A Consumer Perspective on Price-Matching Refund Policies: Effect on Price Perceptions and Search Behavior

Abstract

Although price-matching refund policies are common in many retail environments, the impact of such policies on consumers has largely been ignored. This article reports the results of three studies that examine price-matching policies from a consumer perspective. Study 1 shows that consumers perceive price-matching policies as signals of low store prices and that the presence of a refund increases the likelihood of discontinuing price search. Contrary to the predictions based on signaling theory in information economics, studies 2 and 3 show that when search costs are low, the number of stores searched increases in the presence versus absence of a price-matching policy. When search costs are high, consumers appear to accept the price-matching signal at face value and search less in the presence of a refund. The article concludes by discussing the theoretical implications of the findings and suggesting directions for future research. C onsiderable research effort has been expended to study the behavioral and psychological aspects of price (e.g., Monroe 1990; Winer 1988). This research has led to the awareness of the complex role of price and price-related strategies in influencing consumer price perceptions (Monroe 1990). In particular, this research suggests that although prices are concrete relative to other product attributes, price perceptions are malleable (Alba et al. 1994). However, much of this research focuses on consumer price perceptions of individual products or brands (Arnold, Oum, and Tigert 1983). Relatively few researchers have examined the effect of general pricing strategies on consumer perceptions of store prices (cf. Alba et al. 1994; Buyukkurt 1986). Perceptions of store prices are an important aspect of a store's overall image and are critical determinants of consumer shopping decisions such as search behavior and store choice (Urbany, Dickson, and Wilkie 1989). As consumers become more value conscious, particularly in relatively undifferentiated retail environments where price is the primary

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