Should You Dare to Compare?

Encouraging comparison shopping is a common marketing technique, but Rice researchers say that it often backfires, making consumers more cautious and likely to buy the less risky name brand. Ironically, left to their own judgment, consumers are more likely to pick the lower-priced generic or store brand.

Encouraging comparison-shopping most often is used to promote lower-priced, lower-quality brands or new products seeking greater visibility among consumers, says Paul Dholakia, an assistant professor of management at the Jesse H. Jones Graduate School of Management. As an example, stores often post signs on their shelves encouraging consumers to compare store brand prices with corresponding leading national brands’ prices. “If left to decide for themselves, consumers are just as likely to note the price differences and possibly choose the lower-priced generic brands,” Dholakia says. “But, if they are directed to make comparisons between a well-known brand versus a store brand, they will be more cautious and purchase the less risky, nationally known brand. Generally, letting consumers decide for themselves is a more effective approach.”

In “The Effect of Explicit Reference Points on Consumer Choice and Online Bidding Behavior,” published in Marketing Science, Dholakia and Itamar Simonson of Stanford University’s Graduate School of Business analyze the purchase behavior of consumers who are urged to make comparisons between different options versus those left to draw their own conclusions. The researchers conducted studies using both online auction bidders and laboratory subjects.

Dholakia, who has conducted a number of studies involving online auctions, believes their findings have far-reaching implications for sellers and buyers who use this virtual marketplace. Just as consumers spontaneously notice the different quality and price of brands shelved near one another, online auction bidders are influenced by the starting prices of similar nearby listings, and these prices affect their willingness to bid and the final auction prices. For example, an item listed next to a similar item with a higher starting price is more likely to be sold at a higher final price than if that item is adjacent to one with a lower starting price. Psychologists refer to this phenomenon as the “anchoring effect.”

“We found, however, if online buyers are explicitly urged to compare the price of one listing to other adjacent listings, they become much more cautious in their bidding and the anchoring effect is diminished,” Dholakia notes. “More cautious bidders will tend to control their bidding behavior by making fewer offers and submitting them late in the auction.” The end results, adds Dholakia, are fewer bids and lower final prices.

When comparison marketing is used in stores, the results are similar. Shoppers who are encouraged to compare brands become averse to taking risks in their choice of products and are unlikely to buy the private, lesser-known label, even if it’s less expensive.

“This simply points out,” Dholakia says, “that marketers need to carefully consider the conditions under which it is more effective to use comparison promotions and when it is risky to do so.”