Chapter 5. Results of The Survey
5.4 Price Discrimination
5.4.3 Geographic discrimination
Question 9A. Suppose you log into a hotel’s website to make a reservation for a hotel room. You are asked to indicate your location, Asia, Europe, Northern America, Southern America or Others. The hotel is quoting different prices to people from different regions. Since you are from Asia, your price is $95 (The price for people from Europe and Northern America is $105, and that for people from South America and Other regions is $95). Is this fair or unfair?
(N=99) Very fair 8.1% 19.2% 23.2% 21.2% 28.3% Very Unfair
Half of the respondents considered geographic price discrimination to be unfair even when they obtained a favorable price. This number is significantly higher than those who considered it fair (49.5% vs. 27.3%, Z = 2.87, p = .004 for a two-tailed test).
Question 9B. [Same as above] Since you are from Asia, your price is $105 (The price for people from Europe and Northern America is $95, and that for people from South America and Other regions is $105). Is this fair or unfair?
(N=75) Very fair 8.0% 14.7% 7.8% 22.7% 46.4% Very Unfair
Respondents considered charging different prices for customers who come from different geographic areas unfair (69.1% vs. 22.7%, Z = 4.37, p < .001 for a
two-tailed test). The perception of unfairness is significantly greater when the
respondents have to pay a higher price (69.1% for the current question, 49.5% for the preceding question, Z = 2.67, p = .004 for a one-tailed test).
5.4.4 Discounting to new or loyal customers
Questions 10A. Suppose you log into a hotel’s website to make a reservation for a hotel room. You find out that the hotel quotes prices according to customers’
purchasing history. Hence, for example, the price for a loyal customer is $105;
while, for promotional purposes, the price for a new customer is $95. How fair do you think the hotel’s pricing is?
(N=101) Very fair 3.0% 6.9% 5.9% 28.7% 55.4% Very Unfair
Respondents perceived the situation to be the most unfair of all. A total of 84.1%
of respondents consider this method to be unfair, while only 9.9% consider it to be fair (Z = 7.93, p < .001 for a two tailed test). Consumers are likely to leave such a firm to avoid being punished for their loyalty. Charging loyal customers higher prices is the essence of first-degree price discrimination. However, implementing such a scheme has very negative effects, as the Amazon.com incident indicates.
Question 10B. Suppose you log into a hotel’s website to make a reservation for a hotel room. The hotel indicates that it sets prices according to customers’
purchasing history. For example, the price for a loyal customer is $95; while the price for a new customer is $105. How fair do you think the hotel’s pricing is?
(N=100) Very fair 21% 48% 13% 11% 7% Very Unfair
Giving discounts to new customers while charging loyal customers a higher price is considered to be extremely unfair. However, giving such a discount to loyal
customers is considered very fair (69% vs. 18%, Z = 5.86, p < .001 for a two-tailed test).
5.4.5 Discrimination based on price sensitivity
A firm may employ two strategies to discriminate among customers according to their price sensitivity. First, if a consumer logs into the company’s website through a price-comparison site, the consumer is more likely to be price sensitive. The firm can offer this type of consumer a lower price. Second, a consumer that logs into a
company’s website without making a reservation is more likely to be shopping around than one who makes a reservation. The firm can offer a discount to the former type of consumers using a pop-up window. This study posed the following two questions.
Question 11A. Suppose you log into a hotel’s website to make a reservation for a hotel room. You found out that when a customer visits the website directly, the price is $100. However, for a customer who uses a third-party search tool to compare prices among a number of competitors, and then connect to the hotel’s website, the price is $90. Is this fair or unfair?
(N=101) Very fair 5.9% 5.0% 8.9% 31.7% 48.5% Very Unfair
The majority of respondents considered it unfair charging a lower price to those who use a price comparison site than to those who do not (80.2% vs.10.9%, Z = 7.64, p < .001 for a two-tailed test).
Question 11B. Suppose you log into a hotel’s website to reserve a hotel room. When you almost finish the reservation process, you decided that you did not want to make a reservation at that time and closed the windows that connect to the website. At this moment a new window pops up, offering you a 15% discount if you make a reservation immediately. Is this fair or unfair?
(N=74) Very fair 18.9% 35.1% 13.5% 12.2% 20.3% Very Unfair
Respondents considered it is equivalent (54.0% vs. 32.5%, Z = 2.13, p = .03 for a two-tailed test). This scenario is similar to the last one in that it seeks respondents’
perceptions of fairness of price discrimination. However, it differs from the last question in two important respects. First, in this scenario, the respondents receive the lower price, whereas in the last scenario, they did not. Second, the scenario is very similar to the bargaining situation in traditional markets. This type of market is very popular in Taiwan and people are used to bargaining. A buyer often walks away in the middle of bargaining. If the seller calls the buyer back, the buyer can return to finish the transaction. Norms plays an important role here in influencing respondents’
perception of fairness. Respondents may perceive this transaction differently in a country where bargaining is not a daily activity.
