AsianScientist (Nov. 18, 2013) – Discounting retail items reduces the tendency to shop around, which leads to less competitive outcomes and potentially higher prices, according to an Australian study.
In this study, published in the Journal of Economic Psychology, Associate Professor Ralph Bayer of the University of Adelaide School of Economics discovered how price framing (the way in which a price is presented) influences consumer shopping behavior.
In a two-shop consumer search experiment conducted in a computer laboratory, participants were exposed to both net prices and gross prices with a discount.
It was found that shoppers purchased more often in the first shop, without searching, regardless of where discounts were offered. Even when consumers knew the second shop offered a discount and the first didn’t, they were more likely to buy from the first shop.
Bayer added that there are many aspects that influence consumers to buy a product including marketing and idiosyncratic preferences, but in the study they were able to remove those influences and isolate how price framing influences consumer search behavior.
“The results of this study imply the knowledge that there are discounts elsewhere (in shop two in this case) does not, as one might expect, lure people into shopping around if the actual prices are unknown,” Bayer said. “This suggests that when a shopper sees a discount in a store they overvalue it, while a discount they are expecting to see in another store is undervalued.”
According to Bayer, these research findings also tell a larger story about retail competitiveness and prices.
“It is largely known that any business practice that reduces consumers’ willingness to shop around reduces competition and ultimately leads to higher prices. Examples are loyalty programs, reward cards and, as our study now shows, discounts,” Bayer said.
“Our study also shows that the decision biases are linked to price uncertainty. For this reason the easiest way to prevent being influenced by price framing is to research prices online before hitting the shops,” he said.
The article can be found at: Bayer R et al. (2013) Discounts and consumer search behavior: The role of framing.
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Source: The University of Adelaide; Photo: Catablogger/Flickr/CC.
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