This edition of Pricing Solutions’ Pricing for Researchers is a review of Patrali Chatterjee’s recent study “Framing Online Promotions: shipping price inflation and deal value perceptions” . Published in 2011, Chatterjee examined how customers assessed the value of different promotional types of online purchases, in the presence of a mandatory shipping charge.

Research Purpose: To test the effectiveness of three common promotions related to shipping cost offered by online retailers: reduced product price, reduced shipping cost and reduced all-inclusive price promotion.

Research Promotions

  • To test the effectiveness of three common promotions related to shipping cost offered by online retailers: reduced product price, reduced shipping cost and reduced all-inclusive price promotion.
  • To test, when costs of product delivery are high for some product categories, do consumers differ in their perceptions of shipping charge inflation across promotional formats for low-priced versus high-priced products?

Research Method

  • A total of 485 undergraduate students from two U.S. universities were recruited to participate in a full factorial between-subject design, testing the perceived value of a promotion offered by two online retailers on the same item (i.e. notebook bag).
  • 24 versions of experimental scenarios with varying product price (low, high), shipping charge size (small, large), promotion framing condition (reduced product price, reduced shipping cost, reduced all-inclusive promotion) and regular price order (first, second).
  • Evaluation of the deal offerings was measured by an index computed from a 3-item, 7-point semantic differential scales: bad deal-good deal, worthless-valuable, and unattractive to me-attractive to me.

Findings

  • When the product price is high and the shipping surcharge is low, a promotion that reduced the product price conveyed a higher ‘deal’ value compared to the other two.
  • When both base price and shipping costs are low, consumers are less motivated to combine multiple price components and use the largest price component only (in most cases the product price), to evaluate the attractiveness of an offer.
  • When the shipping surcharge, relative to the product price, is high, there is a greater likelihood that consumers will perceive the shipping charge as a means of enhancing profit rather than a result of actually shipping the product. This is referred to as the “Shipping Charge Skepticism”.
  • As a result of this “Shipping Charge Skepticism”, all-inclusive price promotions will generate the highest ‘deal’ value, followed by reduced shipping and then reduced product price, regardless of the product’s base price.

Practical Implications

  • Online retailers that charge higher shipping fees need to use an appropriate promotional practice to shift the referent price component customers use when calculating savings. That is to say, retailers must avoid leaving customers with a negative impression of charging unreasonable shipping costs.
  • For equivalent dollar savings, online retailers that charge a relatively small proportion of the product price as a shipping cost could use reduced shipping charge promotions to communicate a better ‘deal’ on value.
  • When both the product price and shipping cost are relatively low, retailers have the flexibility to recoup margins by reducing the base price and increasing shipping charges within a reasonable limit.
  • The findings of this study can be applied to all types of purchases that have a mandatory surcharge component, and can be strategically managed by the retailers. Thus different promotional strategies will make a difference.