Evaluating consumer response to EDLPs

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Journal of Retailing and Consumer Services 15 (2008) 211–223

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Evaluating consumer response to EDLPs

Ainsworth Anthony Bailey�

Department of Marketing & International Business, College of Business Administration, University of Toledo,

2801 West Bancroft Street, Toledo, OH 43606, USA

Abstract

This paper reports on an investigation of factors influencing consumer response to every-day low prices (EDLP) policies. In study 1, an

experimental study, sale proneness was found to have a significant effect on attitude toward EDLP and patronage intentions for the store

implementing a new EDLP policy. Store loyalty affected patronage intentions but not attitude toward the EDLP. While there were no

significant interactions between sale proneness and store loyalty, follow-up univariate tests revealed that consumers’ level of sale

proneness has an impact on attitude toward the EDLP policy when store loyalty is low but not when store loyalty is high. In a follow-up

survey, a number of predictions regarding the relationships among sale proneness, store loyalty, and income level and the dependent

variables of attitude toward EDLP, attitude toward the retailer, and patronage intentions were made and tested. Support was found for

all but two of the 9 hypotheses. Implications of the findings for retailers and future research agendas are discussed.

r 2007 Elsevier Ltd. All rights reserved.

Keywords: EDLPs; Promotional pricing; Retail pricing strategies

Bowing to busy consumers who are less willing to spendtime searching for deals, some traditional grocery storesare cutting back on promotional discounts and movingtoward the everyday low prices of Wal-Mart Stores Inc.and other discounters. In recent months, several regionalgrocery chains have reduced prices on everything fromKraft macaroni and cheese to Ragu pasta sauce in aneffort to lure back shoppers who have defected todiscount grocersyNow, the prevalence of shops such asCostco Wholesale Corp., dollar stores, and discounterssuch as Wal-Mart has conditioned consumers to expectinexpensive goods every day (Adamy, 2005).

1. Introduction

Retail pricing strategy has generated much research (see,for example, Bell and Lattin, 1998; Bolton and Shankar,2003). It is viewed by practitioners as one of the ‘‘top fivepriorities in retail management’’ (Bell and Lattin, 1998).Retailers have to adopt an effective pricing strategy as part

e front matter r 2007 Elsevier Ltd. All rights reserved.

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of their efforts to attract consumers, increase storepatronage and shopping frequency, and increase quantitypurchased (Blattberg et al., 1981; Krishna, 1992, 1994; Laland Rao, 1997). The pricing strategy can be every-day lowprices (EDLP) or promotional pricing—HILO (Garretsonand Burton, 2003; Lal and Rao, 1997; Pechtl, 2004). Every-day low pricing strategies have become a feature of thepromotional landscape (Hoch et al., 1994; Ortmeyer et al.,1991; Popkowski Leszczyc et al., 2000) and have been usedby retailers to distinguish themselves from other retailers.Wal-Mart, for example, assures us that it has low prices,always, while Lowe’s, the home improvement company,currently touts its every-day low pricing strategy in a newadvertising campaign.The opening vignette points to a problem that a number

of retailers have been having: how to respond to thepressures of every-day low pricing used by a major retailersuch as Wal-Mart (see also Duff, 2002; Howell, 2005a, b).These pressures are exacerbated in an environment whereconsumers are more value-conscious and are likely tosearch for deals (Ailawadi et al., 2001b). What happenswhen a retailer that utilizes HILO pricing strategies decidesthat, rather than having consumers shop around for deals

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ARTICLE IN PRESSA.A. Bailey / Journal of Retailing and Consumer Services 15 (2008) 211–223212

at different times of the week, month, or year, it willinstitute an every-day low-pricing policy? To what extent isconsumer response impacted by different individualfactors? These kinds of questions are becoming increas-ingly more important as retailers struggle to determine themost efficacious policies to attract and hold consumerswho patronize their stores and brands.

Some prior studies on consumer responses to alterationsin pricing strategies are insightful. Mulhern and Leone(1990) conducted an event study of a discrete changein a store’s price format. Their results suggested that salesincreased when the store switched from EDLP to HILO.Hoch et al. (1994) investigated the impact of category-level price changes on sales response and found that EDLPgave a small—3% increase in units—win to manufacturers,but represented a big loss for the retailer—an 18% decreasein profits. Ailawadi et al. (2001a) investigated Procter &Gamble’s (P&G) shift to EDLP during the period1990–1996. They compiled data from 24 categories inwhich P&G had a significant market share. They assessedthe impact of the new pricing strategy and found thatthe net impact of consumer and competitor responsesto the new pricing policy was a decrease in market share.This was exacerbated by increases in advertising. Werethere underlying individual difference factors that ac-counted for this pattern of consumer response to EDLPs?With what groups of consumers might EDLPs proveeffective?

This article contributes to the discourse on EDLPsby investigating and reporting on the conditions underwhich consumers might respond differently to an EDLPstrategy. The focus of the paper is on the impact of saleproneness and store loyalty (study 1), as well as income(study 2) on attitude toward EDLPs and patronageintentions for a retailer that announces a new EDLPpolicy. It is based on the real case of a supermarket chainthat decided that it would lower prices in a number ofproduct categories, in its efforts to retain customers.Results of the study have implications for this retailerand other marketers who often implement these strategiesthat they believe are in their and their consumers’ bestinterest. If consumers respond differently to these policies,based on individual difference factors, then it behoovesretailers to take these factors into account in designingprice promotional strategies to reach different groups ofconsumers.

The paper draws on the literature on sale proneness andstore loyalty to develop certain hypotheses. It then presentstwo studies—an experimental study and a survey—thatwere conducted to glean information on factors influencingconsumer response to EDLPs. The results—which showthat store loyalty and sale proneness are among individualdifference factors and income is a demographic factor thatimpact consumer response to EDLPs—are presented anddiscussed. There is also a discussion regarding thelimitations of the studies and suggestions as to areas forfuture research.

