When it comes to pricing strategies, small businesses can learn a lot from their larger peers.
When deciding where to shop, consumers will choose retailers they believe offer the lowest prices the majority of the time, not businesses that offer deep discounts every so often to try and lure customers, according to a new study in the Journal of Consumer Research.
The research was designed to investigate the impact of different pricing strategies on the stores consumers shop at when they don't know the product prices until they walk in the door.
Study participants were asked to purchase products from one of two competing retailers 100 different times. Participants were given a monetary incentive to minimize their total spending and were instructed to base their selections strictly on price.
On each shopping trip, participants first selected a retailer before they were shown the store prices for that week. The study's authors manipulated the pricing strategies, but in most cases, one retailer used deep discount pricing, while the other used everyday low pricing or frequent, but small, discounts.
Researchers found that while the average price of the two retailers was the same for most experiments, people consistently selected the retailer they thought was less expensive more often than the retailer they believed was cheapest on average.
The pattern held whether or not the retailer used frequent discounts or an everyday low price guarantee, which the study's authors believe offers insight for companies regularly using deep discounts. The authors suggest a more effective strategy is to simply offer prices that are generally always lower than their competitors’ prices, rather than trying to wow shoppers with infrequent big sales.
"Consumers seem to prefer many small discounts to a few large ones and their perceptions of average prices do not drive their store choices," the researchers wrote. “One reason consumers find these retailers so attractive is that their product prices tend to be cheaper than those of their competitors on the majority of shopping trips."
New York University's Vicki Morwitz, Tel Aviv University's Shai Danziger and Liat Hadar, from the Interdisciplinary Center Herzliya, authored the study.
Originally published on Business News Daily.