Low-price Guarantees Research Articles

Item Matching Model in E-Commerce: How Users Benefit

Abstract Research purpose. During the last decades, e-commerce sales have been rocketing, and this tendency is expected to increase over the following years. Due to the digital nature of e-commerce, one actual item can be sold on various e-commerce platforms, which leads to the exponential growth of the number of propositions. At the same time, the title and description of this item might differ. All these facts make more complicated for customers the process of searching on online platforms and change business approaches to the development of competitive strategy by e-commerce companies. The research question is how we can apply a machine learning algorithm to detect, based on the product information such as title and description, whether the items are actually relevant to the same product. Methodology. We suggest an approach that is based on a flexible textual data pipeline and the usage of a machine-learning model ensemble. Each step of the data processing is adjustable in dependence on domain issues and data features because we can achieve better results in solving the item-matching task. Findings. The item-matching model is developed. The proposed model is based on the semantic closeness of text descriptions of items and the usage of the core of keywords to present the reference item. Practical implications. We suggest an approach to improving the item searching process on different e-commerce platforms by dividing the process into two steps. The first step is searching for the related items among the set of reference items according to user preferences. The reference item description is created based on our item-matching model. The second step is surfing proposals of similar items on chosen e-commerce platforms. This approach can benefit buyers and sellers in various aspects, such as a low-price guarantee, a flexible strategy of similar products shown, and appropriate category-choosing recommendations.

Low-Price Guarantees in a Dual Channel of Distribution

In a dual channel, the manufacturer's low-price guarantee facilitates price discrimination and channel coordination and the manufacturer may choose price-beating, price-matching, or no guarantee.

Low-Price Guarantees in a Dual-Channel of Distribution

Manufacturers routinely rely on retailers to reach potential customers. Concurrently, they often offer low-price guarantees (LPGs) to customers who purchase through their direct channel. That is, should consumers find a lower price from distribution partners, manufacturers promise to match or even beat the lower price. Many manufacturers, such as Apple, Dell, Hewlett-Packard, Lenovo, and Goodyear, use price-matching guarantees (PMGs) against retailers. In the online travel industry, price-beating guarantees (PBGs) are prevalent among travel suppliers. In this paper, we develop a game-theoretic model to investigate the manufacturer's optimal choice of LPG policies and its implications for the manufacturer, retailer, and channel. Our analysis demonstrates that no LPG, PMG, and PBG can each emerge in equilibrium depending on consumer characteristics. While LPGs can improve channel profit, they may benefit the manufacturer at the expense of the retailer. As such, LPGs can intensify vertical channel conflict. However, both horizontal channel conflict and vertical channel conflict are present in dual channels. LPGs are not merely price discrimination device, they mitigate horizontal channel conflict. The benefit of LPGs in reducing horizontal channel conflict outweighs the loss from intensified vertical channel conflict under a wide range of conditions. Therefore, LPGs serve as channel coordination devices.

Are Low Price and Price Matching Guarantees Equivalent? The Effects of Different Price Guarantees on Consumers’ Evaluations

Some retailers offer price match guarantees, whereas others offer guarantees making the same promise but labeling these low-price guarantees. Do consumers respond differently to these different price guarantee labels? To address this research question, this paper leverages insights from pricing, signaling, and regulatory focus theories to demonstrate – across multiple studies – that consumers perceive price match versus low price guarantees differently. In turn, contingent on consumers’ regulatory focus, this difference in perceptions feeds forward and influences consumers’ purchase intentions and post purchase (e.g., repurchase) intentions. This paper contributes to theory, not only by showing differences across price match versus low price guarantees, but also by being the first to jointly examine purchase and post purchase intentions relating to price guarantees. This paper also speaks to practice, noting contingencies that determine whether the price match or the low-price guarantee label should be used.

Can attempts to delight customers with surprise gains boomerang? A test using low-price guarantees

Despite cautionary advice against it, delighting consumers by offering them pleasant surprises is widely advocated. In this paper, using a low-price guarantee context, we show that retailers’ attempts to use surprise gains to delight consumers might lead to subpar outcomes, if a countervailing cognition such as suspicion of retailer opportunism dominates consumers’ thinking. In a low-price guarantee, retailers promise consumers refunds if consumers discover a lower price for a purchased product. We propose that providing a surprise component in the refund over and above the promised refund might boomerang, by increasing the likelihood of countervailing cognitions related to opportunistic signaling, in turn decreasing future purchase intentions. Over multiple studies, we provide evidence for this proposition, illustrate the underlying process, and identify boundary conditions.

Do Low Price Signals Influence Online Purchases of Tourist Accommodation Services? The Moderating Role of Gender

Based on an experimental design applied to online purchases of hotel bookings, this study analyzes the influence of three low price signals and the distribution channel on perceived value and behavioral intentions. Positive influences on perceived value and buying intention were found for price beating guarantee and always low price signals but the distribution channel was only found to have an effect on behavioral intentions. Also, it has been seen that gender plays a moderating role on both perceived value and buying intention. Finally, the most effective low price differ in function of the type of enterprise that is transmitting the information to the consumers: price beating guarantee is the best option for hotel website but always low price guarantee is better for electronic intermediaries.