2. Background

2.1. Sale proneness

Sales promotional activities account for a significantportion of the integrated marketing communicationsbudget of most companies (Cox Direct, 1998). One typeof price promotional activity involves price discounts ortemporary price reductions. Marketing communicationsmanagers and brand managers usually have a number ofobjectives for price discounts and sales. They includeincreasing or maintaining sales, building customer loyaltyor trust, encouraging brand switching, getting shelfattention, and prompting trial by new users (Burnett andMoriarty, 1998). There have been a number of studies thathave indicated that many consumers respond to these typesof promotional activities (Burnett and Moriarty, 1998),leading to the classification of some consumers as beingmore prone to certain type of promotional offers thanother consumers (also see work by Lichtenstein et al., 1990,1995; Alford and Biswas, 2002).Sale proneness, a central construct in this paper,

captures the nature of consumer response to price beingin sale form (Lichtenstein et al., 1993). Lichtenstein et al.(1993) define this construct as ‘‘an increased propensity torespond to a purchase offer because the sale form in whichthe price is presented positively affects purchase evalua-tions’’ (p. 235). This construct implies that there is acontinuum, ranging from high to low, with high sale-proneconsumers behaving differently from low sale-prone con-sumers, especially with respect to immediate savings fromreduced prices (Blattberg and Neslin, 1990; Garretson andBurton, 2003).There have been some prior studies that have investi-

gated the role of this construct in consumer behavior. Forexample, Alford and Biswas (2002) reported on a study inwhich they assessed the impact of discount level, priceconsciousness, and sale proneness on consumers’ priceperception and behavioral intention. In the case of saleproneness, they hypothesized that highly sale-prone con-sumers would express higher perceptions of offer value andbuying intentions, and lower search intention when theywere exposed to a discount ad than would consumers whowere low sale prone. They also predicted that saleproneness would moderate the effects of price discounts.While they found support for the predicted main effects ofsale proneness, none was found for the moderating impactof sale proneness on price discounts. Nonetheless, theresults attested to the fact that sale proneness does play arole in impacting consumer response to certain types ofpromotions.Garretson and Burton (2003), in a series of studies,

discovered that high sale-prone consumers spent a largeramount on items listed in weekly sale advertisement than,and saved more than twice as much money from salesadvertised in weekly fliers as, low sale-prone consumers.This information came from analyses of grocery receipts

ARTICLE IN PRESSA.A. Bailey / Journal of Retailing and Consumer Services 15 (2008) 211–223 213

that were tendered by respondents in their studies. Highsale-prone consumers were more price-conscious andvalue-conscious than low sale-prone consumers, and theywere also more willing to invest in money–time trade-offs.These researchers also found that high sale-prone con-sumers exhibited lower levels of market skepticism than didlow sale-prone consumers. Ortmeyer et al. (1991) alsoposited that consumers are increasingly ‘‘suspiciousof retailers’ high ‘regular’ prices and their frequent ‘sales’’’(p. 55). This could have an impact on consumer response toan EDLP policy.

Might consumers perceive an EDLP policy differently,based on their levels of sale proneness? There is ampleresearch that shows that consumers question the credibilityof price promotional offers (Fry and McDougall, 1974;Gupta and Cooper, 1992; Liefeld and Heslop, 1985). Inaddition, various studies also indicate that consumersdiscount price promotions (Blair and Landon, 1981; Guptaand Cooper, 1992; Mobley et al., 1988). Why might thelevel of sale proneness have an impact on these attitudesand perceptions?

Using an availability valence framework, Tietje (2002)demonstrated, in two studies, that an immediate rewardfrom a product-related source enhanced product evalua-tions by making favorable information more accessiblethan unfavorable information; however, a delayed rewardundermined product evaluations. In the case of EDLPs, animmediate reward will be perceived, since the retailerattests that, rather than having various promotions atdifferent times, it will simply implement every-day lowprices. Given the immediacy of the rewards from EDLP,high sale-prone consumers should respond more favorablyto these policies than consumers who are low sale prone.This is the result of high sale-prone consumers being morevalue-conscious than consumers who are not sale prone(Garretson and Burton, 2003) and the suggestions by Tietje(2002). Also, by virtue of their disposition, high sale-proneconsumers would be less likely to discount information onpromotional offers than low sale-prone consumers. Thispresumption is derived from the fact that high saleproneness likely leads to greater experience with theseoffers; hence, if discounting occurs, it is likely that it willcome from those who are less responsive to these kinds ofoffers. In addition, there is knowledge from prior researchthat attitudes toward price promotions influence intentions(Laroche et al., 2003).

The above reasoning, backed by the results from theTietje (2002) studies as well as findings from previousresearch on sale proneness (Alford and Biswas, 2002;Garretson and Burton, 2003) suggests differential re-sponses between high sale-prone and low sale-proneconsumers to a new EDLP policy. This leads to thefollowing expectations:

H1. High sale-prone consumers will respond more favor-ably to a new every-day low-pricing policy than willlow sale-prone consumers. In particular, they will exhibit

(a) more favorable attitudes towards an EDLP policy and(b) greater likelihood of patronage of the retailer imple-menting an EDLP policy than will low sale-proneconsumers.

2.2. Store loyalty

Store loyalty is another variable that might have animpact on consumer response to EDLP. Much of theliterature on store loyalty draws on previous work onbrand loyalty by Jacoby and Chestnut (1978). Odekerken-Schroder et al. (2001) defined store loyalty as ‘‘theconscious buying behavior of a consumer expressed overtime with respect to one store out of a set of stores andwhich is driven by commitment to this store’’ (p. 311). Theyargued that, in the absence of commitment, ‘‘a customer ismerely spuriously loyal, i.e., the behavioral response isdirected by inertia’’ (p. 311). They operationalizedstore loyalty by means of two separate constructs, store

commitment and buying behavior. They also definedstore commitment as ‘‘a consumer’s enduring desire tomaintain a relationship with a store’’ (p. 311) and buying

