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MIT Sloan visiting professor finds behavioral motives key to pricing strategy

BY Dan Berthiaume

Cambridge, Mass. — An ongoing debate in retail is whether it’s a better strategy to use markdowns or everyday low prices. Research by MIT Sloan School of Management visiting professor Özalp Özer and his colleague Karen Zheng at MIT Sloan supports basing pricing strategy on consumer behavior compared to a one-size-fits-all approach.

They find that ignoring behavioral motives can cause retailers to forgo up to 14% of potential demand. In light of these behaviors, the optimal pricing strategy depends on the product category, according to the study. For example, some products like undershirts don’t trigger regret because consumers know they are not in limited supply nor would they be disappointed if the retailer occasionally runs out of stock. For that type of product, an everyday-low-price strategy works better. In contrast, a product with a higher emotional attachment like a fashion jacket is more likely to trigger regret. If the consumer doesn’t purchase it now, the right size may not be available during the markdown period. For that type of product, markdowns are optimal.

The study also points out that it’s possible to prime customers’ sense of regret by highlighting inventory information, and that inventory information has a greater impact on consumers’ purchase decisions than regret. As a result, marketing campaigns acting on availability misperception are more effective than ones that only emphasize regret. Many e-commerce sites like Amazon use this strategy, indicating how much of each item is left in stock.

“In the past decade, customers have become very strategic,” said Ozer. “Many will wait until end-of-season sales to make purchases whereas others will choose to pay a higher price to guarantee they get what they want. This presents a challenge to retailers to determine the best pricing strategy.”

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DSW closes on Town Shoes acquisition

BY CSA STAFF

DSW has closed on its acquisition of Town Shoes Limited, the largest footwear and accessories retailer in Canada, for $68.7 million (USD) in cash. DSW acquired a 49.2% interest in Town Shoes from certain clients of Alberta Investment Management Corporation (AIMCo) and other minority shareholders.

DSW’s initial stake provides 50% voting control and board representation equal to the primary remaining shareholder, Callisto Capital. Peter J. Solomon Company served as financial advisor to DSW Inc.

Town Shoes is the market leader in branded footwear in Canada, with sales of CAD $291 million in its fiscal year ending Jan. Town operates 182 locations across Canada primarily under The Shoe Company, Shoe Warehouse and Town Shoes banners. The company is predominantly owned by Alberta Investment Management Corporation on behalf of certain of its clients, and Callisto Capital, a Canadian private equity firm.

"We’re excited about our new relationship with Town Shoes,” said Mike MacDonald, president and CEO, DSW, when the company announced its intention to acquire the Canadian shoe retailer. “We have looked at Canadian entry options for some time and decided to acquire an existing operation with a long track record of success and to use this operation as a base from which we can establish the DSW brand in Canada."

Bruce Dinan, president and CEO, Town Shoes added that the combined retail banners provide different avenues for serving unique customer lifestyles in Canada, ranging from Town’s full priced, specialty retail model to The Shoe Company’s and Shoe Warehouse’s off price concepts.

DSW plans to release its first quarter earnings results Wednesday, May 28, before the market opens.

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Whirlpool Brand leverages social media in latest sweepstakes

BY CSA STAFF

Whirlpool is taking its latest campaign to social media, and encouraging people to take and share photos of the inside of their refrigerators using hashtag #fridgie — a play on “selfie.”

The concept was inspired by the design of the latest Whirlpool 4-Door French Door Refrigerator.

Starting today, people can view and submit their own photos by visiting Facebook.com/WhirlpoolUSA, where the brand will be curating consumer-created fridgies, hosting polls and sweepstakes.

"Whirlpool brand designs products focused on what makes each family different, adapting to and sensing what they need: the way they cook, clean and entertain — the way they care," said Jon Hall, senior brand manager, Whirlpool brand. "The #fridgie is our way of celebrating what makes families different and what brings them all together."

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