Price Expectations and Purchase Decisions: Evidence from an Online Store Experiment

Roy, S and Chan, T and Cheema, A (2014) Price Expectations and Purchase Decisions: Evidence from an Online Store Experiment. Customer Needs and Solutions, 1 (2). pp. 117-130.

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Abstract

In this paper, we study the role of consumer price expectations in influencing consumer purchase decisions. Specifically, we examine the drivers of relative dominance of two price expectations—one formed prior to store visit (PRIOR) and the other about price in other stores (POST) formed after being exposed to focal store price. We collect the data from an online store shopping environment, allowing participants to make real purchase decisions. We have identified two distinct classes of shopping behaviors in our data—inside-focused (IF) and outside-looking (OL). Purchase decisions of the former are mainly driven by PRIOR while that of the latter by POST. At constant cost, we show that a promotion scheme with deep discounts (e.g., 5 % for 3 weeks or 15 % price cut in the first week) boosts sales more than the one with shallow discount (e.g., 3 % for 5 weeks). This increase comes mainly from the OL class, which is more sensitive to price changes. We further demonstrate how stores should manage consumer price expectations to maximize the sales lift during price promotions.

ISB Creators:
ISB CreatorsORCiD
Roy, SUNSPECIFIED
Item Type: Article
Uncontrolled Keywords: Price expectation, Reference price, Promotion
Subjects: Business and Management
Finance
Depositing User: Veeramani R
Date Deposited: 17 Nov 2014 19:34
Last Modified: 20 Jan 2015 10:56
URI: http://eprints.exchange.isb.edu/id/eprint/314
Publisher URL: http://dx.doi.org/10.1007/s40547-014-0010-3
Publisher OA policy: http://www.sherpa.ac.uk/romeo/issn/2196-291X/
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