behavior as ‘‘current and intended future purchase behaviorof a consumer in a particular store’’ (p. 311). They positedthat store commitment is important because it is likely tolead to cooperation and a reduction in the temptation ofattractive short-term alternatives. They found a strongpositive relationship between store commitment andbuying behavior. There is also additional research thatshows that the level of commitment influences behavior.Moorman et al. (1992) found that committed consumershave a higher propensity to act because of their need toremain consistent with their commitment. This paper relieson the above definitions to explain the reasons that storeloyalty will likely have a differential impact on consumerresponse to EDLP.Bloemer and de Ruyter (1998) also provided a similar

discussion regarding store loyalty and the role of storecommitment in explaining store loyalty. They opined that‘‘a consumer becomes committed to the store and, there-fore, by definition becomes store loyal’’ (p. 500). Theycontended that consumers whose patronage is not based onstore loyalty may exhibit an attachment to store attributesand can easily be lured away by competitors throughefforts such as pricing strategies. They proposed acontinuum of store loyalty, where, on one end you findtrue store loyalty (maximum store commitment), and onthe other end you find spurious store loyalty (repeat visitingof the store not based on commitment; p. 500). When thelevel of commitment to a store is high, this is likely to causeconsumers to respond negatively to information, such asEDLP, from a competing store, and, possibly, to counter-argue (McDougall, 1978). This will impact attitudetowards EDLPs.Marketers realize the importance of store loyalty, and

many store-loyalty programs have been devised. Theseprograms tend to keep consumers averted from what


competitors have to offer (Davis and Young, 1994). Inaddition, there is prior research that shows that there aredifferential attitudes and behaviors between high store-loyal and low store-loyal consumers. Store loyalty has beenshown to be positively associated with store brand use(Ailawadi et al., 2001b). Ailawadi et al. (2001a, b) arguedthat this is because store-loyal consumers trust their chosenstore and become familiar with its store brands (see alsoDick et al., 1995; Richardson et al., 1996). They alsoconcluded from their study that in-store promotion usershad fewer distinguishing characteristics than those whowere less likely to use in-store promotions (EDLP is takenas a type of in-store promotion, since consumers have toshop at the retailer that is offering the EDLP to benefit). Inthe cases of attitude toward EDLP and patronageintentions, there should be differences between highstore-loyal and low store-loyal consumers. Perceptionsand intentions are likely to be different because of thegreater store switching costs that would be incurred by highstore-loyal consumers to take advantage of an EDLP(Ailawadi et al., 2001b; Bawa and Shoemaker, 1987).

Based on the foregoing, the following prediction is made:

H2. High store-loyal consumers will respond less favor-ably to a new every-day low-pricing policy of a competingretail store than will low store-loyal consumers. Inparticular, they will exhibit (a) less favorable attitudestowards an EDLP policy of a competing retailer and (b)lower likelihood of patronage of a competing retailerimplementing an EDLP policy than will low store-loyalconsumers.

2.3. Interactions

The expectation is that there will be an interactionbetween sale proneness and store loyalty. Sale pronenesssuggests a likelihood of consumers shopping on the basis ofthe deals that they can get from sales. Store loyalty, asdiscussed above, suggests commitment to a particularstore. Hence, high store-loyal consumers will be likely toresist the claims of competing stores, given their need toremain consistent with their commitment (Moorman et al.,1992). Research in the area of comparative advertisingand the role of brand loyalty in influencing the responseto comparative claims is useful here. For example,McDougall (1978) found that comparative claims wereseen as more reliable and helpful by loyal users of theadvertised brand than by other consumers. Users ofcompeting brands were less receptive to the claims andviewed them with some amount of skepticism. How doesthis relate to EDLPs? An EDLP policy can be construed asa competing claim and, as such, generates responses fromconsumers. High store-loyal consumers are more likely toreject these claims, compared to low store-loyal consumers,and this is regardless of their level of sale proneness.Among low store-loyal consumers, however, the nature ofsale proneness will affect responses to an EDLP policy.

Low store-loyal consumers who are highly sale proneshould respond more favorably to an EDLP than lowstore-loyal consumers who are not highly sale prone. So,the expectation is the following:

H3. The differential effect of sale proneness will be greateramong low store-loyal consumers than among high store-loyal consumers. In particular, among low store-loyalconsumers, high sale proneness will lead to (a) morefavorable attitudes towards the EDLP policy of a compet-ing retailer and (b) greater likelihood of patronage of acompeting retailer implementing an EDLP policy than willlow sale proneness. Among high store-loyal consumers, thedifferential effect of sale proneness will not be significant.

3. Study 1

Participants and design: Participants were 86 students(53% being men, and 47% being women; median age ¼ 21)enrolled in undergraduate classes at the MidwesternUniversity. They completed the study in large class sessionsin exchange for extra credit. They were told orally that theywould be taking part in a study on promotional strategiesused by different retailers. The study was a 2 (saleproneness: high versus low sale proneness)� 2 (storeloyalty: high versus low store loyalty) between subjectsfactorial design.

Independent variables: As indicated above, the indepen-dent variables were sale proneness and store loyalty. In thecase of sale proneness, scores on the sale proneness scaledeveloped by Lichtenstein et al. (1995) were used to divideparticipants into two groups—high sale-prone consumersand low sale-prone consumers (see Appendix A for scaleitems). This was based on a median split. Cronbach alphafor this scale was 0.92, suggesting good reliability; themedian score was 29. In recent work, involving threedifferent samples, Garretson and Burton (2003) reportreliabilities of 0.88, 0.86, and 0.90 for this scale.In the case of store loyalty, a five-item 7-point scale,

consisting of agree–disagree statements, was used tomeasure store loyalty. These items are also reproduced inAppendix A. The coefficient alpha for this scale was 0.73,which exceeds the 0.70 recommended level (Nunnally andBernstein, 1994). Median score on this scale was 24. SeeTable 2 for factor loadings for the independent variables.

