In What condition is a price increase perceived as fair? An empirical investigation in the cable car industry

post by : anthony.vollenwe



This research has been done by the University of Wollongong, Australia, in collaboration with researcher from the University of St. Gallen. They conducted a survey in order to understand the customer’s perceived price fairness in function of different price increase conditions. Because of the fierce national and international competition but also to protect their image and loyal customer, Swiss firms seem reluctant to change their price compared to other countries which made it a good subject for this study: only 38% did it between 2016/17 and increase of only 17% compared to around 35% for the other alpine countries (Vanat, 2017).

Four claims have been advanced, tested, and confirmed by this study (Bieger, Engeler, Laesser, 2010):

  1. A price increase based on an increase in a firm’s cost is perceived as more fair than a price increase due to excess demand.
  2. A price increase indicating an increase in customer’s perceived value is perceived as more fair than a price increase with no indication on an augmented perceived value.
  3. A price increase based on an external and uncontrollable cost-based reason is perceived as more fair than a price increase due to internal and controllable cost based reasons.
  4. A price increase with a reason provided is perceived as more fair than a price increase without a reason, even if the reason provided is unfavourable for the firm.

It is important to be aware of the customer’s view, of the customer’s behavior. By doing this, we understand that communication about a price change is probably the most important action. The change will be better accepted than by trying to hide it. Furthermore, the customer is more likely to accept a price change if there is an added value (Bieger, Engeler, Laesser, 2010), if he thinks that he will make himself better off, so revenue management is an important part of setting prices and how we justify it. If I develop more my personal thinking by using an element we have seen during the course; by justifying the reason of the different rates, the customer will understand why at that moment it is cheaper or more expensive and will take the responsibility about not having made the purchase at the right moment. We can say that the company transfers the responsibility of the level of the rates to the customers.

Key words: Price increase, perceived price fairness, accepted change

References:

Bieger, T., Engeler, I. & Laesser, C. (2010). In what condition is a price increase perceived as fair? an empirical investigation in the cable car industry. 20th Annual CAUTHE 2010 Conference (pp. 1-12). Hobart, Tasmania: School of Management, University of Tasmania

Vanat, L. (2017). Bilan de la saison 2016 / 17 Fréquentation des domaines skiables. Bern : Remontées Mécanique Suisses

 

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