Managing Service Expectations in Online Markets: A Signaling Theory of E-tailer Pricing and Empirical Tests

Debanjan Mitra and Scott Fay

Journal of Retailing, 2010, vol. 86, issue 2, 184-199

Abstract: Expectations play a significant role in determining customer perceptions and satisfaction. Accordingly, retailers seek to manage customers’ service expectations. However, the tangible signals of service quality that are available to brick-and-mortar retailers (such as location, store appearance, and salespersons’ behavior) may not be available in online markets. Using a signaling model, we obtain conditions when Internet retailers (e-tailers) use price to manage their customers’service expectations. In contrast to extant theory, we find that it is possible for both low and high service e-tailers to use price in signaling their service levels. Further, we develop an appropriate deductive test of our theory based on price-ending patterns as an artifact of the signaling process. Based on this test, we find evidence that e-tailers indeed manage service expectations using price. Interestingly, we also find preliminary evidence that suggests customers implicitly associate price-ending patterns with a retailer's expected service level. We discuss several other implications of our findings for researchers and managers.

Keywords: Expectations; Internet marketing; Pricing; Price-ending; Signaling; Separating and pooling equilibrium; Retailing (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jouret:v:86:y:2010:i:2:p:184-199

DOI: 10.1016/j.jretai.2010.02.003

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