Societal and Public Policy Issues With Retail Pricing

Dhruv Grewal, University of Miami
Ronald C. Goodstein, UCLA
[ to cite ]:
Dhruv Grewal and Ronald C. Goodstein (1993) ,"Societal and Public Policy Issues With Retail Pricing", in NA - Advances in Consumer Research Volume 20, eds. Leigh McAlister and Michael L. Rothschild, Provo, UT : Association for Consumer Research, Pages: 477.

Advances in Consumer Research Volume 20, 1993      Page 477


Dhruv Grewal, University of Miami

Ronald C. Goodstein, UCLA

Given the competitive nature of today's marketplace, retail pricing strategies are often used by consumers as a signal of quality, information, and service. Retailers have reflected these changes in the pricing policies they have adopted, such as the use of price premiums as an indicant to consumers of a product's or service's quality. The language used to signal promotions has also become more complex, sometimes offering comparative information (e.g., "Our Price"/"Their Price") and other times providing more vague information ("Special Price"). Finally, pricing systems such as UPC scanners have become more popular with retailers and may indicate to consumers better in-store service by those outlets adopting them.

Many other important areas of pricing have received attention in the consumer literature, such as reservation price effects, discounting, couponing, and reference prices. Notwithstanding the importance of these topics, issues involving premiums, promotions, and pricing systems cover a wide spectrum of issues that constitute a retailer's pricing policies. However, societal and public policy issues relating to these issues have been an under-researched area.

From a societal and public policy perspective, many of the heuristics (rules-of-thumb) that consumers use to simplify the marketplace are relevant and important to understand. The fact that pricing policies (e.g., premiums, promotions, and systems) are often used as cues of quality, therefore, becomes an issue worthy of further scrutiny by researchers. When these rules are accurate, and are respected by both retailers and consumers then the marketplace becomes more efficient. However, if these rules are violated either because consumers cannot understand the relationships or because retailers take advantage of consumers' reliance upon them, then societal and public policy concerns arise.

The first presentation in this session examines pricing accuracy in stores employing UPC scanner systems (Goodstein, Escalas, and Kassarjian). Consumerists believed that since item prices would be eliminated as scanners were adopted pricing accuracy could not be assessed by shoppers. This study indicates that pricing accuracy has not been improved by the adoption of scanner systems. The second presentation examines consumers' use of price-quality heuristics as a defensive buying strategy (Rao, Monroe, and Bergen). This paper suggests that consumers may pay premium prices to avoid losses of product quality. The research also suggests that consumers may be able to successfully search for quality information and monitor the product quality provided by the retailer or seller. The third presentation examines consumers' interpretation of the semantic cues retailers provide to signal a promotion (Grewal and Compeau). The paper suggests that semantic cues used to communicate price information have the potential to be either informative or deceptive. The session coordinators would like to recognize and thank Michael Mazis for his service as the discussant for this session.

Public policy, such as regulation, directly relates to each of these three presentations. In the case of scanning errors, regulation assuring more accurate pricing would benefit consumers shopping in scanner stores. In terms of price "gouging," regulation of prices could harm the consumer in situations where product quality is not easily assessed. Premiums, in this case, are an economic incentive used to assure price/quality tradeoffs. Finally, regulation might be used to encourage retailers to define different semantic cues so that meaning is made clear to consumers. In this way consumers could better evaluate the true value of a "promotional" price.