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Journal of Revenue and Pricing Management

, Volume 17, Issue 4, pp 276–290 | Cite as

How do consumers react to price reduction of innovative products? An empirical investigation of price fairness perceptions of past purchase

  • Waheed Kareem Abdul
Research Article
  • 164 Downloads

Abstract

This study focuses on consumers’ price fairness perception of past purchase (PFPoPP) in situations of price reduction of innovative consumer durables. The proposed model of the study includes perceived firm innovativeness (PFI), perceived loss of uniqueness (PLU) and customer justification for price reduction (CJ) as antecedents to PFPoPP and, brand loyalty (BL) and positive word of mouth (PWoM) as outcomes. A survey was conducted among 202 consumers who own a smartphone and the data were analysed using partial least squares structural equations modelling (PLS-SEM). The findings suggest that PFI and CJ positively associate with PFPoPP and PLU negatively associates with PFPoPP. Furthermore, the findings also suggest that PFPoPP positively associates with BL and PWoM. The study contributes to the price fairness perceptions research from a post-purchase perspective and implies that the firms in innovative consumer durable industry need to identify appropriate conditions for price reduction.

Keywords

Innovative consumer durables Conspicuous consumption Price fairness perceptions Post-purchase evaluations Perceived firm innovativeness 

Introduction

The firms in innovative consumer durable (particularly consumer electronics) industry follow the practice of price reduction of their new products within a short period of its introduction. A study conducted among a few brands of smartphones shows that an average price reduction of about 41% occurs within 4 months of introduction of the product (Tofel 2012). When a new model of smartphone from a popular brand is introduced, some consumers compare, evaluate and buy that brand of smart phone immediately. Had this group of consumers had a low price guarantee, they would have tended to actively search for information about the price of the product that they purchased (Srivastava and Lurie 2001; Dutta and Biswas 2005). Otherwise, they may not actively search for price information. However, if this group of consumers discover price reduction through their friends’ or relatives’ network within a short period of time, they may perceive that the firm has cheated them with a higher price (Dutta et al. 2011). This paper broadly highlights the consumers’ post-purchase perceptions with respect to price.

A plethora of research studies on post-purchase evaluations have focused on consumer satisfaction/dissatisfaction and for the past three decades have generally adopted the disconfirmation theory approach wherein consumers’ prior expectations are compared with post-purchase perceived product performance and post-consumption perceived service performance (Oliver 1980; Olson and Dover 1979; Cadotte et al. 1987). In these research studies, product and service quality attributes of purchases were examined against product and service performances, respectively; however, one important attribute of post-purchase evaluation is price, which has largely been ignored (Zielke 2008; Lymperopoulos et al. 2013). The consumers evaluate the post-purchase value of a product/service not only on the basis of prior circumstances but also on the basis of current circumstances (Oliver 1981). For example, a consumer buys an innovative branded durable product for $1000 at the time of purchase (T1) and when the same branded product is available in the market for $700 after some time (T2), his/her value perception towards the product that he/she possesses gets diminished. The extant research on post-purchase evaluations has not adequately emphasized on this phenomenon except for a few researchers (e.g. Dutta et al. 2011; Fujikawa et al. 2004; dos Santos and Basso 2012; Lymperopoulos et al. 2013).

Research in the area of pricing provides adequate insights into how consumers evaluate price before purchase, but it does not explain how consumers evaluate price after purchase. Particularly, previous research on price fairness perceptions focused mainly on price fairness perception of future purchase in situations where the prices of consumer durable and non-durable goods increases (Martins and Monroe 1994; Campbell 1999a, b; Xia et al. 2004; Kwak et al. 2015; Kuester et al. 2015). These research studies have broadly identified how price fairness perceptions are formed, how consumers attribute motives for price increase and also identify the outcomes of these price fairness perceptions as purchase intentions. Research in price fairness perceptions has inadvertently ignored the situation of price reduction of past purchases.

This study empirically examines how consumers perceive their past purchase of innovative consumer durable goods with respect to price, specifically when the consumers are aware that the price of their past purchase has reduced. The study attempts to identify the factors that affect price fairness perceptions of past purchase (PFPoPP) and its outcomes when there is a reduction in price. A handful of research studies have been conducted in this area (For example, Huang et al. 2005; Ashworth and McSahne 2012). This paper proposes a conceptual model of PFPoPP with justifications from extant literature. The paper also describes the validation of the proposed model with data collected from a survey conducted among smartphone consumers who are currently aware that the price of their past purchase has reduced. At the end, this paper also discusses the theoretical and managerial implications of these findings.

Conceptual model development

The price fairness perceptions are formed by comparing internal reference price with the actual price of the product (Martins and Monroe 1994; Campbell 1999a, b; Xia et al. 2004). The internal reference price refers to a “point on the internal judgment scale that is used as the standard to judge offer prices” (Thomas and Menon 2007, p. 402). The internal reference price is derived on the basis of past price from the same seller and the competitor’s price (Martins and Monroe 1994; Campbell 1999a, b; Xia et al. 2004). In the situation of price reduction of past purchase of innovative consumer durable goods, the consumers’ PFPoPP is formed by comparing the current market price of the product that they had purchased earlier and the internal reference price is nothing but the price paid earlier for the past purchase.

