How source of funds affects buyer’s judgments of price fairness and subsequent response
| DOI | https://doi.org/10.1108/JPBM-02-2016-1104 |
| Pages | 710-720 |
| Published date | 21 November 2016 |
| Date | 21 November 2016 |
| Author | Adam Nguyen,Juan (Gloria) Meng |
| Subject Matter | Marketing,Product management,Brand management/equity |
How source of funds affects buyer’s
judgments of price fairness and
subsequent response
Adam Nguyen
Department of Marketing, Siena College, Loudonville, New York, USA, and
Juan (Gloria) Meng
Department of Marketing and IB, Minnesota State University, Mankato, Minnesota, USA
Abstract
Purpose – This research aims to examine how source of funds (paying with company’s funds versus personal funds) affects buyer’s judgments of
price fairness and via these judgments, buyer’s response to prices.
Design/methodology/approach – A scenario-based experiment is used (
N
⫽200). To test the hypotheses, the authors run moderated mediation
regression analyses with the help of the PROCESS macro.
Findings – Drawing on fairness heuristics theory, the authors hypothesize and find that relative to when paying with personal funds, when paying
with company’s funds, the perceived price difference plays a less significant role, whereas the perceived social acceptability of the pricing practice
underlying the price difference plays a more important role in shaping price fairness judgments and, via these judgments, buyer’s response to prices.
Practical implications – The findings generate advice for companies that serve both the business and personal segments (e.g. airlines and hotels).
Buyers in the personal segment typically pay with their own money. To persuade these buyers that a price is fair, it is crucial to show that the price
represents a good deal for them. Buyers in the business segment often pay with company’s fund. Companies have more flexibility in charging
different prices, but they should make sure that the reasons for the price difference are socially acceptable.
Originality/value – This research shows how the relative role of price difference versus social acceptability in price fairness judgments varies as
a function of source of funds and how an inconsistency between price difference and its economic impact affects price fairness judgments.
Keywords Cognition, Moderated mediation, Price fairness, Consumer ethics, Experimental design, Consumer psychology, Behavioral pricing,
Fair process effect
Paper type Research paper
Introduction
Fairness is a pivotal ethical principle governing seller–buyer
exchange relationships (Spiller, 2000). Concerns for fairness
are highly salient in the realm of pricing. Price represents
benefits (revenue and profit) for a company but out-of-pocket
costs for its buyers. Adherence to the fairness principle is key
in resolving this potential conflict (Kahneman et al., 1986;
Ostas, 1992). Price fairness captures the buyer’s perception
that the price of a particular offer is reasonable, just or
legitimate (Campbell, 2007;Kwak et al., 2015). Perceptions
of price unfairness may lead to negative consequences for
companies, including buyers expressing dissatisfaction,
leaving the exchange relationship and spreading negative
word-of-mouth (WOM) (Campbell, 1999;Xia et al., 2004).
Accordingly, knowledge of the determinants of price fairness
judgments is important for marketers (Campbell, 1999;Xia
et al., 2004).
It has been established that fairness judgments are driven by
both outcome and procedure (Tyler, 1994). In pricing
contexts, judgments of outcome involve the buyer’s evaluation
of price difference, that is, the extent to which the price being
judged differs from the price of a comparative other (Xia et al.,
2004). Judgments of procedure involve the buyer’s evaluation
of the social acceptability of the seller’s pricing practices, that
is, the extent to which these pricing practices adhere to social
norms (Kahneman et al., 1986;Maxwell, 1999).
The relative role of price difference and social acceptability
of pricing practices in shaping price fairness judgments has
been a debatable issue in the price fairness literature (Maxwell
and Comer, 2010). The current research seeks to contribute
by examining this relative role as a function of source of funds,
that is, whether the buyer pays for the goods/service with
personal funds or company’s funds. Extant research has
traditionally examined price fairness judgments in the most
common scenario: when the buyer pays for the goods/service
with his/her personal funds (Homburg et al., 2014;Kahneman
et al., 1986;Kukar-Kinney et al., 2007;Kwak et al., 2015;
Maxwell, 2002;Wu et al., 2012). In practice, there are
situations when the buyer does not pay with personal funds.
For example, a business person who goes on a personal trip
will likely pay for transportation and hotel expenses with
personal funds; if it is a business trip, he/she will likely pay for
these expenses with company’s funds. Source of funds is a
potentially important determinant of price fairness because it
The current issue and full text archive of this journal is available on
Emerald Insight at: www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
25/7 (2016) 710–720
© Emerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/JPBM-02-2016-1104]
710
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