Price Expectations and Purchase Decisions

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Web Appendices

Submitted to

Customer Needs and Solutions

Title of the Paper

Price Expectations and Purchase Decisions:Evidence from an Online Store Experiment

Authors and their Affiliation

Sudipt Roy: Assistant Professor of Marketing, Indian School of Business, Gachibowli, Hyderabad 500032, India. Email: ; Phone +91-40-23187121.

Tat Chan [contact person]: Associate Professor of Marketing, Olin Business School, Washington University in St. Louis, CB1133, One Brookings Drive, St. Louis, MO 63130. Email: ; Phone +1-314-935-6096.

Amar Cheema: Professor of Commerce, McIntire School of Commerce, University of Virginia, Rouss & Robertson Halls, 125 Ruppel Dr., Charlottesville VA 22903. Email: ; Phone: +1-434-535- 2627.

Web Appendix A

PRODUCT LIST

S. No. / Category / Brand & Product Description / Pack Size
1 / Bath Tissue / Angel Soft Bath Tissue, Double Rolls, White / 4 ct
2 / Bath Tissue / Kleenex 4 Pk Double Roll White Bath Tissue / 4 ct
3 / Bath Tissue / Schnuck True Soft Premium Bath Tissue Double Roll / 4 ct
4 / Bath Tissue / Scott Bath Tissue, White / 4 ct
5 / Canned Soup / Campbell Home Cooking Chicken with Noodles / 18.6 oz
6 / Canned Soup / Campbell Home Cooking Potato Roast Garlic / 18.8 oz
7 / Canned Soup / Campbell Roasted Chicken / 18.6 oz
8 / Canned Soup / Campbell Roasted Chicken Rice Soup / 18.6 oz
9 / Canned Soup / Campbell Chunky Chicken with Vegetables / 18.8 oz
10 / Canned Soup / Campbell Chunky Vegetables / 18.8 oz
11 / Canned Soup / Progresso Chicken Noodles Soup / 19 oz
12 / Canned Soup / Progresso Chicken Rice Soup / 19 oz
13 / Canned Soup / Progresso Hearty Tomato / 19 oz
14 / Canned Soup / Progresso Soup Beef & Baked Potato / 18.5 oz
15 / Canned Soup / Progresso Vegetable Soup / 19 oz
16 / Milk / Pevely Milk, Homogenized / 64 oz
17 / Milk / Schnuck Milk, 1% - Half Gallon / 64 oz
18 / Milk / Schnuck Milk, 1/2% - Gallon / 128 oz
19 / Milk / Schnuck Milk, 2% - Gallon / 128 oz
20 / Milk / Schnuck Milk, 2% - Half Gallon / 64 oz
21 / Milk / Schnuck Milk, 2% - Quart / 32 oz
22 / Milk / Schnuck Milk, Homogenized - Gallon / 128 oz
23 / Milk / Schnuck Milk, Homogenized - Half Gallon / 64 oz
24 / Milk / Schnuck Milk, Homogenized - Quart / 32 oz
25 / Milk / Schnuck Milk, Lite One - Gallon / 128 oz
26 / Milk / Schnuck Milk, Skim - Gallon / 128 oz
27 / Milk / Schnuck Milk, Skim - Half Gallon / 64 oz
28 / Milk / Schnuck Milk, Skim - Quart / 32 oz
29 / Orange Juice / Schnuck Orange Juice, Gallon / 128 oz
30 / Orange Juice / Schnuck Orange Juice, Select w/Calcium / 64 oz
31 / Orange Juice / Florida Natural, Orange Juice / 64 oz
32 / Orange Juice / Florida Natural, Orange Juice w/Calcium / 64 oz
33 / Orange Juice / Minute Maid Orange Juice, Calcium Fortified / 64 oz
34 / Orange Juice / Minute Maid Orange Juice, Premium, Original Calcium Low Pulp / 128 oz
35 / Orange Juice / Schnuck Orange Juice / 64 oz