Comparing retail formats in an emerging market

Purpose – This study aims to examine the importance of credit and low price guarantee (LPG) on consumer purchase intention across types of retail store formats in an emerging market context. Design/methodology/approach – A 2 (kirana/modern retail)×2 (high/low LPG)×2 (credit/no credit) experimental design was used for this study. A sample of 200 respondents was asked about their purchase intention for a newly introduced hypothetical toothpaste brand and six hypotheses were tested. Findings – Findings show that credit and level of LPG determine consumer's purchase intention across store formats. The presence of credit and high LPG increases the purchase intention; however, relatively importance of these two varies by type of store. The absence of credit at kirana store definitely reduces the buying intention, while same is not true for modern retail store, where level of LPG is more important than the credit. Interestingly, buyer is likely to discount high LPG for a month's credit offered by a kirana store. Practical implications – The study can help practitioners and scholars to understand consumer responses to credit and LPG in buying decisions, and subsequently in designing a better product offer at a particular store format in emerging markets. Originality/value – Important insights are provided about the consumer behavior resulting from the presence or absence of credit and high or low levels of LPG in an emerging market context. The study also has public policy implications in a country where FDI in retail is a hotly debated topic.

TACIT COLLUSION WITH LOW‐PRICE GUARANTEES*

Existing studies on low‐price guarantees (LPGs) typically employ static models and the results are sensitive to modeling assumptions such as the type of guarantees, hassle costs and consumer heterogeneity. In contrast, we employ a fully dynamic model and show that LPGs robustly facilitate tacit collusion, by reducing a deviating firm's immediate deviation profit. This difference of results is because in a static model, any equilibrium has to be immune from any deviation, including infinitesimal deviation. In a dynamic model, however, one can ignore infinitesimal deviations since firms never have an incentive for such deviations.

Optimal low-price guarantees with anchoring

Many low-price guarantees are offered by small local firms who compete against much larger rivals. The prices of these larger rivals are often set nationally and thus are independent of local market conditions. Our objective in this paper is to explain why small firms in such environments might nevertheless adopt low-price guarantees. We characterize when offering a low-price guarantee is profitable, and assess which form it should take (i.e., conditional on offering a low-price guarantee, should the small firm offer to match or beat its larger competitor’s prices). We also assess the implications thereof (i.e., do the low-price guarantees benefit or harm the small firm’s customers).

Revisiting low price guarantees: Does consumer versus retailer governance matter?

Retailers often use low price guarantees (LPG) as a signal to attract consum- ers and increase sales. Consumers interpret LPGs as a signal that a particular retailer is committed to low prices. However, if more and more retailers employ LPGs, their effectiveness as a price signal wears off. As a result, retailers adapt increasingly extreme guarantees to get an advantage over the competition. Retailers, for instance, are exper- imenting with taking on the responsibility of looking for lower prices and automatically refunding consumers when a competitor offers a lower price for the same product. This research shows that automatic price protection of this sort might backfire under certain conditions. Three studies show that LPGs alone are not enough to signal low prices and that retailers combining large refunds with a retailer-enforced LPG obtain less favorable reactions than those implementing other types of LPGs.

Buyer Subsidies in Two-Sided Markets: Evidence from Online Travel Agents

Platforms in two-sided markets are known to provide subsidies to either buyers or sellers, in order to take advantage of cross-group externalities inherent in such industries. Online travel agents can be thought of as platforms facilitating trade between passengers and travel service providers (airlines). This chapter evaluates the effects of a buyer subsidy provided by one major US online travel agent – a low-price guarantee offered by Orbitz. We find evidence consistent with increased airline participation with this travel agent upon implementation of the low-price guarantee policy. Our results also confirm the theoretical claims that most-favored customer low-price guarantee policies are procompetitive.

Tacit Collusion with Low-Price Guarantees

Existing studies on low‐price guarantees (LPGs) typically employ static models and the results are sensitive to modeling assumptions such as the type of guarantees, hassle costs and consumer heterogeneity. In contrast, we employ a fully dynamic model and show that LPGs robustly facilitate tacit collusion, by reducing a deviating firm's immediate deviation profit. This difference of results is because in a static model, any equilibrium has to be immune from any deviation, including infinitesimal deviation. In a dynamic model, however, one can ignore infinitesimal deviations since firms never have an incentive for such deviations.

Vulnerability to Low-Price Signals: An Experimental Study of the Effectiveness of Genuine and Deceptive Signals

Low-price guarantees help buyers make inferences about retailers’ prices. However, researchers are concerned that consumers might be vulnerable to relying on guarantees associated with high market prices. Furthermore, truly low-priced retailers that issue low-price guarantees might be vulnerable to consumers’ discounting of such guarantees. This article experimentally assesses these concerns and finds that the effects of adding a low-price guarantee to a low or high offer price on consumers’ pre-purchase perceptions depend on consumers’ confidence in their product category price knowledge and their decision involvement. The article explores the implications of the findings and provides directions for further research.

