Dynamic Pricing and Shopping Cart Abandonment in Online Retail: An Abstract

Abstract

By 2021, around 2.1 billion people are estimated to buy products and services online. As an increasing amount of commerce shifts from the physical to the digital marketplace, many firms marketing strategies are also adjusting to the possibilities provided by online and digital technologies. For example, as online retailers increasingly generate and analyze large amounts of data about each individual shopping trip, they can now use this data to personalize the online shopping experience and design increasingly targeted pricing strategies. By using advanced algorithms to model a consumer’s recent purchase history, retailers can thus come up with an estimate of how much consumers would be willing to pay for any given product or service and use different, both verbal and visual, strategies to communicate this price to end-customers. In this study we seek to create more understanding about the effectiveness of such dynamic pricing practices, particularly in encouraging customers to purchase products previously abandoned in a virtual shopping cart. As modern consumers are bombarded with a large number of marketing communications related to pricing in online retail channels, for example about price changes and other more or less personalized discounts based on their previous purchase behavior, it is vital for both scholars and practitioners to decipher how effective these practices are in increasing purchase intentions. To explore these questions we conducted an experiment to understand the effectiveness of dynamic pricing on purchase intentions after an item had previously been abandoned in a virtual shopping cart and study the moderators of this effect. Our results identify that changes in the price for items left in a virtual shopping cart lead to increased purchase intentions when the price has decreased, which is in line with the microeconomic understanding of pricing and demand elasticity. On the other hand, we also find that different types of pricing communication (verbal vs. visual) have an effect on consumer purchase intentions when the price has increased, and indeed a significant number of consumers are willing to buy the product despite a communicated price increase after their previous visit. We also identify boundary conditions for these effects. The results contribute to our understanding of pricing in an online retail environment and the role of a consumer’s risk aversion and rational-decision making tendency as a moderator for purchase intention after a communicated price change.