Retailer Pricing Strategy and Consumer Choice under Price Uncertainty SHAI DANZIGER

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 pricing strategy (EDLP) or that offered 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 feed-back was only given for the chosen retailer, and when price feedback 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 fromretailer A or retailer B. You have observed that both re-tailers offer the pasta at the same regular price, but that A offers large though infrequent discounts on it, while B offers small but frequent discounts on it. Unfortunately, you do not know how much each retailer will charge on any given day unless you visit that store. If your goal is to minimize spending across shopping trips, where will you shop this Friday? Will you choose the retailer for whom you believe the average price across shopping occasions is lower? Will you choose the retailer you believe offers larger discounts? Will you Shai Danzige