Dependent variables: The dependent variables wereattitude toward the EDLP and store patronage intentions.These variables can serve as good indices of likelyeffectiveness of an EDLP strategy. Attitude toward thenew EDLP policy was measured by using an amendedversion of an attitude scale used in previous studies(Lafferty and Goldsmith, 1999). Participants rated theirattitude toward the new EDLP policy using three7-point scales anchored by ‘‘bad/good,’’ ‘‘unfavorable/favorable,’’ and ‘‘unappealing/appealing.’’ Alpha for thisscale was 0.93. Since attitudes have been found to influenceintentions (for example, Lafferty and Goldsmith, 1999),


patronage intentions were also measured. Patronage inten-tions were assessed using an adapted version of a previousscale used to measure purchase intentions (for example,Kukar-Kinney and Walters, 2003; Lafferty and Goldsmith,1999). Three 7-point scales, anchored by ‘‘very unlikely/verylikely,’’ ‘‘improbable/probable,’’ and ‘‘impossible/possible’’were used to measure this dependent variable. Participantsresponded to the likelihood that they would shop at thisretailer if a store were set up in their area. The alpha for thisscale was 0.97 (Tables 1 and 2).

Stimuli: To provide consumers with information aboutan every-day low-pricing policy, an actual videotapedpresentation by a New York-based supermarket chain wasused. In the spring of 2002, this supermarket chain had sentout several thousand videotapes to consumers, announcinga new EDLP strategy. In the presentation, the CEO madethe case for the EDLP strategy, and this lasted for about4min (refer to Appendix B for the text, which was usedsubsequently in study 2). Participants (students enrolled inundergraduate classes at the Midwestern University) wereunfamiliar with the retail store in the videotape (a single-item 7-point scale anchored by ‘‘not familiar’’/’’familiar’’was used to assess familiarity), so this store would be

Table 1

Coefficient alphas for independent and dependent variables

Variable Number

of items

Coefficient

alpha

Mean

Sale proneness (SP) 6 0.92 28.4

Store loyalty (SL) 5 0.74 23.2

Attitude toward EDLP policy

(AttEDLP)

3 0.93 15.6

Patronage intentions (PI) 3 0.97 14.2

Table 2

Factor loadings of the dependent and independent variables

1 2

Dependent variables: Items/factors

AttEDLP1: Unfavorable/favorable 0.828

AttEDLP2: Bad/good 0.817

AttEDLP3: Unappealing/appealing 0.782

PI1: Unlikely/likely 0.873

PI2: Improbable/probable 0.920

PI3: Impossible/possible 0.856

Independent variables: Items/factors

SP1 0.832

SP2 0.752

SP3 0.795

SP4 0.828

SP5 0.925

SP6 0.904

SL1 0.685

SL2 0.582

SL3 0.761

SL4 0.748

SL5 0.740

considered to be a competitor to any store to which theywere loyal.Following the presentation, participants were given a

blank sheet of paper, and they were asked to provide theircomments on the study so far. Following the thoughts-listing exercise, the participants completed the question-naire from which we obtained measures of the dependentvariables and the measures for sale proneness and storeloyalty. To check for demand effects, participants wereasked about the true purpose of the study. Examination ofthe responses revealed that none of the participants wasaware of the hypotheses that were being tested.

3.1. Results

3.1.1. Sale proneness

Results of an ANOVA, conducted to assess H1a–H3b,are presented in Table 3. H1a predicted that high sale-prone consumers would exhibit more favorable attitudestowards an EDLP policy than would low sale-proneconsumers. The results indicate that there was a significantmain effect of sale proneness on attitude toward the newEDLP policy (F[1, 83] ¼ 6.29; po.01). High sale-proneconsumers had more favorable attitudes toward the newEDLP policy (mean ¼ 16.90) than did low sale-proneconsumers (mean ¼ 14.56).H1b predicted that, among high sale-prone consumers,

patronage intentions for a retailer implementing an EDLPpolicy would be higher than among low sale-proneconsumers. This hypothesis was supported (F[1, 82] ¼ 8.23;po.01). The mean for patronage intentions of high sale-prone consumers was higher than the mean for patronageintentions of low sale-prone consumers (meanHigh SP ¼

15.83; meanLow SP ¼ 12.78).

3.1.2. Store loyalty

H2a predicted that high store-loyal consumers wouldexhibit less favorable attitudes towards an EDLP policy ofa competing retailer than would low store-loyal consumers.However, there was no significant effect of this variable onattitude toward the new EDLP policy (F[1, 83] ¼ 2.67;p4.11, ns). Hence, H2a was not supported.H2b predicted that high store-loyal consumers would

exhibit lower likelihood of patronage of a competing

Table 3

ANOVA results from Study 1

Independent variables/

dependent variables

Attitude

toward EDLP

policy F

Patronage

intentions F

Between-subjects effects df

Sale proneness (SP) 1 6.29a 8.23a

Store loyalty (SL) 1 2.67 4.20b

SP�SL interaction 1 0.39 0.00

aSignificant at the a ¼ 0.01 level.bSignificant at the a ¼ 0.05 level.

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Table 4

Means and standard deviations

AttEDLP Patronage intentions

Mean (SD) Mean (SD)

Low store loyalty

Low sale proneness 13.50 (5.61) 13.72 (5.30)

High sale proneness 16.43 (4.56) 16.90 (3.55)

High store loyalty

Low sale proneness 15.61 (2.45) 11.44 (6.72)

High sale proneness 17.37 (2.73) 14.63 (4.04)

2.00

14.00

Sale

s p

ron

en

ess

LSP

HSP

20.00

18.00

16.00

12.00

10.00

8.00

6.00

4.00

0.00

LSL

Store loyalty

HSL

Fig. 1. Plot of means: attitude toward EDLP.

LSP

HSP

Sale

pro

nen

ess

18.00

16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00

Store loyalty

LSL HSL

Fig. 2. Plot of means: patronage intentions.

A.A. Bailey / Journal of Retailing and Consumer Services 15 (2008) 211–223216

retailer implementing an EDLP policy than would lowstore-loyal consumers. There was a significant main effectof store loyalty on patronage intentions (F[1, 82] ¼ 4.20;po0.04). High store-loyal consumers averaged lowerpatronage intentions (mean ¼ 13.04) than did low store-loyal consumers (mean ¼ 15.31). Thus, H2b was supported(Tables 3 and 4).

