Impact of promotions on shopper price comparisons

Retailers implementing the Hi–Lo or promotional-pricing strategy frequently offer temporary price promotions to attract customers to the store. For this strategy to be financially successful, however, the store must entice bargain seekers to purchase non-discounted merchandise. Because regular prices at Hi–Lo retailers, as a rule, substantially exceed those of EDLP competitors, customers engaging in price comparisons across stores may perceive that a Hi–Lo retailer's regular (non-discounted) prices are excessive relative to competitors' prices and therefore will be less likely to make purchases at the regular Hi price. Given the potentially harmful effects of across-store price comparisons for Hi–Lo retailers, this exploratory research examines whether some forms of price promotion may be relatively more effective at discouraging consumers from comparing a retailer's non-discounted prices to those at competing stores.

Research highlights► Hi-Lo pricing strategies require discouraging cross-store price comparisons. ► Single-tier uncertain promotions, such as sweepstakes, offer one uncertain deal. ► Multi-tier certain promotions offer several certain deal levels. ► Single-tier uncertain promotions discourage cross-store price comparisons. ► Single-tier uncertain promotions can be beneficial for Hi-Lo retailers.