Connect with us

BizNews

Disclosing ‘true normal price’ recommended to protect consumers from deceptive pricing

Advertised reference prices — even those exaggerated to unrealistic levels — have significant impact on consumer decision-making.

Published

on

Fifty years ago, the US Federal Trade Commission (FTC) stopped enforcing deceptive pricing regulations, assuming that competition would keep retailers honest. Since then, competition has increased significantly — yet the practice of posting false, inflated comparison prices alongside sale prices has continued unchecked.

Think of an advertisement from a furniture store that touts a $599 sale price for a couch as an $800 savings from a promoted regular price of $1,399. The problem is that the store may have never offered the couch for sale at the higher price.  

This practice, called “fictitious pricing,” is ubiquitous in the retail trade. One recent investigation tracked the prices of 25 major retailers and found that “most stores’ sale prices … are bogus discounts” because the listed regular price is seldom, if ever, the price charged for the products.

Competition and the Regulation of Fictitious Pricing” is published in the Journal of Marketing from Joe Urbany, professor of marketing at the University of Notre Dame’s Mendoza College of Business, along with Rick Staelin from Duke University and Donald Ngwe, a senior researcher at Microsoft.

The paper critically evaluates two assumptions underlying the FTC’s decision to halt deceptive pricing prosecution.

The first is that inflated reference prices are largely ignored by consumers, who focus primarily on the sale prices, leading to price competition that pushes selling prices lower and renders reference prices harmless.

However, dozens of empirical studies in marketing and psychology reveal that advertised reference prices — even those exaggerated to unrealistic levels — have significant impact on consumer decision-making. This is explained by the natural value that consumers place on getting a good deal, labeled “transaction utility” by Richard Thaler in his Nobel Prize-winning body of work. 

In contrast to the FTC’s second assumption that competition drives out economic incentives to cheat, a number of recent economic models show the opposite. Competition in fact increases the chance that a firm will offer noisy information in an attempt to shield itself by looking different to customers. As a result, deception is found to be more profitable as competition increases.

These are fundamental forces that encourage the use of fictitious pricing. They also explain why state-level regulatory efforts and even a growing number of class action lawsuits have done little to discourage the practice.  

“There are limits to enforcement by litigation,” Urbany said. “It allows only a relatively small number of meaningful actions in a given time period, leading to limited visibility and impact on widespread practice.”

The authors propose instead a disclosure solution in the form of requiring firms that use comparison prices in their sales promotion to additionally post the item’s true normal price (TNP). The TNP is the most frequently offered price for that product in a given period.

For example, let’s say a price-promoting furniture retailer actually offers the sofa for sale at $1,399 for the first two weeks in a quarter (making zero sales), and then advertises the sofa on sale at $599, promoting $800 in savings for the other 10 weeks. Under the TNP disclosure proposal, the retailer would need to post $599 as its true normal price for the product in any subsequent sales promotions that included statement of a “regular price.” 

Through a controlled experiment with 900 participants, the authors found that providing TNP information largely eliminates the effect of an advertised regular price, which otherwise significantly raises the chance a consumer will buy.

To gauge the likely response of firms to the TNP disclosure concept, the authors also interviewed a dozen senior retail executives, each with extensive experience in pricing.

“Our interviews revealed that some practitioners are very supportive of efforts to rein in what is perceived to be an ‘out-of-control’ promotional environment,” Urbany said. “At the same time, they and others offered more sobering insights about the realities of likely resistance to intervention.”

The paper concludes with conjectures about how TNP provision would motivate greater honesty in pricing, likely having an impact on average market prices, promotion frequencies and firm profits. Important research directions are highlighted. 

BizNews

Structure of online reviews shapes their helpfulness

Reviews that grow increasingly positive are most helpful to readers, while those that turn negative are least helpful. For average-rated products, progressively negative trajectories enhance helpfulness, whereas reviews that start negative and grow positive are least effective.

