Variable Pricing Through Revenue Management: A Critical Evaluation of Affective Outcomes

Research output: Contribution to journalArticle

7 Citations (Scopus)

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.
LanguageEnglish
Pages189-199
JournalManagement Research News
Volume31
Issue number3
DOIs
Publication statusPublished - 2008

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Revenue management
Evaluation
Pricing
Data base
Distrust
Behavioral response
Price discrimination
Acceptance
Design methodology
Scenarios
Management strategy
Research management
Educational attainment
Perceived fairness
Restaurants
Management practices
Management techniques
Consumer response
Hotels

Cite this

@article{29478a017f534561856de906e06f4d9c,
title = "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.",
author = "A Palmer and U McMahon-Beattie",
note = "Reference text: Bull, C. (2003), ‘‘Strategic issues in customer relationship management (CRM) implementation’’, Business Process Management Journal, Vol. 9 No. 5, pp. 592-602. Butler, J.K. (1991), ‘‘Toward understanding and measuring conditions of trust: evolution of a conditions of trust inventory’’, Journal of Management, Vol. 17 No. 3, pp. 643-63. Chow, S. and Holden, R. (1997), ‘‘Toward and understanding of loyalty: the moderating role of trust’’, Journal of Managerial Studies, Vol. 9 No. 3, pp. 275-98. de Chernatony, L. and McDonald, M. (2003), Creating Powerful Brands, 3rd ed., Elsevier Science and Technology, Oxford. Dooney, P.M. and Cannon, J.P. (1997), ‘‘An examination of the nature of trust in buyer-seller relationships’’, Journal of Marketing, Vol. 61, pp. 35-51. Dwyer, F.R., Schurr, P.H. and Oh, S. (1987), ‘‘Developing buyer-seller relationships’’, Journal of Marketing, Vol. 51 No. April, pp. 11-27. Garbarino, E. and Lee, O.F. (2003), ‘‘Dynamic pricing in internet retail: effects on consumer trust’’, Psychology and Marketing, Vol. 20 No. 6, pp. 495-513. Gabarro, J.J. (1978), ‘‘The development of trust, influence and expectations’’, in Athos, A.G. and Gabarro, J.J. (Eds), Interpersonal Behaviour: Communication and Understanding in Relationships, Prentice Hall, Englewood Cliffs, NJ. Grayson, K. and Ambler, T. (1999), ‘‘The dark side of long-term relationships in marketing services’’, Journal of Marketing Research, Vol. 36 No. 1, p. 132. Luck, D. and Lancaster, G. (2003), ‘‘E-CRM: customer relationship marketing in the hotel industry’’, Managerial Auditing Journal, Vol. 18 No. 3, pp. 213-31. Morgan, R.M. and Hunt, S.D. (1994), ‘‘The commitment-trust theory of relationship marketing’’, Journal of Marketing, Vol. 58 No. July, pp. 20-38. McMahon- Beattie, U. and Yeoman, I. (2004), Revenue Management and Pricing, Thomson Learning, London. Streitfeld, D. (2000), On the Web, Price Tags Blur, Washington Post, September 27, p. A01. Varey, R. and Ballantyne, D. (2005), ‘‘Relationship marketing and the challenge of dialogical interaction’’, Journal of Relationship Marketing, Vol. 4 No. 3, pp. 13-30. Wolverton, T. (2000), Some Amazon.com customers are fuming over random discounts on some of the e-tailer’s most popular DVD’s, News.Com, available at: http://news.com.com/2100- 1017-245326.html?tag¼rn (accessed 7 November 2002). Further reading Ganesan, S. (1994), ‘‘Determinants of long-term orientation in buyer-seller relationships’’, Journal of Marketing, Vol. 58 No. April, pp. 1-19. Muther, A. (2002), ‘‘Customer relationship management: Electronic customer care in the new economy’’, Journal of Consumer Marketing, Vol. 19 No. 6, pp. 532-3.",
year = "2008",
doi = "10.1108/01409170810851285",
language = "English",
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issn = "0140-9174",
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Variable Pricing Through Revenue Management: A Critical Evaluation of Affective Outcomes. / Palmer, A; McMahon-Beattie, U.

