Revisiting the Relationship Between Consumer Loyalty and Price Sensitivity: The Moderating Role of Deal-Proneness

Abstract

This paper explores the conventional wisdom about the relationship between consumer loyalty and price sensitivity: that loyal consumers are price insensitive while nonloyals are sensitive to price changes when making brand choice decisions. However, consumers within each segment may have different motivations for making purchases and, therefore, may respond differently to price changes. This paper accounts for this type of consumer heterogeneity by investigating the moderating role of consumers' deal-proneness on the relationship between loyalty and price sensitivity. The findings show that there are at least two consumer groups within each segment, and each group exhibits a different level of price sensitivity. In addition, this paper shows that the optimal cutoff is product-category specific, and neither the 99.9 percent nor the 50 percent cutoff, as used in past research, is optimal. Important managerial implications are discussed.

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