Published

on

A study of nearly 200,000 Amazon reviews shows that the usefulness of online product reviews depends not only on what is said, but on how the information is structured.

The researchers, from the Universities of Cambridge and Queensland, studied Amazon reviews for products ranging from clothing to food to electronics. They found that how the information is organised matters as much as what is said, and that different review structures are more or less helpful, depending on how highly the reviewer has rated the product.

Their results, published in the journal Scientific Reports, could help companies and third-party review platforms design their review pages to prompt the sort of reviews that will be most helpful to potential customers.

For example, a reviewer assessing a laptop might praise its performance and design while criticising its battery life, so how should such information be structured to be most useful to the reader? Should the review begin with criticism and end on a positive note, or start positively before turning to drawbacks?

“Any target of evaluation typically has both positive and negative aspects, which makes crafting evaluative messages challenging,” said co-author Dr Yeun Joon Kim from Cambridge Judge Business School. “The key question is how to structure these elements within a single message. For example, one might present criticism upfront and then move to praise, or instead integrate negative points within an otherwise positive evaluation. Yet research has paid little attention to this structural dimension.

“We wanted to understand whether certain structures are consistently more effective, or whether their effectiveness depends on the performance of the target being evaluated.”

The study was based on 195,675 reviews of 5,487 distinct products, and assessed performance and related factors, and a helpfulness score as measured by reader votes.

The researchers identified nine possible structures of online reviews ranging from Type A reviews that start positive and become more positive as they go along, to Type I reviews that start negatively and become even more negative – with lots of variance in between.

For highly-rated products, reviews that grow increasingly positive are most helpful to readers, while those that turn negative are least helpful. For average-rated products, progressively negative trajectories enhance helpfulness, whereas reviews that start negative and grow positive are least effective. For low-rated products, reviews are judged most helpful when they open constructively before introducing criticism.

“The results are nuanced but very clear,” said co-author Dr Luna Luan from the University of Queensland, who carried out the research while earning her PhD at Cambridge Judge Business School. “Looking at the overall sentiment of reviews does not fully translate into message effectiveness. It is the broader structure of sentiment – how positivity and negativity evolve throughout the review – that shapes how readers interpret online reviews.”

“Our findings have practical implications for how platforms and companies can design review pages in order to elicit the sort of reviews that will be most helpful to readers based on how highly products are rated,” said Kim. “For example, instead of simply asking ‘Write your review here’, the online review form could instead include micro-prompts that guide how reviewers structure feedback in a way recipients find most helpful.”

The researchers found the most commonly used review styles are not necessarily the most helpful to readers. In particular, for average- and low-rated products, the structures that reviewers tend to adopt often differ from those that readers find most useful.

This mismatch likely reflects different underlying motivations. Reviewers are not always writing to maximise usefulness for others, but may instead be expressing their own experiences, frustrations or emotions – especially when evaluating products of moderate or poor quality. As a result, review writing often serves both as information sharing and as a form of self-expression. This helps explain why widely used review styles do not always align with what readers perceive as most informative or helpful.

Continue Reading

BizNews

Reversible words can lower consumer disbelief in ads

A simple word choice in marketing messages can significantly impact how confident consumers feel about believing – or not believing – a claim.

Published

on

It’s estimated that consumers experience hundreds if not thousands of marketing messages daily. While the exact number can depend, how much someone believes the message can be more important for marketing success than the number of messages they see. 

A new study reveals that a simple word choice in marketing messages can significantly impact how confident consumers feel about believing – or not believing – a claim. Researchers found that when words differ in their “reversability,” or how easily people can think of their opposites, it can trigger different mental processes when consumers evaluate marketing language. 

Imagine the messaging options for a new sunscreen designed specifically for those who like a strong scented product. The first product description reads, “The scent is prominent,” while the second notes, “The scent is intense.” The word “prominent” is uni-polar, meaning people tend to negate it by adding “not” to the original statement.

