Framing online promotions: shipping price inflation and deal value perceptions

AuthorPatrali Chatterjee
Publication Date01 Mar 2011
Pricing strategy & practice
Framing online promotions: shipping price
inflation and deal value perceptions
Patrali Chatterjee
School of Business, Montclair State University, Upper Montclair, New Jersey, USA
Purpose – This research seeks to examine differences in perceived shipping charge inflation associated with online promotions presented as reducing
base product price,reducing shipping surcharge, or reducing all-inclusive price and its impact on dealvalues for shipping charge skepticsand non-skeptics.
Design/methodology/approach – Drawing from research on multi-component pricing and mental accounting, a laboratory experiment investigates
if shipping charge skeptics differ in their perceptions of shipping charge inflation for different presentations of online promotions from non-skeptics, and
if they differ in perceived deal value of economically equivalent promotions presented as reduced product price, reduced shipping charge promotion,or
reduced all-inclusive price for high and low priced items with small or large shipping fees at retail websites.
Findings – Analyses show that shipping charge skeptics differ from non-skeptics in their perceptions of shipping charge inflation and deal values for
different online promotions only when the surcharge is large relative to the base price. Reduced price promotions are most attractive for high-priced
items with low surcharge but least attractive for large surcharge sizes. For large surcharge sizes, shipping charge skeptics prefer reduced all-inclusive
price promotions to reduced shipping promotions, while non-skeptics prefer reduced shipping promotions to reduced all-inclusive price promotions.
Research limitations/implications The results suggest that the effectiveness of various promotion frames at online stores differ based on base
price, surcharge size, and consumer skepticism of shipping charge. Robustness of the results obtained at different levels of discount sizes need
Practical implications Online retailers that have to charge high shipping fees can use promotions to shift the referent price component used by consumers
to calculate savings and mitigate perceptions of shipping or base price inflation. For equivalent dollar savings, retailers can use reduced shipping charge
promotions to communicate higher deal values to shipping charge non-skeptic consumers than reduced base price or reduced all-inclusive promotions.
Originality/value – This research examines how consumer perceptions of deal values differ, even though objective savings and financial outlay is the
same, when promotions are presented as reducing product price versus surcharge.
Keywords Prices, Accounting, Retailing, Electronic commerce
Paper type Research paper
There is considerable published research documenting that
different implementations or semantic presentation of the
same retail price reduction can change consumers’ perception
of a promotion offer (Sinha and Smith, 2000; Gilbride et al.,
2008; DelVecchio et al., 2009). When prices have a single
component, base price of the product, savings associated with
sales promotions reduce the base price thus communicating
superior transaction value to consumers. However, if the price
of a product is made of multiple components, a retailer has
the flexibility of presenting the promotional offer to reduce
one or more price components (not just base product price).
There are many examples of multi-component pricing in the
marketplace: warranty and services associated with products,
cell phone purchase along with activation fees, se rvice
charges, taxes etc. It is also of particular relevance to
purchases in remote channels like catalogs or the internet
where consumers pay a base product price and a shipping
surcharge (for product delivery). This research focuses on
surcharge components that are mandatory (e.g. shipping
charges for non-digital products purchased online that cannot
be consumed otherwise) but not components that consumers
can purchase separately (e.g. salesperson suggests optional
replacement plan when consumers purchase household
appliances), and are strategically managed by retailers (e.g.
while sales tax is a mandatory surcharge, consumers perceive
it to be outside the control of the retailer).
In remote retail channels, shipping charge is a mandatory
price component in addition to base product price when
consumers purchase non-digital products. This offers retailers
multiple possibilities of presenting the various components of
price. It does not add any tangible value to the physical
product but provides the means to transport the product to
the customer (Schindler et al., 2005). Retailers can offer or
change how promotional offers are presented in real-time to
improve their positions on shopbots and compete on the basis
of price. Various shopbots differ in how they order products in
their listings, some use product price, whereas others use
landed price (base product price plus shipping and handling).
The current issue and full text archive of this journal is available at
Journal of Product & Brand Management
20/1 (2011) 65–74
qEmerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/10610421111108030]

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