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

Debanjan Mitra, Scott Fay

Research output: Contribution to journalArticle

43 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)184-199
Number of pages16
JournalJournal of Retailing
Volume86
Issue number2
DOIs
StatePublished - Jun 1 2010

Keywords

  • Expectations
  • Internet marketing
  • Price-ending
  • Pricing
  • Retailing
  • Separating and pooling equilibrium
  • Signaling

ASJC Scopus subject areas

  • Marketing

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