|Abstract:||Pricing is the process whereby a business sets the price at which it will sell its products and must be considered as a core part of the business's marketing plan. In recent years, there has been a growing awareness of the complex nature of price as a determinant of consumer decision making process. Recent research indicates there is no simple explanation of how price influences firm performance and individual consumer purchase decisions. The pricing strategy in traditional brick-and-mortar stores has received consistent attention from both academia and industry. However, as the raising of digital technology, the evolving business circumstance changed, or even re-introduced, many practically and theoretically important questions. Given this importance, the two essays tackle the strategic pricing strategy in the two critical perspectives of marketing — advertising and retailing.
In the first essay, I explore the effects of displayed product price on keyword advertising performance in online shopping websites, as well as on consumers’ decision processes. With a hierarchical Bayesian model using a unique data set from a leading electronic shopping platform and a simulated experiment, I empirically test the asymmetric effects of price rank on advertising performances (i.e., click-through rates and conversion rates) in study one and the underlying mechanism in study two. Specifically, I find that consumers tend to click more on extreme price options (i.e., highest or lowest) in the early phases of the purchase funnel, which serve as anchors to evaluate a broad range of options. Clicks at later stages, which tend to convert to purchases, instead are more likely for moderately priced options, which offer a compromise across different product features. The effects of price rank diminish among advertisements sponsoring more specific keywords but grow for those sponsoring more popular keywords. This essay demonstrates that the keyword advertisements provides a context for price comparison, which further influences consumers’ responses toward advertisements.
While the first essay focuses on gaining competitiveness through enhancing the price competition in digital advertising context, the second essay focuses on avoiding price competition in multi-channel retailing context through switching the business focus. The second essay explores the causal effects of multi-channel retailer implementing cross-channel price integration. Leveraging a revised pricing policy implemented by one of the leading house appliance retailers, I empirically investigate how cross-channel price integration affects product sales and consumer preferences. This change of cross-channel pricing strategy reveals varying impact across time, products, channels, and customer segments. In the short term, price integration leads to a 14.70% decrease in sales of products without services but a 14.68% increase in sales of products with services. The price integration effect is more positive in the long run, such that sales of products increase by 10.07% without services and 36.07% with services. Further, using a latent class model with zero-inflated Poisson framework, I empirically differentiated the effects of price integration on three consumer segments with different preferences (i.e., lovers, haters and adaptors). The findings of the second essay contribute to the multi-channel pricing literature by providing an empirical examine of the effectiveness of cross-channel price integration and consumer migration.
The findings of the two essays contribute to the pricing, keyword advertisements and multi-channel literature, and shed lights on the strategic implications of pricing activities. Specifically, the first essay connects the pricing literature, consumer search and keyword advertising literature by exploring the effects of contrast among displayed product prices in the keyword advertising context. This essay is among the first few to investigate how advertised product price affects advertising performance. The study suggests the advertised product price display two contrasting effects on consumers’ clicking and purchasing behaviors along their purchase funnel. In addition, the research extends understanding of two keyword characteristics by theoretically differentiating keyword specificity and keyword popularity. The second essay connects the multi-channel pricing literature and transaction value literature by empirically examine the effects of retailers implementing cross-channel price integration policy. Advancing prior research on perceived transaction value and multi-channel pricing literature, this research proposes two contrasting mechanisms (i.e., price change and pricing consistency), through which the cross-channel price integration affects the product sales and consumer sales. The empirical findings shed lights on managerial implications to multi-channel retailers.