In: Management Research News, Vol. 31, No. 3, 2008, p. 189-199.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Variable Pricing Through Revenue Management: A Critical Evaluation of Affective Outcomes

AU - Palmer, A

AU - McMahon-Beattie, U

N1 - Reference text: Bull, C. (2003), ‘‘Strategic issues in customer relationship management (CRM) implementation’’, Business Process Management Journal, Vol. 9 No. 5, pp. 592-602. Butler, J.K. (1991), ‘‘Toward understanding and measuring conditions of trust: evolution of a conditions of trust inventory’’, Journal of Management, Vol. 17 No. 3, pp. 643-63. Chow, S. and Holden, R. (1997), ‘‘Toward and understanding of loyalty: the moderating role of trust’’, Journal of Managerial Studies, Vol. 9 No. 3, pp. 275-98. de Chernatony, L. and McDonald, M. (2003), Creating Powerful Brands, 3rd ed., Elsevier Science and Technology, Oxford. Dooney, P.M. and Cannon, J.P. (1997), ‘‘An examination of the nature of trust in buyer-seller relationships’’, Journal of Marketing, Vol. 61, pp. 35-51. Dwyer, F.R., Schurr, P.H. and Oh, S. (1987), ‘‘Developing buyer-seller relationships’’, Journal of Marketing, Vol. 51 No. April, pp. 11-27. Garbarino, E. and Lee, O.F. (2003), ‘‘Dynamic pricing in internet retail: effects on consumer trust’’, Psychology and Marketing, Vol. 20 No. 6, pp. 495-513. Gabarro, J.J. (1978), ‘‘The development of trust, influence and expectations’’, in Athos, A.G. and Gabarro, J.J. (Eds), Interpersonal Behaviour: Communication and Understanding in Relationships, Prentice Hall, Englewood Cliffs, NJ. Grayson, K. and Ambler, T. (1999), ‘‘The dark side of long-term relationships in marketing services’’, Journal of Marketing Research, Vol. 36 No. 1, p. 132. Luck, D. and Lancaster, G. (2003), ‘‘E-CRM: customer relationship marketing in the hotel industry’’, Managerial Auditing Journal, Vol. 18 No. 3, pp. 213-31. Morgan, R.M. and Hunt, S.D. (1994), ‘‘The commitment-trust theory of relationship marketing’’, Journal of Marketing, Vol. 58 No. July, pp. 20-38. McMahon- Beattie, U. and Yeoman, I. (2004), Revenue Management and Pricing, Thomson Learning, London. Streitfeld, D. (2000), On the Web, Price Tags Blur, Washington Post, September 27, p. A01. Varey, R. and Ballantyne, D. (2005), ‘‘Relationship marketing and the challenge of dialogical interaction’’, Journal of Relationship Marketing, Vol. 4 No. 3, pp. 13-30. Wolverton, T. (2000), Some Amazon.com customers are fuming over random discounts on some of the e-tailer’s most popular DVD’s, News.Com, available at: http://news.com.com/2100- 1017-245326.html?tag¼rn (accessed 7 November 2002). Further reading Ganesan, S. (1994), ‘‘Determinants of long-term orientation in buyer-seller relationships’’, Journal of Marketing, Vol. 58 No. April, pp. 1-19. Muther, A. (2002), ‘‘Customer relationship management: Electronic customer care in the new economy’’, Journal of Consumer Marketing, Vol. 19 No. 6, pp. 532-3.

PY - 2008

Y1 - 2008

N2 - 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.

AB - 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.

U2 - 10.1108/01409170810851285

DO - 10.1108/01409170810851285

M3 - Article

VL - 31

SP - 189

EP - 199

JO - Management Research News

T2 - Management Research News

JF - Management Research News

SN - 0140-9174

IS - 3

ER -