Variable pricing through revenue management: a critical evaluation of affective outcomes

Abstract

Purpose

Numerous studies have measured short‐term behavioural response to variable pricing, but affective responses have been under‐researched. Trust is a focal point for this research, which assesses the affective consequence of variable pricing as applied using revenue management techniques. This paper aims to address this issue.

Design/methodology/approach

A longitudinal, quantitative approach was used to measure respondents' level of trust. The sample was divided into a control group which received constant price messages, and an experimental group, which received variable price messages. In stage one, respondents were presented with hypothetical scenarios of restaurant pricing over a period of six weeks. In stage two, a hotel chain's database was used to send control and experimental messages over a period of six months.

Findings

There is mixed evidence for the proposition that variable pricing leads to distrust by consumers. While there was evidence for this in stage one, the evidence from stage two was more complex. A profile emerged of relatively young, male, highly educated frequent purchasers who were more likely to trust a company using variable pricing compared with older, female, infrequent purchasers of lower educational attainment.

Research limitations/implications

It is probably not variable pricing itself that leads to mistrust of a company, but an individual's knowledge of the “rules” by which variable pricing operates. The high levels of trust recorded by younger, highly educated frequent purchasers suggests acceptance by them of the rules of variable pricing, and the benefits and problems associated with the practice.

Practical implications

This research informs management strategies that seek ever‐finer price discrimination through the use of customer databases and individually targeted price offers. Some customer segments may be amenable to variable pricing and will happily play along with the company's “rules”. Other groups may not understand such rules, and in these circumstances may distrust a company that practises variable pricing.

Originality/value

This study uses a longitudinal approach to measure issues of trust and fairness perceived in companies' efforts at price discrimination. Previous studies have tended to measure the success of variable pricing/revenue management practices through short‐term measures of behavioural response (e.g. increase in sales). This study incorporates an affective measure into the assessment of consumers' response to variable pricing.

Citation

Palmer, A. and McMahon‐Beattie, U. (2008), "Variable pricing through revenue management: a critical evaluation of affective outcomes", Management Research News, Vol. 31 No. 3, pp. 189-199. https://doi.org/10.1108/01409170810851285