There can be two types of assumptions on how consumers feel when a new model’s price is reduced within a very short span after its purchase. The first assumption is that the consumers may find this practice to be a bit unfair and may feel disappointed and cheated. They might also consider that the reduced price would enable all the people to afford that particular model and as a result that model loses its exclusivity. The second assumption is drawn from another practice of firms in the smartphone industry, that is, the introduction of new models at short intervals and reduce the price of older models (Woyke 2014). This practice may make the consumers perceive that the firm is innovative and they may find this price reduction acceptable. The overarching framework of this research takes both these assumptions into consideration. The early buyers who have already purchased a durable product would assess the value of their product on both functional and image benefit standpoint under current circumstances as customer satisfaction assessment is a dynamic phenomenon that changes over time (Oliver 1981; LaBarbera and Mazursky 1983; Cooil et al. 2007). Initially, the early buyers might have seen value in buying the product with higher price and as and when this group of consumers notice a price reduction, they may not possess the same value assessment. Figure 1 shows the proposed conceptual model of antecedents and outcomes of PFPoPP in situations where price of past purchase reduces. Our study focuses on innovative consumer durable products, which is conspicuous in nature (Gierl and Huettl 2010; Hennighausen and Schwab 2014). The value assessments of these conspicuous products under current circumstances can be more in relation to image benefits even though the product still performs well (Page 1992; Han et al. 2010). In situations of price reduction of these conspicuous products, value assessments of image benefits include how well the firm keeps up its brand image by being innovative, extent of not losing its uniqueness and how well the consumers defend the firm for the price reduction. To capture this phenomenon, a well-known construct known as consumer perceived firm innovativeness (PFI) and two new constructs namely consumer perceived loss of uniqueness (PLU) and customer justification for price reduction (CJ) were introduced as antecedents of PFPoPP. On the consequences side of the model, the PFPoPP should impact consumer brand loyalty (BL) and positive word of mouth (PWoM) behaviour, which could also take place when there is no price reduction.
Fig. 1

Conceptual model of price fairness perceptions of past purchase in the situation of price reduction

Antecedents of PFPoPP

Perceived firm innovativeness (PFI)

Apart from several product-level attributes that influence a consumer’s purchase decision, a general firm-level attribute such as consumer’s perception of firm innovativeness also generates positive evaluations towards the firm, which consequently affect the consumer’s purchase decision and post-purchase behaviour (Fu and Elliott 2013; Kunz et al. 2011). The PFI is defined as ‘consumer’s perception of an enduring firm capability that results in novel, creative, and impactful ideas and solutions’ (Kunz et al. 2011, p. 816). As PFI is a firm-level characteristic, consumers not only attribute it towards the purchased product but also with other products produced by the firm. The PFI acts as a cue for other attributes of the firm to add predictive and credence value towards the firm. It also specifically indicates product quality perceptions and trustworthiness towards the firm. If consumers have high levels of PFI, they believe that the firm ‘has expertise to perform the job effectively and reliably’ (Kunz et al. 2011, p. 816). The PFI includes consumers’ perception towards firm creativity and it provides an emotional value of excitement (Henard and Dacin 2010; Kunz et al. 2011).

The PFI enhances corporate brand reputation and image (Henard and Dacin 2010) and justifies the reason why consumers pay high price for the goods (Fu and Elliott 2013). The PFI is developed on the basis of consumers’ experiences with the product and their expectations from the firm’s future innovations (Boone et al. 2001). Therefore, firms actively advertise the innovative aspects of their products and processes and introduce innovative products at regular intervals. They also continuously work on future technologies and showcase their work in exhibitions, which would in turn generate positive publicity.

Previous research has shown that PFI enhances post-purchase evaluations such as customer satisfaction and loyalty (Henard and Dacin 2010; Kunz et al. 2011). However, previous research has ignored the role of change in price of past purchase while examining the effect of PFI on customer satisfaction and loyalty. This study contends that even in situations where consumers are aware that the price of their past purchase has reduced, the consumers having a higher PFI towards the firm would still continue to have similar fairness perceptions as before the price reduction. This is because the firm is perceived to be high on innovativeness with the expectation that it would provide sufficient opportunities to upgrade to a new technology with another innovative product (Rao and Schaefer 2013). Specifically, if consumers feel that the firm is high on innovativeness, then these consumers do not mind a price reduction because their focus is on the firm’s next innovative product. Therefore, even in the scenario of price reduction of past purchase, the PFI will have positive association with PFPoPP. In the scenario of no price reduction, it is needless to say that the PFI shall have positive association with PFPoPP.

Hence,

H1

In situations where consumers are aware that the price of their past purchase has reduced, higher levels of perceived firm innovativeness leads to higher levels of PFPoPP.

Perceived loss of uniqueness (PLU)

Veblen (1899) prescribed a notion through his theory of conspicuous consumption that individuals buy certain highly priced goods and services to display their level of affordability. The conspicuous consumption characterizes two types of effects. These are bandwagon effect and snob effect (Leibenstein 1950). In the bandwagon effect, individuals indirectly communicate their wealth and presence through membership in elite groups that provide greater social status. The snob effect represents individuals who dissociate themselves from others who are of lower social status (Leibenstein 1950). It is also studied as a construct, that is, consumer’s need for uniqueness, and is identified as an individual-level trait (Brewer 1991; Fromkin and Snyder 1980; Tian et al. 2001; Amaldoss and Jain 2005). The bandwagon effect is further studied as a construct, that is, need for conformity or assimilation (Jones 1984; Ross et al. 1976; McGuire 1968; Tian et al. 2001; Clark and Goldsmith 2005; Tepper and Hoyle 1996) and is also identified as an individual-level trait (Tian et al. 2001). Although extant research considers need for uniqueness and need for conformity to be competing with each other, it ignores the original notion that both these needs are directed towards conspicuous consumption. Consequently, the consumer’s need for uniqueness construct is treated as a need to be different from others and a need for conformity construct is treated as the consumer’s need to be like everyone else (Ruvio 2008). Therefore, both these needs are studied separately. Extant research on both these needs ignores the fact that conspicuous consumption is seen in wealthy individuals who want to display their wealth. This motivation to conform to people with greater social status also distinguishes them from people of lower social status. Lynn and Harris (1997, p. 611) suggested that ‘people need to fit in and belong as well as be distinctive and unique. Apparently, people who satisfy one of these needs through consumer products also use consumer products to satisfy the other need’. Ruvio (2008) has demonstrated that ‘consumer’s need for uniqueness enables individuals to fulfil their needs for assimilation and differentiation simultaneously’ (p. 448). Therefore, this study focuses on the need for uniqueness considering that the need for assimilation is also achieved by the same act.

