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.

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► When consumer search costs are relatively low, consumers visit more stores in a market where retailers offer low price guarantees (LPG) than in a market where retailers offer everyday low prices (ALP—always low price).
► When the costs and effort involved in claiming LPG refunds are negligible, consumers visit fewer stores if they encounter a non-credible (defaulting) LPG than if they encounter a credible LPG.
► Consumers believe that stores offering LPG are more customer-oriented, less self-serving, and have greater integrity than stores offering ALP.
► Consumers believe that stores offering credible LPG signals are more customer-oriented, less self-serving, and have greater integrity than stores offering non-credible LPG signals, even though consumers can gain from claiming refunds at the non-credible LPG store.