An Empirical Investigation of the Existence and Causes of Noticeable Price Difference in Multi-Channel Retailers

Abstract

Pricing strategy is one of the greatest difficulties facing multi-channel retailers (Gupta, Ting & Tiwari, 2019) as many retailers have switched to a multiple channel system (Ailawadi & Farris, 2017). Retailers are using their price strategies to encourage consumers to use either online or offline channels. Therefore, in many cases retailers want consumers to notice the price difference between channels. However, in some circumstances, retailers do not want consumers to notice the differentiation. Therefore, this thesis will answer two main research questions: How should optimal pricing be set for multiple channels that will make consumers more/less likely to notice price differentiation? What types of price presentation format are more/less likely to make consumers notice price differentiation?
Prior investigations have studied noticeable price differences by using differential price thresholds in a single channel (e.g., Cheng & Monroe, 2013a; Sirvanci, 1993) rather than studying differential price thresholds for a single product when there is one retailer and two channels. Multi-channel retailers use different monetary and non-monetary promotions as price presentation formats. Previous researchers have studied the roles of monetary and non-monetary promotions in the price-framing effect. However, so far no study has investigated the price effect of different promotion presentation formats on noticing differentiation. This thesis integrates just noticeable difference theory and prospect theory to investigate consumers’ ability to notice price differentiation in different price presentation formats. It does so by conducting two experimental studies, each with 720 participants. It investigates the antecedent factors that influence the noticing of price differentiation in multiple channels.
The results of the thesis have important implications for the multi-channel literature and for managerial practice. They show that consumers are more likely to notice price differentiation when the difference between the (online and offline) regular prices is 20%. The results also suggest that there is a difference in noticing price differentiation in different monetary promotional formats. The thesis can guide marketing managers to set optimal prices for single products when there is one retailer and two channels. They can decide whether to use the same price in both channels or different prices in the different channels depending on whether their strategy is to attract consumers and increase purchase intentions by making the price difference noticeable or not.