As mentioned above, the previous research suggests that the need for uniqueness is an individual-level trait (Tian et al. 2001; Ruvio 2008). However, one can observe that among the consumers of conspicuous goods, the uniqueness perceptions may vary according to the situation that each consumer faces. Therefore, this study contends that each consumer perceives different level of uniqueness in every conspicuous consumption and considers it as a construct based on consumer perceptions of loss of uniqueness when the price of past purchase is reduced.

The consumers who have conspicuous consumption motivation buy luxury brands, innovative electronic gadgets, fashion apparel, watches, cars, jewellery, perfumes, etc., to exhibit their uniqueness (Amaldoss and Jain 2005). To maintain uniqueness, the firms that market these conspicuous goods engage in exclusive distribution by restricting the availability of their products (Tereyagoglu and Veeraraghavan 2012; Wu et al. 2012; Lim 2009). They do not sell these products through Internet and tend to advertise them only in select magazines (Wu et al. 2012; Lim 2009). To adopt scarcity strategies, the firms also introduce limited-edition products. Amaldoss and Jain (2005) found that the demand for high quality luxury goods increases as price increases among consumers who desire uniqueness. Extant research in consumer’s need for uniqueness implies that the price of conspicuous goods should not be lowered as this practice leads to reduction in sales (Choo et al. 2012). Lowering of price reduces the uniqueness of the conspicuous goods as it enables individuals with lower income or social status to afford these products (Han et al. 2010).

Although extant research suggests that the consumers achieve uniqueness through different ways, the fundamental aspect of conspicuous consumption is attaining uniqueness by paying higher price (Rao and Monroe 1989; Lichtenstein et al. 1993; Choo et al. 2012). Consumers of conspicuous goods perceive price reduction of their past purchase negatively as this action of the firm allows people from lower income or social status to afford the same product. As a result, such action of the firm affects the uniqueness of their conspicuous consumption (Dubois and Duquesne 1993; Monkhouse et al. 2012). Therefore, if conspicuous consumers perceive loss of uniqueness due to price reduction of their past purchase of conspicuous goods, they perceive this price reduction as unfair.

The consumers who have bought a smartphone with a higher price than others have a uniqueness motive in their choice. They also have a social identity motive with the aspiration of being in the elite group of consumers who have bought the particular smartphone earlier with a higher price tag (Niedrich et al. 2001; Han et al. 2010). Such feelings of social identity and uniqueness get affected when the consumers who paid a relatively lesser price are also able to own the same product (Niedrich et al. 2001; Han et al. 2010). The consumers feel the uniqueness of their purchased product gets reduced as many people are able to afford it because of its price reduction. In this scenario, the consumers perceive that the value of their purchase is reduced. This way, the consumers’ price fairness perception of past purchase gets negatively affected.

Hence,

H2

In situations where consumers are aware that the price of their past purchase has reduced, higher levels of perceived loss of uniqueness leads to lower levels of PFPoPP.

Customer justification for price reduction (CJ)

According to attribution theory, individuals spontaneously infer underlying reasons for the occurrence of a perceived event (Heider 1958; Kelley 1973). The causal inference is considered to be a cognitive activity and occurs in negative events rather than positive events as people are not comfortable in continuing in unpleasant states (Weiner 1985). The consumers who have bought a smartphone at a certain price, when they realize that the same smartphone is now available at a reduced price, would consider the firm’s action to be negative. This negative feeling would be because they perceive a sense of loss in the value of their purchase due to a price reduction of their smartphone (Dutta and Biswas 2005; Niedrich et al. 2001; Han et al. 2010). Some consumers would like to avoid such unpleasant situations in the future and may spontaneously gather information about the happenings and developments in the industry and try to infer the firm’s motives for price reduction. Consequently, some of these consumers may justify the firm’s action for price reduction and this attribution may end with accommodating the unpleasant situation (Michela and Wood 1986). This study contends that when the consumers tend to justify price reduction, their PFPoPP gets enhanced.

A study by Campbell (2007) explored the impact of consumers’ inferred motives for price reduction before purchase on price fairness perceptions. In this study, she notes that consumers perceive price reduction before purchase to be a positive event as they would be happy with the price reduction of the product that they intend to buy. She did not find any significant effect of inferred firm motives of price reduction on price fairness perceptions. Studies conducted by Campbell (1999b, 2007) have also investigated consumers’ inferred firm motives where price increase before purchase is perceived to be a negative event. These studies have found that consumers’ inferred firm motives for price increase affected price fairness perceptions.

Furthermore, previous research has also confirmed that some consumers would be more tolerant and would defend a firm’s action even after some controversy or a negative event if they love the brand due to a very positive brand experience (Huber et al. 2010; Tang, 2005; Turri et al. 2013; Aaker et al. 2004). This might also be because the consumers might have had lengthy relationship with the brand and are part of the brand community and engage in brand advocacy (Hui et al. 2011).

Hence,

H3

In situations where consumers are aware that the price of their past purchase has reduced, higher levels of customer justification for price reduction leads to higher levels of PFPoPP.

Consequences of PFPoPP

The consumers develop fairness perceptions when the price of a past purchase is reduced. These fairness perceptions are different from the fairness perceptions which the consumers had developed at the time of purchase. These differences in perceptions of fairness are especially seen when innovative durable goods are bought (Niedrich et al. 2001; Han et al. 2010; Choo et al. 2012). This change in price fairness perceptions indicates diminished value perceptions of the past purchase (Cote et al. 1989). The consumers experience regret because of reduction in value perceptions (Lee and Cotte 2009) which further causes trust violations towards the seller and reduces satisfaction and repurchase intentions (Dutta et al. 2011). Fujikawa et al. (2004) studied the role of betrayal in consumers’ post-purchase reactions to cross channel (e.g. stores, websites, catalogues) price differences and found that the betrayed customers engage in exiting the relationship and spreading negative word of mouth (WoM) as they perceive the firm had violated the psychological contract that it had with them. Similarly, dos Santos and Basso (2012) have empirically investigated the consequences of consumer unfairness perceptions towards Internet service providers in situations where they provide attractive discounts to new customers in comparison to old customers. They found that such consumer unfairness perceptions generate trust violations and negative emotions which further leads to negative WoM and switching intentions. Therefore, this study contends that PFPoPP shall positively affect brand loyalty and positive word of mouth (PWoM) intentions in situations where price of past purchase is reduced. This study also contends that when there is no price reduction or price increase of past purchase, PFPoPP shall positively impact their brand loyalty and PWoM intentions.

