The Online Medium and Customer Price Sensitivity
The Online Medium and Customer Price Sensitivity
Authors: Venkatesh Shankar, Arvind Rangaswamy, Michael Pusateri
Many managers fear that the Internet will increase customer price
sensitivity and intensify price competition. There is, however,
very little conceptual or empirical research on this topic. In this
paper, we use the information search literature to develop a conceptual
framework and a set of hypotheses, comprising factors characterizing
the online medium, customers, and intermediaries, to explain the
main and moderating effects of the online medium on customer price
sensitivity. We test the hypotheses using two sets of data from
the hospitality industry: (1) separate samples (demographically
matched) of both online and offline customers and (2) the same sample
of customers, who purchased from both the online and the offline
media. We examine two important aspects of price sensitivity: the
weight a customer attaches to price relative to other attributes
(price importance), and customers proclivity to undertake a search
for better prices (price search). Our results from both sets of
data indicate that the online medium does not have a main effect
on price importance, but it increases price search. However, some
aspects of the online medium and the web site can actually dampen
price sensitivity. Specifically, web sites can reduce price sensitivity
by providing in-depth information (both price and non-price) that
is available through a highly interactive interface. Interestingly,
the perceived content of the site (in terms of price versus non-price
orientation) does not influence price sensitivity. In addition to
these main effects, the online medium also moderates the effects
of several other factors, helping to dampen price sensitivity. These
moderating effects are different for the two aspects of price sensitivity.
Compared to the offline medium, the online medium: (1) accentuates
the effects of the range of products and prices offered, and product/price
bundling by an intermediary in reducing price importance, and (2)
accentuates the effects of brand loyalty in decreasing price search
and dampens the effects that intermediaries have in increasing price
search by facilitating price comparisons. We outline the implications
of our results for developing web site design, targeting, distribution
and alliance strategies.
