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

Abstract

Retailers often use low price guarantees (LPG) as a signal to attract consumers 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 experimenting 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.

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Fig. 1

Notes

  1. This analysis controls for the individual characteristic of sugraphobia. Sugrophobia was treated as a covariate and in no case did adding the covariate change the pattern of results for main effects and interactions of the experimental variables. A significant positive coefficient for the covariate emerged only using patronage intention as a dependent variable. Further, sugraphobia did not interact significantly with any experimental variable.

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Acknowledgments

The authors thank the Marketing Letters Editor and the anonymous reviewers that helped to improve this paper. The first author acknowledges the “Conseil Regional Champagne Ardenne” for the grant CVC Essaimage.

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Correspondence to Adilson Borges.

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Borges, A., Babin, B.J. Revisiting low price guarantees: Does consumer versus retailer governance matter?. Mark Lett 23, 777–791 (2012). https://doi.org/10.1007/s11002-012-9178-1

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  • DOI: https://doi.org/10.1007/s11002-012-9178-1

Keywords

  • Low price guarantee
  • Behavioral pricing
  • Signaling theory
  • Automatic price protection