The Impact of "From" prices on the Purchase Funnel: Insights from Field Experiments at an Online Travel Marketplace

Abstract

How do consumers respond to "Starting From" (floor) prices advertised by firms that differ from the actual purchase price to be paid? While a low "From" price is likely to draw consumers in, a high one is likely to be closer to the true price. Although floor prices are ubiquitous, they have been studied much less compared to other forms of advertised reference prices (e.g.,'Was-Now'). In this paper, we conduct pre-registered field experiments on an online travel marketplace (Holidu.com) to investigate how consumers respond when floor prices are raised, making them more accurate in relation to true prices. We find that high floor prices lead to decreased user engagement (as measured by listing clicks, number of searches, and time spent on the website), and noisy but negative effects on booking related outcomes. These effects are amplified when a consumer is searching closer to the time of travel, and occur despite higher floor prices providing users with an estimate closer to actual prices on average. Our findings indicate that less accurate up-front prices can actually lead to more customer engagement, and dominates the countervailing sticker-shock or anchoring effect, wherein consumers would be deterred if offered a low initial price estimate and a higher price further down the purchase funnel. Overall, this result has implications for platform design and regulation by demonstrating the tension between customer engagement and providing accurate price estimates up front.

Keywords: Field experiment, floor price, online travel marketplace

JEL Classification: C93, L81