Monika Kukar-Kinney and Rockney G. Walters

Many retailers employ price-matching guarantees or offers to match or beat a competitor's lower price for the same item at the time of purchase or for a specified period after the purchase. A theoretical framework based on the research in economics, marketing and social psychology is developed and tested in the present study. The framework explains how two important characteristics of price-matching guarantees - the depth of the refund offer and the scope of competitors eligible for price-matching - affect consumer perceptions of price-matching guarantee believability and value and consumer intentions to patronize the retailer.

The results of the study show price-matching guarantees (PMG) consisting of modest refund offers, such as refunding the difference in the price paid and a lower price, build perceptions of the believability of the PMG, while more aggressive refund offers are viewed skeptically by consumers. The results also show deep refunds to enhance consumer perceptions of the value of the PMG compared to smaller refunds. Thus, the retailer faces a trade-off: PMG with deep refunds can build perceptions of PMG value but dampen perceptions of the believability of the price-matching claim. However, the effects of PMG depth on believability are likely moderated by retailer's reputation, such that retailers with strong reputation experience no or smaller negative effects than retailers with weak reputation.

Retailers do not face this tradeoff when manipulating competitive scope. The competitive scope of PMGs significantly affected perceptions of PMG value, but did not influence the believability of the PMG claim. The failure of competitive scope to influence PMG believability may reflect the propensity of consumers to compare prices in local markets only. In any case, retailers can offer PMG with wide competitive scopes to increase perceptions of PMG value without damaging the believability of the price-matching policy. However, only the retailers with low prices should consider offering a wide scope. For higher priced retailers a large competitive scope is likely result in a substantial number of required refunds, reducing profits unnecessarily.

The finding showing consumers who believe PMG claims to also view PMG as valuable underscores the need for retailers to make their PMGs credible. Offering factual communications about PMG in the form of plausible rationales for why the retailer offers PMG and customer testimonials about PMG might be ways to increase the believability of PMG. The study also shows the importance of building consumer perceptions of both PMG value and believability to stimulate patronage. Both, PMG value and believability directly affected store patronage intentions, with the effect of PMG value being almost four times the magnitude of the effect of PMG believability.