3.1.3. Interactions

Hypothesis 3 had predicted that the differential effect ofsale proneness would be greater among low store-loyalconsumers than among high store-loyal consumers. It wasexpected that, among low store-loyal consumers, high saleproneness would have led to (a) more favorable attitudestowards the EDLP policy of a competing retailer and (b)greater likelihood of patronage of a competing retailerimplementing an EDLP policy than would have been thecase among low sale proneness. In contrast, among highstore-loyal consumers, the differential effect of saleproneness was expected to be negligible. The ANOVAresults revealed no significant interaction effects of theindependent variables on the dependent variables. Hence,H3a and H3b were not supported. Figs. 1 and 2 containedthe plots of means, based on planned contrasts. Theyreflect the absence of interaction effects. Rather, the plotssuggest that, consistently, high sale-prone consumers havemore favorable attitudes and intentions than do low sale-prone consumers.

3.2. Discussion

Study 1 used an experimental design to explore theimpact of individual difference factors on consumerresponse to every-day low pricing strategies. The expecta-tion was that there would be differential effects, includinginteraction effects, of sale proneness and store loyalty onconsumers’ attitude toward the new EDLP policy andpatronage intentions. The results indicated main effects ofsale proneness on the independent variables, consistentwith the expectations. High sale-prone consumers re-sponded more favorably to EDLP, exhibiting morefavorable attitudes toward the new policy and higherintentions to patronize the retailer than did low sale-proneconsumers. In contrast, store loyalty had a significant effect

only on patronage intentions. Low store-loyal consumersindicated greater patronage intentions than did high store-loyal consumers. Store loyalty had no significant influenceon attitudes toward the new EDLP policy. Notwithstand-ing the absence of interaction effects, the results do suggestthat retail managers and brand managers need to try tounderstand consumer response to price promotionalactivities, such as EDLP strategies, by assessing individualdifference factors, such as sale proneness and store loyalty.The findings also are a motivation for additional researchin this intersecting area of retailing and consumer behavior.


4. Study 2

Study 1 was primarily exploratory, used an experi-mental approach, and respondents were from an under-graduate student population. While this may be a goodapproach for theory-building purposes, the issue ofexternal validity of the findings comes to the fore. Forthat reason, we decided to undertake a second study,involving a ‘real world’ consumer audience, and using asurvey approach. Hence, some alterations were made to themethodology.

We prepared a questionnaire where the informationfrom the video used in Study 1 was reproduced in printform at the start of the questionnaire. Respondents wereinstructed to read this information, which was described asa full-page print ad that had appeared in a newspaper inthe city where the company in the ad was located. Wedecided on this method because we believed that theperceived reality of the full-page newspaper ad wouldresonate with the audience in our study, in contrast to anexperiment. Participants were then asked to respond toquestions from which measures of the dependent variableswere obtained.

We also solicited demographic information, incomebeing one variable that was obtained. We wanted toinclude income in our assessment in this second study,especially since it was impractical to explore that variablein the student sample that was used in the first study. Inaddition, we hypothesized that income would likely havean impact on consumer response to EDLP pricingstrategies, since the aim of these strategies is to createvalue for consumers. Consumers with lower incomes arelikely to respond more favorably than consumers withhigher incomes to these kinds of pricing strategies.

There have been recent business publications that havesuggested that consumers, regardless of income levels, havebeen responding favorably to low-price retail formats, forexample, dollar stores. According to Howell (2005a, b), inreporting on US consumers shopping at dollar stores:‘‘Although low-income shoppers remain a core consumergroup, the fastest growth segment in the niche has involvedconsumers in the US$70,000-plus household incomebracket’’ (p. 10). Desjardins (2005) also added that thoughthe most frequent shoppers at dollar stores were thoseconsumers with annual income below US$20,000, ‘‘60percent of middle-income consumers visited a dollar storein 2003, along with 49 percent of consumers who makemore than US$70,000 per year’’ (p. 143). As a result, aneffort was made to determine whether there were anydifferences in responses to EDLPs based on consumers’income levels. Or, would all income levels respond in asimilar manner to this kind of pricing strategy? A thirdindependent variable of interest was also assessed: con-sumer attitude toward the retailer implementing the EDLPpricing strategy.

Drawing on the previous sections above and the resultsof study 1, the following hypotheses regarded the impact of

the independent variables on attitude toward an EDLPpricing strategy were tested in study 2:

H4a. Sale proneness will have an impact on consumerattitude toward EDLP pricing strategies.

H4b. Store loyalty will have an impact on consumerattitude toward EDLP pricing strategies.

H4c. Consumer income will have an impact on consumerattitude toward EDLP pricing strategies.

The following hypotheses regarding the impact of theindependent variables on attitude toward a retailerimplementing an EDLP strategy were tested:

H5a. Sale proneness will have an impact on consumerattitude toward a retailer implementing an EDLP pricingstrategy.

H5b. Store loyalty will have an impact on consumerattitude toward a retailer implementing an EDLP pricingstrategy.

H5c. Consumer income will have an impact on consumerattitude toward a retailer implementing an EDLP pricingstrategy.

The following hypotheses regarding the impact of theindependent variables on patronage intentions were tested:

H6a. Sale proneness will have an impact on consumerintentions to patronize a retailer that implements an EDLPpricing strategy.

H6b. Store loyalty will have an impact on consumerintentions to patronize a retailer that implements an EDLPpricing strategy.

H6c. Consumer income will have an impact on consumerintentions to patronize a retailer that implements an EDLPpricing strategy.

Participants and design: Participants were drawn from aMidwestern US city, where students enrolled in under-graduate marketing classes assisted in data collection fromadult non-student consumers. The survey instrument wasdiscussed with students in class settings, and each studentwas asked to collect data from six consumers, two each indifferent age cohorts. These persons should not be studentsor staff of the University. Such a method of using studentsto gather data from non-student populations has been usedbefore with success (see, for example, Goldsmith et al.,2000; Clark and Goldsmith, 2005; Jamal et al., 2006). Aftereliminating respondents who failed to complete a numberof items, we were left with 181 usable questionnaires.Table 5 contains information on the demographic profile ofthe participants.

