Exploring price fairness perceptions and their

Journal of Business Research 69 (2016) 3693–3697

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Journal of Business Research

Exploring price fairness perceptions and their influence on consumer behavior☆ Domen Malc ⁎, Damijan Mumel 1, Aleksandra Pisnik 2 Faculty of Economics and Business, University of Maribor, Razlagova 14, Maribor SI-2000, Slovenia

a r t i c l e

i n f o

Article history: Received 1 June 2015 Received in revised form 1 January 2016 Accepted 1 February 2016 Available online 31 March 2016 Keywords: Price fairness Equity theory Income level Consequences

a b s t r a c t The price fairness concept is gaining in relevance in the marketing field, as it can be seen as a restraint on unfair exploitation, particularly regarding dynamic pricing techniques. The present paper explores the restraining nature of price fairness perceptions while testing the characteristic behavioral reactions of consumers who perceive price difference as unfair. Furthermore, this study describes the consequences of price fairness perceptions as consumer coping strategies. This study applies an experimental design: 288 participants assess the price fairness of given shopping scenarios and use those assessments to determine their agreement with different kinds of consequential behaviors. This experimental study confirms that price fairness influences not only the intention to buy but also some forms of negative behaviors that directly harm the seller, e.g., negative word of mouth, complaints, and leaving the seller. Findings also confirm that the intensity of price fairness perception correlates with the severity of consequences and that differences exist among consumers with different income levels. The main contribution is in the empirical research of previously merely theoretical propositions concerning factors and consequences of price fairness perceptions. Study confirms that social comparisons play an integral part in determining fairness in the shopping context, reveal that consumers accept and positively assess price increases over time in terms of fairness, and confirm the importance of personal income in both price fairness assessments and in consumers' reactions to unfair prices. © 2016 Elsevier Inc. All rights reserved.

The price fairness concept is no longer a novelty in marketing theory and practice. While the increase in its recognition can be attributed to the appearance of dynamic pricing techniques, the concept's origins stem from the work of Huppertz, Arenson, and Evans (1978). The knowledge has since expanded, both in theory and practical implications gained through understanding the antecedents and consequences of price fairness perceptions. The latter, however, remains the least researched area, thus offering the opportunity for exhaustive research work and, presumably, a wide array of academic and practical implications. Xia, Monroe, and Cox (2004) defined price fairness as customers' perceptions and their related emotions about how fair, acceptable, and reasonable the difference is between two prices. Customers make either explicit comparisons of two or more actual product prices or implicit comparisons, comparing the observed price with some undistinguishable, expected reference price (Thaler, 1983). Either way, equity theory (Adams, 1965) allows us to foresee three possible outcomes: equality, disadvantaged inequality (the observed price is higher than the reference), or advantaged inequality (the actual price is lower than the reference). ☆ The authors thank Vesna Žabkar, Boris Snoj, and András Bauer for their helpful comments. ⁎ Corresponding author. Tel.: +386 2 22 90 338; fax: +386 25 10 461. E-mail addresses: [email protected] (D. Malc), [email protected] (D. Mumel), [email protected] (A. Pisnik). 1 Tel.: +386 2 22 90 284; fax: +386 25 10 461. 2 Tel.: +386 2 22 90 342; fax: +386 26 10 461.

http://dx.doi.org/10.1016/j.jbusres.2016.03.031 0148-2963/© 2016 Elsevier Inc. All rights reserved.

The literature review reveals two main research streams in the field of price fairness research: one focuses on identifying the factors influencing price fairness perceptions (Bolton, Warlop, & Alba, 2003; Bolton, Keh, & Alba, 2010; Hermann, Xia, Monroe, & Huber, 2007); the other focuses on the consequences of such perceptions and remains mainly on a conceptual, partial level, without sufficient empirical evidence (Martins & Monroe, 1994; Xia et al., 2004). To extend the second stream's base of empirical evidence, present research focuses on what are viable repercussions for customers when they perceive sellers' prices as unfair. The main challenge of this study is to provide an insight on how price (un)fairness perceptions influence customer behavior. Paper also provides an investigation of factors leading to such perceptions as well as a comparison of the effects of two relevant characteristics of the exchange context: the previously paid price and the price paid by other customers (Bolton et al., 2003). Furthermore, the research intends to fill the current gap in understanding of price fairness in light of customer's personal income. Price fairness research offers a wide array of theoretical explanations. Prospect theory (Kahneman & Tversky, 1979) explains the inclination to react to perceived price unfairness mainly in the context of disadvantaged, not of advantaged, inequality. Procedural justice theory (Maxwell, 2002) is concerned with fairness perceptions of the pricing process, not price difference per se. Thaler (1983) further contributes to the field with the transaction utility theory that explains the implicit comparisons but neglects the comparisons of the observed price with