Hence,

H4

PFPoPP positively impacts brand loyalty.

H5

PFPoPP positively impacts PWoM intentions.

The study

Measures

All measures for the constructs of the study were adopted from previous research except for two constructs which are consumers’ perceived loss of uniqueness (PLU) and justification for price decrease (CJ). The PFPoPP was measured using a five-item scale developed by Martín-Consuegra, Molina and Esteban (2007) that was drawn from Campbell’s (1999a, b) and Kimes’ (1994) work. The perceived firm innovativeness was measured using a seven-item scale developed by Kunz et al. (2011). The positive word of mouth (PWoM) intentions construct was measured by a two-item scale developed by Xia and Monroe (2010) and a two-item scale to measure repurchase intentions was drawn from Xia and Monroe (2010). The measures such as PLU and CJ were specifically developed for this study as these constructs have not been conceptualized in extant research. This study was conducted in the United Arab Emirates wherein most of the consumers buy smartphone directly from the retailers as they are not locked with a particular brand of smartphone provided by the telecom service provider. The smartphone was chosen as a stimulus for the study since this product is used by all consumers and is generally considered an innovative product and also signals conspicuous consumption. Previous research has also used smartphones as stimulus for innovative products (e.g. Aroean and Michaelidou 2014; Shams et al. 2015; Pappu and Quester 2016) and for conspicuous consumption (e.g. Gierl and Huettl 2010; Rao and Schaefer 2013; Hennighausen and Schwab 2014; Wang and Griskevicius 2014).

The initial scale items were developed using relevant literature and a small focus group of consumers. The initial list included four items for PLU scale and seven items for CJ scale. These measures were assessed by two steps. Firstly, two marketing professors were asked to assess the content and face validity of these measures. Secondly, this step was followed by a pilot study with 36 respondents and the responses were subjected to validity and reliability tests. Items of these two new constructs are presented in Table 1. The Table 1 also provides results of reliability and validity analysis of pilot study conducted using IBM SPSS 20.0. Initial reliability tests of CJ and PLU resulted in Cronbach Alpha of 0.30 and 0.40, respectively. Using ‘Alpha if item deleted’ option, three items of CJ construct and two items of PLU construct were removed. By this process, the final scale for PLU ended up with two items and a scale for CJ with four items with Cronbach Alpha of 0.77 and 0.70, respectively. These two constructs were further assessed for validity test using exploratory factor analysis, which is also presented in Table 1. All four items of CJ scale and two items of PLU scale were loaded together with their respective constructs with factor loading of more than 0.60 which suggests satisfactory convergent and discriminant validity. The scales of all the measures have a 7-point Likert scale with responses ranging from Strongly Disagree (1) to Strongly Agree (7). Table 2 shows items of all the measures used for the study.
Table 1

Reliability and validity testing for new constructs in pilot study

Indicators

Reliability test 1

Reliability test 2

Reliability test 3

Reliability test 4

Factor analysis

Alpha

Alpha if item deleted

Alpha

Alpha if item deleted

Alpha

Alpha if item deleted

Alpha

Alpha if item deleted

CJ

PLU

Customer justification for price reduction (CJ)

      

 1. The price reduction of this brand is fair as the cost of production has come down

 

0.66

 

0.68

 

0.66

 

0.72

0.82

−0.10

 2. The price reduction of this brand is fair as the prices of competitor brands of similar models has come down

 

0.62

 

0.64

 

0.64

 

0.71

0.74

0.24

 3. The price reduction of this brand is fair as the company needs to bring new model with advanced technology

 

0.57

 

0.59

 

0.57

 

0.64

0.85

0.19

 4. The price reduction of this brand is fair as its technology is becoming old

 

0.64

 

0.66

 

0.65

0.77

0.77

0.61

0.30

 5. I knew the price level for this brand will come down

 

0.69

 

0.67

0.71

0.77

    

 6. I usually accept changes in prices

 

0.64

0.70

0.71

      

 7. I have a good knowledge of price distribution in the mobile phone industry

0.68

0.70

        

Perceived loss of uniqueness (PLU)

       

 1. This brand of mobile phone loses its uniqueness when everyone could afford it

 

0.07

 

0.12

    

0.16

0.83

 2. This is a premium brand of mobile phone for selected people only

 

0.26

0.33

0.70

   

0.11

0.88

 3. I feel happy to see others who paid lesser price than me carrying this brand (R)

 

0.33

0.54

0.70

      

 4. It is unfair that two mobile phone users of the same brand and model but have paid different prices

0.40

0.54

        

Eigen values

       

2.76

1.26

% of variation

       

46.06

20.93

Cum % of variation

       

46.06

66.99

Bold values signify that they are above the suggested cut-off value

Table 2

Measures of the study, outer loadings and cross loadings

Indicators/factors

PFI

PLU

CJ

PFPoPP

BL

PWoM

Perceived firm innovativeness (PFI)

   

 1. The company is dynamic

0.78

0.20

0.27

0.41

0.61

0.58

 2. The company is very creative

0.85

0.25

0.20

0.43

0.62

0.61

 3. The company launches new products and creates market trends all the time

0.83

0.28

0.29

0.43

0.58

0.57

 4. The company is a pioneer in its category

0.80

0.24

0.21

0.39

0.64

0.63

 5. The company constantly generates new ideas

0.90

0.23

0.27

0.51

0.72

0.72

 6. The company has changed the market with its offers

0.88

0.18

0.28

0.50

0.67

0.71

 7. The company is an advanced, forward-looking firm

0.89

0.25

0.32

0.48

0.73

0.75

Perceived loss of uniqueness (PLU)

