The Role of Suggested Pricing in Retail
Description
Does a $100 shirt seem more valuable when its price tag shows a 50 discount off an original price of $200? Pricing information in retail settings often has three components: an original price, a percent discount, and the final price. Little empirical evidence exists for how each component differentially affects purchase behavior, despite a preponderance of theories, and recently retailers have come under closer scrutiny for posting “original” prices that were never applied. Using sales data that feature wide variation in these pricing components and a relatively homogeneous product space, Professor Ngwe investigates how consumers process price-signaling information, especially in the discount-pricing environment of outlet stores, and is able to measure how purchase probabilities align with the way prices are presented. His findings provide a deeper understanding of how shoppers evaluate prices depending on their sophistication, and they have acute implications for how retailers should choose to set each price component.