Independent variables: Among the items on the ques-tionnaire were items that measured sale proneness as wellas store loyalty. These items were the same as those used inStudy 1. In addition, there were a number of demographicitems, among them being income level, mentioned earlier.

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Table 5

Demographic profile of respondents in Study 2

Demographic variables Frequency Percentage

Gender

Female 95 52.5

Male 84 46.4

Age

18–22 years 10 5.5

23–28 years 53 29.3

29–44 years 43 23.8

45–54 years 47 26.0

55 years and above 23 12.7

Race

African American 10 5.5

Arab American 9 5.0

Asian American 8 4.4

Caucasian American 129 71.3

Hispanic American 5 2.8

Native American 1 0.6

Other/self-description 19 10.5

Education

Did not finish high school 4 2.2

High school diploma 28 15.5

Technical school diploma 10 5.5

Some college 44 24.3

College graduate 72 39.8

Graduate school 21 11.6

Other 2 1.1

Income levels

Below $15,000 19 10.5

$15,001–$24,999 37 20.4

$25,000–$39,999 31 17.1

$40,000–$49,999 17 9.4

$50,000 and above 69 38.1

Missing 8 4.4

Employment

Full time 125 69.1

Part-time 28 15.5

Retired 8 4.4

Homemaker 3 1.7

Student 9 5.0

Temporarily unemployed 6 3.3

Unemployed never held job 2 1.1

Table 6

Coefficient alphas for multiple-item measures in Study 2

Variable Number of

items

Coefficient

alpha

Mean

Sale proneness (SP) 6 0.89 27.4

Store loyalty (SL) 5 0.78 24.7

Attitude toward EDLP policy

(AttEDLP)

3 0.95 15.4

Attitude toward the retailer

(AttRET)

3 0.95 15.4

Patronage intentions (PI) 3 0.95 14.9

Table 7

Effects of sale proneness, store loyalty, and income on EDLP attitude

Variable B Beta t-Value

Sale proneness 0.219 0.260 3.624a

Store loyalty 0.167 0.151 2.114b

Income level 0.483 0.106 1.475

Notes:

R2¼ 0.100; Adjusted R2

¼ 0.085.

Test of the full model: F(3, 177) ¼ 6.57, po0.001.apo0.001bpo0.05

A.A. Bailey / Journal of Retailing and Consumer Services 15 (2008) 211–223218

Dependent variables: Attitude toward the EDLP policyand intentions to patronize the retailer were measuredusing the same items used in study 1. Attitude towardthe retail chain was assessed by asking the consumers touse a 3-item scale (Unfavorable/Favorable; Bad/Good;Negative/Positive; 7-point) to rate their overall reaction tothe retail chain mentioned in the full-page ad. Cronbachalpha for this variable was 0.95.

4.1. Results

4.1.1. Preliminary analysis

Reliabilities of the multiple-item measures used in thisstudy were determined using coefficient alpha. Table 6

provides information on these reliabilities, which appearfairly similar to those in Study 1. The constructs alsosatisfied the Nunnally and Bernstein (1994) reliabilitycriterion of 0.70.

4.1.2. Tests of hypotheses

To test hypotheses H4a through H6c, a series of multipleregression analyses was performed using SPSS12. Eachdependent variable was regressed on the independentvariables: sale proneness, store loyalty, and income level.Table 7 contains information on the results for theregression of attitude toward the EDLP on the threeindependent variables. The results show that the overallmodel was statistically significant (F(3, 177) ¼ 6.57,po0.001). The table also contains information on theunstandardized regression coefficients (B); the standardizedregression coefficients (Beta), R2, and the t-values. Sig-nificant regression coefficients were obtained for saleproneness (po0.001) and store loyalty (po0.05). Notably,the regression coefficient for sale proneness was highlysignificant. Income level was not significant. Takentogether, these results provide support for H4a, whichpredicted an impact of sale proneness on consumer attitudetoward EDLP pricing strategies, and H4b, which con-tended that store loyalty would have an impact on attitudetoward EDLP pricing strategies. However, H4c, whichpredicted an impact based on income level was notsupported.A similar multiple regression analysis was performed

to test H5a–H5c: regressing attitude toward the retailer onthe independent variables. Those results are presented in

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Table 8

Effects of sale proneness, store loyalty, and income on attitude toward the

retailer



Store loyalty 0.126 0.162 2.248b

Income level 0.451 0.141 1.947b

Notes:


¼ 0.078.

Test of the full model: F(3, 177) ¼ 6.05, po0.001.apo0.01.bpo0.05.

Table 9

Effects of sale proneness, store loyalty, and income on retailer patronage

intentions



Store loyalty 0.038 0.047 0.672

Income level 0.658 0.201 2.831b

Notes:


¼ 0.114.

Test of the full model: F(3, 177) ¼ 8.73, po0.001.apo0.001.bpo0.01.

Table 10

Results of tests of hypotheses: Study 2

Hypotheses Hypothesized relationship Outcome

H4a Impact of sale proneness on AttEDLP Supported

H4b Impact of store loyalty on AttEDLP Supported

H4c Impact of income level on AttEDLP Not supported

H5a Impact of sale proneness on AttRET Supported

H5b Impact of store loyalty on AttRET Supported

H5c Impact of income level on AttRET Supported

H6a Impact of sale proneness on PI Supported

H6b Impact of store loyalty on PI Not supported

H6c Impact of income level on PI Supported

Note: AttEDLP ¼Attitude toward EDLP; AttRET ¼ Attitude toward the

retailer; PI ¼ Patronage intentions.

A.A. Bailey / Journal of Retailing and Consumer Services 15 (2008) 211–223 219

Table 8. The overall model was statistically significant(F(3, 177) ¼ 6.05, po0.001). Table 8 also contains similaroutputs as those in Table 7. In the case of attitude towardthe retailer, significant regression coefficients were obtainedfor all the independent variables: sale proneness (po0.01);store loyalty (po0.05); and income level (po0.05). Theseresults provide support for Hypotheses H5a–H5c, whichpredicted effects of the independent variables on attitudetoward a retailer implementing an EDLP pricing strategy.