   

 1. This brand of smartphone loses its uniqueness when everyone can buy it

0.15

0.88

0.12

−0.08

0.12

0.19

 2. This is a premium brand of smartphone, for selected people only

0.32

0.92

0.04

−0.09

0.25

0.31

Customer justification for price reduction (CJ)

  

 1. The price reduction of this brand is justified as the cost of production has come down

0.24

0.02

0.89

0.38

0.21

0.29

 2. The price reduction of this brand is justified as the prices of competing brands of similar models has come down

0.32

0.13

0.89

0.38

0.25

0.34

Price fairness perceptions of past purchase (PFPoPP)

 

 1. I paid a fair price for the smartphone

0.39

0.01

0.27

0.68

0.42

0.41

 2. A situation where whether it is fair that two people own the same brand and model of smartphone but have paid different prices

0.44

−0.11

0.32

0.83

0.36

0.37

 3. I consider the smartphone company’s pricing policy as fair

0.52

−0.08

0.41

0.87

0.43

0.49

 4. I consider the smartphone company’s pricing policy as ethical

0.40

−0.10

0.42

0.85

0.38

0.43

 5. I consider the smartphone company’s pricing policy as acceptable

0.32

−0.11

0.21

0.63

0.27

0.30

Brand loyalty (BL)

    

 1. I am very loyal to this brand

0.75

0.19

0.26

0.48

0.97

0.72

 2. I am very committed to this brand

0.74

0.22

0.23

0.45

0.96

0.72

Positive word of mouth (PWoM)

   

 1. I will recommend this brand of smartphone to other people

0.75

0.28

0.32

0.50

0.72

0.96

 2. I will tell more people how good the smartphone is

0.74

0.26

0.35

0.50

0.72

0.96

Bold values signify that they are above the suggested cut-off value

Data collection

The questionnaire was prepared in a Google document and the link was sent to the respondents through an e-mail with a request to participate in the survey. The survey was executed in the English language. The data were collected by an MBA student using the available students’ network. This questionnaire preceded filter questions that restricted the respondents who did not own a smartphone and who had no knowledge of price reduction of their smartphone. After a preliminary introduction of the questionnaire, the first question was ‘Do you own a smartphone?’, if they answered ‘yes’ to this question, the respondents were asked to answer the subsequent list of questions to determine their knowledge or awareness of price reduction of their brand and model of smartphone:

What brand of smartphone do you currently own?; Whether the brand of smartphone that you own is functional? Yes/No (If the answer is No, please terminate your participation); How many months ago did you buy this brand of smartphone?; What’s the price you paid?; Are you aware of the current price of the same model of the brand? Yes/No; If yes, what’s its current market price?; If No, do you think its price is reduced? Yes/No.

If respondents answer ‘No’ to the last question in the list, they were asked to terminate their participation in the survey.

E-mails with a link for questionnaire on Google document were sent to 513 respondents and among them 316 respondents agreed to participate in the survey. Within 2 weeks of mailing, 108 filled-in questionnaires were received. After 2 weeks, an e-mail reminder was sent to those respondents who agreed to participate but did not respond. Within 2 weeks after the first reminder, filled-in questionnaires from 91 respondents were received. A second e-mail reminder was sent to those respondents who agreed to participate but did not respond even after the first reminder. Within 2 weeks after the second reminder, responses from another 50 respondents were received. In this way, responses from 249 respondents were collected. Out of theses 249 responses, 32 were not considered as the respondents were not sure about the price reduction of their brand of smartphone and 15 responses were discarded as they were not in a usable form. Finally, the study had usable responses from 202 respondents.

The responses were checked for non-response bias by comparing the responses of respondents after 2 weeks of mailing, after the first and second reminders (Armstrong and Overton 1977) with one-way ANOVA among these three groups of responses. The results of one-way ANOVA suggested that there were no significant differences in the responses of the three groups on all items in the questionnaire.

Analysis

Profile of the respondents

The profile of the sample is provided in Table 3. All the respondents of the study were students at post-graduation level. The majority of the respondents (66.34%) were male and the mean age of the sample was 25.63. Samsung was the popular brand of smartphone among the respondents (22.77%), followed by Nokia (19.80%), Blackberry (16.83%) and Apple (14.36%). The average price paid by the respondents was AED. 1441 with a highest price of AED. 3000 and a lowest price of AED. 250. The average amount of price reduction was AED. 355 with a lowest price reduction of AED. 20 and a highest price reduction of AED. 1700. The average time since purchase of the smartphones at the time of study was 11.71 months with a standard deviation of 7.17.
Table 3

Profile of respondents

Male

66.34%

Female

33.66%

Age—mean

25.63

Price paid—mean

AED. 1442

Amount of price reduction—mean

AED. 356

Time since purchase—mean

13.41 months

Brand of smartphone owned—number of respondents (%)

Samsung

46 (22.77)

Nokia

40 (19.80)

Blackberry

34 (16.83)

Apple

29 (14.36)

HTC

13 (6.44)

Sony

12 (5.94)

Others

28 (13.86)

1 AED = 0.272234 US $ as on June 20, 2017

Common method bias

The collected data were subjected to common method bias assessment through the following two steps. In the first step, Harman’s one factor test was performed by constraining all the items of all the constructs to load with one factor with no rotation. The test extracted four factors and the first factor derived only 43.12% (<50%) of variance (Podsakoff 1986; Podsakoff et al. 2003). In the second step, an approach recommended by Podsakoff et al. (2003) was used. This approach includes the estimation of two CFA models with items of all first-order constructs of the study (Hulland et al. 2012). The first CFA model was estimated by only including first-order constructs. The second CFA model was estimated by including an additional single unmeasured latent method factor in the first CFA model by constraining all the items of all the constructs to connect with the latent method factor. This approach found that the significance of the structural parameters was not affected when common method factor was included in the model and it also suggested that there was no serious influence of common method bias in the study.

