Online Choice Architecture and Vulnerability: Understanding the Impact of Reference Pricing on Consumer Behaviour
Executive Summary
This study examines how three common online sales practices – reference pricing, sensory manipulation, and time-bound elements – influence people’s choices and well-being when shopping online. Reference pricing refers to showing a higher previous or future price next to the current price (for example, “was £22.99, now £19.99”). Sensory manipulation refers to using eye-catching design on certain deals (for example, bold colours or large fonts). Timebound elements include countdown timers (for example, “20 seconds left on this offer”) and time-limited discounts (for example, “first 3 months free”).
These practices are widely used, particularly in three types of online marketplaces: broadband plans, gym memberships, and hotel bookings. We replicated these marketplaces to test how the practices work under real-world conditions. Specifically, we set out to measure whether they reduce decision quality, whether people facing financial insecurity or poor mental health are affected differently, and whether these practices discourage shopping around, which matters for competition and consumer welfare. Our findings are intended to support better design and oversight of online marketplaces, so the benefits of digital commerce are widely accessible while the risks of confusion or manipulation are reduced.
To study the effects of these practices, we built a realistic simulation experiment that took place across these three marketplaces. Participants were asked to shop and select the best offer in each one. A nationally representative sample of over 8,000 adults took part, including large sub-samples of people facing financial insecurity and poor mental health. Participants were entered into a lottery for each correct choice so they were motivated to behave much more similarly to how they would when shopping online.
People were randomly assigned to one of four groups: (1) reference pricing only; (2) reference pricing plus sensory manipulation; (3) reference pricing plus sensory manipulation and a time-bound element; or (4) a control group that saw none of these practices. We measured decision quality (did they pick the best-value option), time spent shopping, confidence in selected offers, shopping-around (whether they visited a competitor site), and the monetary amount spent shopping.