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Pricing strategy & practice

The influence of price fairness on customer


satisfaction: an empirical test in the context of
automobile purchases
Andreas Herrmann
University of St Gallen, St Gallen, Switzerland
Lan Xia
Marketing Department, Bentley College, Waltham, Massachusetts, USA
Kent B. Monroe
University of Illinois and University of Richmond, Glen Allen, Virginia, USA, and
Frank Huber
University of Mainz, Mainz, Germany

Abstract
Purpose – This paper aims to link conceptually the concepts of price fairness and customer satisfaction and empirically demonstrate the influence of
perceived price fairness on satisfaction judgments. Further, it seeks to examine specific factors that influence fairness perceptions including price
perception and consumer vulnerability.
Design/methodology/approach – The study is conducted in the context of automobile purchases in major German car dealerships. Based on a
theoretical conceptualization of the constructs and an empirical pretest, 246 car buyers were surveyed and their fairness perceptions and satisfaction
judgments with the car buying process measured.
Findings – The research shows that price perceptions directly influence satisfaction judgments as well as indirectly through perceptions of price
fairness. Results also indicated that consumers’ vulnerability, which is induced by a perceived demand-supply relationship and the urgency of need from
the consumers’ side, had a negative effect on perceived price offer fairness.
Research limitations/implications – The research demonstrated the influence of perceived price fairness on satisfaction judgments empirically. The
study was conducted in the context of car purchases and the generalizability of the model should be further tested.
Practical implications – The effect of consumer vulnerability implies that sellers should not only avoid exploiting their customers but should also
anticipate consumers’ potential feelings of being exploited. Being sensitive to the buyers’ psychological state and assuring buyers of fair treatment will
enhance perceptions of price fairness without changing the price offer.
Originality/value – Both the direct and indirect effects of price perception on satisfaction judgment were examined in the paper. Specifically, the
influences of consumer vulnerability and price procedure fairness on satisfaction judgments are new and contribute to the dual-entitlement principle
and our existing knowledge in price fairness.

Keywords Fair value, Customer satisfaction, Prices, Perception

Paper type Research paper

Previous research on customer satisfaction has examined formation of customer satisfaction has not been studied
factors that enhance customer satisfaction in various contexts extensively in previous customer satisfaction research (Voss
(for recent reviews see, Oliver, 1997; Szymanski and Henard, et al., 1998). When price has been included, it has been one of
2001; Shankar et al., 2003). As an important factor in the several product attributes considered relevant (Fornell et al.,
marketing mix, the role of product or service price in the 1996; Voss et al., 1998); however, the unique influence of
product price on satisfaction judgments remains unclear. In
this research we include consumers’ price perceptions as an
The current issue and full text archive of this journal is available at important factor influencing overall satisfaction judgments.
www.emeraldinsight.com/1061-0421.htm This influence is both direct, and indirect via price fairness
perceptions.
Voss et al. (1998) argue that satisfaction is a function of
Journal of Product & Brand Management price, performance and expectations with support for the
16/1 (2007) 49– 58
q Emerald Group Publishing Limited [ISSN 1061-0421]
expectations-satisfaction link being weak. They propose that,
[DOI 10.1108/10610420710731151] in contrast to performance, perceived price fairness might be

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The influence of price fairness on customer satisfaction Journal of Product & Brand Management
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber Volume 16 · Number 1 · 2007 · 49 –58

