A low price guarantee (LPG) offer is a signal sent by a retailer to inform a customer on its low price policy. As its use becomes more and more prevalent, this signal is losing its impact and some retailers are trying to regain competitive advantage by increasing the level of penalty (e.g. 10 times the price difference). In a real world experimental framework we demonstrate that a very high level of penalty does not improve the perceived offer value. Consequently the potentially high cost of guarantee service due to price search stimulation makes a very high penalty level LPG not profitable.
DESMET, P. and LE NAGARD, E. (2007). The Effect of a Large Penalty for a Low Price Guarantee on Perceived Offer Value. In: Proceedings of the 36th EMAC Conference 2007 (CD-Rom). Reykjavik University.