One firm, one product, two prices: Channel-based price differentiation and customer retention

We identify prevalent channel-related price differentiation instruments.Channel-based price differentiation affects customer retention outcomes.Key mediators are perceived value, price unfairness, and limited self-determination.An exemplary retailer needs 5.1% lower operating costs online to remain profitable.

Every multichannel retailer must decide whether and how to apply channel-based price differentiation. This study identifies channel-related price differentiation instruments and considers their effects on customer retention. It empirically tests hypotheses using a laboratory experiment and analytically investigates feasibility conditions. Results show that channel-based price differentiation positively affects customers through perceived value but harms retention through price unfairness and limited self-determination. The mobile communications retailer in this study would require 5.1% lower operating costs online to ensure its profitability. These results indicate that multichannel retailers with channel-based price differentiation should carefully select their price instruments and meet the feasibility conditions.