the dominant determinant of satisfaction. Their empirical Price fairness


results suggest that when there was a perceived price- Recent research efforts have isolated several factors that
performance inconsistency (i.e., an inequitable or unfair influence consumers’ price unfairness perceptions as well as
outcome), it had a stronger effect (negative) on satisfaction potential consequences of these perceptions (Bolton et al.,
judgments. Similar results were also found by Oliver and 2003; Campbell, 1999; Vaidyanathan and Aggarwal, 2003;
DeSarbo (1988) and Oliver and Swan (1989a). Xia et al., 2004). Previous research has distinguished
In addition, research also has shown that equity is related to distributive fairness and procedural fairness. The principle
satisfaction. Equity is a concept closely related to fairness and of distributive fairness, or fairness of outcomes, maintains that
usually defined as a fairness, rightness, or deservingness individuals judge the fairness of a relationship based upon the
judgment that consumers make in reference to comparative allocation of rewards resulting from their contributions to the
others (Oliver, 1997; Xia et al., 2004). A recent meta-analysis relationship (Homans, 1961). Thus, unequal ratios of profits
of the empirical research on customer satisfaction found that to investments between all parties involved in an exchange
equity exhibited a dominant effect on satisfaction judgments relationship create perceptions of unfairness.
with a correlation between equity and satisfaction of 0.50 Procedural fairness concerns judgments whether processes
(Szymanski and Henard, 2001). The correlation between are based on prevailing norms and behaviors (Thibaut and
expectations and satisfaction was a lower 0.27. However, Walker, 1975). We propose that consumers’ price fairness
relative to previous customer satisfaction research, little perceptions are influenced by both procedural and
published research has linked perceptions of price fairness distributive considerations. For example, a dealer’s price
with satisfaction judgments. In this paper, we address this offer for an automobile may be accompanied with an
link. Specifically, we extend Voss et al.’s (1998) finding to the explanation of the prices of various options and delivery
issue of perceived fairness. We include two components of charges, as well as required down payment and financing
price fairness (price offer vs procedure) as well as a consumer arrangements. In such situations, both the initial price of the
psychological characteristic (vulnerability) and examine their car quoted by the sales person (i.e., price offer) and the terms
effects on satisfaction judgments. We begin with an overview associated with the price and how these terms are handled
of the satisfaction and fairness concepts leading to a and explained to the consumer (i.e. price procedure) will
conceptual model and hypotheses. An empirical test of the influence consumers’ fairness perceptions. Also, price offer
model using automobile purchases follows. fairness perceptions and price procedural fairness perceptions
are positively correlated. The order of influence will be
Conceptual framework determined by the sequence in which consumers receive the
price offer and the price procedural information (van den Bos
Customer satisfaction et al., 1997).
Various definitions and measures of customer satisfaction Another foundation of price fairness perceptions, the
have been used in previous research (Szymanski and Henard, principle of dual entitlement, suggests that one party should
2001). One approach has been to distinguish between not benefit by causing a loss to another party. When a firm
transaction-specific and overall satisfaction (Oliver, 1997). uses higher consumer demand to its own advantage by
We distinguish satisfaction with the purchase process (e.g. increasing prices, consumers will feel being exploited and
product comparisons and interactions with the sales people)
hence perceive the prices as unfair. For example, one study
and satisfaction with the purchase outcome (i.e. the product
showed that 82 percent of the respondents judged a price
purchased). Previous research has shown that these two
increase for snow shovels the morning after a snowstorm to be
components of satisfaction are correlated but conceptually
unfair, while only 21 percent of respondents viewed an
distinct (Bitner and Hubbert, 1994; Shankar et al., 2003). For
increase in grocery prices following an increase in wholesale
example, in the context of using online decision aids,
prices as being unfair (Kahneman et al., 1986). While the dual
Bechwati and Xia (2003) found that people’s perceptions of
entitlement principle originated from buyers’ reactions toward
how much “effort” the decision aids exert in providing the
sellers’ obvious exploitation based on supply and demand
recommendations influenced their satisfaction regardless of
changes, it is possible that consumers may develop
what options were recommended. Similarly, Spreng et al.
perceptions of unfairness based on their own demand
(1993) proposed that customers’ satisfaction with the
situations even without explicit exploitation actions from the
availability of product information when evaluating various
product options has an important influence on overall seller. For example, when buyers feel that they have to buy a
satisfaction judgments. product and must bear whatever the price is, they may be
These influences may occur particularly for purchases that concerned that potentially they could be exploited by the
involve extensive information search and multiple interactions seller regardless whether the seller actually performs such
with the seller such as an automobile. The purchase of an actions.
automobile involves multiple stages including information
search, comparison of alternatives, and interactions with the Relationship of fairness perceptions to satisfaction
sales people or service provider. We propose that satisfaction Recent research in marketing and psychology has shown that
with one stage of this purchase process will have a direct satisfaction is positively correlated with fairness perceptions
influence on the satisfaction with other stages, especially when (Bowman and Narayandas, 2001; Huffman and Cain, 2001;
different aspects of the purchase process occur sequentially. Kim and Mauborgne, 1996; Ord?ñez et al., 2000; Smith et al.,
That is, people are more likely to perceive subsequent 1999). Oliver and Swan (1989a, b) found that customers’
purchase stages consistent with their initial judgment and any fairness perceptions depended on a supplier’s commitment
positive or negative affect that occurs during one purchase and the quality of the goods and services relative to the price
stage likely will carry over to the next stage. paid. Therefore, we propose that price perceptions influence