“Intense,” though, is a bi-polar word, meaning readers can easily come up with its opposite meaning and negate the statement by replacing it with its antonym. In this example, “The scent is mild,” instead of, “The scent is intense.” 

“When people encounter easily reversible words, like ‘intense’, in messages processed as negations (mild), they experience lower confidence in their judgements compared to words that are hard to reverse, like ‘prominent,’” explained Giulia Maimone, a postdoctoral scholar in marketing at the University of Florida Warrington College of Business. 

Across two experiments of more than 1,000 participants, the research demonstrated that this effect occurs because negations of bi-polar, or reversible, words engage a more elaborate cognitive process requiring additional mental effort, resulting in lower confidence of the statement’s truthfulness. 

Based on their findings, the researchers suggest that marketers take this advice when crafting language: for new products, use affirmative statements with easily reversible words, like ‘The scent is intense’ in the sunscreen example, which most consumers will judge as true with high confidence. Importantly, this language would also minimize the confidence of consumers who will be skeptical about the message, as they will process it via a more complex cognitive process that reduces confidence in those consumers’ disbelief. 

“This simple lexical choice could help companies maximize confidence in their desired messaging and minimize confidence among the doubters,” Maimone explained. 

Continue Reading

BizNews

If you’re a perfectionist at work, your boss’ expectations may matter more than your own, research finds

Help your employees by clarifying expectations through regular feedback and performance conversations to reduce role ambiguity, as doing so can provide employees with a better understanding of role expectations and enhance mutual understanding of those standards.

Published

on

If you’re among the 93% of people who struggle with perfectionism at work, new research suggests that your experience may depend less on your own high standards and more on whether those standards meet your supervisor’s expectations. 

Researchers from the University of Florida Warrington College of Business found that whether perfectionism helps or harms employees depends largely on whether employees’ personal standards align with their supervisors’ expectations. 

Specifically, they looked at the connection between employees’ self-oriented perfectionism, or the expectations of flawlessness they set for themselves, and supervisors’ other-oriented perfectionism, which reflects the extent to which they set excessively high standards for and critically evaluate their employees’ performance. 

Using data from more than 350 employees and about 100 supervisors, the researchers found that perfectionism’s impact depends on whether employees’ standards align with what their supervisors expect and how clearly those expectations are understood. 

When employees’ personal standards are aligned with their supervisors’ expectations, they tend to experience less role ambiguity, meaning they have less uncertainty about the expectations and standards for their role, why those standards matter and the consequences of not meeting them. This clarity in their work is linked to better performance, lower burnout and higher job satisfaction. 

“Problems between employees and their supervisors are more likely to arise when these expectations don’t match,” explained Brian Swider, Beth Ayers McCague Family Professor.

The most difficult situation occurs, Swider and his colleagues found, is when supervisors expect higher levels of perfectionism than employees expect from themselves. In these cases, employees reported greater uncertainty about their roles, along with worse work outcomes including higher burnout and lower job satisfaction.

“If you’re an employee who struggles with perfectionism at work, our findings suggest that understanding your supervisor’s expectations may be just as important as managing your own tendencies towards perfectionism,” Swider said. “Talking to your supervisor about priorities, standards and how your performance will be evaluated can help reduce uncertainty and ensure you both share a clear understanding of what success looks like.”

The researchers have similar recommendations for employers: help your employees by clarifying expectations through regular feedback and performance conversations to reduce role ambiguity, as doing so can provide employees with a better understanding of role expectations and enhance mutual understanding of those standards.

The researchers also recommend that organizations should consider how employees and supervisors are paired, as mismatched expectations can increase stress, reduce job satisfaction and ultimately impact performance. 

The research, “The influence of employee-supervisor perfectionism (in)congruence on employees: a configurational approach,” is published in Organizational Behavior and Human Decision Processes

Continue Reading
Advertisement
Advertisement

Like us on Facebook

Trending