In an article by the Harvard Business Review (found here), Rafi Mohammed explains three reasons why businesses that offer to match prices of their competitors might not be in the best interest of the online consumer. Here are his reasons:
They may reduce competition: Economists and antitrust authorities have long been concerned that price matching policies may actually reduce the incentives of stores to lower prices. If retailers know that lowering prices (to sell more of a product as well as spur additional purchases) will be matched by rivals, there’s less upside to discounting — what’s the point if consumers will simply go to their favorite store and request a price match?
They provide a false sense of security: Academics Maria Arbatskaya, Morten Hviid, and Greg Shaffer published a paper in the International Journal of Industrial Organization titled “On the Use of Low-Price Guarantees to Discourage Price Cutting” that empirically investigates price matching. The authors collected data on tire prices from Sunday newspapers. They found that 86% of retailers that offered to match any price — advertised or not — did not offer the lowest price. Interestingly though, 75% of retailers that offered to match only advertised prices actually offered the lowest prices.
They penalize inattentive shoppers: Under price matching guarantees, consumers who play the game (by aggressively comparing prices before buying) will win, but those who don’t will pay more. With the significant extra operating costs borne by brick and mortar retailers, how will they make up margins lost from matching Internet prices? Physical stores will become more dependent on implementing differential pricing (the strategy of charging different prices for the same product to different customers) to keep their bottom lines in check. To do this, they will likely increase prices.
Rafi’s first point is valid. We all know that if competition is low, then prices are relatively high. But the quest for the sale – and subsequent fear of losing it – make this point fairly mute in all but highly unique, niche markets. As far as providing a false sense of security or penalizing inattentive shoppers, well that will happen with any marketing strategy. Whether you offer to match prices, product quality, or shipping costs, if consumers don’t read the fine print, open up privacy policies and terms of service agreements, and review online certificates and reviews from third-parties and past customers, they’re probably not going to get the best deal possible.
We recommend that e-commerce business owners utilize price match guarantees like 4xBuyerProtection just as strongly as we recommend that consumers do their homework before making an online purchase.