The Effect of Price Promotion on Just Noticeable Difference in Multichannel Retailing
(A2020-63545)

AUTHORS

Majed Helmi, Durham University; Sarah Xiao, Durham University ; Mike Nicholson , Durham University

KEYWORDS

Just Noticeable Difference; Pricing Promotion Formats; Cross-Channel Effect of Pricing

ABSTRACT

Multichannel retailers often use a price discrimination strategy to attract different consumer segments and dealing with pure online retailers’ price competition. However, research to date is unclear on how channel-based pricing strategy should be used and when to use that consumer can accept and willing to pay. This study aims to investigate how consumers notice the price differences across online and offline channels for one product from the same retailer. We further examine the effects of price promotion on the noticeable price difference given it is a frequently used strategy by companies. Drawing upon the prospect theory and behavioural pricing literature, a series of experiments with a large population of 1, 440 were conducted to test our hypotheses. Our study identifies different price thresholds for different channels and discovers a new threshold of noticeable prices at 20% of the original price when comparing two channels at a regular price than a promotion price setting. The main results show that (1) consumers are more likely to notice price difference in offline than the online channel; and (2) when price promotion is on, consumer notice the price go down while the actual price is increased, indicating the price promotion formats alters consumers’ capability to notice price differences. Our study contributes to the under-researched area of the cross-channel effect of pricing in multichannel literature and provides managerial implications.