Dynamic pricing for hedonic and utilitarian purchases : the impact of magnitude of price difference and price level on perceived price fairness

Dynamic pricing is widely adopted in e-commerce for its effectiveness in enhancing revenue and profitability. Nowadays, firms increasingly focus on advancing their dynamic pricing models by examining consumer behavior patterns with the help of emerging technologies and increasing data availability. However, the economic benefits of dynamic pricing may be at the expense of damaging companies' reputations through violation of price fairness, resulting in jeopardizing sustainable development. Dynamic pricing should not be implemented disregarding the consumers’ price fairness perceptions. This study aims to explore price fairness perceptions in the condition of dynamic pricing incorporating individual motivational factors. The present research conceptualizes and tests a research model with the impact of different dynamic pricing mechanisms (i.e. magnitude of price difference and product price level) on consumers’ perceived price fairness across buyers with different purchase motives. The magnitude of price difference covers the depth of price changes, and product price level depicts the starting point of price changes. Purchase motive (i.e. hedonic vs. utilitarian) is a consumer-centered, intrinsic factor representing the underlying motivation of a purchase. The effect of perceived price fairness on consumers’ strategic price tracking behavior is also examined. The data was collected through a between-subjects, factorial-design online experiment with two levels of magnitude of price difference (major vs. minor) × two levels of product price level (high vs. low) × two levels of purchase motive (hedonic vs. utilitarian). This study focuses on disadvantaged price inequality with the comparative reference price of “other buyers”. Moreover, respondents evaluated the perceived price fairness in the postpurchase stage (i.e. after purchasing the product). Participants were recruited though an American online-access panel. It is confirmed that the magnitude of price difference and product price level are salient predictors for perceived price fairness. By contrast, consumers’ purchase motives (hedonic vs. utilitarian) do not elicit different judgments on price fairness. This study also finds that with the development of price investigation technologies and the trend of conscious consumers, perceived price unfairness can induce a higher intention of strategic price tracking behavior among buyers. Consumers no longer passively accept unfair deals or only take action after purchasing the products; they endeavor to become more strategic to take advantage of the sellers. Future research could examine the interplay of price change magnitude, product price level, and price change frequency in an algorithmic model integrating consumers’ price fairness considerations. In addition, the role of purchase motive on perceived price fairness in the pre-purchase stage of the customer journey could be further investigated in the context of discriminatory pricing