Dynamic Pricing and Consumer fairness perceptions

Deep's comment brings into focus the issue of dynamic pricing. Is such a mode of pricing by, say retailers, advantageous to the consumer?

I believe, yes, though consumer perceptions vary.

Dynamic pricing can be defined as the dynamic adjustment of prices to consumers depending upon the value these customers attribute to a product or service. Most of the application of dynamic pricing has been in the arena of e-commerce. Many a e-tailers have used dynamic pricing to their advantage. Remember as much as prices can go way up, they may come down too. Either way, the retailer benefits. The payoffs from a higher price charged in terms of increased profitability are obvious; the lower price on the hand may hit margins, but stimulate demand. Remember, lower prices don't necessarily mean losses. Dynamic pricing helps in managing inventory better; thus helping in minimising unsold stock.

Now for dynamic pricing from the consumer's perspective. The conclusions drawn by a research paper titled, 'Dynamic pricing and consumer fairness perceptions' by Kelly Haws and William Bearden are worth noting.

The study results show that the highest number of fairness thoughts and negative thoughts occurred for situations in which other consumers paid different prices in contrast to both seller- and time-based price differences. Bid prices were perceived as more fair than asked prices both when the customer paid more or the same as the comparison price. In contrast, when the consumer received a good deal by paying less than the comparison price, the pricing mechanism no longer affected fairness perceptions, suggesting that a perceived price deal overshadowed the mechanism used to set the price.

The research study showed that respondents (consumers) were much more likely to be opposed to short-term price changes when in comparison others paid less. In contrast, participants were more likely to mention that prices should drop over time when similar or higher comparison prices were involved. Moreover, the respondents more readily provided attributions for the time-based differences when others paid less. Interestingly, the attributional-related reasons were equally distributed across individual and company-related causes, showing equal likelihood of blaming oneself for poorly timed purchases and blaming the company for using unfair pricing practices.


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