Tatiana Cooke caught up with Marketing Faculty professor Donald Ngwe to discuss retail pricing, channels, and consumer purchasing behavior
Donald Ngwe, beloved by Sections A and J for his engaging teaching style and wit, is impressive not just for the dedication he brought to his fall RC marketing courses, but also for the interesting topics he tackles in his research. Since completing a PhD in economics at Columbia University, he has published work that explores the relationship between pricing, channel and consumer purchasing behavior. By looking at data from channels like outlet stores and online discount sites, Professor Ngwe is uncovering insights about the ways in which retailer strategies influence our shopping choices.
- Why did you choose pricing strategy in retail as a research agenda?
Retail is a fascinating venue in which to study pricing strategy and consumer behavior. It forms a large part of the economy, and is evolving at a rapid pace. It offers a rich set of dimensions for a researcher to consider: consumer choice, pricing, product policy, and inventory management. Open questions in these areas are of vital importance to managers.
I first became interested in retail while working on a research project about outlet stores in graduate school. I wanted to quantify the value of using outlet stores as a tool for price discrimination. Price discrimination often gets a bad rap, but what many people don’t realize is that in most cases, everyone is better off for its existence. Yes, it enables firms to extract more value from consumers—but in doing so, it also allows for a wider range of products and services to exist in the market.
- What trends do you think will change the way we shop?
I think that an important trend is toward letting each consumer shop in whichever way they prefer. There might have been a time when retailers were eager to encourage activity to move online from offline, either with the goal of reducing costs or to avoid getting left behind. But the reality is that moving online can have large drawbacks: fulfillment costs are high, and price comparisons are easier. What’s more, many product categories simply require physical inspection before a shopper will purchase with confidence. The result, as we have seen, is that many pure online sellers have opened physical stores, or have offered free and easy returns.
There’s a lot of heterogeneity in the way consumers prefer to shop between product categories, but there might be even wider variation within a category. Take grocery shopping as an example. Many of us are grateful for the ability to order groceries through services like Instacart. But many more people have neither the need nor desire to pay for delivery. The challenge for firms is to offer comparable experiences, given acceptable cost structures, to consumers regardless of their preferred channel. So the way I see it, the most interesting developments will occur in how firms meet existing customer expectations rather than in changing them.
- How has your research affected your own shopping behavior?
In the worst ways. My research has given me more ways to rationalize bad behavior. Initially I thought doing research on retail would make me more skeptical of retailer strategies or at least more discerning—i.e. make me a smarter shopper. But that has hardly been the case. Now I buy more stuff and probably overpay for most of it. “I’m too lazy to comparison shop” has become “my time is not well spent searching.” I’ve become more likely to buy from new online brands “for research purposes.” It’s a slippery slope. But maybe this is all a result of a higher appreciation for the work retailers do. Yeah, that’s it!
- What findings have been most surprising to you?
I’ve been most surprised by aspects of how shoppers interact with online stores. To be more specific: shoppers are lazy! In a project with Thales Teixeira, a colleague in the Marketing Unit, we lightly concealed discounted offers on a retail website, making them harder to access by just a click or two. The result was a substantial increase in full-price purchases: many shoppers chose not to search for discounts, on the same website or elsewhere. In another project, I’ve observed that a large number of online purchases occur in amounts just below the free-shipping threshold, a range in which shoppers can effectively get a small additional item or trade up to a more expensive item “for free” by adjusting their purchase baskets to meet the threshold.
The takeaway is that there is a lot of value that online sellers can unlock by examining these behaviors and adjusting their strategy accordingly, instead of merely mimicking common practices.
- What are you excited about doing over your next few years at HBS?
I’m very excited about doing more research on retailing and finding ways to bring my findings into the MBA curriculum. We know a lot about what works well where physical retail is concerned, but not as much about online retail. My sense is that there is actually quite a bit that online retailers can learn from the offline side. The trick is in identifying online analogs of established retailing strategies.
Bonus question – Section A reached its own conclusions about your workout routine. What is your real workout plan?
All there is to say about my workout plan is that I have a membership at a gym in Central Square, where I make it so infrequently that it comes up to about $30/visit. See what I mean about overpaying?
Tatiana Cooke (MBA ’18) worked at CVS Health before coming to HBS. She enjoys binge watching Netflix, reading long-form journalism and popcorn. She is a proud pAnda and member of the Tech Club.