation of prices.
Consumers like low prices, but also factor in which retailer is offering it to determine how attractive the price is. A low PCS retailer rating might lead consumers to question the legitimacy of the price offered.
That means there are two factors at work. One is price; that’s the first thing people look at. Then they look at the rating, in that order.
While shoppers looking offline and buying online has been a challenge for brick-and-mortar retailers, it’s been equally challenging as consumers come to them with a price they believe to be valid. The consumers don’t have to go to the store to know the cost, they can see prices across the board and make a decision about how much they want to spend on a product.
Offline retailers have the advantage of being right there for consumers to see the product, but also the disadvantage of consumers being able to ask themselves, “Do I want it from Best Buy or do I want it for $50 cheaper somewhere else?”
Knowing that other factors besides price can validate a price in consumers’ minds, we believe retailers shouldn’t automatically try to match the lowest price out there. Some retailers have price-matching guarantees, and we believe that such a guarantee is not necessarily the best option. If a customer comes in to the sales floor manager and says, “I have this price, can you match it?” we are saying no, because you have to ask, “Where is it from?” If it’s from Amazon or Target, absolutely. If it’s from someone unknown or unreliable, then don’t. Because you have an out.
If there is a wide range of prices, offline retailers shouldn’t necessarily focus on the lowest price but the online prices that are associated with high PCS ratings. When there is little variation in PCS prices, offline retailers could focus on the most frequently offered prices, not necessarily the lowest.
Consumers evaluate the trade-off between a low price and low retailer rating. There is comfort in buying local, buying face-to-face and the added comfort of being able to return a product. We’ve all been in situations where we bought something from an unknown retailer because of the low price, and then things go wrong.
In recent decades, consumers have been able to benefit from the wealth of product information and pricing available on the Internet. Our research shows that offline retailers can use that same information to remain competitive in the market.
Read the full paper, “Online Price Search: Impact of Price Comparison Sites on Offline Price Evaluations,” in the Journal of Retailing.