Not Just about Price: How Benefit Focus Determines Consumers’ Retailer Pricing Strategy Preference

Abstract

Abstract Recent research has highlighted a difference in the way consumers approach choice sets. Some consumers focus on products’ quality benefits (vertical differentiation): their selections are driven by the level of quality obtained relative to the price paid. Other consumers focus on products’ taste benefits (horizontal differentiation): their selections are driven by acquiring personal tastes at favorable prices. This article aims to investigate how consumers’ benefit focus, a continuum anchored by quality and taste, drives their preferences between retailers differing in pricing strategies. All else equal, consumers who focus on taste benefits will prefer EDLP stores (infrequent discounters), while consumers who focus on quality benefits will prefer Hi-Lo stores (frequent discounters). Findings from our experiments and an analysis of consumer panel data corroborate this relationship. This work also shows the mediating role of perceived value and the effect of several moderators: the strength of the price–quality relationship, the pattern of discounts, and cherry-picking costs.