Executive Summary

Retailers are increasingly employing price-matching guarantees or retail policies to match or beat competitive prices before or after a purchase. Practitioners and researchers in marketing consider price-matching policies as marketing tools designed to stimulate price competition in the marketplace by signaling to consumers that the retailer offers low prices, as well as increase store traffic and purchasing. To achieve such marketing objectives retailers typically manipulate the following price-matching characteristics: the depth of the promised refund (i.e., the magnitude of the refund if a lower price is found outside the price-matching store), the refund period (i.e., the length of time within which a lower price must be identified and the refund claimed), and the scopeor the set of conditions that apply (e.g., the breadth of competitors eligible for comparison).  The variance found in the levels of these characteristics across retailers suggests managers believe different types of price-matching policies can differentially influence consumer perceptions and behavior. However, much of the past research on price-matching refund policies has examined how consumers respond to the presence or absence of one type of the price-matching policy only.

The present research contributes to the developing knowledge on consumer response to price-matching guarantees by: 1) Focusing on the effects of individual price-matching characteristics of refund depth, length, and scope (as opposed to the presence of one type of price-matching policy) on consumer store price perceptions, pre-purchase price search and store purchase behavior; 2) Accounting for consumer heterogeneity by examining how these effects vary for consumers with different levels of price consciousness; 3) Using a shopping simulation in which consumers had to trade off between the costs and benefits of search as they do in the real world, increasing experimental realism of the study and generalizability of findings; and 4) Enhancing understanding of public policy implications of price-matching policies and aiding retailers in constructing and implementing stronger price-matching programs. To investigate consumer responses to different types of price-matching policies, the present research uses a multimethod approach; specifically, a series of customer interviews, followed by an experiment involving a computer simulation of a shopping trip.

The research findings indicate that price consciousness (i.e., the extent to which the consumer focuses on paying low price for a given product) is a key consumer trait, interacting with all of the price-matching characteristics studied - refund depth, length and scope - in influencing consumer price perceptions, price search or store purchase behavior.  The research results show that a deep price-matching refund is interpreted as a signal of low prices by non-price conscious consumers.  Price conscious consumers are, on the other hand, more likely to associate deep refunds with increased prices, an unintended outcome for the retailer. However, despite an increase in their store price perceptions, price conscious consumers were found to strongly increase their likelihood of purchase from the price-matching store in response to an increase in the refund depth.  Therefore, if the price-matching retailer offers competitive prices and its goal is to increase store patronage, a pricing policy that promises to beat rather than match competitive prices should be considered. However, if the objective of the price-matching policy is to establish a low store price image, matching competitive prices may be more appropriate, as the price conscious consumer segment was found to interpret deep refunds as signals of higher store prices.

Reducing the length of the refund period and narrowing the price-matching scope could also enhance the effectiveness of price-matching policies.  A long refund period and/or wide competitive scope encouraged highly price conscious consumers (who likely face low individual search costs) to increase their competitive price search, while not having beneficial effects on store purchase behavior. One explanation for this result is that generous price-matching conditions increased the consumers’ focus on competitive price comparisons, stimulating them to search even more to find lower prices.  Based on this pattern of the effects, it is recommended that retailers restrict the refund scope and length to limit the number of potential refunds. However, such recommendation should be followed only when a low store price image is not a key retail objective for the price-matching policy. The reason is that an unrestricted refund scope was found to be effective in reducing consumer store price perceptions when the refund period was long. This finding points out that in order for the price-matching policy to serve as a low store price signal, both the refund length and scope need to signal a sincere retailer’s commitment to offer price protection to its customers. Hence, to establish a low store price image, both the length of the refund period and the scope of the price-matching policy need to be generous.