Consumer Reactions to Dynamic Pricing as a Norm-Breaking Practice with Increasing Levels of Company Clarifications: An Abstract

Abstract

Companies that use pricing tactics such as dynamic pricing risk being considered norm-violating particularly by customers who pay higher prices than others. Price-disadvantaged customers are likely to develop lower fairness perceptions and to engage in retaliatory behavior. As few companies disclose information about the pricing criteria, customers are often left feeling confused, which can result in higher perceptions of price complexity. Therefore, to better understand price-disadvantaged consumers’ perceptions of price fairness and price complexity, complaint and purchase intentions in the context of dynamic pricing, we examine and compare four pricing scenarios. Uniform pricing represents the non-norm-violating pricing practice, and dynamic pricing is present in the three remaining situations, with various degrees of explanations (none, a short description of dynamic pricing, and a complete explanation of the differentiation criteria). There is currently no research on how service providers’ explanations of dynamic pricing influence consumers’ perceptions and behaviors, particularly of the price-disadvantaged customers. This study will lead to a better understanding of whether companies can use dynamic pricing strategies without forming negative perceptions by customers, and if service providers’ attempts to mitigate any negative customer responses through explanations are effective.

We tested four pricing tactics (uniform pricing, dynamic pricing without an explanation, a short, or a complete explanation) applied to a touristic flight. In the scenarios with dynamic pricing, the customer was always in a disadvantaged price position. We measured price fairness and complexity perceptions, as well as purchase and complaint intentions.

The study results show that marketers who use dynamic pricing can increase customers’ fairness perceptions by explaining the criteria used to set the varying prices. Interestingly, both complete and short explanations can bring fairness perceptions up to the same level of fairness, as in the case of uniform pricing. Furthermore, perceptions of complexity decrease with the amount of additional information provided on dynamic pricing. However, even a complete explanation of the criteria leading to the varying prices cannot bring down perceived complexity to the level that is measured for uniform pricing. Therefore, additional explanations on pricing criteria can fully restore consumers’ fairness perceptions but at the same time do not fully eliminate complexity perceptions. The results for purchase and complaint intentions, which represent consequences of immediate fairness or complexity perceptions indicate that a complete explanation of the criteria used for dynamic pricing helps to establish intentions similar to those in the case of uniform prices.

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