Hypotheses H6a–H6c were tested by regressing patron-age intentions on the independent variables. The results inTable 9 indicate that the full model was statisticallysignificant (F(3, 177) ¼ 8.73, po0.001). Significant regres-sion coefficients were obtained for sale proneness(po0.001) and income level (po0.01). As with the caseregarding the impact of sale proneness on attitude towardthe EDLP, the regression coefficient for sale proneness inthis case was highly significant. Store loyalty did not have asignificant impact on patronage intentions. H6a and H6cwere supported, but not H6b. Refer to Table 10 forsummary information regarding the outcome of the tests ofthe hypotheses in Study 2.

4.2. Discussion

Study 2 was undertaken to build on Study 1, employinga survey approach and adding variables to the analyses. Anumber of predictions regarding the relationships amongthe three independent variables and dependent variables

were made and tested. Support was found for all but two ofthe 9 hypotheses. In the first set of hypotheses, we expectedthat there would be a relationship between attitude towardan EDLP policy and the independent measures: saleproneness, store loyalty, and income level.Given the nature of sale proneness, which disposes

consumers to seek out sales benefits, we expected that sale-prone consumers would respond more favorably to anEDLP policy than would less sale-prone consumers. Wealso expected store loyalty to act in a manner to minimizethe impact of an EDLP on consumers’ attitudes, withconsumers who are loyal to another store being lessresponsive to an EDLP announcement by a competitor. Inaddition, we expected that a consumer’s income levelwould have an impact on response to an EDLP. Whilesupport was found for a link between sale proneness andattitude toward an EDLP and store loyalty and attitudetoward an EDLP, no link was established betweenincome and EDLP. This was surprising, given the spreadin income levels in our sample. The relationship wasexpected because higher income consumers were expectedto be less price sensitive and, consequently, less responsiveto EDLPs. However, these results may establish supportfor the fact that consumers, regardless of income levels, liketo shop around for deals. Evidence of this growing searchfor deals among US consumers has driven the growth insuch sectors as dollar stores, retail stores that offerextremely cheap products, most for about US$1 (see, forexample, Zimmerman, 2004). Zimmerman (2004) reportedthat, according to the largest US dollar-store chain,households with income levels of more than US$50,000were its fastest growing market, though the dollar-storesector relied primarily on low-income households for themajority of its sales. See also Desjardins (2005) and Howell(2005a, b) for similar arguments.The study found strong links between the independent

variables and attitude toward the retailer implementing theEDLP. Consumers reacted differently towards the retailerbased on whether they were highly sale prone versus lowlysale prone, and whether they were highly store loyal versuslowly store loyal. In addition, the regression coefficient for


income level was significant. In the case of patronageintentions, this variable was related to sale proneness andincome level, but not to store loyalty. Taken together,the results from study 2 indicate that marketers, inimplementing EDLP policies, have to be mindful ofindividual differences, such as levels of sale pronenessand store loyalty, which might drive consumer attitudesand intentions.

5. General discussion

The studies related to the announcement of a new EDLPpolicy by an actual retailer and gauged the impact of storeloyalty and sale proneness (in the first study), along withincome levels (introduced in the survey) on consumerresponse to this announcement. This was against thebackground of the retailer having sent out a videotapedmessage to consumers announcing this new policy. Con-sumers who were unfamiliar with this retailer were used inthese studies. These studies were undertaken in an effort toadd to the growing body of knowledge on consumerresponse to EDLPs, which policies have become particu-larly attractive to many US retailers.

The results on the effect of sale proneness add to thebody of literature regarding differential responses ofconsumers to price promotional strategies based on theirlevel of sale proneness (see also Alford and Biswas, 2002).They underscore the importance of factoring in individualdifference factors in the analysis of consumer response tovarious price promotional activities. The studies also fill avoid in our understanding of how consumers respond tovarious price promotions, given that they looked at theunder-utilized individual difference of sale proneness andits impact on consumer responses. The studies sought toestablish whether this factor can work/does work intandem with a factor such as level of store loyalty toinfluence consumer response to price promotions such asEDLP policies.

There are some managerial implications emanating fromthese studies. Marketers can use sale proneness as asegmentation variable when they implement EDLP strate-gies. Retailers are armed these days with a wealth ofinformation on the shopping patterns of their customers,and profiles of these customers can be developed. Includedin those profiles would be information on their saleproneness. Store loyalty is also an obvious segmentationvariable that should be attended to. Appropriate targets forEDLPs include consumers who are highly sale prone, sincethey respond differently than low sale-prone consumers toEDLPs. In study 1, high store-loyal consumers were nodifferent than low store-loyal consumers where attitudetoward the EDLP was concerned. However, they differedon patronage intentions. In study 2, there was not asignificant relationship between store loyalty and patron-age intentions. It seems, therefore, that retailers may haveto use other marketing communication tools, in conjunc-tion with EDLPs, to attract store-loyal consumers, since

favorable perceptions of and attitude toward EDLPsamong these consumers might not always translate intopatronage intentions.The policy that was implemented by this retailer can be

easily replicated by competitors, especially in a sector thatis as highly competitive as the one in which this retaileroperates. The opening vignette attests to the fact that anumber of retailers have been following the example ofWal-Mart, offering low prices, every day. As Adamy (2005)notes, consumers have been conditioned to expect lowprices, and they respond to retailers that offer them.Consumers may be attracted initially to the retailer as aresult of the implementation of a new EDLP policy, but theretailer has to ensure that it combines this with otherelements to ensure that gains from this new policy aresustainable. Merchandise quality and assortment may beimportant, since sometimes consumers associate low priceswith low quality merchandise. They may also associate lowprices with poor or no customer service. Hence, retailersoffering EDLPs need to take this account in fine-tuningtheir retailing strategy.

