In response to the growth of popular Internet price comparison sites that collect and display numerous retail prices for different products, many brick-and-mortar retailers reacted by offering price-matching guarantees to be competitive. But that approach may not be the best option for offline retailers, as a retailer’s rating and reliability are factors consumers consider along with low price.
A new study from the University of Wisconsin-Madison’s Wisconsin School of Business finds that while consumers will use price comparison sites to shop for the best deal, the lowest price will be less attractive if it is offered by a retailer with poor favorability ratings from customers. Neeraj Arora, professor of marketing at the Wisconsin School of Business, together with H. Onur Bodur of Concordia University in Montreal and Noreen M. Klein of Virginia Tech, examined the impact of price comparison websites on how shoppers evaluate prices and the implications for brick-and-mortar retailers.
“Obviously, consumers like low prices, but they also take into consideration which retailer is offering the deal,” said Arora, marketing professor and director of the A.C. Nielsen Center for Marketing Research at the Wisconsin School of Business. “The retailer ratings on price comparison sites are another vital piece of information that lead shoppers to determine how attractive a price is. If they see poor retailer ratings associated with low prices, they may question the legitimacy of that price.”
Arora added, “For that reason, simply adopting price-matching guarantees may put brick-and-mortar retailers in a position where they are selling themselves short by underestimating the value of their brand reputation and trying to match a competitor’s price that customers don’t believe to be valid.”
Internet price comparison sites, such as PriceGrabber.com, make it easy for shoppers to comparison shop instantly while shopping at local stores. Arora said the advent of so-called “Web-to-store” shopping and the popularity of online research shopping have led brick-and-mortar retailers to respond by using prices on price comparison sites to set their own in-store prices or by offering price-matching guarantees. But what they should really focus on are the prices from highly rated retailers, as those prices have higher perceived validity and a greater impact on subsequent price evaluations.
Even in those cases where retailer ratings are comparable on price comparison sites, Arora said the findings suggest offline retailers should focus on the most common price found in online price searches, not just the lowest price.
The study evaluated the result of a price comparison site search for a Garmin Forerunner heart-rate monitor that produced prices ranging from $200 to $300, with some of the retailers being highly rated, and some receiving poor ratings. Given that situation, the question for shoppers became, “If you’re at the local sporting goods store and see a price of $250, is that a good price?”
When the $250 price is from a retailer with favorable ratings, shoppers may see it as the best option. Lower prices offered by retailers with poor online ratings may cause customers to reject a low price for fear of hidden fees or charges, or potential customer service problems.
Consumers evaluate the trade-off between a low price and low retailer rating,” said Arora. “While the first thing people look at is price, consumers then look at the retailer rating to decide whether it’s actually a good price.”
Arora’s research paper, “Online Price Search: Impact of Price Comparison Sites on Offline Price Evaluations” can be found in the Journal of Retailing.
Read his blog, “Is That a Good Price? How Online Research Affects In-Person Purchases”.