Getting a Better Deal but is it Fair? Examining the Effects of Advantaged Price Inequity

1. Getting a Better Deal but is it Fair?Examining the Effects of Advantaged Price Inequity Lan Xia, Bentley College Kent B. Monroe, University of Illinois and University of Richmond

2. Why Advantaged Inequity?

3. Advantaged and Disadvantaged Inequities • Two ways to evaluate outcomes: • What outcomes make people satisfied, happy, pleased, or displeased (preferences)? • Transaction Value • What outcomes are fair or unfair, equitable or inequitable? • Fairness perceptions Fair price and transaction value

4. Questions: • Is a good deal necessarily a fair price? • Is an unfair price always a bad deal? Fair price and transaction value

5. Perceived Price Fairness and Perceived Transaction Value • Similarities: • Both based on comparison to a reference • Both follow the “loss looms larger” effect (Kahneman and Tversky 1979) • H1: Given the same magnitude of price difference, consumers will perceive a disadvantaged price inequity situation to be more unfair and offers less transaction value than an advantaged inequity price situation. Fair price and transaction value

6. Perceived Price Fairness and Perceived Transaction Value • Differences: • In the domain of advantaged price: • Advantaged price produces more positive transaction value than equal price • Advantaged price does not necessarily produce fairer price perceptions than equal price • H2: Consumers will perceive that an advantaged price inequity to have higher transaction value but will perceive it to be less fair than price equality. Fair price and transaction value

7. Behavioral Consequences • Transaction Value and Unfairness Perceptions have different predictions on purchase intentions and word of mouth communications when consumers are price advantaged • Higher transaction value enhance purchase intention and positive word of mouth • Unfairness perceptions lower purchase intention and positive word of mouth • H3 – Advantaged inequity produces no positive effect on purchase and word of mouth intentions

8. Moderating Factor: Comparative Reference • Type of reference • A comparative reference may be “another person, a class of people, an organization, or the individual himself relative to his experiences from an earlier point in time” (Jacoby 1976) • Other customer comparison is the most salience due to its social dimension (Austin, McGinn, and Susmilch 1980; Major 1994; Wood 1989) Fair price and transaction value

9. Other Consumer Comparison • H4: When consumers compare a price to another consumer’s price, an advantaged price will be perceived to be more unfair (less fair) than an equal price. No such effect will be observed when comparing to consumers’ own previous price or another seller’s price. Fair price and transaction value

10. Study 1 – type of reference • Method: scenario based experiment • Design: type of reference (3, self, seller, and other customer) x price difference (3, equal price or $40 more or less) • Procedure: buying a DVD player • Measure: unfairness, transaction value, emotions, purchase intention, and word of mouth intention • N = 139 Fair price and transaction value

11. Fair price and transaction value

12. Fair price and transaction value

13. Behavior Intentions

14. Associated emotions: anger and happiness Anger Happiness

15. Study 2 – Different emotions associated with advantaged inequity • Negative emotions associated with advantaged price inequity: existential guilt, moral outrage, sympathy/empathy, hopelessness (Montada and Schneider 1989) • Advantaged inequity are associated with uneasiness and empathy • Uneasiness is associated with the less fairness perceptions but not empathy

16. Study 2 • Design: price difference (2: same or advantaged) x comparative reference (2: stranger vs. best friend) • Procedure: same as study 1 • Measure: fairness, transaction value, behavior intentions, and emotions. • N = 102

17. Effects on Unfairness and Transaction Value Unfairness Transaction Value

18. Associated Emotions Empathy Uneasiness

19. Effects on Behavior Intentions Purchase Intention Negative WOM Intention

20. Study 3 – when there are mixed emotions … • Multiple references • Separation or integration evaluation? • e.g., +30 and -$30 vs. $0 and $0 • Some research supports the separation model (Ordόñez, Connolly and Coughlan 2000) • Mental accounting effect: consumers prefer to edit multiple references in a way that make them feel better (Thaler 1985) Fair price and transaction value

21. Multiple Comparisons • H4a: Given that the consumer is disadvantaged in comparison to one reference, the price paid by the consumer will be perceived as fairer when the other reference pays a higher price rather than an equal price. • H4b: Given that the consumer is advantaged in comparison to one reference, the price paid by the consumer will be perceived as unfair when the other reference pays a higher price than an equal price. Fair price and transaction value

22. Study 3 – multiple references • Same method • Design: 3x3 (first reference x second reference, 3 price levels each: same, +$30 or -$30) • Similar procedure • Same measures • N = 394 Fair price and transaction value

24. Discussion and Conclusion • Empirically demonstrated the similarities and differences between unfairness perceptions and transaction value • A disadvantaged price is both unfair and reduces transaction value • An advantaged price is less fair but produces positive transaction value Fair price and transaction value

25. Discussion and Conclusion • The effect of advantaged price being perceived as less fair than equal price is moderated by: • Type of reference • Multiple references available and one of the references produces a price disadvantage Fair price and transaction value

26. Future Research • When will value perceptions and fairness perceptions occur? • Reasons behind price advantage (attributions). • Any culture differences? Fair price and transaction value

27. Implications • Avoid customer-customer comparison or provide rational associated with price differences • Avoid price differentials without product customization or variations in level of services Fair price and transaction value

28. Thank You! Fair price and transaction value