Special Session Summary the Retailer As Master of Asymmetric Price Competition: Experimental, Empirical, and Simulation-Based Results

Timothy B. Heath, University of Pittsburgh
Joel Huber, Duke University
Xin He, University of Pittsburgh
[ to cite ]:
Timothy B. Heath, Joel Huber, and Xin He (2001) ,"Special Session Summary the Retailer As Master of Asymmetric Price Competition: Experimental, Empirical, and Simulation-Based Results", in NA - Advances in Consumer Research Volume 28, eds. Mary C. Gilly and Joan Meyers-Levy, Valdosta, GA : Association for Consumer Research, Pages: 206.

Advances in Consumer Research Volume 28, 2001     Page 206

SPECIAL SESSION SUMMARY

THE RETAILER AS MASTER OF ASYMMETRIC PRICE COMPETITION: EXPERIMENTAL, EMPIRICAL, AND SIMULATION-BASED RESULTS

Timothy B. Heath, University of Pittsburgh

Joel Huber, Duke University

Xin He, University of Pittsburgh

Empirical models of purchase data show that consumers switch to discounted higher-quality brands more than discounted lower-quality brands (asymmetric price competition). Only recently, however, have researchers like those in this session begun to isolate the causes of this asymmetry.

Our first study reports two experiments demonstrating that product assortments influence brand choice, commitment to the brand chosen, and switching tendencies (Heath, He, and Chatterjee). As we move from assortments that have more lower-quality brands to those with more higher-quality brands, choice of, and commitment to, higher-quality brands increases steadily. These effects then partially drive competitive asymmetries, but only partially since statistical controls for commitment fail to eliminate asymmetries. Also contributing was the dominance that sometimes arises when brands discount. If, for example, multiple brands within a tier have similar prices and features, a discounting brand is likely to dominate (be superior on at least one dimension but inferior on none) one or more brands within that tier. Two laboratory experiments report that discounts that effect such within-tier dominance do, in fact, tend to produce more switching, where asymmetries arise more commonly when such dominance arises. The fact that national brands can produce within-tier dominance with price discount more readily than can store brands (since the latter are often the lowest quality brands available) implicates within-tier dominance as a contributor to the asymmetric price competition commonly reported in the marketplace.

Lemon and Nowlis extend asymmetry management into a rich set of promotional tactics. Using multiple methods that include a scanner study, a paper-and-pencil experiment, and an internet-based experiment, the authors show that feature advertising and end-of-aisle displays benefit higher-quality brands more than lower-quality brands. However, the difference across quality tiers in price response is mitigated by marketing tactics that impair direct comparisons between competing brands (e.g., end-of-aisle displays that segregate the discounted brands). In fact, while asymmetries favor higher-quality brands when tactics are used alone, combining tactics reverses the asymmetry which comes to favor lower-quality brands. Again, while store brands often suffer at the hands of competitive asymmetries, retailers can mitigate this suffering by applying marketing tactics that bolster brand perceptions and reduce head-to-head comparisons.

Huber and Lo are the first researchers (we know of) to apply conjoint analysis to the study of competitiveasymmetries. Based on a study of over 1,400 consumers, the authors used part-worth utilities in simulations of different market structures to predict consumer responses to changes in competitors’ prices and product features. These tests assess the ability of consumer heterogeneity to account for asymmetric competition. Asymmetric price competition, for example, might arise because consumers of lower quality brands are generally more responsive to price reductions than are consumers of higher quality. The simulations also tested for effects of loss aversion. In general, the results show that consumer heterogeneity is capable of accounting for asymmetries in both price and quality competition (the latter favoring lower-quality brands), suggesting that appeals to more involved psychological mechanisms such as loss aversion may not be needed.

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