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The influence of price fairness on customer satisfaction Journal of Product & Brand Management
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber Volume 16 · Number 1 · 2007 · 49 –58

consumers’ overall satisfaction judgments directly and consumers’ fairness perceptions for both the initial price
indirectly through price fairness perceptions. offered and the various conditions and terms that are attached
In summary, there are various components of fairness to the final price (i.e. procedure).
perceptions and satisfaction judgments. The components of
fairness perceptions are correlated with each other. And, the Effects of price perceptions and price fairness
components of satisfaction are also correlated with each other. Our interviews showed that car buyers indeed consider price
In any specific purchase process, the direction of influence an important factor in their purchase decisions. Specifically,
between the components of price fairness depends on the consumers tend to consider the relative relationship between
order in which the information about price and terms of the price and their expectations about the performance of the
offer is received by the buyers. Similarly, the direction of product they want to purchase (Voss et al., 1998). Hence, an
influence between the components of satisfaction depends on initial price quote from the seller may be compared with a
the sequence of the purchase process. In addition, specific buyer’s previous experience or an expectation of an acceptable
factors that influence these constructs such as price fairness or fair price for the product. If buyers’ perceptions of
perceptions likely vary depending on the specific purchase performance or quality of the car exceed their expectations
context. Next, we develop specific testable hypotheses for and the car represents good value for money, then their
these relationships within an automobile purchase context. perceptions of the quoted or listed price should be favorable
(Voss et al., 1998). Consequently, if buyers perceive that the
Research context benefits offered by the product relative to the perceived
sacrifice (i.e. price to be paid) is favorable, then they will be
Buying a car was chosen for the study context for several more likely to perceive that the price is fair (Monroe, 2003):
reasons. First, buying a new car is an important decision for H1. Buyers’ price perceptions positively influence their
most consumers. Consumers’ perceived risk and uncertainty perceptions of the fairness of price offers.
are likely to be relatively high. Prior research suggests that,
In our interviews consumers frequently talked about their
when faced with performance or quality uncertainty,
need for the car such as whether they can wait or they have a
consumers are more likely to use price as a cue in forming
very short span of time to get the car. For example, their
performance expectations (Urbany et al., 1997). In addition,
previous car may have broken down or they had an accident
relatively high product prices enhance the likelihood that
and needed to get a new car quickly. Consumers have some
perceived price fairness may be an important issue. Therefore,
common knowledge that in a market economy prices are
this context provides us with an opportunity to examine the
subject to variations in supply and demand. When demand
influence of price fairness perceptions on satisfaction
increases relative to supply, sellers have an opportunity to
judgments. Second, an automobile purchase is a complex
raise prices and increase their profits. Therefore, when
process, involving price negotiation, interaction with service
consumers need to purchase a car quickly and have few or no
people, selection of different option packages for the car,
other options, they may feel more vulnerable due to the fear
signing a purchase contract, as well as the car delivery process.
that the seller will take advantage of this opportunity to quote
The purchase process usually is made up of a sequence of
a higher price than in other situations regardless whether the
clearly distinguishable individual episodes typically occurring
seller actually takes such an action. The dual entitlement
in a similar order for most auto buyers. These different events
principle implies that such situations do influence buyers’
provide an opportunity to separate consumers’ satisfactions
price fairness perceptions, especially when buyers have no
with different encounters within the entire purchase
other alternatives (Kahneman et al., 1986; Kalapurakal et al.,
transaction procedure.
1991). These initial interviews also revealed that the car
We first conducted 50 informal interviews with prospective
buyers indicated they felt some anxiety at the initial stages of
auto buyers as well as staff at several auto dealerships in
the buying process. Regardless of previous purchase
Germany to understand the automobile purchase process.
experience, they felt some concern that they would not
Based on these interviews, we developed a set of factors that
know whether the price would be reasonable for their
influence price fairness perceptions as well as specific
situation. Hence, we propose that consumers’ feeling of
components within the purchase process that affect
vulnerability may contribute to their perceptions of price
satisfaction judgments. Moreover, these interviews also
unfairness:
enabled us to specify the direction of influences among the
H2. As consumers’ perceived vulnerability due to an urgent
fairness components and the satisfaction components based
need and their immediate demand increases, their
on the temporal sequence of the purchase process, leading to
perceptions of price offer fairness will decrease, ceteris
the conceptual model (see Figure 1) that was tested
paribus.
empirically.
In terms of the influence between the two components of
distributive and procedural fairness, we found that when
Hypotheses
buying an automobile, buyers typically receive an initial price
In the model, we focus initially on the influence of consumers’ offer from the dealer before they discuss specific options that
perceptions of price and price fairness on their satisfaction they want and negotiate the final price and financial terms
judgments. First, we propose that perceptions of the product’s with the seller. The principles of distributive and procedural
price have both a direct influence on satisfaction judgments as fairness suggest that price fairness judgments will be based on
well as an indirect influence through price fairness both the outcome (i.e. price) as well as information related to
perceptions. As previous research suggests, people form how the specific outcome was determined (i.e. procedure).
price fairness perceptions from both the offer and the Information on outcomes and procedures may interact and
procedure that lead to the offer. Hence, we consider the order that the information is received influences

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The influence of price fairness on customer satisfaction Journal of Product & Brand Management
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber Volume 16 · Number 1 · 2007 · 49 –58

Figure 1 The conceptual model

perceptions of price fairness. Hence, for a typical car purchase Effects of different components of satisfaction
process in Germany, we hypothesize an influence from For a complex purchase situation, the overall judgment of
perceived initial price offer fairness to perceived price satisfaction consists of various components including both
procedure fairness: satisfaction with the purchase process and satisfaction with
H3. Buyers’ perceptions of price offer fairness will have a the outcome. The interviews indicated that a major aspect of
positive effect on their perceptions of pricing procedure purchasing an automobile involves interactions with
fairness. salespeople and other members of the dealer’s staff.
We propose that fairness and satisfaction are linked through Consumers rely on salespeople for specific information
product or service price. Previous research on satisfaction about the car to help them make an assessment. There are
indicates that equity (e.g. perception of price fairness) has a also opportunities to interact with individuals who handle the
major influence on satisfaction judgments. Since Szymanski financial aspects of the purchase. Therefore, interaction with
and Henard (2001) have shown that equity has a dominant members of the dealer’s staff will have a direct influence on
effect on satisfaction judgments we propose the direction of customer’s overall satisfaction judgments. Further, although
influence to be from price fairness to satisfaction: buyers may have some general ideas about the quality of the
H4. Buyers’ perceptions of price offer fairness will have a car they are purchasing, product conditions upon delivery
positive effect on their overall satisfaction with the provide a direct opportunity for buyers to assess the quality of
purchase. the car that they are actually buying (i.e. satisfaction with the
H5. Buyers’ perceptions of pricing procedure fairness will outcome). Hence, satisfaction with the condition of the car
have a positive effect on their overall satisfaction with upon delivery will have a positive effect on overall satisfaction
the purchase. judgments:
H7. Buyers’ satisfaction with the dealer’s service will have a
In addition to influencing satisfaction judgments through
positive effect on their overall satisfaction with the
fairness perceptions, price perceptions also directly influence
purchase.
satisfaction judgments (Voss et al., 1998). That is, consumers
H8. Buyer’s satisfaction with the condition of the car upon
may also judge the price paid relative to the consistency of the
delivery will have a positive effect on their overall
performance of the product or service. When consumers
satisfaction with the purchase.
compare their perceived gains or benefits of the transaction
relative to their perceived monetary sacrifice and judge that We propose that satisfaction with one stage of the purchase
their sacrifice is greater than the benefits derived from the process will have a positive influence on the satisfaction with
product’s performance, consumers may be dissatisfied other stages, especially when the purchase process occurs in a
(Spreng et al., 1993): sequence. Within the car buying process, the initial
H6. Buyers’ price perceptions will have a positive effect on information that buyers obtain is usually a price quote.
their overall satisfaction with the purchase. Then they learn more about the pricing procedure. Next, they

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The influence of price fairness on customer satisfaction Journal of Product & Brand Management
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber Volume 16 · Number 1 · 2007 · 49 –58

may develop some further impressions about the dealer based Table I Socio-demographic structure of the respondents
on their interactions with the dealer’s service people. Finally,
they complete the transaction and obtain the car. This NCBS Sample
purchase sequence determines the direction of influence from (%) (%)
one component of satisfaction to another. Gender
We have hypothesized that perceptions of initial price offer Male 76.3 75.2
fairness have a positive effect on pricing procedure fairness. Female 23.4 24.8
Obtaining information on pricing procedures and terms
associated with a price quote is part of the interactions Age
between the customers and the dealer’s employees. Therefore, < 25 5.6 6.1
consistent with the purchase sequence, we propose that: 23-49 55.8 56.1
H9. Buyers’ perceptions of pricing procedure fairness will 50-65 29.3 29.3
have a positive effect on their satisfaction with the > 66 7.5 8.5
dealer’s service.
H10. Buyers’ satisfaction with the dealer’s service will have a Marital status
positive effect on their satisfaction with the conditions Single or living alone 17.8 18.7
of the car upon delivery. Married or living together 82.2 81.3
Persons living in house
1 12.4 12.2
The study
2 40.2 40.6
Pretest 3 21.5 21.8
To start the actual study, 100 car owners who recently had 4 18.8 17.9
bought a car from one of the dealerships of each of the five >5 7.1 7.3
major German car brands (DaimlerChrysler, BMW,
Volkswagen, Ford, Opel/GM) were interviewed by Education level
well-trained interviewers and averaged 30 minutes. Based on Elementary school 8.5 7.7
these interviews we refined our set of measurement items, Middle school 28.0 28.1
compiling a list of 27 items to measure the constructs. The High school 32.5 30.9
pretest also revealed that car buying is a highly involving task College 8.4 9.7
for consumers. Overall, the respondents were familiar with the University 22.7 23.6
car buying process and had some general knowledge about Residence
purchasing a car.
City 27.0 26.8
Town 40.7 41.9
Final survey
After developing the measures, we obtained a list of customers Village 24.0 24.0
who recently had bought a car from the dealerships. We Country 8.3 7.3
contacted 460 customers both via mail and subsequent phone Note: The demographic structure of the study corresponds with the new car
calls to solicit participation. Although no incentives were buyer study (NCBS) (German)
offered, 246 customers agreed to participate for a completion
rate of 53.5 percent. A time was scheduled with each
participant and the survey was administered face-to-face at is exactly 0.50, providing strong evidence of discriminant
the dealerships. Well-trained interviewers from a market validity. Overall, the measures displayed very good convergent
research company administered the survey. To help and discriminant validities.
respondents refresh their memories of their purchase
experiences, the interviews followed the purchase sequence Perceived vulnerability
uncovered during the initial set of interviews that led to the Buyers are more likely to perceive a price is unfair when they
model in Figure 1. Each session lasted about 30 minutes. The feel vulnerable to possible exploitation by a seller. This
demographic characteristics of the buyers and distribution of vulnerability is more severe when buyers’ need for the product
the brand/model of cars purchased matched that of the New or service is urgent and they are limited by the availability of
Car Buyer Study (Table I). other alternatives. Using items from Cook and Emerson’s
(1978) “feeling of vulnerability,” respondents were asked
Measures whether the car was absolutely required, and whether there
As summarized below, the respondents answered questions were other transportation alternatives.
regarding their purchase experiences using seven-point scales
ranging from “strongly disagree” to “strongly agree.” To select Price perceptions
the final items for each construct, we used Cronbach’s alpha, We argue that buyers’ perceptions of a price are based on the
item-to-total correlations, and exploratory factor analysis. relativity of price and the perceived performance or quality of
Exploratory factor analysis indicated that the measures loaded the product as well as their comparisons with their
on the correct factors and provided initial assessments of the expectations (Monroe, 2003; Voss et al., 1998). When
discriminant and convergent validities of the measures. The buyers perceive the quality or performance is consistent
final 20 items used are given in Table II and the construct with the price, their perceptions of the price will be favorable,
correlation matrix is in Table III. As shown in Table III, 20 of enhancing a fair price perception. Similarly, when a price offer
the 21 inter-construct correlations are less than 0.50 and one meets one’s expectation, the evaluation is likely to be positive.

