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School of Management | Taiyuan University of Technology
THE EFFECT OF RAISING SEARCHING OBSTACLES ON ONLINE PURCHASING
BEHAVIOR: PROOF FROM FIELD EXPERIMENT
LOKONON KOUDOGBO Boris Helios Zocete
Taiyuan University of Technology Li Qi Geng
AGO Francine Mariette Supervisor
Taiyuan University of Technology Taiyuan University of
Technology
February, 2020
The effect of raising searching obstacles on online
purchasing behavior: Proof from field
experiment
Abstracts
While online retail allows consumers to obtain goods or
services directly from a seller via an additional channel, operating margins
are often lower in online stores than in physical stores. There are well-known
reasons for this disparity: price comparisons are easier to do online, coupons
and codes are more widely adopted, and marketers often bear the cost of
shipping products to buyers. Most online stores are designed for frictionless
shopping, with few barriers to finding and buying discounted products. We
propose that the intentional addition of search frictions - barriers to
locating discounted items - may improve online retailers' margins by allowing
shoppers to choose between «paying with money» (low discount) or
«pay with effort» (high discount). In a series of field experiments
carried out with an electronic commerce platform specializing in diasporas
connecting buyers and sellers, we show that getting customers more difficulties
in finding products at a reduced, reduced price the average discount on items
purchased without reducing the impact of purchases or the average selling
price. By using transaction information from existing customers, we show that
price-sensitive buyers are more likely to make efforts to locate heavily
discounted items. Our results posted that adding research frictions can be used
as a self-selected price discrimination tool to offer high discounts to
price-sensitive consumers and reduce the number of price-insensitive consumer
subsidies.
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Keywords: e-commerce, online purchasing,
obstacles, search costs, price discrimination
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1. Introduction
Online retailing expands business access to consumers through
an addition channel, but operating margins are often lower in online stores
than in physical stores. Afrimarket, the largest online reseller in Benin,
achieved average operating margins of 2.8% between 2013 and 2018, while its
traditional counterparts earn between 4% and 8% (Insae, 2018). The reasons for
this difference are well known: price comparisons are easier online, coupons
and codes have higher adoption, and sellers often bear the cost of shipping
products to buyers.
Consumers shop online for products that are also available in
brick-and-mortar stores because it is generally easier to browse a large
selection of goods and fulfill transactions online (Teixeira and Gupta 2015).
Online retailers like Afrimarket, Odjala, and mymotherlandstuffs are
continually striving to lower search, transaction, and delivery costs for
consumers. Afrimarket is the best example of an electronic commerce platform
that systematically reduces the obstacles of online search.
This trend contrasts sharply with the practice of physical
stores that have long accepted the deliberate use of research frictions to
improve store revenues. By making it more difficult to locate discounted or
otherwise less expensive items, by placing the sales section at the back of the
store or in a separate store, physical stores can induce self-selection among
the consumers who stand out. by their sensitivity to price and their
willingness to search.
In this paper, we seek to challenge the prevailing assumption
that minimizing search frictions, i.e., facilitating consumer search across a
retailer's entire assortment, is the optimal strategy for online retailers
selling searchable branded goods (Bakos 1997, Brynjolfsson and Smith 2000). We
argue that, just as in physical sales contexts, careful integration of research
frictions can facilitate price discrimination in online retailing.
The existing literature has typically conceived of search
costs as the time, effort, and money required to physically identify and
consider additional options before making a purchase decision (Bell, Ho and
Tang 1998). Given the ease and immediacy of online shopping, it is not
surprising that equivalent search costs have not been studied as tools that a
company would use to implement discrimination based on price. We identify and
explore the power of search costs in online settings: the effort of clicking an
additional link, displaying an additional page, scrolling through a catalog of
articles, or mentally calculating the discount percentage on
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a sale item.
We assume that, under certain conditions, an online retailer
can improve its gross margins by increasing the search costs associated with
the search and purchase of discounted items on its website. The first condition
is that there is a negative correlation between price sensitivity and
sensitivity to research costs: consumers who are more concerned about getting
good deals are less concerned about making efforts to locate them. The second
condition is that by encountering these additional research frictions,
price-insensitive consumers would replace very small items with smaller items.
The third condition is that price-sensitive consumers would make the extra
effort required
To test our hypothesis, we conducted a series of field
experiments with online kitchen items and tableware retailer. This category is
particularly attractive for our purpose as it has a moderate frequency and
purchase value. Consumers are broadly aware of price points for kitchen items
and tableware but not completely certain of item prices at any given purchase
occasion. And, luxury brands notwithstanding, item prices are material but not
exorbitant to most shoppers. Lastly, it is common practice for kitchen items
and tableware retailers to frequently offer sizeable discounts to acquire and
retain customers.
As part of the first trial, we randomly distributed new
visitors on an online platform for a week in one of the reference groups or one
of the three treatment groups. The supply and price of the products remain
unchanged under all conditions. Each process means increasing search friction
in some way: (1) deleting the direct contact with the point of sale because of
the large reduction of the point of sale; (2) deleting the order by delivery
option; (3) deleting the delivery mark unique to this article. We note that in
each of these cases, the average discount rate for purchases is much lower than
the control state without reducing the conversion rate. These results
demonstrate the power of the treatments we have chosen and support our
hypothesis.
In a follow-up analysis, we aim to establish the mechanism
underlying the results of our first experience. We use the historical
transaction data of existing customers to pre-classify them according to their
price sensitivity. To do this, we downgrade the last basket update to
demographic and past purchase variables and then use the expected values as an
approximation of price sensitivity. We endorse this classification by showing
that buyers we identify as price-sensitive are much more likely to click on
random price electronic newsletters (rather than on
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the discounts mentioned).
In our second experiment, we randomly assigned all visitors,
new and existing, to the online store for two weeks, to a control group or one
of four treatment groups. Once again, product availability and prices are kept
constant under all conditions. We are resuming the treatments of our first
experience and include the replacement of discount banners with no discount
banners as an additional condition. The goal is to identify the presence of
self-selection among all of the company's customers, as price-sensitive
consumers are relatively immune to additional search costs, but
price-insensitive consumers are not.
We find that, as in the first experiment, the average discount
on purchased items is lower in the treatment groups than in the control group,
while the conversion rates are not negatively affected by the addition of
research. Also, these gains are attributed to the fact that price-insensitive
consumers purchase a disproportionately larger number of full-price items in
the treatment groups. These results imply that price-insensitive consumers turn
to cheaper items when severely reduced items are harder to find. They also show
that the key effects we capture are stable under varying demand conditions, as
our second experience, which included new and existing customers, was conducted
more than a year after our first experience.
The rest of the document is as follows. We review the
literature on online retail, research costs, and price discrimination in
Section 2. We formalize our hypothesis on the role of research costs in online
purchases of discounted products. Section 3. We describe our empirical
framework in Section 4. Sections 5-8 explain the experimental framework and
provide details on execution. We summarize our findings and suggest future
directions for research in Section 9.
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