Measurement model

To validate both measurement and structural models of the study, instead of using the popular technique of covariance-based structural equations modelling (CB-SEM), the partial least squares structural equations modelling (PLS-SEM) was employed using SmartPLS (Ringle et al. 2005) software due to theoretical and methodological reasons (Hair et al. 2011, 2012a, b). The aim of this study was to extend the structural theory on price fairness perceptions in situations of price reduction for a consumer durable product and identify its antecedents and consequences. This is a sufficient theoretical reason for using PLS-SEM in comparison with CB-SEM (Hair et al. 2011, 2012a, b). PLS-SEM is considered to be a highly appropriate technique as it provides more flexibility when the model includes both reflective and formative constructs (Hair et al. 2011, 2012b). The formative measurement approach minimizes the overlap among a number of indicators measuring a construct, while reflective measurement approach maximizes the overlap among a number of indicators measuring a construct (Hair et al. 2016). As attribution theory suggests, customer justification for price reduction includes both internal and external reasons with limited overlap and therefore considered as formative measure. Rest of all the measures are reflective in nature. The PLS-SEM was used to validate the proposed conceptual model of the study as it includes one formative and five reflective constructs.

Reliability of the measures of reflective constructs is tested by internal consistency through the composite reliability and indicator loadings (Hair et al. 2011, 2012a, b). Table 4 provides the details of the Cronbach Alpha and composite reliability of all the reflective constructs which shows that all constructs exceeded the suggested minimum cut-off of 0.70. Table 2 shows the indicator loading with respective constructs which are found to be above the suggested minimum cut-off of 0.50 (Hair et al. 2011). The formative constructs are assessed for collinearity (VIF < 5.0) among the indicators and also for significance of indicator weights and loadings (Hair et al. 2011, 2012b). All indicator weights and loadings are subjected to significance test using bootstrapping procedure in SmartPLS (Ringle et al. 2005) with minimum samples of 5000 and number of cases equivalent to the sample size (n = 202) (Hair et al. 2011, 2012a, b). The bootstrapping procedure derives t-values of indicator weights and loadings. Indicator loadings of all reflective constructs were found to be significant at <0.01 level. The weights of two indicators of formative construct, CJ were found to be less than 0.5 and non-significant and therefore both these indicators were removed from further analysis. The VIF of all indicators of CJ were found to be <0.5 which establishes that there is no issue of collinearity among the indicators.
Table 4

Construct reliability, convergent and discriminant validity

Constructs

Cronbach alpha

Composite reliability

AVE

Inter-construct correlationsa

PFI

PLU

CJ

PFPoPP

BL

PWoM

PFI

0.93

0.95

0.72

0.85

     

PLU

0.78

0.90

0.82

0.27

0.90

    

CJ

   

0.31

0.08

    

PFPoPP

0.84

0.89

0.61

0.54

−0.09

0.43

0.78

  

BL

0.93

0.97

0.93

0.77

0.21

0.26

0.48

0.97

 

PWoM

0.92

0.96

0.93

0.78

0.28

0.35

0.52

0.70

0.96

Bold values signify that the square root of the AVE of the construct is more than its correlation with other constructs

PFI perceived firm innovativeness, PLU perceived loss of uniqueness, CJ customer justification for price reduction, PFPoPP price fairness perceptions of past purchase, BL brand loyalty, PWoM positive word of mouth

aSquare root of the AVE on the diagonal

All constructs were assessed for both convergent and discriminant validity. Convergent validity is tested using construct’s average variance extracted (AVE). The AVEs of all constructs are shown in Table 4 and they meet the minimum AVE cut-off of 0.50 (PFI = 0.72; PLU = 0.82; PFPoPP = 0.61; BL = 0.93; PWoM = 0.93). This confirms that the constructs used in the study have satisfactory convergent validity. The discriminant validity is assessed by Fornell–Larcker criterion. According to this criterion, the square root of the AVE of each latent construct should be higher than construct’s correlation with any other latent construct (Hair et al. 2011, 2012a, b) to pass discriminant validity test. The inter-construct correlations and square root of respective latent constructs are presented in Table 4. The results show that all the latent constructs have higher square root of AVE in comparison to their correlations with other latent constructs which confirms their discriminant validity. In addition, the discriminant validity of all the constructs is also confirmed by comparing the indicator loadings of a construct with its cross loadings (shown in Table 2) with other constructs (Hair et al. 2012b).

Structural model (hypothesis testing)

The structural model and the resulting hypotheses were examined on three aspects, namely, the explanatory power of the entire model, the predictive relevance and the predictive power of independent variable (Hair et al. 2011, 2012a, b). The explanatory power was assessed by R2 value which explains the variance in the endogenous variable by the exogenous variable(s). The predictive relevance is examined by Stone-Geisser’s non-parametric test (Geisser 1975; Stone 1974) that provides Q2 value. The Q2 value is derived by adopting blindfolding approach in SmartPLS (Ringle et al. 2005; Hair et al. 2011, 2012a, b). The Q2 value is required to exceed zero to confirm predictive relevance of the model (Hair et al. 2011, 2012a, b). Table 5 and Fig. 2 show results of structural model analysis. The model has three antecedent variables such as PFI, PLU and CJ and these exogenous variables explain 43% variance (R2 = 0.427) in the endogenous variable PFPoPP, which is considered to be strong (Hair et al. 2011) and has resulted in a Q2 value of 0.247. The model has two outcome variables for PFPoPP such as BL and PWoM. The PFPoPP explains 23% variance (R2 = 0.232) and 27% variance (R2 = 0.270) in BL and PWoM, respectively and resulted in Q2 value of 0.215 for BL and 0.248 for PWoM. Hair et al. (2011) suggest R2 of less than 0.25 as weak. This low R2 would be because the endogenous variables, BL and PWoM, could be influenced by several variables other than PFPoPP, more importantly product quality and service quality, which have not been included in our study. The purpose of our study is not to identify the variables that influence BL and PWoM and therefore a low R2 value is acceptable (Hair et al. 2011). The predictive relevance can also be considered to be strong as all the three Q2 values exceed zero.
Table 5

Summary of results of PLS structural models

Path

Hypotheses

Main effects model

Alternative full structural model with mediation effects

Hypotheses supported?

