The thesis describes the conflict of price differentiation strategies and the consumers' perception of price fairness in different manners. By that, the role of a price is explained in detail in the role of marketing, as well as it's role in behavioral economics regarding price fairness. Different examples, being a highly discussed topic in the current state of the art, are brought together to demonstrate the variety of this price policy. Uber, the haircutting industry as well as typical gender-based pricing or emergency situations represent crucial practices that are discussed in regard of moral and ethical limitations in terms of price fairness. Finally, the work aims to understand the limitations on price differentiation in the context of price fairness and tries to answer questions as: When is price differentiation acceptable for consumers and when should firms reconsider differential price strategies due to a perceived abuse of trust, anger or similar emotions of targeted customers? For that, an empirical social research is considered to bring first and secondary data together, and to enable the defintion of those limitations to become a little clearer.
Table of Contents
1. Introduction
1.1 Significance of the Study and Problem Statement
1.2 Research Objective and Research Questions
1.3 Research Methodology and Structure
2. Price Determination in Economic Theory
2.1 Law of Supply and Demand
2.2 The Role of Pricing in the Marketing Mix
3. Modern Pricing Policy – Price Differentiation Strategies
3.1 Degrees of Price Differentiation
3.2 Price Differentiation as a Marketing Instrument
3.2.1 The Nature of Dynamic Pricing
3.2.2 The Nature of Gender-Based Pricing
3.3 Ethical and Moral Limitations
4. The Perception of Price (Un-)Fairness
4.1 The Drivers of Perceived Price (Un-)Fairness
4.2 Dual Entitlement Theory
4.3 Attribution Theory
4.4 Equity Theory
5. Examination of Practical Price Differentiation Strategies
5.1 Example A: Surge Pricing at Uber
5.2 Example B: Gender-Pricing in the Haircutting Industry
5.3 Example C: Dynamic Pricing in Case of Product Scarcity
6. Online Survey: The Limitations on Price Differentiation
6.1 Methodological Approach
6.2 Population and Sample
6.3 Survey Design
6.4 Descriptive Analysis
6.5 In-depth Analysis of Collected Data
6.5.1 Cluster Analysis
6.6 Discussion and Implications
6.7 Limitations and Outlook
7. Conclusion
8. Reference List
9. Appendix
Annex A
Annex B
Annex C
Objectives and Core Themes
This thesis examines the conflict between corporate price differentiation strategies and the consumer's perception of price fairness. It aims to determine how various sociodemographic factors and business sectors influence the feeling of (un)fairness, eventually providing recommendations for firms to balance profitability with customer satisfaction.
- Theoretical foundations of pricing and price differentiation models.
- Psychological and economic theories of price fairness, including Dual Entitlement and Attribution Theory.
- Analysis of real-world pricing practices such as surge pricing, gender-based pricing, and scarcity-driven pricing.
- Empirical study using online surveys and cluster analysis to segment consumer perceptions.
- Development of managerial implications for pricing policies in different market segments.
Excerpt from the Book
3.2.1 The Nature of Dynamic Pricing
Regarding history, prices have been adjusted on to negotiations between the buyer and the seller. The usual pricing policy being used for a transaction between both parties is known as the “fixed price” policy – which focuses on one equal price for all consumers, with no differentiation taking place (Sen, 2013, p. 586). Even though it still shows presence as a common price policy nowadays, the traditional pricing strategies face reverse in especially the web-selling segment (Elegido, 2011, p. 633). Companies refuse from fixed prices, and instead are increasingly considering “dynamic pricing”, which can be defined as: “Adjusting prices continually to meet the characteristics and needs of individual customers and situations.” (Kotler & Armstrong, 2012, p. 346). According to Miller (2014, p. 47), dynamic pricing „ […] is sometimes conflated with price discrimination, denotes any frequent adjustments and fluctuations of posted prices.”
Thus, this particular price differentiation strategy is commonly known as “fluid pricing”, as it represents a flexible price policy, continuously adjusting new prices based on given demand dynamics (Yang, Zhang & Zhang, 2017, p. 908). Usually, fluid pricing involves changes in prices that sellers are adjusting on a regular basis. However, the regularity for price changes increased - in the past, vendors adjusted their prices every week to every month. In contrast, today especially web sellers take advantage of databases and adjust the prices every few hours. For that, supportive tools as price-comparison bots of competitor prices are used to fasten the process with automatically working software (Miller, 2014, p. 47).
Summary of Chapters
1. Introduction: Discusses the growing relevance of price differentiation strategies in a digitalized market and the subsequent challenge of maintaining perceived price fairness.
2. Price Determination in Economic Theory: Outlines the basic macroeconomic principles of supply and demand and integrates the role of price as a key element of the marketing mix.
3. Modern Pricing Policy – Price Differentiation Strategies: Examines specific strategies, including the degrees of price differentiation and practical applications like dynamic and gender-based pricing.
4. The Perception of Price (Un-)Fairness: Provides the theoretical framework for consumer perception, detailing the psychological mechanisms behind fairness judgments.
5. Examination of Practical Price Differentiation Strategies: Evaluates specific real-world case studies such as Uber’s surge pricing, haircutting gender premiums, and product scarcity.
6. Online Survey: The Limitations on Price Differentiation: Details the empirical methodology, survey results, and cluster analysis regarding consumer fairness perceptions.
7. Conclusion: Synthesizes the findings, confirms or rejects the formulated hypotheses, and offers a final outlook on the topic.
Keywords
Price Differentiation, Price Fairness, Perceived Fairness, Behavioral Economics, Dynamic Pricing, Gender-Based Pricing, Consumer Behavior, Surge Pricing, Dual Entitlement Theory, Attribution Theory, Equity Theory, Market Segmentation, Customer Satisfaction, Price Sensitivity, Data Mining.
Frequently Asked Questions
What is the core focus of this thesis?
The thesis explores the tension between companies utilizing price differentiation strategies to increase profit and the potential long-term negative effects on customer loyalty due to perceived price unfairness.
What are the primary themes discussed?
The research centers on economic pricing theories, psychological determinants of fairness, practical business implementations of discriminatory pricing, and empirical consumer segment analysis.
What is the primary objective of this study?
The goal is to identify the limitations of price differentiation strategies and provide actionable recommendations for firms to maximize profit while minimizing customer dissatisfaction based on sociodemographic factors.
Which methodology is applied?
The study employs a deductive, quantitative research approach using a self-completed online questionnaire distributed to German consumers, complemented by a k-means cluster analysis.
What topics are covered in the main body?
The main body covers theoretical foundations of pricing, psychological theories like the Dual Entitlement Theory, and practical case studies involving Uber, haircutting services, and e-commerce pricing.
Which keywords define this work?
Key terms include Price Differentiation, Price Fairness, Behavioral Economics, Dynamic Pricing, Gender-Based Pricing, and Consumer Behavior.
How does the "Dual Entitlement Theory" apply to price changes?
The theory suggests that consumers generally accept price increases if they are attributed to rising production costs, but perceive them as unfair if they are driven solely by profit-seeking motives.
What was a key takeaway from the rideshare service scenarios?
The findings indicate that while some forms of surge pricing are tolerated, the practice of using technical data (such as low smartphone battery status) to determine price leads to extreme dissatisfaction and a sense of abuse of trust.
- Quote paper
- Luisa Domanska (Author), 2018, The Conflict of Price Differentiation and Price Fairness, Munich, GRIN Verlag, https://www.grin.com/document/445015
