Match Your Own Price? Self-Matching as a Retailer's Multichannel Pricing Strategy

Multichannel retailing has led to the emergence of a new form of price-matching policy. A “self-matching policy” allows a multichannel retailer to offer the lowest of its online and instore prices to consumers with appropriate evidence of the pricing discrepancy. In contrast to competitive price-matching, a retailer matching its own price is likely to result in consumers obtaining the lower price, making it seem like an unprofitable strategy. However, we observe a variety of self-matching policies across several industries, with some retailers offering selfmatching for all products while others choosing not to. Using a game-theoretic model of pricing strategy, we examine whether firms are compelled by competitive pressure to offer self-matching even though it might result in a prisoners’ dilemma. We uncover distinct and novel mechanisms that underpin the effectiveness of self-matching, and find it to be profitable across a variety of competitive scenarios. We examine multiple competitive landscapes, including as a monopolist, a mixed duopoly of a multichannel retailer competing with an e-tailer as well as two competing multichannel retailers. We find that the effectiveness of self-matching depends on the decisionmaking stage of consumers and the heterogeneity of their preference for channels. Self-matching strategies can also be profitably used as stores face more consumers using smartphones to discover online prices. Our findings provide insights and recommendations to managers on how and when to derive profit from self-matching pricing strategies. ∗Pavel Kireyev is Doctoral Candidate ([email protected]), Vineet Kumar ([email protected]) is Asistant Professor of Business Administration and Elie Ofek ([email protected]) is the T.J. Dermot Dunphy Professor of Business Administration at Harvard Business School.