‘Dare to compare’ tactics usually backfire for lower-priced brands

BY PAM SHERIDAN
Special to the Rice News

Consumers are routinely bombarded with thousands of promotional messages, making it difficult for marketers to distinguish their product from others. When they try to influence consumers by encouraging them to specifically compare competing offers, new research from Rice University shows marketers are undermining their own sales efforts.

“As soon as you explicitly encourage consumers to make any kind of comparison between one product and another instead of relying on their intelligence and judgment, they’re likely to be more cautious in their purchase,” said Paul Dholakia, assistant professor of management at the Jesse H. Jones Graduate School of Management. “Generally letting consumers decide for themselves is a more effective approach.”

According to Dholakia, encouraging comparison shopping is most often used to promote lower-priced, lower-quality brands or new products seeking greater visibility among consumers. As an example, stores often post signs on their shelves encouraging consumers to compare store brand prices with corresponding leading national brands’ prices.

“If left to decide for themselves, consumers are just as likely to note the price differences and possibly choose the lower-priced generic brands,” Dholakia said. “But, if they are directed to make comparisons between a well-known brand versus a store brand, they will be more cautious and purchase the less-risky, nationally known brand.”

In a report published in the spring issue of Marketing Science titled “The Effect of Explicit Reference Points on Consumer Choice and Online Bidding Behavior,” Dholakia and Itamar Simonson from Stanford University analyzed the purchase behavior of consumers who were urged to make comparisons between different options versus those left to draw their own conclusions. The researchers conducted studies using both online auction bidders and laboratory subjects.

Dholakia, who has conducted a number of studies involving online auctions, said their findings have far-reaching implications for sellers and buyers who use this virtual marketplace. Just as consumers spontaneously notice the different quality and price of brands shelved near one another, the researchers confirmed that online auction bidders are influenced by the starting prices of similar nearby listings, and these prices affect their willingness to bid and thereby impact the final auction prices. For example, an item listed next to a similar higher starting price auction is more likely to be sold at a higher final price than if that item is adjacent to a lower starting price auction. Psychologists refer to this phenomenon as the “anchoring effect.”

“We found, however, if online buyers are explicitly urged to compare the price of one listing to other adjacent listings, they become much more cautious in their bidding and the anchoring effect is diminished,” Dholakia said. “More cautious bidders will tend to control their bidding behavior by making fewer offers and submitting them late in the auction.”
The end results are fewer bids and lower final prices, Dholakia said.

When comparison marketing is used in stores, the results are similar. Shoppers who are encouraged to compare brands became averse to taking risks in their choice of products and were unlikely to buy the private, lesser-known label even if it was less expensive.

“Instead, they are likely to choose the less-risky name-brand option,” Dholakia said. “This simply points out that marketers need to carefully consider the conditions under which it is more effective to use comparison promotions and when it is risky to do so.”