Psychological influences on customer willingness to pay and choice in automated retail settings: Context effects, attribute framing, and perceptions of fairness

Abstract

Purpose

The purpose of this paper is to investigate the influence of price attribute framing and factors such as urgency and perceived price fairness on customer willingness to pay (WTP) in automated retail settings.

Design/methodology/approach

The authors conducted two sets of quasi-experimental scenarios surrounding vending-machine purchase decisions. The first set was analyzed with MANOVA, the second set with choice-based conjoint (CBC) analysis.

Findings

When prices are framed positively (as a discount), customer WTP is higher at high published price levels than it is for unframed or negatively framed prices. The effect on WTP holds whether the reference price range is broad (few large increments) or narrow (numerous small increments). In the CBC scenarios, immediate availability of the product was most influential on choice, followed by price and brand effects. These findings held under conditions invoking both urgency and price fairness. Providing an explanation for higher prices increases perceived price fairness.

Research limitations/implications

Further study might assess the presence or absence of interaction effects in the conjoint scenarios.

Practical implications

Managers should consider transparency in dynamic pricing, particularly when the price change is outside the control of the firm. The conjoint scenario results also offer evidence that dynamic pricing will not impact other marketing-mix decisions for fast-moving consumer goods (FMCG) dramatically (availability at point of purchase and presence in the consumer consideration set remain strong influences on choice).

Social implications

Understanding these effects on WTP could help managers manage perceptions of unfairness and optimize WTP.

Originality/value

A theoretical contribution from this study is that the immediate loss/gain consideration under theories of decision making under uncertainty outweigh considerations such as scarcity urgency or perceived unfairness. Use of conjoint analysis in WTP research, study of dynamic pricing in FMCG setting.

Citation

Dixit, A., D. Hall, K. and Dutta, S. (2014), "Psychological influences on customer willingness to pay and choice in automated retail settings: Context effects, attribute framing, and perceptions of fairness", American Journal of Business, Vol. 29 No. 3/4, pp. 237-260. https://doi.org/10.1108/AJB-06-2014-0036