5.5 Yield Management
Yield management on the Internet involves raising or reducing prices according to market conditions. Therefore, this study posed two questions concerning price
changes; one about price increases and the other about price reductions. Following Kimes (2002), consumers are expected to complain of unfairness when they encounter price changes either upward or downward. However, consumers will perceive price increases to be less fair than price reductions.
Question 12A. You were planning to take a vacation and logged into the Internet to check prices of hotel rooms. You found a room for $100 on a hotel’s website that is acceptable. However, you did not make a reservation immediately. Two days later, you have made up your mind to reserve the room and log in to the same website. You found that the price of the hotel room has been raised to $110. How fair do you consider the price change to be?
(N=100) Very fair 6% 19% 24% 32% 19% Very Unfair
Question 12B. [Same as above] Two days later, you have made up your mind to reserve the room and log in to the same web site. You found that the price of the hotel room has been lowered to $90. How fair do you consider the price change to be?
(N=74) Very fair 18.9% 32.4% 14.9% 27.0% 6.8% Very Unfair
Only 25% of the respondents considered the price hike fair, while 51%
considered the price hike unfair (Z = 3.42, p < .001 for a two-tailed test). However, roughly half of the respondents (51.3%) considered the price reduction fair, while respondents considered it is equivalent perceived fairness (Z = 1.76, p = .07 for a two-tailed test). The difference in proportion between the two scenarios is statistically significant (25% vs. 51.3%, Z = -3.56, p < .001 for a one-tailed test). Seemingly,
respondents use the price that they encounter the first time as the reference price.
They compare the current price with the reference price. If the current price exceeds the reference price, they considered the change unfair. However, if the current price is below the reference price, many consider the change fair.
Dynamic pricing increases variation in the prices for products purchased on the Internet. This variation is likely to increase the frustration of consumers since whether the prices they receive are low or high is hard to determine. The long-term viability of yield management is doubtful since most respondents feel that raising prices with no justification is unfair and yield management probably involves more price increases than price decreases.
5.6 Summary of The Results :
The pricing scenarios and the perceived fairness on the Internet was surveyed, basically the price was perceived fair if it is below the reference price, the price is beneficial and explanatory to customers, then it was perceived fair. The results of survey of different pricing scenarios and the perceived fairness is summarized as following:
Table 1. Summary of the Results of Survey
2A The average price is $92.00 with a standard deviation $7.70.
2B 11% 21% 32% 27% 9%
2C The average price is $86.69 with a standard deviation $6.37.
3A 42.7% 34.7% 16.0% 2.7% 4.0%
Chapter 6 Conclusions and Suggestions
6.1 Conclusions
This study makes four contributions to the literature on fair pricing.
1. Selling products on the Internet for the same price as they are sold through traditional channels is considered unfair. In this study, respondents considered a saving by consumers of about 8% to be fair.
2. Respondents considered various pricing mechanisms on the Internet to be fair, including auction, group-buying discounts, the Priceline model and negotiation.
Respondents consider such schemes to be even fairer if they obtain a low price than if they receive a high price.
3. This research examined random discounting, couponing, geographic
discrimination, discounting to new or loyal customers and discounting based on price sensitivity. The results show that discounting to loyal customers and using a window pop-up are two acceptable discounting methods. Other discounting methods are considered unfair. Respondents consider such practices to be less fair when they receive a high price than when they enjoy a low price.
4. Respondents feel price increased on the Internet to be unfair. Consumers do not favor yield management on the Internet.
The limitations of the study are the same issues as Q methodology, including sampling size and cost. The segmentation of the studies for different customer’s perception of fairness of pricing on the Internet was examined by researchers, specified studies on the special topics reached to the whole pricing strategies.
6.2 Suggestions
The results of this study suggest several areas for future research. First, most respondents considered unfair the practice of charging a lower price to those who use price comparison sites than those who do not. Over half of the respondents considered the use of a pop-up window to entice buyers to be fair. These results are surprising since the two methods are essentially the same in that lower prices are offered to those with higher price sensitivity. The different results may originate from a Taiwan
cultural norm. A reviewer of this study indicated that results may vary because the
“actors” are different: in one case an automatic tool exists which collects and
compares prices; in the other a relationship exists between the firm and the consumer.
The customers and the firm have more control on the bargain, or no third party is involved in such negotiation. Future studies may examine perceptions of these pricing methods in other cultures and in more detail.
Second, this study examined many but not all pricing mechanisms and methods of price discrimination. For example, a hotel may ask customers to stay four days when the demand is high for only three days. Or a hotel may ask customers to purchase meal coupons to use in the hotel’s restaurants when making reservations on the popular days. Do consumers consider this type of product bundling to be fair or unfair? While product bundling is not specific to the Internet, this issue deserves careful scrutiny.
Third, how quickly do consumers get frustrated when they encounter frequent price changes? Do they consider such changes fair when they finally see a price decrease after encountering several price hikes? Will they still consider the practice fair when they see a price hike after encountering several price decreases? These and
many other issues are worthwhile avenues for future research since the Internet supports highly flexible price-setting.
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國立交通大學管理科學系 黃仁宏教授
博士班學生 張清德
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