January 10, 2013
Retail-Marketing Twist: New Research Suggests That Low Price Guarantees Have Adverse Effects on Consumer Behavior — Reims Study Reveals Negative Consequences of "Too Good to Be True" Deal
New research from Reims Management School (RMS) reveals that consumers are often put off by promises of lowest prices that are coupled with high refund guarantees — contrary to the usual strategies of many top retailers.
Conventional marketing practice suggests the natural assumption is that consumers will choose the cheapest option when offered the same product at different prices. It is therefore up to the seller to convince the consumer that theirs is indeed the lowest price. Guarantees, coupled with a promise of reimbursement of the price difference if a cheaper option is found elsewhere, are an increasingly common method to deliver this impression.
The technique is also used to avoid "showrooming," when consumers go in-store to decide the product to buy but in the end use the Internet make the final purchase at the true "best price."
The research from Reims has found, however, that such strategies can cause consumers to become suspicious of the offer and may avoid making the purchase altogether. The researchers conducted three experiments consisting of 662 subjects, with the objective of better understanding consumer behavior, their perception and their attitude in relation to these low price guarantees.
"This research has significant implications for retailers but also for manufacturers," said Adilson Borges, head of the Value & Persuasion Research Center at RMS, in a news release.
"If the offer seems too good to be true, the consumer may start to believe that there is a catch, and become wary or suspicious of the details. This bad image creates a negative effect. The offer must appear to be credible. It must be truly beneficial and financially interesting for the consumer," Borges said.
A price guarantee offering an automatic refund of the difference where the retailer is constantly surveying competitors' pricing works well and gives a positive image of the seller to the consumers. However, an automatic guarantee with a reimbursement that is too high, such as five or ten times the difference, engenders a caution from the consumer, and conveys a rather negative image. Consumers were observed to reduce their purchase intention when facing these types of deals.
"In fact, when we examine the retailers together, we observe that their objective is to give the impression that they have the most competitive offer in the market. From this point of view they have every interest in offering a guarantee of the best price and reimbursing the difference," said Borges.