Perceived Fairness of Price Changes

ConversionTarrahi, F.; Eisend, M.; Dost, F. · 2016International Journal of Research in Marketing
Topicsprice fairness·dual entitlement·price change motive·pricing·meta-analysis·price discrimination

Your leadership team brings a portfolio-wide price increase to the budget meeting, backed by a cost-based rationale and a forecast that customers will accept it. Before approval, separate fairness from customer behavior. Will customers see the change as fair, and what will they do next? The evidence addresses only perceived fairness. Price-change size remains the stronger fairness driver, while rationale can either soften or deepen the response.

Price fairness depends more on the increase than the rationale.

A credible cost-based rationale can protect perceived fairness, but it cannot turn pricing into a communications exercise. Price-change size matters more, while a profit-driven rationale creates a larger penalty than a cost-based one recovers. CMOs should govern price changes as portfolio pricing decisions, not messaging decisions.

Data chart

A profit-driven rationale hurts fairness more than a cost-based rationale helps

Profit-driven rationale-14.226Cost-based rationale8.077

A profit-driven rationale carries a larger fairness penalty than the gain from a cost-based rationale.

Action guide

  1. Prioritize price-change size while assessing rationale.Require leadership reviews to assess both, with size treated as the stronger fairness driver.
  2. Treat cost justification as protection, not permission.A cost-based rationale helps less than a profit-driven rationale hurts, regardless of price-change size.
  3. Review customer-group pricing as closely as base-price changes.Charging different customer groups different prices carries its own fairness cost.
  4. Plan price increases and decreases on different fairness assumptions.An increase is judged markedly less fair than a decrease of the same size, so the two should not share one planning assumption.
  5. Validate extreme-price assumptions before adopting them.The fairness response flattens at very high increases, but the research does not establish why.

Evidence

  • Price-change size accounted for more of the differences in perceived fairness; rationales added roughly one-fifth as much.
  • A profit-driven rationale lowered perceived fairness by about 14 points; a cost-based rationale raised it about 8 points, regardless of price-change size.
  • For equal changes up to 50%, increases were judged markedly less fair than decreases; the decrease sample was smaller.
  • Charging different customer groups different prices lowers perceived fairness by about 9 points compared with no customer-based price differences.
  • Perceived fairness declines as price increases grow, but the curve flattens at very high increases; the research leaves the pattern unexplained.

Key takeaway

A price change's size drives perceived fairness more than the rationale offered for it.

Source

Tarrahi, F., Eisend, M., & Dost, F. (2016). A meta-analysis of price change fairness perceptions. International Journal of Research in Marketing.

Evidence strength: Moderate (261 mean price-fairness values from 33 published manuscripts and 54 independent samples; pooled associations, not causal effects; does not measure purchase behavior, demand, churn, or profit).