Path coefficients

t value

R 2

Q 2

Path coefficients

t value

R 2

Q 2

Sobel coefficients

PFI→PFPoPP

H1

0.52

7.85*

  

0.53

7.77*

   

Yes

PLU→PFPoPP

H2

−0.26

3.17*

  

−0.27

4.84*

   

Yes

CJ→PFPoPP

H3

0.29

4.96*

0.427

0.247

0.28

4.68*

0.429

0.261

 

Yes

PFPoPP→BL

H4

0.48

7.96*

0.232

0.214

0.11

1.75**

   

Yes

PFI→BL

     

0.71

15.24*

  

PLU→BL

     

0.03

0.54

    

CJ→BL

     

−0.02

0.28

0.61

0.553

  

PFPoPP→PWoM

H5

0.52

8.91*

0.27

0.248

0.16

2.49*

   

Yes

PFI→PWoM

     

0.64

10.18*

  

PLU→PWoM

     

0.12

2.15**

    

CJ→PWoM

     

0.08

1.52***

0.64

0.591

  

PFI→PFPoPP→BL

         

1.70**

 

PFI→PFPoPP→PWoM

         

2.38*

 

PLU→PFPoPP→BL

         

−1.64**

 

PLU→PFPoPP→PWoM

         

−2.22*

 

CJ→PFPoPP→BL

         

1.64**

 

CJ→PFPoPP→PWoM

         

2.20*

 

PFI perceived firm innovativeness, PLU perceived loss of uniqueness, CJ customer justification for price reduction, PFPoPP price fairness perceptions of past purchase, BL brand loyalty, PWoM positive word of mouth

p < 0.01 level; ** p < 0.05 level; *** p < 0.10 level

Fig. 2

Results of hypothesized PLS structural model

The significance of path coefficient establishes its predictive power (Hair et al. 2011, 2012a, b). The resultant structural model suggests a positive and significant influence of PFI (Path coefficient = 0.52 with t value <0.01 level) and CJ (Path coefficient = 0.29 with t value <0.01 level) and negative and significant impact of PLU (Path coefficient = −0.26 with t value <0.01 level) on PFPoPP and positive and significant effect of PFPoPP on BL (Path coefficient = 0.48 with t value <0.01 level) and PWoM (Path coefficient = 0.52 with t value <0.01 level). The assessment of the structural model on all the three aspects confirms that the hypotheses of the study are well supported.

Table 5 and Fig. 3 provide the details of alternative full structural model to test the mediation effects of PFPoPP. The explanatory power of three endogenous variables of the alternative structural model such as PFPoPP (R2 = 0.429), BL (R2 = 0.61) and PWoM (R2 = 0.64) is found to be strong. The predictive relevance for all three endogenous variables, PFPoPP (R2 = 0.261), BL (R2 = 0.553) and PWoM (R2 = 0.591), the alternative model is also found to be satisfactory as R2 value exceeded zero. To test the mediation effect of PFPoPP, direct effects of all exogenous variables, PFI, PLU and CJ on BL and PWoM were included in the alternative structural model. The significance of mediation effect is tested using Sobel coefficients (Sobel 1982). The mediation effect of PFPoPP in the relationship between PFI and BL (Sobel coefficient = 1.70 significant at p value <0.05 level), PFI and PWoM (Sobel coefficient = 2.38 significant at p value <0.01 level), PLU and BL (Sobel coefficient = −1.64 significant at p value <0.05 level), PLU and PWoM (Sobel coefficient = −2.22 significant at p value <0.01 level), CJ and BL (Sobel coefficient = 1.64 significant at p value <0.05 level) and CJ and PWoM (Sobel coefficient = 2.20 significant at p value <0.01 level) are found to be significant. The mediation effect of PFPoPP in the relationship between PLU and BL and CJ and BL are found to be full mediation as the direct effect of PLU on BL and CJ on BL are found to be non-significant. The mediation effect of PFPoPP in rest of the relationships are found to be partial as the direct effects of PFI on BL (path coefficient = 0.71 significant at p value <0.01 level), PFI on PWoM (path coefficient = 0.64 significant at p value <0.01 level), PLU on PWoM (path coefficient = 0.12 significant at p value <0.05 level) and CJ on PWoM (path coefficient = 0.08 significant at p value <0.10 level) are found to be significant.
Fig. 3

Alternative full PLS structural model with mediation effects

Discussion

This study has explored PFPoPP in situations where price of innovative consumer durables is reduced (Aroean and Michaelidou 2014) and has identified its antecedents and consequences. The findings of this study importantly contribute to research in the area of post-purchase evaluations by providing explanation for post-purchase evaluation on the basis of often neglected attribute, which is, the price. This study focuses on price of past purchase when price is reduced while most of the other studies in price fairness perceptions have investigated future purchase when price is increased.

This study conceptualized and validated the factors that influence PFPoPP and how perceptions influence their post-purchase behaviour. Specifically, this study has identified that PFI, PLU and CJ have significant effect on PFPoPP. Primarily, the study has found significant effect of the construct PFI on PFPoPP. Previous research has identified the effect of PFI on corporate reputation and customer satisfaction. This finding further explains how this happens.

A new construct namely, PLU, which is highly relevant in the context of conspicuous consumption, has been included in this study. While the constructs namely, need for uniqueness and conformity are available in the extant research, these constructs are conceptualized as a characteristic related to the individual’s personality. This study contends that an individual’s need for uniqueness and conformity is not constant, but varies according to the uniqueness and conformity status perceptions which the individual derives from a situation. As the individual’s perceived uniqueness varies with the situation, similarly his/her PLU may also vary with the situation. Therefore, this study has conceptualized the construct, PLU, and has also developed a measurement scale for it. The study found that the PLU has negative effect on PFPoPP in the context of price reduction of a conspicuous product like smartphone. If a conspicuous product is perceived to lose its uniqueness due to its price reduction, the owners would regret paying such a high price earlier. The owners find the price paid for their past purchase to be unfair as others were able to own the same product by paying lesser price.

