Where would you rather shop: a store with high prices and occasional sales or a retailer where prices are consistently low?
While reliably cheap prices might sound better on paper, businesses harnessing the former pricing strategy — rather than the latter — can be more profitable and successful with shoppers, according to new research by management professors at the Massachusetts Institute of Technology and the University of Texas at Dallas.
The reason? It's all about regret.
There are two types of regret that consumers tend to feel with regard to shopping, said co-author Karen Zheng, an assistant professor of operations management at the MIT Sloan School of Management. One type results when you buy an item of clothing, for example, and then later see it on sale for a lower price than what you paid, she said.
"But the other regret is if you don't buy it and come back to find your size is gone," said Zheng. "You will wish you had gotten it in the first place, ... and it turns out people tend to believe certain products will be sold faster or sooner than they actually are."
Specifically, the fear that items will go out of stock can be powerful enough to make shoppers pay full price when they first see an item — and increase stores' profits by as much as 10 percent, the study found.
Of course, the strategy of keeping prices high will work better for some retailers than for others, said Zheng. Shoppers have an easier time holding out for sales when they are buying common items like T-shirts.
"Branded fashion, on the other hand, is more likely to induce the fear of future regret," she said. "My conjecture would be that for trendier items, there is a time value of wearing them, so they are more valuable at the beginning of the summer season versus at the end, for example."
Indeed, certain name brands are especially adept when it comes to urging shoppers to pay full price.