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other exact prices. Despite these theories' respectable contributions, equity theory (Adams, 1965) provides the most comprehensive foundation to the concept of price fairness perceptions. This article first introduces an overview of price fairness perception's antecedents, concentrating on the factors that determine the context of an exchange and are the most salient to a customer in a shopping environment, namely, social comparisons and prices the customer previously paid. Second, the paper explains the current understandings about the consequences of price fairness perceptions, explain the role of emotions, and present the behavioral reactions to unfair price differences in light of customer coping strategies. Next part covers the study's methodology – the sample, procedure, applied instruments, and their characteristics – followed by the detailed presentation of study's results. Finally, the last part of the paper discusses the results and conclusions, presents the implications and limitations of the research, and proposes directions for future research. 1. Theoretical background and hypothesis development While price changes are an expected part of everyday reality, the rationale for a price change or for particular characteristics of the transaction might evoke negative price fairness perceptions in customers. The factors contributing to the development of such perceptions range from the characteristics of other customers buying the same product, an individual's past transactions (Bolton et al., 2003), and the reasons behind the price change (Kahneman, Knetsch, & Thaler, 1986), to general knowledge and beliefs about the seller's pricing practices (Xia et al., 2004). The list of factors is growing, with some promising work on determining price fairness for new products (Kuester, Feurer, Schumacher, & Reinartz, 2015) and on price fairness perceptions in crisis times (Bradford, Huq, Jackson, & Roberts, 2014). The characteristics of other customers and of past purchases are proposed to be the most influential factors in the process of forming price fairness perceptions (Xia et al., 2004). These antecedents are most salient in everyday transactions and can be labeled by a common denominator as variables that determine the transaction's context. Most of the research work also focuses on those variables (Bolton et al., 2003; Campbell, 2007; Xia & Monroe, 2010). The most prominent finding about those characteristics is that the higher the resemblance of reference points (other consumers, past purchases, etc.), the higher the inclination to make comparisons (Festinger, 1957), as well as the probability of intense price (un)fairness perceptions. Reference point is any kind of stimulus with known characteristics that embodies standards to which people compare categorically similar stimuli with unknown characteristics in an attempt to acquire new information (Yockey & Kruml, 2009). In the context of price perception, those reference points may be represented by exact product prices (context based) and also, as Thaler (1983) notes, by undistinguishable, expected price approximations that usually relate to prices customers previously encountered (Rajendran & Tellis, 1994). The choice of any reference point is based on its availability (Major, 1994), and while social comparisons and comparisons of current and past transactions both evoke price fairness perceptions, their individual contribution remains uncertain (Ordóñez, Connoly, & Coughlan, 2000). Some authors (Wood, 1989; Major, 1994) propose that similar others are the most salient reference points in the transaction environment. Major and Testa (1989) similarly indicate that when people assess entitlement, the social comparisons play a larger role than comparisons with previous experiences. Moreover, Austin, McGinn, and Susmilch (1980) state that social comparisons are the only relevant reference points in judging fairness. Social comparisons and comparisons to previous prices both link well with equity theory's broadly applied theoretical framework (Adams, 1965). That theory's main premise states that individuals evaluate the ratio between their own investment and its respective

