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Thursday, August 17, 2017

Product Price Drops on Amazon Often Cause Customer Disatisfaction

E-commerce has come to rule the marketing world and understanding how product price changes impact perceived customer value is helpful for strategic planning. A study of a popular e-book reading device found that dropping product pricing has a negative impact on customer perception (Lee, et. al 2016). Before adjusting price you might want to think of how consumers are going to react prior to making major adjustments.

The study found that star rating, review depth, positive & negative emotions are impacted by price decreases product reviews on popular products. When companies lowered their prices there was an immediate reaction to product reviews by customers. Two price drops showed concurrent drops in satisfaction even though the second one was more muted.

Why are product reviews important and why do companies not want to mess with them often? Product reviews changes your ranking in Amazon and can impact what products show up on the first page. It can also change the perception of potential customers who are reviewing these products and evaluating the perceived value. If reviews and star ratings are low there is likely to be fewer purchases.

It probably doesn't matter much if you are a small company selling something that doesn't have a large following. However, it will matter a lot when large companies that sell "hot" items change their prices.  Customers product reviews move downward and seem to be more negative in the process.

This doesn't mean that companies should not drop their price if an adjustment in optimal pricing is needed. If your not making sales then it is necessary to change the price to keep your product competitive among alternatives products. It does mean that price and perceived value are somewhat associated.

Some of these reviews likely come from customers who purchased the product at one price point and then found that it has been lowered. There may be a level of discontent of "overpaying" for the product. It is difficult to provide a review if you haven't actually paid for the product. You may consider providing coupons or discounts to those who recently purchased products to ensure they feel satisfied and less likely to write something negative.

Lee, et. al. (2016). Online consumer's reactions to price decreases: Amazon Kindle 2 Case. Internet Research 26 (4).

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