36 / Orange Juice / Tropicana Orange Juice, Premium Grove Stand / 64 oz
37 / Orange Juice / Tropicana Orange Juice, Premium Grove Stand / 96 oz
38 / Orange Juice / Tropicana Orange Juice, Premium Homestyle / 64 oz
39 / Orange Juice / Tropicana Orange Juice, Pure Premium, Calcium Fortified / 64 oz
40 / Paper Towel / VIVA Big Roll White Towel / 1 Each
41 / Paper Towel / Schnuck Paper Towels White 1 Roll / 1 ct
42 / Paper Towel / Schnuck Paper Towels White 6 Roll / 6 ct
43 / Pasta / R&F Spaghetti / 16 oz
44 / Pasta / R&F Thin Spaghetti / 16 oz
45 / Pasta / Schnuck Spaghetti / 16 oz
46 / Pasta / Schnuck Spaghetti / 32 oz
47 / Pasta Sauce / Brilla Pasta Sauce, Mushroom Garlic / 26 oz
48 / Pasta Sauce / Brilla Pasta Sauce, Tomato Basil / 26 oz
49 / Pasta Sauce / Del Monte D'Italia Pasta Sauce, Four Cheese / 26.5 oz
50 / Pasta Sauce / Del Monte Pasta Sauce, Garlic & Onion / 26.5 oz
51 / Pasta Sauce / Del Monte Pasta Sauce, Meat / 26.5 oz
52 / Pasta Sauce / Hunt's Pasta Sauce, Meat / 26.5 oz
53 / Pasta Sauce / Hunt's Pasta Sauce, Parmesan / 26 oz
54 / Pasta Sauce / Hunt's Pasta Sauce, Traditional / 26.5 oz
55 / Pasta Sauce / PREGO GARLIC PARMESAN SAUCE / 26 oz
56 / Pasta Sauce / Prego Pasta Sauce, Meat / 48 oz
57 / Pasta Sauce / Prego Pasta Sauce, Regular / 26 oz
58 / Soda / Coke Classic, 2-Liter / 67.6 oz
59 / Soda / Coke Classic, 6-Pack Bottles / 48 oz
60 / Soda / Diet Coke, 6-Pack Bottles / 48 oz
61 / Soda / Diet Coke, 6-Pack Cans / 72 oz
62 / Soda / Diet Coke, Caffeine-Free, 2-Liter / 67.6 oz
63 / Soda / Pepsi, 2-liter / 67.6 oz
64 / Soda / Pepsi, 6 Pk Bottles / 144 oz
65 / Soda / Pepsi, 6-Pack Cans / 72 oz
66 / Soda / Pepsi, Caffeine-Free, 2-Liter / 67.6 oz
67 / Soda / Diet Pepsi, 2-Liter / 67.6 oz
68 / Soda / Diet Pepsi, 6 Pk Bottles / 144 oz
69 / Soda / Diet Pepsi, 6-Pack Cans / 72 oz
70 / Soda / Diet Pepsi, Caffeine-Free, 2-Liter / 67.6 oz
71 / Soda / Diet Sprite, 2-Liter / 67.6 oz
72 / Soda / Dr. Pepper .5 Liter / 101.4 oz
73 / Soda / Dr. Pepper Diet .5 Liter / 101.4 oz
74 / Soda / Dr. Pepper, 2-Liter / 67.6 oz
75 / Soda / Mountain Dew, 2-liter / 67.6 oz
76 / Soda / Mountain Dew, 6 Pk Bottles / 144 oz
77 / Yogurt / Dannon Yogurt, Non-Fat Plain / 32 oz
78 / Yogurt / Dannon Yogurt, Plain / 32 oz
79 / Yogurt / Dannon Yogurt, Plain / 6 oz
80 / Yogurt / Dannon Yogurt, Raspberry / 6 oz
81 / Yogurt / Dannon Yogurt, Vanilla / 32 oz
82 / Yogurt / Yoplait Go-Gurt, Portable Yogurt Strawberry & Berry Blue 2.25 Oz / 18 oz
83 / Yogurt / Yoplait Yogurt, Light Apricot Mango Fat Free / 6 oz
84 / Yogurt / Yoplait Yogurt, Light Banana Cream Pie Fat Free / 6 oz
85 / Yogurt / Yoplait Yogurt, Light Blueberry Patch Fat Free / 6 oz
86 / Yogurt / Yoplait Yogurt, Light Strawberries 'N Bananas Fat Free / 6 oz
87 / Yogurt / Yoplait Yogurt, LightWhite Chocolate Strawberry Fat Free / 6 oz
88 / Yogurt / Yoplait Yogurt, Original Cherry Orchard 99% Fat Free / 6 oz
89 / Yogurt / Yoplait Yogurt, Original French Vanilla 99% Fat Free / 6 oz

