What Affects the Price Image, SOW and the Moderating Effect of Price Sensitivity:
An empirical study
U N I V E R S I T Y O F G R O N I N G E N T I N G - Y I F U F A C U L T Y O F E C O N O M I C S A N D B U S I N E S S S 3 5 1 8 1 6 7 D E P A R T M E N T O F M A R K E T I N G S U P E R V I S O R : P R O F . D R . L . M . S L O O T
Introduction
• Price image influenced customer’s decision more than the price
• Price image: how customers perceive the overall price level of a store (Hamilton and Chernev, 2013)
• Factors that affects price image: price-related factors, non-price-related factors, and competition
•Different shopping heuristics might influence price images differently: KVI and basket heuristics - Suggestion: using price sensitivity as a proxy of heuristics
- Examine whether effects on price image are moderated by price sensitivity
Price Image
Price-related factors Non-price- related factors
Price-sensitivity
Introduction (cont.)
• Price image of a store influence purchase decision influence the share of wallet (SOW)
• Customer satisfaction has a positive effect on a customer's share of wallet (Mägi, 2003) a higher SOW is expected for supermarkets with higher rating
• Assortment size and competitors could also affect the SOW a customer distributed among stores
• For shoppers with different price sensitivity, the strength of the effects of price image and competition might differ.
Price Image
Price-sensitivity
Customer Satisfaction
Research Questions
• Research question 1: What and how do different factors affect price image?
• Research question 2: To what extent does consumers' price sensitivity affect the price image?
• Research question 3: What and how do different factors affect the share of wallet?
• Research question 4: To what extent does consumers' price sensitivity affect the share of wallet?
Literature Review and Hypotheses Development
Conceptual Model
Methods
Data:
• Data retrieved from three datasets: Superscanner.nl, EFMI Shopper Monitor, EFMI Supermarket
• Product prices from four Dutch supermarket: Albert Heijn, Jumbo, Plus, Hoogvliet
• Selected categories: Sliced cheese, Full milk, Chicken (selection based on the top nine share-of- wallet categories in supermarkets according to a study by Lourenço et.al, 2015)
Instead of assessing the price and characteristics of all the assortments, the customer's price image towards a store might be affected by categories that are perceived as more important
(Hamilton and Chernev, 2013).
Methods (cont.)
• Outliers in SOW
- “Suppose that a full shopping basket at the average Dutch
supermarket costs 100 euros. However, some supermarkets are cheaper, others are more expensive. How much do you think that shopping basket costs at the following supermarkets (estimate)?”
- Keeping the price image ±60% from the reference price (100€) based on:
1. Prices offered at hard discounters can be up to 20 to 30% below traditional supermarkets (Zentes et.al, 2007).
2. Private label products are usually 15% – 40% cheaper than the
national brand products (Ashley & S.R, 1998), Distribution of price image from 40 to 160
Descriptive Statistics
Descriptive Statistics (cont.)
Descriptive Statistics (cont.)
(average) Albert Heijn Jumbo Plus Hoogvliet
Price Image 106.5 96.48 102.3 93.13
SOW 49.15 42.66 33.91 44.59
Rating 7.844 7.668 7.572 7.608
• Albert Heijn has the highest average price image, the highest rating and the highest SOW
Models and Analysis
Model 1: Average Price Level and Price Image
The RESIDUAL vs FITTED plot is constructed to check the linearity assumption, a horizontal line without distinct patterns is an indication for a linear relationship
Model 2&3: Primary Price Image Models
Model 4, 5, 6: Investigating discounted amount, lowest and highest price
Model 7: Investigating potential interaction effect
Model 8: SOW & Model 9: SOW with price sensitivity as a moderator
Conclusion and Discussion
Price image:
• For every 1€ (12%) increase in price leads to a 6.4€ increase in the shopper's price image, which is the price of a shopping cart full of products (under the assumption that a full shopping cart in a Dutch supermarket cost 100€)
• The Akaike Information Criterion score indicates that using the “cheapest basket” as price level gives the best performing model lowest price products could be an important factor in the formation of price image as a general phenomenon
• Unexpected effect was shown for assortment depth. Possible explanation: deeper assortment size is the opposite of the “no-frills” approach of hard discounters which rely on heavily low-priced
Conclusion and Discussion (cont.)
Share of Wallet:
• The share of wallet decreases 0.16% for each one euro increase in price image
• An unexpected of a negative estimate of the interaction term between accessible hard discounter and price sensitivity was shown
the negative effect of hard discounters on the share of wallet of a focal supermarket is weaker on price sensible customers but stronger on insensible customers.
• Potential reasoning: shoppers who reported themselves as price-sensitive are usually aware of where to seek good deals and they distribute the share of wallet accordingly. They would search through deep assortments and pay attention to deep discounts to find a better deal (Fox et.al, 2004).
Conclusion and Discussion (cont.)
Overall:
• Price level, assortment size (number of brands), and competitors have positive influence on the price image
• Price dispersion, store size have negative influence on price image
• Price image and competition have negative influence on the SOW
• Customer satisfaction and assortment size have positive influence on the SOW
• Hard discounters affect the price image and SOW stronger compared with traditional
Limitation and Future Research
• Limited number of product categories included
• Formation of price image is more long-term and could change over time in reality
• Effect of price discount was not found:
- the number of products included in the study is limited
- some shoppers who did not include the discounted price in the “price basket of a supermarket”
• Difficulty of measuring shopping heuristics
- Alternatives: measure basket size, customer characteristic cluster analysis
• Distance of competitors could make a difference
Recommendations
• Food retailers can generate a lower price image by highlighting the low-price products:
- “best buy” label on the low-priced products
• Some product categories have more influence on price image:
- Focus on important categories (e.g. adjusting price levels, assortment size etc. )
• Distribute the limited shelf space cautiously:
- a larger assortment size lead to a higher price image but also a higher share of wallet
• Higher satisfaction leads to higher SOW:
