How mobile payment influences the overall store price image

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Abstract

The study here is one of the first to consider how mobile payment and basket price judgments affect shoppers' overall price image of retail stores (OSPI). The OSPI concept reflects customers' beliefs about the overall price level of a store relative to competition. A low OSPI is a strong driver of store loyalty. Three empirical studies building on prospect theory show that positive comparisons of basket prices with mental budgets trigger favorable OSPI judgments. The study also investigates the effects of cash, card, and mobile payments on OSPI formation following Soman's (2003) payment transparency concept. Results show that mobile payment, as an innovative payment option, leads to more positive OSPI judgments. Finally, mobile payment significantly increases customers' willingness to pay when compared to cash payments. In sum, these results have major implications for retailers that want to lower their OSPI in customers' minds.

Introduction

Smartphone usage and availability in industrialized countries have more than doubled over the last two years. In fact, a record number of 182 million consumers in the US owned a smartphone by the end of 2014 (Comscore, 2015). The worldwide smartphone boom introduced many innovative solutions for consumers. In particular, solutions allowing consumers to pay with their mobile devices are a cardinal business interest. Further, mobile phone payment's importance continues to increase. According to Gartner Research (2015), the worldwide mobile payment market will encompass 448 million users in 2016. Major companies including Google, Apple, Samsung, PayPal, T-Mobile, Verizon, and AT&T, as well as multiple start-up firms such as Square and LevelUp, currently offer mobile payment solutions. Although a nascent stream of literature investigates the effect of cash and card payments on consumer behavior (Mishra et al., 2006, Shimp and Moody, 2000, Soman, 2003, Thomas et al., 2011), research hitherto ignores the innovative trend of payment using mobile devices.

This article represents one of the first studies to address this change in the payment environment and to investigate how mobile payment as an innovative payment method affects consumers' perceptions. More precisely, the authors build a conceptual framework based on prospect theory and Soman’s (2003) payment transparency concept to explore how the payment stage of a typical shopping trip affects customers' price perceptions of a retail store. Three experimental studies test the resulting hypotheses. This article makes several major contributions to the literature.

First, this article adds to the nascent research investigating payment method effects on purchasing behavior (Shimp and Moody, 2000, Thomas et al., 2011) by contrasting traditional payment options (i.e., cash and credit card) to mobile payment regarding their effects on customers’ overall store price image (OSPI). Creating a favorable OSPI becomes a strategic imperative for the vast majority of retailers (Dutta and Bhowmick, 2009, Hildebrandt, 1988, Woodside and Walser, 2007). OSPI reflects customers' beliefs about a store's overall price level relative to competition (Alba et al., 1994, Desai and Talukdar, 2003). Establishing a favorable OSPI is important because shoppers use price images to decide on store patronage (Arnold, Oum, & Tigert, 1983) and magnitude of spending (Van Heerde, Gijsbrechts, & Pauwels, 2008). The payment transparency concept (Hirschman, 1979, Soman, 2003) suggests that mobile payment might be less tangible than cash or credit card payments, thus lowering customers' felt pain of payment and leading to overspending without direct negative feelings (Raghubir & Srivastava, 2008). Potentially, consumers pay greater attention to purchased products' benefits rather than costs when paying with a mobile device (Chatterjee & Rose, 2012). As a consequence, new payment solutions may seriously affect consumers' OSPI judgments.

Second, given the focus on mobile payment during the checkout phase, this article investigates the importance of the basket price for OSPI. Remarkably, the basket price's role remains largely unexplored in research on shoppers' OSPI formation. Extant studies emphasize OSPI drivers residing in either the store-scanning or product-browsing phase of a buying process, such as advertisements (Simester, 1995), low price guarantees (Kukar-Kinney, 2006), or price promotions (Blair, Harris, & Monroe, 2002). Nevertheless, Dickson and Sawyer’s (1990) seminal research concludes that customers at the checkout pay more attention to basket prices than to individual product prices. Because most customers purchase several products during a shopping trip, considering the basket price is important (Luna & Kim, 2009). Finally, a basket price likely is more easily accessible and accurate than in-store tracking of single prices (Vanhuele & Drèze, 2002).

Third, this study investigates whether or not mobile payment stimulates customers to pay a premium. Feinberg (1986) and Prelec and Simester (2001) identify a card premium; they show that shoppers are willing to pay more when using a card than when paying with cash. This study extends their results and investigates whether mobile payments have their own premium.

This article proceeds as follows. After defining the OSPI concept and introducing basket price judgment and payment methods as major determinants of OSPI, three experimental studies empirically investigate the hypothesized effects. The paper concludes by discussing the theoretical contributions and practical implications.

Section snippets

Research Background

OSPI is a “belief that consumers hold about the overall price image of a store” (Desai & Talukdar, 2003, p. 904) and resembles how customers generally perceive store prices (Srivastava & Lurie, 2001, p. 297). As perceptions of low store prices help merchants build traffic (Grewal, Monroe, & Krishnan, 1998) and increase store patronage (Alba et al., 1994), many retail firms use strategies such as advertising slogans (e.g., “Everyday low prices”), and price promotions to create a low OSPI (Ofir,

Basket price judgment and OSPI formation

Following prospect theory (Kahneman & Tversky, 1979), existing research concludes that customers do not form price judgments in terms of absolute wealth; instead, they compare the item's actual price (AP) with their reference price (RP) (Raghubir, 2006). Customers perceive favorable comparisons (AP < RP) as gains and form positive (i.e., low-price) judgments. Conversely, they perceive unfavorable comparisons (AP > RP) as losses and form negative (i.e., high-price) judgments (Bolton, Warlop, & Alba,

Experimental research

A series of experiments test the hypotheses. Study 1 examines the basket price judgement's main effect on shoppers' OSPI formation through an online experiment. Study 2 follows a similar procedure to examine the payment method's main effect on shoppers' OSPI formation. Study 3 builds a physical retail store in a laboratory experiment, validates the findings of Studies 1 and 2, and assesses mobile payment's effect on OSPI judgment.

Theoretical implications

The extant research primarily focuses on determinants of OSPI residing in either the store-scanning or product-browsing phase of a buying process, such as advertisements (Ofir et al., 2008, Simester, 1995), LPGs (Biswas et al., 2006, Ho et al., 2011), and price promotions (Blair et al., 2002). Three studies extend these findings to the checkout phase by investigating the link between the adoption of innovative payment methods, basket level price comparisons, and OSPI formation. More precisely,

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    This project was partially funded by the Office of International and Transnational Affairs (OITA) of the University of Massachusetts Boston.

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