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Web Appendix B

DATA COLLECTION PROCESS

IN EACH WEEKLY SHOPPING CYCLE

Web Appendix C

A snap-shot of the shopping screen

Web Appendix D

Simple regressions and results

To investigate whether participants respond to different pricing conditions in a sensible way, we run some simple tests to examine the impacts of various pricing conditions on participants’ behaviors. First, we use a simple logit model to estimate the probability that a product j will be eventually purchased under pricing condition k as the following:

(D.1)

where is the current price, the average price for product j, an intercept parameter and the price coefficient. Results are reported in table D1. The price coefficients are significantly negativeunder both “increase” conditions but are insignificantly different from zerounder both “decrease” conditions. This implies that participants were more price sensitive under ascending price conditions. Expectedly, the coefficient for “Sudden Increase” is more negative than that for “Gradual Increase.”

Second, we test how participants update their price expectations under different conditions. Winer (1986) proposes that price expectations are gradually updated from past prices. Based on his results, a participant’s PRIOR in any week t should be lower than the store price under the ascending price condition, and vice versa under the descending price condition. These are consistent with our data: PRIORtis smaller thanPRICEt for 69% of the observations under the ascending conditions, and only 29% under the descending conditions. Winer’s result also implies that POST should be higher than the store price under the ascending price condition, and vice versa under the descending price condition. However, our data shows that POSTtis larger thanPRICEt for only 29% of observations under the former condition but 73% under the latter condition. The primary reason for this inconsistency is that, for most participants in our experiment POST refers to the price they expect to pay in outside stores. Hence, if the store price of a product is high under the ascending price condition it is more likely that participants expect to pay a lower price in outside stores.

Finally, we also run two simple price expectation regressions for PRIOR and POST as the following:

(D.2)

(D.3)

where is measured by Pricet-1 – PRIORt-1, and by Pricet – POSTt-1, and {} is an indicator function for the four price change conditions which is equal to 1 if the logical expression inside is true, and 0 otherwise. Table D2 reports the results. The coefficients for DIFF1 and DIFF2 are both positively significant, indicating that participants on average were responsive to the disconfirmation of current price in updating price expectations. The updating coefficients for PRIOR under gradual price increase, sudden price increase and sudden price decrease are all significant and have the right sign, but only gradual and sudden price decrease will lower their expectations of POST. We note that the adjusted R2 for the PRIOR regression is far higher than the POST regression (0.58 vs. 0.03, respectively), further implying that for most participants POST is the expected price to pay outside; hence, the pricing conditions in store do not have a strong impact on POST updating. Still, the significant coefficients in the regression suggest that at least some participants are using current prices in the online store to update their price expectations about outside stores.

TABLE D1: PRICE SENSITIVITIES UNDER PRICE CHANGES

Pricing Condition / Price Coefficient Estimate / Std. Error
Gradual Increase / -2.65** / 0.65
Sudden Increase / -4.31** / 1.98
Gradual Decrease / -0.83** / 0.55
Sudden Decrease / -0.55** / 0.83

** significant at 5% or better

TABLE D2: UPDATING PRICE EXPECTATIONS UNDER PRICE CHANGES

PRIOR Updating / POST Updating
Parameter / Estimate / Std. Error / Parameter / Estimate / Std. Error
Intercept / 0.23** / 0.03 / Intercept / 0.78** / 0.05
PRIOR(t-1) / 0.77** / 0.04 / POST(t-1) / 0.18** / 0.05
Diff1 / 0.08** / 0.04 / Diff2 / 0.17** / 0.05
Diff1*{Gradual Increase} / 0.11** / 0.05 / Diff2*I{Gradual Increase} / -0.02** / 0.02
Diff1*{Sudden Increase} / 0.30** / 0.07 / Diff2*I{Sudden Increase} / 0.00** / 0.04
Diff1*{Gradual Decrease} / 0.02** / 0.04 / Diff2*I{Gradual Decrease} / -0.06** / 0.02
Diff1*{Sudden Decrease} / -0.22** / 0.06 / Diff2*I{Sudden Decrease} / -0.10** / 0.04
R2 = 0.58 / R2 = 0.03

**significant at 5% or better