PRICE STICKINESS AND CUSTOMER ANTAGONISM

Managers often state that they are reluctant to vary prices for fear of “antagonizing customers.” However, there is no empirical evidence that antagonizing customers through price adjustments reduces demand or profits. We use a 28-month randomized field experiment involving over 50,000 customers to...

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Bibliographic Details
Main Authors: Simester, Duncan, Anderson, Eric T.
Other Authors: Sloan School of Management
Format: Article
Language:en_US
Published: MIT Press 2010
Online Access:http://hdl.handle.net/1721.1/58801
https://orcid.org/0000-0003-2758-0116
Description
Summary:Managers often state that they are reluctant to vary prices for fear of “antagonizing customers.” However, there is no empirical evidence that antagonizing customers through price adjustments reduces demand or profits. We use a 28-month randomized field experiment involving over 50,000 customers to investigate how customers react if they buy a product and later observe the same retailer selling it for less. We find that customers react by making fewer subsequent purchases from the firm. The effect is largest among the firm's most valuable customers: those whose prior purchases were most recent and at the highest prices.