6. Limitations and future research

The results in both studies are based on the experience ofone retailer, from one part of the US, and participants inthe study were from another part of the country. Thoughthe findings from the second study lend credence to thoseestablished in the first study, caution is prescribed when itcomes to generalizing the results to other retailers andother geographic areas. However, efforts could be made toreplicate these studies with other audiences and with otherkinds of retailers other than supermarket chains. Thesecould include home improvement stores and mass mer-chandise stores.Another concern is that attention was limited to

consumers’ perceptions of the new EDLP policy. Hence,no attention was paid to actual behavioral responses to theEDLP policy. Whether behavior is consistent with attitudesin the case of EDLP is worthy of research. Attention wasalso confined to a retailer with whom participants wereunfamiliar. The impact of the level of store familiarity onconsumer response to EDLP presents scope for additionalresearch. The study reported here was cross-sectional. Theexperience of Procter & Gamble suggests that, over time,there could be erosion in the effects of sale proneness onconsumer response to EDLP (see Ailawadi et al., 2001a, b).Longitudinal studies would be appropriate to assesswhether there is erosion in sale proneness effects over time.Among other areas for future research would be the

determination of the differential response of currentconsumers of the retailer and non-customers of the retailer.Hoch et al. (1994) refer to the first group as the installed

base of the retailer, while non-customers represent poten-tial opportunity. The participants in our study were non-customers. Whether current consumers of a retail chainwould respond differently to a new EDLP policy than

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1This item was reverse coded.

A.A. Bailey / Journal of Retailing and Consumer Services 15 (2008) 211–223 221

would non-customers is worthy of investigation. Ailawadiet al. (2001a, b), in assessing value-conscious behaviortoward store brands and national brands, discovered thatthere were four well-defined and identifiable consumersegments. These were: deal-focused consumers, storebrand-focused consumers, deal and store brand users,and non-users of both store brands and national brands.These segments may respond differently to EDLPS, so thiscould form the basis for research.

Another research issue might be the extent to whichEDLP, supported by additional marketing communica-tions tools, might be effective in attracting shoppers fromcompeting retail stores. Obviously, an EDLP by itselfmight not cause shoppers at competing stores to switch to astore implementing an EDLP. The advent and mushroom-ing of dollar stores will likely have implications for thesuccess of EDLP by some retailers. The impact of access tothese types of retailers on consumer response to EDLP bymajor chain stores should be researched. The effectivenessof category-level EDLP (only certain product categorieswithin the store are subject to EDLP) versus chain-wideEDLP also warrants research.

There are also additional individual difference factorsand situational factors that could form the basis forresearch. For example, consumer skepticism is an indivi-dual difference factor that could impact response to EDLP,given claims by Ortmeyer et al. (1991) that consumers areincreasingly ‘‘suspicious of retailers’ high ‘regular’ pricesand their frequent ‘sales’’’ (p. 55). The moderating roles ofconsumer skepticism, price consciousness, consumer needfor cognition, and deal proneness can form the bases forresearch, as might other contextual factors such as storeimage, store reputation, level of consumer familiarity withthe retailer, and consumers’ prior perceptions of a retailchain. In addition, study 2 looked at only one demographicvariable, and other demographic variables, for example,household size, might be considered in future research. Itwould be also interesting to conduct research usinglongitudinal data from the retailer that implemented theEDLP policy to determine the relative efficacy of thisstrategy for that retailer.

7. Conclusions

The impact of sale proneness and store loyalty is a usefularea for investigation for a number of reasons. In the caseof sale proneness, these results and others (for example,Alford and Biswas, 2002) have shown that, givendifferences in responses to price promotions, differentmarketing strategies can be developed to target consumersbased on this construct. In addition, retailers also have totake into account the possible confounding impact of avariable such as store loyalty on consumer perceptions ofthe promotional offers that they make. Demographicfactors are also likely to impact how consumers respondto EDLP. As long as retailers, brand managers, andmarketing communications managers continue to expend

the amounts they do on price promotional deals, so longwill an interest in understanding consumer response tothese kinds of promotions persist.

Appendix A

A.1. Sale proneness scale items

SP1. If a product is on sale, that can be a reason for meto buy it.SP2. When I buy a brand that’s on sale, I feel that I am

getting a good deal.SP3. I have favorite brands, but most of the time I buy

the brand that’s on sale.SP4. One should try to buy the brand that is on sale.SP5. I am more likely to buy brands that are on sale.SP6. Compared to most people, I am more likely to buy

brands that are on special.

A.2. Store-loyalty scale items

SL1. When I shop for groceries, I usually shop at thesame store.SL2.1 I am the kind of consumer who shops for groceries

at many different stores.SL3. For me, it is true that, ‘‘There is one grocery store

at which I shop the most.’’SL4. To me, the store at which I grocery shop is the best

grocery store chain.SL5. I prefer the store at which I shop for groceries over

all the other grocery stores.

Appendix B

B.1. Portion of text of videotape by CEO of (store name)

Supermarket

Why do we all want to simplify today?y

At (store name), we’ve been committed to helping youmake great meals easy. We’ve tried to be a source of newrecipes with chefs and many others to help you besuccessful with these meals. The more we thought aboutit, the more we were convinced that this was not enough.If we truly wanted to simply your life, we should have apricing program that would enable you to buy what youwanted when you wanted it. Our prices would be fairand consistent. We decided to try a different pricingapproach with a few product categories. We certainlywanted to know if you, our customers, liked the ideay

In these product categories, we used to charge a regularprice and run a sale on these items about four times ayear. However, at (store name) we are customers, too, sowe started to think whether this was how people like toshop. What if you missed the sale? What if you were out


of town? What if you were working? What if you wereon vacation? What if you did not need that product thatwas on special that week?

We decided to try dropping the prices of certainproducts to a regular low price, every day! Ourcustomers showed us that they liked the consistent, fairprices. Our sales increased. This was true in everycategory we studied. Our customers preferred fair,consistent prices.

Why are we at (store name) telling you this? Because weare reducing over 4000 prices, and we thought that youwould like to know. It is important to us, and we think thatit will be important to you. We hope you choose to shop at(store name) because we help make great meals easy.

Now (store name) is giving you a simpler way to shop, asimpler way to save. You may find something on specialfor less elsewhere, every now and then, but most timesyou will find that our prices at (store name) give yougreat value every day. We hope that you will thinkso, too.

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Documents

Evaluating consumer response to EDLPs