Dynamic and individualised pricing are buzzwords becoming more and more frequent in public focus and can be pooled under the umbrella term of smart price setting. Their application holds for shop operators both opportunities and risks.
Personalised price setting combines individualised discounts and product recommendations based upon personal data. This creates situations in which different customers may pay different prices. Personal pricing offers tremendous revenue growth potential to retailers, but can also impact upon customer confidence.
Consumer response to norm-breaking pricing events in ecommerce
Ellen Garbarino (University of Sidney, Australia) and Sarah Maxwell (Fordham University, New York) studied the effects of price manipulation on trust, perceived fairness, purchase intentions, intentions to continue search, and intentions to complain (either privately or publicly). They used an experimental setting where they asked about 400 respondents to buy a specific digital camera. In the setting were two stores: a very popular one and a widely unknown. Prices were not only varied. The researcher also used a scenario where a new customer could purchase the product at a lower price than an established customer. One store was very popular, another where they used screenshots from real retailers. Respondents then were asked a number of questions in order to measure fairness, etc.
Garbarino and Maxwell found that the personal pricing scenario, indeed, had a negative effect on perceived pricing fairness, lower benevolence trust (i.e. trust that the retailer behaves in the consumer’s best interest), lower purchase intentions, and a higher likelihood of complaints. The researchers also took into account the prior history of the respondents with the retailers. If the retailer had built a history of trust before, the effects were less strong than otherwise.
In our view, the findings tell us that retailers need to be cautious when using customer-specific pricing. Building a history of trust with a client before may increase acceptance levels for such measures. Not least, there are also legal requirements for retailers and manufacturers to observe.
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