The Impact of Store-Price Signals on Consumer Search and Store Evaluation

Always low price (ALP) and low price guarantee (LPG) are store-price signals that retailers frequently use to induce favorable store-price image and discourage consumers from comparing prices across stores. Although both policies signal low prices, only LPG is an obligatory promise to beat rival stores’ prices. Results of two shopping simulations show that when consumer search costs are relatively low, ALP may effectively discourage consumer search whereas LPG may trigger more search. Paradoxically, consumers tend to evaluate ALP stores less favorably (as having lower integrity and higher self-serving intention) than LPG stores even when both signals appear to be credible. These findings suggest that LPG is a superior tactic for creating a favorable store image while ALP is more effective for discouraging consumer search. The results also indicate that consumers visit fewer stores when the LPG is not a credible signal of lowest market price than when it is credible. This is because consumers are inclined to either claim discounts or refunds at the non-credible LPG store or to purchase at the competing store with a lower price rather than continue searching.

The Price Matching Guarantee: The Effect of the Refund Size and the Moderator Role of the Retailer Price Strategy

This research builds on the signal theory to predict that an EDLP (Every Day Low Price) strategy will influence a consumer's perception of a low-price guarantee. The results of a study show that an EDLP retailer may offer a high refund because this will produce high credibility. However, a high refund offered without an EDLP will lead to lower credibility which, in turn, reduces the value and the consumer's buying intention.

Exotic reservations—Low-price guarantees

The increase in the volume of internet online bookings has had a major impact on distribution channels in the hotel industry. The popularity of such services stems from the consumers’ desire to obtain the lowest rate within their desired market segment. One possible cure is to offer the best rate guarantee. We show that current rate guarantees are essentially worthless to consumers; and demonstrate how a hotel company can structure a best rate guarantee that would provide value to consumers. In addition, we show, using a well-established exotic option pricing formula, how to price this best rate guarantee so that consumers would be willing to pay for the option.

Low price signal default: an empirical investigation of its consequences

Low-price guarantees (LPG) signal the market position of a seller’s offer price and promise to compensate consumers in case that information is erroneous. In this research, we demonstrate that when retailers default on the information provided by an LPG, consumer perceptions of the retailer suffer, but the extent of the damage depends on the conditions associated with the default. On the basis of attribution theory, we posit that consumers may attribute default to the retailer’s opportunism but emphasize this attribution differently in various default conditions. Furthermore, we show that the restoration of consumer perceptions after a refund depends on consumers’ focus in terms of the signal itself. If they consider the protective, compensatory function of a low price signal, their post-refund outcomes are more favorable; when they focus on the informational function, these outcomes are less favorable. We discuss the theoretical and practical implications of these findings.

Online Low-Price Guarantees—A Real Options Analysis

A common practice among large retailers is the low-price guarantee, rebating consumers if they find an identical product cheaper elsewhere. This provides consumers with some level of comfort in their purchase decision. A similar low-price guarantee is provided by numerous service industries that allow reservation of capacity, yet do not penalize the consumer for failure to keep that reservation—examples include hotels and car rental. Given that a consumer is not required to keep the reservation, they may make another reservation, either at a competing firm or the same firm, if future prices decline. The increasing availability of pricing information on the Internet affords consumers the opportunity to be more strategic in their purchasing behavior. As consumers, we are able to quickly and easily check prices from numerous service or goods providers. The ease of price information potentially makes these guarantees very costly to the service or good provider. We analyze the implied costs associated with these guarantees by making analogies to financial options. Motivation for this research comes from a large car rental firm, Dollar Thrifty Automotive Group Inc., that considered offering a low-price guarantee to all consumers that book a reservation though their website.

On the use of low-price guarantees to discourage price cutting

This paper formulates a novel test to assess whether, and to what extent, firms might be using low-price guarantees to discourage their rivals from cutting prices. The test is based on a comparison of paired observations of advertised prices that are set by competing firms at the same point in time on similar items, where one price is set by a firm that has a low-price guarantee and the other by a firm that does not have a low-price guarantee. Using data on retail tire prices, we find that the majority of paired observations involving firms that have price-matching guarantees are consistent with what one would expect if firms were using them to discourage price cutting, whereas the majority of paired observations involving firms that have price-beating guarantees are not. This suggests that price-matching and price-beating guarantees may be serving different purposes. The evidence also suggests that guarantees that apply to advertised prices only may be serving different purposes than guarantees that apply to both advertised and selling prices.

Low price guarantees as signals of lowest price: The moderating role of perceived price dispersion

This article presents two experimental studies examining the effects of a low price guarantee on consumers’ pre-purchase evaluations and behavioral intentions. The authors first examine how the effects of a low price guarantee are moderated by consumer perception of market price dispersion. The results show that low price guarantee effects are likely to be attenuated when consumers perceive market price dispersion for a product to be high. The second study shows that higher levels of penalty can help restore a low price guarantee's effectiveness. Specifically, a low price guarantee with progressively higher levels of penalty leads to incrementally more favorable effects on key consumer outcomes when perceived price dispersion is high. Interestingly, penalty level has no such incremental benefit in case of low perceived price dispersion. Theoretical and managerial implications of the authors’ findings, the limitations of the studies, and future research opportunities are discussed.