Consumer Perceptions of Price Complexity, Manipulation and Fairness in the Context of Increasing Levels of Differential Pricing and Dynamic Pricing: An Abstract

Abstract

Dynamic pricing is gaining affluence as a differential pricing strategy in many services and the online retail of goods. Dynamic prices vary continuously based on multiple and opaque criteria, representing the most extreme form of differential prices. Previous research does not consider the whole spectrum of differential pricing that ranges from one criterion such as temporality, all the way to dynamic pricing. The literature on differential pricing mainly focuses on fairness perceptions (e.g., Haws and Bearden 2006). So far, none examines price complexity and manipulative intent perceptions, nor how the spectrum of differential pricing and increasing levels of price differentiation affects these variables. Price complexity is important as higher cognitive efforts and changing prices lead to a dilution of the reference price, which will influence purchase behaviour. The feeling of being manipulated by retailers will negatively impact product evaluations (Bambauer and Gierl 2008) and customer behaviour. Our study provides complementary insight to existing literature by observing the impact of increasing levels of differential pricing (one form of price differentiation; a combination of two forms of differential pricing; a combination of five forms; dynamic pricing, characterized by many opaque discriminatory criteria and ongoing price changes) on fairness, complexity, and manipulative intent perceptions.

We tested the various differential pricing strategies (temporal; temporal and demographic criteria combined; temporal, demographic, geographic, quality and quantity-based criteria combined; and dynamic pricing) and the test products (hotel room, rental car) with a sample of 114 respondents of an online questionnaire. The respondents read a scenario in which they were a price-disadvantaged customer learning that prices vary based on the previously mentioned criteria. We then measured price complexity, manipulative intent and price fairness perceptions.

The results show that with an increasing number of criteria used for differential pricing, including the extreme combination of many criteria (dynamic pricing), consumers see the price differences as increasingly complex and less fair, while all types of differential pricing lead to strong feelings of being manipulated. These results clearly show that consumers might accept simple forms of differential pricing, but that they react very negatively to differential pricing based on an increasing number of combined criteria. Therefore, there are very negative effects of differential pricing, and particularly of dynamic pricing, on existing customers in addition to the positive effects on profit that many marketers often only consider.

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