Determinants of cross border shopping: results of an empirical investigation of the border region between Germany and Austria.

• Author: Siems, Florian
• Position: Report

1. INTERNATIONAL PRICING AND CROSS BORDER SHOPPING

   In spite of globalization and the merging of an increasing amount of economic realms, price differences can still be found in different countries for the identical products (see e.g. AK 2008; EUROSTAT 2010; TCS/OAMTC 2010; Siems/Hammer 2011). A variety of reasons exist for this, which can be classified into the following general categories (see e.g. Lenze 2006, pp. 115; Muhlbacher/Leihs/Dahringer 2006, pp. 659; Raupp 2006, 34; Dreger 2007, 558; Kotler et al. 2007, 824; Diller 2008, 300; Siems 2009, pp. 349; Siems/Hammer 2011):

   * different costs (e.g. varying salaries depending on the country, the different tax structures found in each country),

   * demand constellations (e.g. different willingness to pay by the consumers in each country), and

   * the competitive climate (e.g. the different amounts of companies found in one country that offer the same products and services).

   As a result, there might be price-based incentives for customers--particularly those living near the border--to make their purchases in the neighboring country instead of their own (Cross border shopping, for the most recent work, see Dmitrovic/Vida 2007; Moosmayer et al. 2010; Leal/LopezLaborda/Rodrigo 2010; for an overview of earlier studies, see e.g. Bygvra 1998; for an overview of the topic see also e.g. Herrmann/Beik 1968; Balabanis/Diamantopoulos 2004).

   Of particular interest to economic studies when it comes to cross border shopping is to what extent these kinds of monetary incentives actually draw customers across the border, along with any additional motives that happen to exist. Also of interest are the effects that prevent customers from doing cross border shopping (see e.g. Wang 2004; Dmitrovic/Vida 2007; Moosmayer et al. 2010). This is where our paper begins its investigation. Using the example of the border region of Salzburg (Austria) and Freilassing (Germany), it will be shown what motives influence the cross border shopping behavior of consumers. The paper is structured as follows:

   First, the investigation object and its goals will be described in greater detail. Earlier studies on this topic will also be discussed (Section 2). Following this, the results of a study to identify the possible influence variables on customer perception of cross border shopping will be shown (Study 1b, Section 3). These results form the basis of a more in-depth, factor analytic observation of the influence variables on customer perception examined as part of another study (Study 2) that will be discussed in Section 4. The paper ends with management implications, limitations, and an outlook (Section 5).

2. PRICE DIFFERENCES IN GERMANY AND AUSTRIA: EXISTING STUDIES AND STARTING POINT

   The study of cross border shopping behavior discussed in the following observes the border region of Salzburg (Austria) and Freilassing (Germany). These cities border one another and see a constant flow of customers both to and from their municipalities. One reason for this are the price differences found between Germany and Austria.

   Different publications and studies in past years have discussed the (in some cases very clear) price differences between Austria and Germany (in spite of their common currency) for very similar if not downright identical brands and products, as well as the nearly unhindered opportunity for consumers to cross the border without any kind of customs inspection.

   On the one hand, the media and trade journals alike have for many years reported on the (few) products such as gasoline that are consistently cheaper in Austria than in Germany (Sueddeutsche 2009; Winderl 2010). The unchanged accuracy of these reports have been confirmed by current studies on gas prices conducted in particular by automotive associations (Current price per liter according to the Austrian TCS/OAMTC auto club: Austria: gasoline 95 octane: 1.215 [euro]/ gasoline 98 octane: 1.337 [euro]/ Diesel: 1.152 [euro]; Germany: gasoline 95 octane: 1.433 [euro]/ gasoline 98 octane: 1.504 [euro]/ Diesel: 1.262 [euro]; Source: TCS/OAMTC 2010).

   On the other hand, many products in Austria are seen as more expensive when compared to what is paid for them in Germany. One example is a 2007 study by the Vienna Chamber of Labor on identical magazines that are available in Germany and Austria (AK Wien 2007; Delapina 2007). Of the 38 magazines investigated in the study, only one had the same price in both countries. Austrian customers pay as much as a third more than their German counterparts, with an average overall difference of 14%. Figure 1 shows a few examples from 2007.

   Of note here is that the study's primary assertion (higher prices in Austria for magazines when compared to Germany) is not only valid for the year the study was conducted. This instead appears to have been the case now for some time. Studies from years prior to 2007 also revealed similar figures. Comparable studies found average magazine price differences between Germany and Austria of 16.4% in 2002, 14.8% in 2004, 13.7% in 2006, and 13.6% in 2007 (Delapina 2007, 2).

