The Impact of Increasing Search Frictions on Online Shopping Behavior: Evidence from a Field Experiment

by Donald Ngwe and Thales S. Teixeira
 
 

Overview — With even minor changes to the design of an online store, sellers may get more full-priced sales from price-insensitive shoppers. As shoppers spend more time on the website given higher search frictions, they may also be considering a larger set of products.

Author Abstract

Online retail accounts for a rapidly growing proportion of revenues in many industries. While selling online broadens firms’ access to consumers, operating margins are often lower in online stores than in physical stores. There are well-recognized reasons for this discrepancy: prices are easy to compare online, discount coupons and codes have high uptake, and sellers often bear the cost of shipping products to buyers. In addition to these factors, online selling precludes many methods of price discrimination exercised in offline environments. Many online stores present few barriers to accessing discounted products. We propose that deliberately increasing search frictions by placing obstacles to locating discounted items can improve online retailers’ margins and increase conversion. We demonstrate using a simple theoretical framework that inducing consumers to inspect higher-priced items first can simultaneously increase the average selling price and the overall purchase rate. We test these predictions in a series of field experiments conducted with an online fashion and apparel retailer. Using information from historical transaction data about each existing consumer, we demonstrate that price-sensitive shoppers are more likely to incur search costs in order to locate discounted items. Our results show that adding search frictions can be used as a self-selecting price discrimination tool to match high discounts with price-sensitive consumers and full-priced offerings with price-insensitive consumers.

Paper Information