For Retailers, Low Prices Are Just the Beginning

Sep 09, 2013, 10:07 ET from American Marketing Association

CHICAGO, Sept. 9, 2013 /PRNewswire-USNewswire/ -- Contrary to the conventional wisdom that a consumer's perception of the overall price level of a retailer is mainly a function of its average prices, new research argues that low prices do not always result in a low price image and that a retailer can create an impression of having low prices using a variety of nonprice tactics.  


"Showrooming"—the practice of examining merchandise in a retail store and then shopping online to find the desired item at a lower price—has become the nemesis of many brick-and-mortar retailers. Yet, not all traditional retailers are equally affected by showrooming. Shoppers at stores like Walmart, Costco, and Aldi are less likely to pull out their smartphones to check the competition for lower prices. These retailers benefit from their low price image, even in cases where they do not have the lowest price on a particular item. 

While retailers have begun to recognize the importance of managing their price images, existing marketing research does not provide a clear picture of how these impressions are formed and how to manage them effectively and efficiently. Research appearing in the November 2013 issue of the American Marketing Association's Journal of Marketing seeks to address this gap. This research by Ryan Hamilton of Emory University and Alexander Chernev of Northwestern University is the first to offer an in-depth analysis of the factors that contribute to price image formation and to delineate the ways price image can influence consumer behavior.   

"One common misperception about price image is that it is simply a reflection of a store's average price level and, hence, that managing price image merely involves managing prices," note Hamilton and Chernev. They argue that many price and non-price factors can overcome the influence of actual prices, resulting both in situations in which a retailer has a low price image despite having relatively high prices and situations in which a retailer can have a high price image despite its relatively low average price level.

According to Hamilton and Chernev, it is not enough for retailers to simply optimize prices. Low prices are just the beginning. Instead, they should use all the tools at their disposal—from the mix of prices available on the store shelf, to the way they change prices over time, to the physical characteristics of the store itself—to communicate a desired price image.

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SOURCE American Marketing Association