Caltech: Shoppers Willing To Pay 50 Percent More In-Store

Written by Frank Hayes
September 15th, 2010

Most retailers have built their Mobile Commerce systems with the assumption that, to customers, a smartphone is just like holding the store in the palms of their hands. But that may be wrong, according to researchers at the California Institute of Technology. A Caltech team ran experiments that show customers are willing to pay about 50 percent more for products they can actually touch while shopping, compared with purchases based on just a text description or picture.

That finding has some very powerful implications for both in-store and online retail. Maybe the fact that touch matters shouldn’t be a surprise, though it certainly surprised the Caltech researchers. Of course, the in-store experience is different from online or M-Commerce. Some retailers, like Nordstrom, work those high-touch elements of the brick-and-mortar store to the hilt. And even a utilitarian approach—think Wal-Mart or Costco—gives customers a far more sensual experience than a Web site. Shoppers can handle products. Smells, textures and sounds all matter.

In-store purchases also provide the advantage to customers of being able to take products home immediately, nor do they have to pay shipping costs. A few weeks ago, I was in the market for laptop memory that would have cost me $40 online plus shipping. But I stopped in at a neighborhood PC store to see if they had what I needed. They did—for $70. (The associate actually pointed out that his price was significantly higher.) I thought a moment—$20 more after shipping, but I’d have memory now to get the upgrade done—and paid the higher price.

Those are all obvious in-store advantages. But what the Caltech researchers found is that, even without those advantages, customers would pay more for things they can touch. The research subjects received their food, mugs and DVDs at exactly the same time, under exactly the same circumstances, whether they were looking at text, pictures or the real thing—and they were still willing to pay more.

That effect—what the Caltech researchers call a “Pavlovian consummatory process”—underscores the problem most retailers have with pricing products the same in-store and online. If customers are willing to pay more in-store, does that mean they’re only willing to pay lower prices online? Could E-tail sites actually be slowing down adoption of E-Commerce by, in effect, overpricing?

The Caltech researchers aren’t willing to go that far. “Optimal pricing depends on many factors,” said Antonio Rangel, a neuroscience and economics professor at Caltech, who worked on the experiments. “All the research says is that, for the limited class of goods that we have looked at, subjects were willing to pay about 50 percent more when the goods were present, as opposed to displayed on a screen.”


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