The Impact of Category Prices on Store Price Image Formation: An Empirical Analysis

Lourenço, C.J.S., Gijsbrechts, E., and Paap, R. (2015), “The Impact of Category Prices on Store Price Image Formation: An Empirical Analysis,” Journal of Marketing Research, 52(2), April, 200-216.

57 Pages Posted: 31 Oct 2014 Last revised: 24 Aug 2015

See all articles by Carlos Lourenço

Carlos Lourenço

Economics Department - ISEG - Lisbon University; SOCIUS - ISEG - Lisbon University; Netspar - Network for Research on Pensions, Aging, and Retirement

Els Gijsbrechts

Tilburg University - Center for Economic Research (CentER)

Richard Paap

Erasmus University Rotterdam (EUR) - Department of Econometrics; Tinbergen Institute; Erasmus Research Institute of Management (ERIM)

Date Written: October 10, 2014

Abstract

The authors empirically explore how consumers update beliefs about a store’s overall expensiveness. They estimate a learning model of store price image (SPI) formation with the impact of actual prices linked to category characteristics, on a unique dataset combining store visit and purchase information with price perceptions of the same consumers. The results identify characteristics driving categories’ store-price signaling power, for different store formats. ‘Big ticket’ categories, with a narrow price range, strongly shape consumers’ store price beliefs, while (volatile) prices of frequently or deeply promoted categories are less influential. At traditional supermarkets, consumers anchor and elaborate on prices of storable categories bought in large quantities, and where quality differentiation is high. For hard discounters, however, SPI is mostly shaped by frequently bought categories with narrow assortments. Interestingly, categories’ SPI signaling power is not proportional to their share-of-wallet at either type of chain. Managers can use these results to identify ‘Lighthouse’ categories that signal low prices, yet make up a small portion of store spending and in which price cuts do not overly hurt revenue.

Keywords: store price image, price perceptions, product category characteristics, Bayesian learning

Suggested Citation

Lourenço, Carlos and Gijsbrechts, Els and Paap, Richard, The Impact of Category Prices on Store Price Image Formation: An Empirical Analysis (October 10, 2014). Lourenço, C.J.S., Gijsbrechts, E., and Paap, R. (2015), “The Impact of Category Prices on Store Price Image Formation: An Empirical Analysis,” Journal of Marketing Research, 52(2), April, 200-216.. Available at SSRN: https://ssrn.com/abstract=2516684

Carlos Lourenço (Contact Author)

Economics Department - ISEG - Lisbon University ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal

SOCIUS - ISEG - Lisbon University ( email )

Rua Miguel Lupi, 20
Lisboa, 1249- 078
Portugal

Netspar - Network for Research on Pensions, Aging, and Retirement ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Els Gijsbrechts

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Richard Paap

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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