   Of note is another study done in 2008 by the Vienna Chamber of Labor on price differences at discount supermarkets (Delapina/Huber 2008). Particularly interesting with this study was the comparison of these supermarkets (Hofer/Aldi Sud, Lidl, Penny and Plus) who operate in both Germany and Austria. The investigation was conducted in one of each of these individual stores in both Vienna (Austria) and in the Deggendorf/Bavaria (Germany) region. Figure 2 provides an overview of some of the results from the study.

   The figure makes clear the notably higher average prices found at the discount supermarkets investigated in Austria than in Germany. The prices of identical products in Austria were between 15.11% and 18.78% (not including tax) and 17.87% and 21.66% (prices including tax, not shown in Figure 2) higher than in Germany (Delapina/Huber 2008, 1).

   It can furthermore be seen that some of the identical products in Austria are up to 126.6% more expensive than in Germany ("Maximum price discrepancy in Austria," see Figure 2). The numbers on those products in Austria with higher prices than those in Germany also show that these higher prices are found nearly across the board with all products (Delapina/Huber 2008, 4). The amount of articles with higher prices than in Germany is on average around 80%, and in the case of Aldi/Hofer, even higher (94.10 %, see Figure 2).

   The reverse, i.e. products being cheaper in Austrian stores than their German counterparts, was the absolute exception (Delapina/Huber 2008, 4). This was the case at Aldi Sud/Hofer with only 1 of the 33 products examined; at Lidl with only 2 of the total 108 products; at Penny with only 6 of the 36 products; and at Plus with only 12 of the 114 products used in the study.

   Similar results were shown in a 2008 study by Siems/Hammer (see Siems/Hammer 2011, referred to in the following as "Study 1a"). Based on the theory of a price corridor (see especially Simon 1992, pp. 476; also see Keegan/Schlegelmilch/Stottinger 2002, 440 u. pp. 453; Kopka/Rickert 2006; Cansier 2008; Diller 2008, 433; Siems 2009, pp. 353), it was investigated whether and to what degree prices vary between two supermarkets that are located close to the border. One of the supermarkets was located in Freilassing (Germany), the other in Salzburg (Austria). As opposed to the study done by the Vienna Chamber of Labor, these two supermarkets were not discount stores, but instead "full service" supermarkets with similarly extensive product ranges. Among other things, this study examined in both countries the prices of 65 identical toiletry brand items at both supermarket locations.

   The result: Clear price differences could be found, and some were very clear. The prices (which included tax) of the 65 articles were on average 24.27% cheaper at the German supermarket. In real money, each product was an average of 97 cents cheaper (Siems/Hammer 2011).

   Similar to the study conducted by the Chamber of Labor (see above), this study by Siems/Hammer also showed that price advantages are the clear exception in Austria, while price advantages dominate in Germany. Only with 3 of the 65 products were the prices cheaper in Austria, and only one price was the same. With all of the other 61 products, the price in Austria was higher (Siems/Hammer 2011).

   These studies confirm the fundamental importance of the question posed at the beginning of this paper: What is the effect of these kinds of (clearly existent) price differences with the customer, particularly in areas close to the border? This will be the starting point for our study, which will aim to more closely identify the influencing motives impacting buying behavior, and subsequently analyze their nature and tendencies.

   This paper is part of an international research project begun in 2008. It includes the study above by Siems/Hammer (Siems/Hammer 2011, Study 1a), which on the one hand looked at the possible price differences in the border region of Salzburg between Austria and Germany. At the same time, it's also an important pre-study for the empirical investigation presented in the following, which was also conducted in this border region.

3. IDENTIFICATION OF POSSIBILE INFLUENCING MOTIVES ON CUSTOMER PERCEPTION (Study 1b)

   Study 1b aimed to identify the possible motives influencing where to buy in the border region of Salzburg. For this, seven people were presented with the results (in the form of a price list) from the first study conducted by Siems/Hammer ("Study 1a", Siems/Hammer 2011), and asked to provide answers to the following questions and give the following information:

   * What would motivate you to purchase these products at a cheaper price at the supermarket in Freilassing?

   * What would prevent you from purchasing these products at a cheaper price at the supermarket in Freilassing?

   * Please list all the things that would have to...