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Abstract
Numerous studies have demonstrated that customers' acceptance of a price, particularly a price increase, is influenced by their perception that it is "fair". The definition of a fair price, however, has confused the economic and social components. In a series of four studies, first isolates the independent effects of the social and economic components and then further explores the social component. The results lead to three recommendations for making a price increase more socially acceptable: explain the economic rationality; demonstrate that the seller has not abused power; and be sensitive to the cultural norms of pricing.
Putting through a price increase is deceptively simple: in the ideal case, management announces an increase after carefully considering the competitive situation, the demands of investors, and the receptivity of the customers. The field puts through the change, experiencing only minor "menu costs", the expenditure on new price lists or price tags.
However, as everyone knows, raising prices is rarely so easy. More often than not, the increase does not "stick". Somewhere between the announcement and the implementation, the planned increase somehow evaporates. As a seller of business forms lamented: "We tried to increase prices two or three different times..but they didn't stick" (Belton, 1994). Why does this happen? Why do price increases not stick? Or perhaps more amazing, why do price increases ever stick?
Numerous studies have shown that customers' acceptance of a price, particularly a price increase, depends on their considering it "fair". For example, Lavin and Miller (1993) in The Wall Street Journal answered questions on "value" pricing in automobiles: "Q. So does 'value' pricing really mean no more haggling? A. Only for models that consumers agree are fairly priced". Research has shown that when a price increase is perceived as "unfair", customers either complain, resist or switch suppliers. (see Fehr et al., 1993; Heide and John, 1992; Kalapurakal et al., 1991; Kamen and Toman, 1970; Kaufmann and Stern, 1988; Madden et al., 1992; Swan and Oliver, 1989 for some supporting studies). For example, Kahneman, et al. (1986) found that people will go out of their way to avoid shops that appear to price unfairly. However, it is not clear what makes a price increase seem fair in the mind of the consumer.