Retailer Pricing Strategy and Consumer Choice under Price Uncertainty SHAI

Assuming consumers choose retailers based on their average price perceptions, previous research examined how different retailer pricing strategies (frequent discounting, deep discounting and everyday low pricing) influence these perceptions. In these studies, participants typically viewed competing retailer's product prices over multiple trials that simulated multiple shopping occasions. Then, in an unanticipated task, they retrospectively judged the average price for each retailer. We challenge the notion that consumers' average price perceptions drive their retailer choice in realistic situations where consumers choose among retailers without knowing current prices. Drawing on the experience-based choice and descriptive choice literatures we hypothesize and find that the choice share of the retailer that is cheaper more often is greater. Specifically, we demonstrate a choice advantage for a retailer that offers many small discounts or a consistently low regular price (EDLP retailer) over a retailer that offers infrequent deep discounts (depth retailer). Our findings show that the choice advantage for the retailer that is cheaper more often persists under partial feedback (where, after choosing, consumers learned only the price of the chosen retailer) and complete feedback (where they also learned the forgone retailer's price), and with choices made a day apart. The results are consistent with mental accounting principles and with consumer use of a price prediction strategy. Participants preferred the many small gains associated with the frequency retailer over the fewer larger gains associated with the depth retailer, and their predictions of prices for the next shopping trip explained their choices. ABSTRACT This research examines how consumers choose retailers when they are uncertain about store prices prior to shopping. Simulating everyday choice, participants made successive retailer choices where on each occasion they chose a retailer and only then learned product prices. The results of a series of studies demonstrated that participants were more likely to choose a retailer that offered an everyday low price or frequent small discounts over a retailer that offered infrequent large discounts. This choice advantage for the retailer that was cheaper more often manifested even when its average price was judged to be higher. The same results were obtained when choices were made a day apart, when price feedback was only given for the chosen retailer, and when it was given for both retailers. Participant's expectations of future prices but not their judgments of retailer's past average prices, predicted their subsequent retailer choice. Imagine that each Friday you purchase fresh pasta from …