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Low price signal default: an empirical investigation of its consequences

  • Original Empirical Research
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Abstract

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.

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Notes

  1. We conducted a pretest to determine default magnitude, in which we asked 41 undergraduate students, not part of the main experiment, to imagine they had purchased a digital camera for $279.99 under an LPG and report what they would consider to be “somewhat lower” and “substantially lower” prices if they found lower price for this model after their purchase. Subjects also reported the likelihood of their returning to the store for refund on seven-point scales (1 = extremely unlikely, 7 = extremely likely) for each of the two prices they reported. The means of the somewhat lower and substantially lower prices reported by the subjects are $264.11 and $223.18, and on average, the likelihood of seeking a refund is significantly higher for the former (t 39 = 5.15; p < 0.01). On the basis of these results, we selected a $15 (=$279.99−$264.99) difference for the small default and a $56 (=$279.99−$223.99) difference for the large default.

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Authors and Affiliations

  1. School of Business Administration, Wayne State University, Detroit, MI, 48202, USA

    Sujay Dutta & Abhijit Biswas

  2. Department of Marketing, Babson College, Babson Park, MA, 02457, USA

    Dhruv Grewal

Authors
  1. Sujay Dutta
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  2. Abhijit Biswas
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  3. Dhruv Grewal
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Corresponding author

Correspondence to Dhruv Grewal.

Appendix

Appendix

The following items were used in Study three to assess the degree to which respondents’ information focus guided their responses to the dependent variables (1 = strongly disagree, 7 = strongly agree):

  • I felt hurt that even though the retailer paid the refund; the fact remains that the price charged by the retailer was not the lowest in the market after all.

  • I felt as though my trust in the retailer was violated the moment I found a lower price in the market, regardless of whether the retailer gave me a refund or not.

  • Refund or no refund, the retailer should not have given a Low Price Guarantee if it were not absolutely confident of charging the lowest market price.

  • So far as I am concerned, the Low Price Guarantee was violated by the very fact that a lower price in the market existed, regardless of whether the retailer compensated me with a refund afterward.

The following items from Study three assess the degree to which respondents’ protection focus guided their responses to the dependent variables (1 = strongly disagree, 7 = strongly agree):

  • I felt that by paying the refund, the retailer fulfilled its promise of protecting my financial interest.

  • I felt like I should not hold anything against the retailer now that it has paid to me the promised refund.

  • The fact that I found a lower price at another store did not bother me. What was important to me was that [the retailer] paid me the promised refund.

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Dutta, S., Biswas, A. & Grewal, D. Low price signal default: an empirical investigation of its consequences. J. of the Acad. Mark. Sci. 35, 76–88 (2007). https://doi.org/10.1007/s11747-007-0017-5

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  • DOI: https://doi.org/10.1007/s11747-007-0017-5

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