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The impact of prior price dispersion and basket size on the effectiveness of retailer’s obfuscation strategies

Lookup NU author(s): Professor Matthew Gorton, Dr Saurabh Bhattacharya

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Abstract

Obfuscation is a strategy used by retailers to decrease the price sensitivity of consumers, by increasing their search costs, but in a way in which does not damage the reputation of the firm. Typical examples include providing different sizes of packaging for the same product categories across different stores, charging different delivery options for internet purchases etc. Prior research establishes that such pricing strategies limit the use of price learning mechanisms by consumers. With regard to price learning, extant research in obfuscation has, however, not considered the importance of the degree of past price dispersion in the product category in which the obfuscation strategy is applied. We propose that the lower the previous price dispersion in a product category, the higher will be the price learning for a consumer, which will decrease the probability of consumers purchasing a brand when a retailer applies an obfuscation strategy to mask higher per unit prices. Additionally, we propose that the relationship between price dispersion and learning is moderated by the consumer’s basket size. Such that even when the dispersion in prices is low, consumers’ price learning may still be weak, increasing the likelihood of purchasing a product when an obfuscation strategy is employed. Based on AC Nielsen consumer panel and retail scanner data for a large US market, we demonstrate empirical support for our proposed model in the carbonated beverage product category where obfuscation strategy is common. Managerial implications are discussed.


Publication metadata

Author(s): Gorton M, Bhattacharya S

Publication type: Conference Proceedings (inc. Abstract)

Publication status: Published

Conference Name: 40th Annual ISMS Marketing Science Conference

Year of Conference: 2018

Print publication date: 20/09/2018

Online publication date: 20/09/2018

Acceptance date: 20/04/2018

Publisher: Society of Marketing Science

URL: https://www.fox.temple.edu/conferences/40-th-annual-isms-marketing-science-conference/


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