Low prices does not mean a low-price image, says new study

A new research study by the American Marketing Association (AMA) argues that contrary to the conventional wisdom that a consumer’s perception of the overall price level of a retailer is mainly a function of its average prices, low prices do not always result in a low price image and that a retailer can create an impression of having low prices using a variety of non-price tactics.

The study which appears in AMA’s Journal of Marketing and conducted by Ryan Hamilton of Emory University and Alexander Chernev of Northwestern University offers an in-depth analysis of the factors that contribute to price image formation and to delineate the ways price image can influence consumer behaviour.

According to Hamilton and Chernev, it is not enough for retailers to simply optimise prices. Low prices are just the beginning. Instead, they should use all the tools at their disposal—from the mix of prices available on the store shelf, to the way they change prices over time, to the physical characteristics of the store itself—to communicate a desired price image.

The study also indicates that although ‘showrooming’—the practice of examining merchandise in a retail store and then shopping online to find the desired item at a lower price—has become the nemesis of many brick-and-mortar retailers, not all traditional retailers are equally affected by showrooming.

Shoppers at stores like Walmart, Costco and Aldi are less likely to pull out their smartphones to check the competition for lower prices. These retailers benefit from their low price image, even in cases where they do not have the lowest price on a particular item.

“One common misperception about price image is that it is simply a reflection of a store’s average price level and, hence, that managing price image merely involves managing prices,” notes Hamilton and Chernev. They argue that many price and non-price factors can overcome the influence of actual prices, resulting both in situations in which a retailer has a low price image despite having relatively high prices and situations in which a retailer can have a high price image despite its relatively low average price level.