return, parallel to the ratio of the investment and return of another party enlisted in the exchange (Martins & Monroe, 1994). Any significant difference between both ratios in favor of one or the other party leads to perceptions of unfairness. First research hypothesis therefore reads: H1. The social comparisons have the largest influence on price fairness perceptions. However, there is no consensus on the wider scope of such perceptions' consequences, albeit several authors agree on the influence that price fairness perceptions have on the intention to buy (Huppertz et al., 1978; Campbell, 1999; Maxwell, 2002; Bolton et al., 2003), negative word of mouth, complaints and loss of trust (Xia et al., 2004), dissatisfaction (Oliver & Swan, 1989; Hermann et al., 2007), and negative perceptions of product value (Martins & Monroe, 1994). The full range of consequences appears unaccomplished. The aim of the present research is to explore how customers react to prices they perceive as unfair in light of various reference points. Therefore, the present study focuses on empirical research of theoretical propositions by Xia et al. (2004). They suggest that the severity of repercussions may increase as the intensity of perceived price unfairness increases. Their explanation is based on the motivational role of emotional responses connected to the cognitive comparison between given prices. Emotions stimulate a behavioral response towards one of the following goals: financial self-protection, monetary compensation, and coping with negative emotions. Generally, emotions facilitate the value assessment of environmental stimuli (Cardinal, Parkinson, Hall, & Everitt, 2002), thus helping us form an appropriate response to the situation at hand or, as Lazarus (1991) states, the appraisal of the stressful event leads an individual to employ an appropriate coping strategy. Furthermore, Bougie, Pieters, and Zeelenberg (2003) indicate that different types of emotions promote different types of (re)actions. Price fairness research presents several types of emotions resulting from unfair price perceptions: disappointment, sadness (Xia et al., 2004), anger (Bougie et al., 2003), and guilt (Martins & Monroe, 1994). Behavioral reactions can be classified into three groups (Xia et al., 2004): (1) no action, (2) self-protection, and (3) revenge. Customers do not engage (Yi & Baumgartner, 2004) when they perceive price difference as slightly unfair, or they assume that reacting would not benefit them in any way (Urbany, Madden, & Dickson, 1989). Their only goal is to cope with negative emotions, sometimes through negative word of mouth. With higher perceived unfairness, customers experience regret or disappointment. In their effort to achieve some monetary compensation or self-protection from exploitation they confront (Yi & Baumgartner, 2004) by complaining, requesting refunds, spreading negative word of mouth, and cutting ties with the seller in some cases (Xia et al., 2004). The most severe perceptions of price (un)fairness arguably lead to angry feelings and even vengeful behavior (Xia et al., 2004), which incorporates a behavioral intention to act against the offender (Bechwati & Morrin, 2003). Kahneman et al. (1986) show that consumers sometimes turn to actions that might also harm themselves, as long as they damage the other party. Bougie et al. (2003) explored such examples, finding that such behaviors include aggressive reactions, even vandalism. Angry feelings may also lead to negative reinforcement behavior (Lazarus, 1991). Based on these findings, the second hypothesis states that: H2. The intensity of price fairness perceptions is positively related to the severity of behavioral repercussions. The influence of socioeconomic characteristics on price fairness perceptions is an extremely understudied area. Some studies report trends towards gender differences in price fairness perception (Brody, 1984; Witt & Nye, 1992), noting that women are more susceptible to such perceptions. This difference occurs due to gender differences in information processing (Darley & Smith, 1995), though other explanations based on inequality experiences might be relevant. The review of the existing


literature surprisingly reveals no investigations into the influence of an individual's income level, albeit Xia et al. (2004) incorporated price acceptability into their definition of the concept, and some authors radically state that price acceptability is actually key to price fairness perceptions (Messick & Sentis, 1983; Lichtenstein, Bloch, & Black, 1988). Although it is appropriate to assume that price acceptability is a viable element of price fairness, researchers should withhold from equating the two since low price is not necessarily acceptable, reasonable, or fair. Due to the nature of price fairness perceptions and their relationship to the acceptability of price difference, the paper addresses next two hypotheses: H3. Customers' income levels affects the perceived price fairness. H4. Customers' income levels affects the agreeability with negative shopping behavior.

2. Methods The research sample comprises 288 participants (F = 78%) with an average age of 26 years (SD = 7.54) and represents a convenience sample collected via e-mail distribution of research instruments. Due to the study's experimental nature and exploratory purpose, the available sample enables some viable conclusions. Respondents are randomly assigned to five groups according to their date of birth. Table 1 presents the demographic characteristics for each group. The experimental design is based on different shopping scenarios, a common research method for price fairness studies (e.g., Kahneman et al., 1986; Urbany et al., 1989; Bolton et al., 2010). The participants evaluate the presented scenario, which varies the type of reference price or, in the case of the control group, its availability. After reading the scenario, participants assess the acceptability, reasonability, and fairness of the respective price differences and later provide their level of agreement with various types of shopping behaviors. Scenario example: In front of you is a shirt of some manufacturer that is sold in some stores (the shirt's brand and the store's name are not presented; please avoid guessing both names). You like the shirt and are deciding to buy it. [Five years ago] the price of the same shirt at the same store was 9.59 €; today's price is 14.49 €. Other types of reference prices are the price one year ago, the price paid by a stranger, and the price paid by a friend; the control group has no reference price. All the tasks described next apply to the scenarios. This product choice is deliberate. A shirt at this price is classified as a convenience good (Copeland, 1923), and any noticeable effect for such a product should, therefore, be reflected in higher values for preferential, shopping, and specialty goods. Used product also transcends the gender and age obstacles, since both males and females, whether young or mature consumers, make buying decisions. First, participants give their assessments of price fairness on a 3-item price fairness scale comprising fairness, acceptability, and reasonability. The sum of all grades on individual 7-point scales represents the general measure of price fairness. Participants then assess the viability of a list of shopping behaviors that cover the three groups of behavioral

Table 1 Descriptive statistics for variables gender and age for control group and four experimental groups.

