Pricing Better

Ray, Sourav and Wang, Li and Levy, Daniel and Bergen, Mark (2019): Pricing Better.

Abstract

Electronic shelf label (ESL) is an emerging price display technology around the world. While these new technologies require non-trivial investments by the retailer, they also promise significant operational efficiencies in the form of savings in material, labor and managerial costs. The presumed benefits of ESL, for example, tend to be focused around lower price adjustment costs (PAC), also known as menu costs. However, ESL not only can save PAC but may also enable the retailer to price “better,” generating greater value for the transacting parties. Thus, ESL’s strategic impact for retailers occurs between claiming these presumed efficiencies and realizing the value generating potential. Using transactions data from a longitudinal field experiment, we assess such impact of ESL by studying how it shapes retail pricing practices and outcomes. Our general finding is that ESL plays an enabling role to the retailer’s strategy – thereby enhancing the retailer’s sales and revenues. The price adjustment efficiencies of ESL allows retailers to do better waste management, price discovery, as well as leveraging value in information for consumers. However, ESL’s impact on prices is nuanced, based on the retail strategy (EDLP, HI-LO) being used. Papers quantifying emerging technologies’ impact on retail outcomes are sparse, even fewer investigating their role in pricing. To the best of our knowledge, ours is the first study to explore and quantify how ESL interacts with retail strategy to affect retail pricing practices and retail outcomes.

• Item Type: MPRA Paper
• Language: English
• Keywords: Retailing; Pricing; EDLP; HI-LO; Dynamic Capability; Menu Costs; Price Adjustment; Price Elasticity; Price Discovery
• Subjects: C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C93 - Field Experiments; D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D40 - General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General; L - Industrial Organization > L8 - Industry Studies: Services > L81 - Retail and Wholesale Trade ; e-Commerce; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M31 - Marketing; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes

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