Another new construct namely, CJ, has been proposed in this study and the measurement scale for this construct has also been developed. Previous research on price fairness perceptions highlighted the consumers’ tendency to infer the motives behind the price increase and established that the consumers justify the price increase if they infer acceptable motives behind the firm’s action. Similarly, this study contends that the consumers would justify the price reduction and proposes that higher levels of CJ would result in higher level of PFPoPP. This study establishes a positive effect of CJ on PFPoPP.

This study also establishes a positive effect of PFPoPP on BL and PWoM. This finding holds good irrespective of the situation of price reduction or not. Particularly, when the price is reduced, the PFPoPP generates cognitive dissonance and negative emotions towards the firm that affect both BL and PWoM. It is well established from extant research that both BL and PWoM are prime concerns of the firms that are oriented towards relationship marketing.

An alternative model to test the mediation effect of PFPoPP in the relationship between all the exogenous variables, PFI, PLU and CJ, and the endogenous variables, BL and PWoM, further explains the nature and importance of the PFPoPP construct. The PFPoPP acts as a full mediator in the relationship between PLU and BL and CJ and BL as the direct effect of PLU and CJ on BL were found to be non-significant. This finding signifies that PLU and CJ have an effect on BL only through PFPoPP. The PFPoPP acts as a partial mediator in rest of the relationships, which signifies that the relationship between other variables (PFI→BL; PFI→PWoM; PLU→PWoM; CJ→PWoM) would be because of variables other than PFPoPP such as product quality and service quality.

Managerial relevance

The findings of the study broadly implied to the firms in innovative consumer durable industry which introduce unique products/new models of the same product at regular intervals wherein price reductions are very common to identify appropriate conditions for price reduction. The first major finding of this study is that PFI positively influences PFPoPP. This finding implies that the firms in innovative consumer durable industry, even after price reduction of their recently introduced model or product, could draw higher PFPoPP if their PFI is higher. Therefore, the firms are required to take care of their PFI, even though they are often forced to reduce the price due to competitive pressures. They have to constantly monitor and improve their PFI, which would be beneficial to the organization.

The second major finding of this study is that the PLU negatively influences PFPoPP. This finding implies that the firms are required to assess their marketing program, particularly with respect to pricing and identify whether their price reduction leads to reduction in uniqueness perceptions of their consumers. Furthermore, our findings suggest that the firms have to be careful in their price reduction strategy. It implies that the firms can reduce the price of a conspicuous product up to a level that would not reduce the uniqueness perceptions of the product in the minds of the consumers. The firms need to identify ways to reduce the PLU and may consider introducing non-monetary promotions instead of price reduction.

The third major finding of this study is that the CJ positively influences PFPoPP. This finding implies that the consumers would justify the firm’s action of price reduction when they have a strong brand loyalty and in turn become brand advocates. These loyal customers’ act of justification in favour of firm’s action would get strengthened when they have the awareness and understanding of general trends and behaviours of the market and industry. Therefore, the firms are required to nurture brand advocacy and provide forum for the owners of their products to pave way to form brand communities. This would help the consumers to be up-to-date about the trends and changes happening in the industry and market which would consequently improve their PFPoPP.

The fourth major finding of the study is that the PFPoPP leads to BL and PWoM. This finding implies that in situations where price is reduced the firms need to provide adequate attention to their PFPoPP. They would be required to monitor their PFPoPP at regular intervals and identify ways to improve their PFPoPP as it impacts both BL and PWoM.

The fifth major finding of this study is that the PFPoPP provides complete mediation in the effect of PLU and CJ on BL. This finding implies that for better customer retention, the marketers who sell products related to conspicuous consumption have to pay close attention to PFPoPP as PLU and CJ do not directly affect BL.

Limitations and future research

This study has a number of limitations and thus one has to be cautious while generalizing the findings. Primarily, the study was conducted with a convenient sample of 202 respondents and therefore it would not be appropriate to generalize the findings. Furthermore, this study focuses on PFPoPP when price decreases for an innovative consumer durable good, smartphone, which is conspicuous by nature (Gierl and Huettl 2010; Hennighausen and Schwab 2014; Aroean and Michaelidou 2014). Therefore, the findings cannot be generalized to other durable goods and non-durable goods that are not conspicuous. The purpose and conceptualization of the research (especially on the antecedent side of the model) demanded specific context which included only a sample of respondents who were aware of price reduction of innovative and conspicuous durable products. Consequently, the study excluded consumers who were not aware of price reduction which acted as a constraint for a comparison of PFPoPP of the consumers who were not aware of price reduction with the consumers who were aware of price reduction. Therefore, one must be careful in applying the findings of the study to a large number of population that may not actively engage in post-purchase price search of past purchases. Furthermore, in conceptualization, it has been argued that the effect of PFPoPP on BL and PWoM is a universal phenomenon irrespective of price reduction or no price reduction; however, it has been tested only in price reduction situations assuming it would inherently be true in no price reduction situations too, however, has not been verified in this study. The future research can explore this phenomenon by emphasizing the outcomes of PFPoPP in different scenarios.

Post-purchase evaluations with respect to price is very important as they affect both BL and PWoM. The future research can explore PFPoPP in the price reduction of non-durable conspicuous goods and services. The future research can assess the effect of PLU and CJ on PFPoPP. Similarly, it can explore PFPoPP in situations of no price reduction and price increase of conspicuous durable goods and services. It can also specifically identify the role of perceived enhancement of uniqueness and customer justification for price reduction or price increase. Furthermore, the future research may identify other factors that influence the PFPoPP and which have not been included in the study. For example, elapsed time since purchase (Kareem 2017) and magnitude of price reduction (Kareem 2017) might influence PFPoPP and future research can explore these factors in detail.

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© Macmillan Publishers Ltd., part of Springer Nature 2017

Authors and Affiliations

  1. 1.Institute of Management TechnologyDubai International Academic CityDubaiUAE

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