Gender

Age

Male

CG 16 (30.2%)

EG1 12 (18.2%)

EG2 9 (16.1%)

EG3 14 (24.6%)

EG4 12 (21.4%)

Female

37 (69.8%)

54 (81.8%)

47 (83.9%)

43 (75.4%)

44 (78.6%)

M SD Min Max

25.5 7.3 19 51

25.9 6.4 20 50

26.7 7.0 20 51

27.0 9.5 20 58

26.1 7.4 20 56

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consequences of price fairness perceptions (Xia et al., 2004). Exploratory factor analysis reveals that eight buying behaviors from the initial list classify into three groups: no action, self-protection, and revenge. Table 2 displays the loadings for each variable and the reliability coefficients.

3. Results The descriptive statistics provide a general overview of the data. The results show that the average value of fairness is 2.8 (SD = 1.41); average acceptability is 3.0 (SD = 1.48); and reasonability of price differences is averaged at 2.9 (SD = 1.54). The average of the general price fairness score is 8.6 (SD = 3.87). Table 3 presents the averages of total price fairness scores for each participant group. The average values show informative differences between the groups. Despite expectations, the control group is not the highest scoring group. A reference price from five years ago (EG1) actually improves price fairness perceptions in comparison to the control group. Conversely, the reference price paid by a friend (EG4) suggests the highest negative effect on price fairness perception. Further exploration with t-test for independent samples reveals that none of the visible differences in general scores of price fairness perceptions between groups meet the statistical significance criteria. The following analysis focuses on the shopping behavior questionnaire. The averages show that the respondents agree more with some behaviors than with others: e.g., “I would buy a shirt” (M = 5.3), and “I would still shop in this store” (M = 3.8) score the highest, while the item “I would file a complaint to the store manager” (M = 1.4) achieves the lowest average value. Correlational analysis using Pearson's r coefficient reveals that the average scores on the price fairness scale significantly correlate with the items on the shopping behavior questionnaire. The results thus suggest connections between price fairness perceptions and buying intentions (r = .61; p b .001), future shopping intentions (r = .44; p b .001), and negative correlations present in the cases of moving on to the seller's direct competition (r = −.30; p = .001) and negative referrals of the seller to others (r = −.251; p b .001). Next is a general overview of the total shopping behaviors scale scores for each group of variables. Each of those factors correlates significantly with price fairness scores with an apparent trend: the only positive correlation exists between the group no action and price fairness (r = .65; p b 0.01); self-protective behaviors correlate negatively with price fairness (−.13; p b 0.05); and a moderate negative correlation exists between vengeful acts and price fairness scores (r = −.32; p b 0.01). Researching the effect of personal income on price fairness perceptions, a one-way ANOVA shows that people with below average, average, and above average personal income significantly differ on each individual item of price fairness perception scale as well as on a general measure of price fairness perceptions (F = 9.27; p b 0.001). Respondents with below average income report lower levels of price fairness (M = 7.7; SD = 3.30) compared to those with average (M = 8.6; SD = 3.78) and above average incomes (M = 10.4; SD = 4.46). Additional comparisons of individual respondent groups with t-test reveal that only the comparison of groups with below average and average income does not yield satisfactory levels of statistical significance (after applying Bonferroni correction). Further inspection on how perceived price fairness affects agreement with different types of behavior among respondents with different income levels shows that differences do exist, as Table 4 displays. A further investigation using Fisher r-to-z transformation confirmed the significance of only one difference between the correlations from Table 4. In the case of No action behaviors, Pearson's coefficients differ significantly between respondents with below average and average income (z = − 1.7; p b 0.05).

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.70

to price differences and generally perceive price differences as more fair, as do people with lower personal income. They are also more passive compared to people with lower personal income in their reactions to perceived price (un)fairness. Martins and Monroe (1994) postulate that income levels can be viewed as relevant factors but only in the light of the social comparisons process. Hence, findings suggest that personal income affects not only the comparison process but also customers' price fairness perceptions and their consequential behavior. Nevertheless, while this may be true for convenience products, such as T-shirt, a choice of a different product at a higher price and involvement may lead to different results.

.43

4.1. Limitations and practical implications

Table 2 Principal axis factoring analysis results of shopping behavior questionnaire. Factor

Variable

Loadings Cronbach α

No action

I would buy the shirt. I would keep shopping at the seller. Self-protection I would file a complaint to the staff. I would file a complaint to the store manager. I would demand an explanation for the price difference. Revenge I would advise others not to shop at the seller. I would spread negative word-of-mouth about the seller. I would make my future purchases at sellers' direct competition.

