Price Comparison Tools

>> Now let's take a look at some of the academic research on this topic. Surprisingly, academic research on price comparison tools is rather sparse so there's a lot that we don't know about this technology. 

However, a few key insights are starting to emerge. I'd like to discuss two particular studies, one that was conducted a while ago and a more recent one. The first study is one of my favorites, it's by John Lynch and Dan Ariely and Dan, as you may know, also teaches a course -- a popular course on behavioral economics on . If you haven't taken the course yet, I encourage you to do that. This article was published in Marketing Science and is one of the first academic studies to examine price comparison tools. In this study, the researchers designed an experimental shopping website that contained different types of wine sold from two fictitious online retailers. 

Each of these two retailers sold 60 different wines, 40 of these wines were unique to each retailer and 20 were common across both of them, so that some that were the same and some that were different. 

The website contained information about both the price, as well as the quality of each of these different wines. The participants in the study were then asked to use their own money to purchase the wine that they selected. They could buy as many or as few as they wanted. 

The researchers then examined which wines were purchased and how much they cost. 

The results of the study revealed that by enabling participants to make price comparisons, this increase their price sensitivity when shopping for wines that were common across retailers but not for wines that were unique to a specific retailer. 

Thus this article provides evidence that price comparison tools lead customers to focus more on price instead of other product features when evaluating their product sold across multiple retailers. The second study is more recent, it was published by Serenko & Hayes in 2010 in the International Journal of Electronic Business. 

In this more recent study, these two schools from Lake Head University in Canada examined the actual performance of 16 different price comparison tools, including Deal Time, PriceGrabber, and Yahoo Shopping. 

For each of these sites, they examined their prices for a set of randomly selected books, CDs and DVDs. Based on their results, these researchers conclude that although these tools could help result in price savings, each of them contained lots of different errors in terms of both prices and also product information. They concluded that customers interested in saving money should use these tools but none of them are ideal, thus they recommend that customers should employ more than one comparison tool when engaged in a price search. Now this brings us to practical recommendations, I'd like to make some recommendations for firms who are dealing with this new environment of price comparison apps. 

First of all, one way of dealing with this new digital world is to make comparisons difficult. 

As shown in the study by Lynch Ariely, price comparison tools appear to make customers focus more strongly on a product's price; this results in lost sales for firms that may not be able to offer the lowest price, thus one way around this dilemma is to offer products that cannot be easily compared. 

For example, many retailers offer private label products that are difficult to compare because other retailers don't carry the same identical product. A second strategy is to match competitor's prices. If a firm is unable to offer a unique product, another option is to enact a policy of matching competitor's prices. In the U.S., for example, many firms such as Walmart, Target and Best Buy, have these price matching policies, although this type of policy is likely to result in lower revenue per product, it should help reduce the growing trend of what's called customer showrooming, in which customers physically examine a product in a physical store, then buy it online at a lower price. A third strategy, if you can't beat them, join them. 

Many price comparison tools provide information not only about online retailers but also physical ones. For example, Red Laser List prices for nearby physical retailers and also has a mapping function that shows shoppers how to actually get to these stores. 

Given the lack of shipping costs and the benefits of immediate acquisition, many customers may choose to visit a physical store rather than buying a product online, thus it may make sense for even small local retailers to have their products listed and price comparison tools such as Google shopping. 

Fourth and finally, be unique. As noted by the famous strategy scholar, Michael Porter, the best way to fight against price competition is to offer something unique. 

There are several great examples of retailers that sell rather generic products that have such a unique shopping experience that price has little impact on the customer decision making process. The iconic Apple store in New York City is a great example but there are many others such as Wall Drug Store in South Dakota, the Carusel Bookstore in Bucharest, or the Dubai Mall. All of these unique retailers offer an experience that is hard to duplicate by others and thus makes price comparisons largely irrelevant. 

A more radical approach would be to eliminate fixed prices altogether and let customers choose their own price. This is the next digital concept that we'll discuss in this module. 

Well, those are my thoughts about price comparison tools. I'd like to hear your thoughts and also the examples that you have. Which tools do you use and have they saved you any money?