How source of funds affects buyer’s judgments of price fairness and subsequent response

This research aims to examine how source of funds (paying with company’s funds versus personal funds) affects buyer’s judgments of price fairness and via these judgments, buyer’s response to prices.

A scenario-based experiment is used (N = 200). To test the hypotheses, the authors run moderated mediation regression analyses with the help of the PROCESS macro.

Drawing on fairness heuristics theory, the authors hypothesize and find that relative to when paying with personal funds, when paying with company’s funds, the perceived price difference plays a less significant role, whereas the perceived social acceptability of the pricing practice underlying the price difference plays a more important role in shaping price fairness judgments and, via these judgments, buyer’s response to prices.

The findings generate advice for companies that serve both the business and personal segments (e.g. airlines and hotels). Buyers in the personal segment typically pay with their own money. To persuade these buyers that a price is fair, it is crucial to show that the price represents a good deal for them. Buyers in the business segment often pay with company’s fund. Companies have more flexibility in charging different prices, but they should make sure that the reasons for the price difference are socially acceptable.

This research shows how the relative role of price difference versus social acceptability in price fairness judgments varies as a function of source of funds and how an inconsistency between price difference and its economic impact affects price fairness judgments.