When Shopping Gets Personal
The inferences people make about why they received a lesser deal than other consumers can threaten various aspects of their identity, making a price differential feel worse. Consumers may infer, for example, that paying more than another consumer reflects a sellers’ low opinion of them, says Laurence Ashworth, marketing professor at Queen’s School of Business. Firms can mitigate this effect by signalling that price discrepancies are not personal, such as giving advance notice of price changes so consumers can choose whether or not to wait for lower prices.
You don't want your customers to feel ripped off but that’s often what happens when they discover they have paid more than another customer.
Research has confirmed that consumers find such price differentials unfair. There is even a term for the phenomenon: Perception of Price Unfairness (PPU).
You would expect consumers to blame the commercial outfits responsible for the price differential. But Laurence Ashworth, marketing professor at Queen’s School of Business, and Lindsay McShane, now on faculty at Carleton University, had a hunch that seemingly unfair prices can make consumers feel bad about themselves and, in turn, deepen their sense of grievance.
“The inferences consumers make about why they received less than another consumer can threaten various aspects of their identity, making the [price difference] feel worse,” they write in a recent paper. “Consumers may infer, for example, that paying more than another consumer reflects a sellers’ low opinion of them.”
Such inferences can be highly threatening to consumers’ sense of self as a worthwhile and respected person. To make matters worse, consumers often take some of the blame themselves, feeling incompetent for having paid more.
How Price Differences Can Be Threatening
The researchers conducted four experiments to tease apart the different ways in which prices can be threatening to consumers. In three of them, participants reviewed a shopping scenario in which they were charged more than other customers for the same product. Ashworth and McShane altered the situations in ways that would allow them to test the idea that such price differences can be threatening.
In one scenario, for example, a customer who had bought a global positioning system (GPS) unit overheard another customer say they had paid much less for the same one. Some of the participants learned that this was because the store had mistakenly put a lower price sticker on the GPS unit. While still unfair, this was less unfair than when participants had no explanation for why the other customer paid less. In this case, participants assumed that their higher price reflected the firms’ low opinion of them, which threatened their sense of self, making the price differential feel worse.
In another scenario, participants were told they were customers who either were or were not friends with a salesperson. Previous research suggests that people are more likely to give the benefit of the doubt and infer a positive motive to friends. But when customers were charged more for the same camera, the researchers found that price differences "were deemed particularly unfair, suggesting that the additional threat to social identity was greater than any ‘benefit of the doubt’ that may have occurred."
The last written scenario involved a consumer who needed to purchase a barbecue. As with the other scenarios, they found out about another customer who got a better deal. In one version, however, participants were highly restricted in when they could buy the barbecue, meaning they could not have received the same deal as the other customer. In this case, the price difference did not feel as bad because it said less about consumers’ level of competence. Without such restrictions though, participants felt incompetent for having paid more, making the price difference feel even worse.
These results suggest that how the transaction makes the customer view themselves has a big impact on how fair they view the firm.
What Firms Can Do
The now-established correlation between threats to a customer's identity and perceived unfairness was bolstered by one final experiment, which participants experienced first-hand.
In it, participants were paired with another person and then told that a third person (in a separate room) would divide $5 between the two of them. Unknown to participants, there was no third person. Instead, the researchers made it look as though the third person had given participants either $1.50 of the $5 (an unfair allocation) or half of it (a fair allocation). Crucially, before participants learned how much of the $5 they had been given, half of them had been asked to provide some important personal information that the (bogus) third person would see.
These participants reacted much worse to receiving less than their fair share — they were much more likely to take their allocation personally since it seemed to reflect what the third person thought of them. "These results provided direct evidence that threat from the more personal inequitable allocation contributed to the experienced unfairness,” the researchers noted.
Given the findings, there are measures that firms can take to reduce threats to consumers' identities. The usual strategies involve masking price differentials by hiding the fact that different customers are paying different prices or justifying price differentials by linking them to factors such as customer loyalty.
The current study “suggests that information that indicates prices discrepancies are not personal should help alleviate unfairness too.”
One example of this would be for firms to provide advance notice of price changes so consumers can choose whether or not to wait for lower prices. This should reduce any feelings of incompetence from paying more as well as inferences that consumers were charged more because the seller thought little of them. Alternatively, sellers’ can strategically keep prices steady, communicating they treat all of their customers equally.
A new model that accounts for how consumers view wait-or-buy decisions shows retailers how to harvest higher revenue from deeper discounts