Are today’s customers ready for dynamic pricing?

March 14, 2008 | Internet Marketing

Marketers have paid increasing attention to the potential of dynamic pricing as technology and the Internet increase its prevalence. But a new Wharton study suggests that at least for now, fairness concerns may limit consumer acceptance of such pricing practices and may do so differentially across cultures.

Wharton marketing professor Lisa E. Bolton and two colleagues—Hean Tat Keh, professor of marketing at the Guanghua School of Management at Peking University, and Joseph W. Alba, professor of marketing at Warrington College of Business at the University of Florida—explore pricing and fairness perceptions in a new research paper and document how attitudes are different, or in some cases similar, between consumers in China and those in the United States. The researchers wanted to know, for example, how consumers react when they discover that someone else bought the same product as they did at a cheaper price. The paper is titled “Culture and Marketplace Effects on Perceived Price Fairness: China and the USA.”

The researchers found that American consumers in general tended to see things as fair if they got the bargain and unfair if they didn’t, regardless of whether the shopper they were being compared to was a friend or a stranger. Chinese consumers, on the other hand, cared more about how they stacked up against their friends. “The Chinese were less affected by what a stranger paid than what a friend paid, whereas Americans were uniformly sensitive to price discrimination,’ the researchers report.

They also explored whether customers’ relationship with the seller—first-time buyer versus loyal customer—affected their feelings of fairness in the price they paid. For American consumers, it did not seem to matter much whether they were a first-time or loyal customer: It was fair if they got a lower price and unfair if they paid more regardless of their relationship with the seller. Chinese consumers, on the other hand, tended to be more bothered if they paid a higher price as a loyal customer. Chinese consumers “were more sensitive...to the nature of the vendor-customer relationship.”

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