Price Matching Strategy: Implications of Consumer Behaviour and Channel Structure

35 Pages Posted: 15 Dec 2018

See all articles by Arcan Nalca

Arcan Nalca

Queen's University - Smith School of Business

Saibal Ray

McGill University - Desautels Faculty of Management

Tamer Boyaci

ESMT European School of Management and Technology

Date Written: November 9, 2018

Abstract

Price matching has become a ubiquitous strategy for retailers both in product and service industries, especially with the growing ease of checking prices online. With this strategy, retailers promise not to be undersold and match competitor’s lower price (if any). Price-sensitive consumers tend to be happy with this since they potentially can get the lowest price at their "favourite" retailer. A relatively under-researched topic in this context is the fact that this price convenience normally comes with a number of conditions.

We analyze two of the most common ones – the product must be available at the lower priced retailer (availability condition) and the price match extends only to a competing retailer and not to a direct-to-consumer manufacturer (channel condition) – and investigate their implications for the channel and consumers.

We show that if consumers consider the fact that they might be denied the price matching benefit based on verification of availability at the competitor’s location while making a purchase decision, then they will benefit from a lower price by increasing the competition between the retailers; on the other hand, not considering this fact would allow the retailers to price discriminate and might harm consumers.

As regards channel structure, we prove that if the upstream partner has the power to set the wholesale price, then it does not make sense for a retail channel to price match with a manufacturer selling directly to consumers. But, in sectors where there are dominant retailers who has a say in determination of the wholesale price, price matching can be an equilibrium strategy for the retail channel, even when manufacturers are directly selling to consumers. Furthermore, price matching is also the equilibrium strategy for upstream manufacturers as it redirects demand from the retail to their direct channel.

Suggested Citation

Nalca, Arcan and Ray, Saibal and Boyaci, Tamer, Price Matching Strategy: Implications of Consumer Behaviour and Channel Structure (November 9, 2018). Available at SSRN: https://ssrn.com/abstract=3281847 or http://dx.doi.org/10.2139/ssrn.3281847

Arcan Nalca (Contact Author)

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Saibal Ray

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. (W)
Montreal, Quebec H3A 2M1
Canada

HOME PAGE: http://people.mcgill.ca/saibal.ray/

Tamer Boyaci

ESMT European School of Management and Technology ( email )

Schlossplatz 1
Berlin, 10178
Germany

HOME PAGE: http://https://www.esmt.org/tamer-boyaci

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