.62 .58 .80 .70

.60 .74

.68 .85

.73

4. Discussion This paper addresses the issue of price fairness perceptions from both their antecedents and their consequences, incorporating income level as another plausible factor. One main finding is that shopping behaviors resulting in price fairness perceptions can be classified into three behavior groups: no action, self-protective, and vengeful. The results also verify that the severity of behavioral repercussions towards the seller increases with the increase of perceived price (un)fairness. However, the findings cannot confirm the proposition that social comparisons play a highly influential role in the development of price fairness perceptions. Though results indicate such a trend, the acquired results do not match the statistical significance criteria. The largest effect appears when consumers compare their price with the price paid by their friend but not when a stranger pays the reference price. When customers face a price higher than what they paid several years ago, the perceived price fairness increases, despite the situation of disadvantaged inequality. However, this only appears in the condition of reference price from five years ago and not with the reference price from one year ago. Bolton et al. (2003) note that this may be due to consumers considering inflation when assessing the price changes. Regarding income level, present results show that people with different income levels differ in both their price fairness perceptions and their admission of negative behaviors. However, the only significant, observable difference seems to happen when people with below average income, on the one hand, and people with average income, on the other hand, perceive price difference as fair—the correlation between perceived price fairness and shopping intentions is significantly lower. Other differences exist but remain debatable. Study's findings contradict previous assumptions. Regarding past prices, price fairness perceptions actually improve with time. Yet results suggest that social comparisons appear as the factors most relevant to negative price fairness perceptions, although this holds true only in situations when people compare the observed price with the price paid by someone close to them. An important contribution of present research is its conclusion that personal income affects both price fairness perceptions and the judgments of appropriateness of repercussions towards sellers. People with higher personal income appear to be more desensitized

Table 3 Average values for general measure of price fairness, compared by control and experimental groups. M CG—control group EG1—price five years ago EG2—price one year ago EG3—price paid by stranger EG4—price paid by friend

8.87 9.65 8.07 8.86 7.71

SE .61 .47 .49 .45 .53

Presented contributions have some limitations. First, research focuses on assessments of objective price differences, thus neglecting the subjective connotations of price (Zeithaml, 1988). In many exchange relationships, all parties face certain risks and efforts that often exceed the monetary sacrifice needed to acquire a certain product. Second, price fairness research faces a multitude of implicit theories on what price fairness actually represents. Price fairness perceptions link to several other concepts, for example, price satisfaction (Gilliland, 1994) and price levels (Messick & Sentis, 1983; Lichtenstein et al., 1988). Oliver and Swan (1989) also assert that the subjectivity of price fairness comparisons contradicts the general definition of what fairness actually is. The present research aims to overcome such obstacles by measuring different aspects of fairness, although this solution's scope remains unclear. Another limitation lies in the restricted ability to evoke comparisons of observed prices with previous prices of the same products. The availability of exact numerical prices from previous years is a rarity in consumer experience. This forces consumers to use remembered appraisals of past prices (Monroe, 2009). However, this may also change in the future with an increasing empowerment of customers through information accessibility and resulting price transparency. Sample size, gender distribution, and online data collection also leave some room for improvements, although they can be partly attributed to study's exploratory and experimental nature. The choice of a central product also aims to transcend the gender differences since both male and female customers buy such products in a similar fashion (Otnes & McGrath, 2001). Price fairness research gains relevance due to the expansion of dynamic pricing applications throughout the business world, and both marketing researchers and practitioners should focus on finding answers to the questions raised by such differential techniques. An understanding that social comparisons evoke higher perceptions of price (un)fairness illuminates the danger of not differentiating prices correctly for different consumers (e.g., the elderly and the young; regular and occasional consumers; students and the labor force). Also, consumers may consider inflation when comparing prices over time, though such comparisons should be done between prices distributed over longer, rather than shorter, periods of time. Both suggestions follow the main finding of the study, showing that different intensities of price fairness perceptions lead to different types of behavioral reactions, ranging from complaints to severing ties with the seller or even turning to their direct competition. Table 4 Pearson coefficients for total scores on price fairness scale and shopping behavior scales grouped by personal income of participants.

SD 4.45 3.82 3.65 3.40 3.99

Below average Average Above average

N

No action

Self-protection

Revenge

71 172 45

.50⁎⁎,⁎ .66⁎⁎ .67⁎⁎

−.05 −.13 −.12

−.41⁎⁎ −.33⁎⁎ −.17

⁎⁎ Correlation is significant at the 0.01 level (one-tailed). ⁎ Correlation is significant at the 0.05 level (one-tailed).


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