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Home > Featured Stories > Community of Scholars > November 2008 > When You're Online, It Pays to Shop AroundWhen You're Online, It Pays to Shop Around
A study co-authored by NC State professor Jonathan Bohlmann finds that the competitive nature of online holiday shopping leads to price reductions at major store chains as well.
By Matt Shipman, News Services
Holiday shopping season has arrived, and tough financial times mean that more people will probably be shopping around for the best price. But a study co-authored by NC State professor Jonathan Bohlmann shows that shoppers who compare prices at multiple online retailers will not only find the best value, but will also help drive down prices at other stores.
“There are basically two types of shoppers – switchers and loyals,” said Bohlmann, an associate professor of marketing at NC State. “Switchers compare prices from multiple retailers, while loyals are committed to a particular store and don’t bother with comparison-shopping.”
The higher the number of switchers relative to the number of loyals – or the so-called switcher/loyal ratio – the higher the pressure a retailer faces to discount products in order to remain competitive, Bohlmann said.
However, it’s not quite that simple – especially online, where retailers not only look at their own switcher/loyal ratio; they must consider the ratios of their competitors as well.
“A retailer with a high switcher/loyal ratio may keep prices high if its competitors have an even higher ratio,” Bohlmann said. “These ratios, and the size of the retailers, are all considerations that are taken into account when stores set their prices.”
Retailers can have a variety of responses to increased pressure from switchers to discount their prices.
For example, the study shows that some smaller retailers may try to focus on the loyal market – and higher prices – by avoiding price comparison Web sites and other tools used by switchers who shop around. Meanwhile, mid-sized retailers may take yet another approach, choosing to compete only against larger rivals – essentially trying to beat the big retailers’ prices while still charging more than some smaller stores.
But all of this comparison-shopping could be bad news for those shoppers who are loyal customers of large retailers. The study’s findings suggest that if there are a lot of switchers widely comparing prices, big stores should limit themselves to a few small discounts – since other companies are likely to offer more aggressive price incentives.
“This is not limited to online retailers,” Bohlmann said. “What some major store chains are doing now appears to reflect what we found in our research.”
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The study, “Segmented Switchers and Retailer Pricing Strategies,” was published in the May issue of Journal of Marketing. It was co-authored by Dr. Cenk Kocas, associate professor of marketing at Sabanci University in Istanbul, Turkey.