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The influence of price fairness on customer satisfaction Journal of Product & Brand Management
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber Volume 16 · Number 1 · 2007 · 49 –58

Table II Scale items and measurement properties


Item Construct Variance
Scale items by construct t-value reliability reliability extracted Alpha
Price perception 0.55 0.80 0.80
The price of the new car is appropriate relative to its performance 22.53 0.53
The price of the new car meets my expectations 24.28 0.69
The price of the new car is good value for money comparing to other cars 22.12 0.49
Buyer vulnerability 0.71 0.86 r ¼ 0:71
The car is absolutely required for private or business use 19.21 0.79
It is not possible for me to use other means of transportation 19.32 0.64
Price offer fairness 0.51 0.84 0.95
The price of the new car of this dealer is clear understandable) 16.24 0.57
All customers are treated equally by the dealer’s pricing 22.08 0.45
I think the price of this dealer is based on cost 15.34 0.43
The price of the car is independent of customer’s needs 15.23 0.60
Pricing procedure fairness 0.30 0.79 r ¼ 0:85
The terms of this dealer are fair 20.25 0.34
The procedure of buying the car from the dealer is fair 9.07 0.26
Satisfaction with the dealer’s service 0.57 0.78 0.93
The dealer’s employees are friendly 19.21 0.67
The dealer offers a lot of accessories 15.79 0.60
I am satisfied with the information that was provided by the employees 14.95 0.54
I am satisfied with the dealer’s commitment 15.16 0.51
Satisfaction with the car upon delivery 0.53 0.78 0.77
The car was in perfect condition when it was delivered 9.32 0.50
All option requests were fulfilled 14.57 0.67
The car is the same as my expectations 9.01 0.44
Satisfaction with the purchase 0.56 0.86 r ¼ 0:55
I am satisfied with the car purchase 14.43 0.68
There is no reason to complain 12.36 0.45

Table III Construct and inter-construct correlations


Price Price
Price Buyer offer procedure Satisfaction with Satisfaction Satisfaction
perception vulnerability fairness fairness dealer’s service with car with purchase
Price perception 0.57
Buyer vulnerability 0.35 0.71
Price offer fairness 0.32 0.23 0.76
Price procedure fairness 0.44 0.37 0.14 0.85
Satisfaction with dealer’s service 0.26 0.23 0.24 0.14 0.68
Satisfaction with car 0.23 0.24 0.20 0.20 0.12 0.53
Satisfaction with purchase 0.40 0.38 0.46 0.37 0.50 0.34 0.55

Therefore, price perceptions were measured using: the price price offer was determined (Kim and Mauborgne, 1996), and
of the new car is appropriate relative to its performance; the the responding buyers’ perceptions of the relationship
price of the new car meets my expectations; and the car is between their needs and the price quoted by the dealer
good value for money comparing to other cars. (Oliver and Swan, 1989b). The German word gerecht
Perceived price offer fairness meaning fair and just was used to measure fairness
Since our research is in the specific context of automobile perceptions. Also, research indicates that a cost-based
purchases, we developed our own price offer fairness pricing strategy is perceived to be fairer (Kalapurakal et al.,
measures drawing on literature sources related to procedural 1991). Therefore, perceived price offer fairness was measured
fairness. We emphasized equality of treatment across buyers using: the price offer of the dealer is understandable; all
(Xia et al., 2004), the degree that buyers understood how the customers are treated equally by the dealer; the price of this

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The influence of price fairness on customer satisfaction Journal of Product & Brand Management
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber Volume 16 · Number 1 · 2007 · 49 –58

dealer is based on cost; and the price of the car is not affected Evaluating the structural model
by the individual customer’s needs. The structural model (Figure 2) was tested using LISREL 8.3
(Jöreskog and Sörbom, 1996). PRELIS was used to generate
Pricing procedure fairness the input matrix. Analysis was conducted separately for an
Research on procedural fairness suggests that the procedure exogenous model that included the exogenous constructs and
of setting the price, in addition to the price itself would their indicators and an (endogenous model that included the
influence buyers’ fairness perceptions. For a car purchase, a endogenous constructs and their indicators). To test the
price is a combination of several elements and carries with it absolute fit of each of these two models, the goodness of fit
various terms and conditions. Therefore, how these terms and index (GFI) was 0.99 (0.98) and the adjusted goodness of fit
the price setting procedures were explained to and accepted index (AGFI) was 0.98 (0.96). Thus, the goodness of fit
by the buyers were measured using two items: the terms of the indices were well above the minimum criterion values of 0.90.
dealer are fair; and the procedure of buying a car from the For the full model, the root mean square error of
deal was fair. approximation (RMSEA) was 0.043 for both models, which
is below the recommended upper threshold of 0.08. These
Satisfaction with the dealer’s service indices clearly indicate a good absolute fit to the data
The measures used for this construct were based on the (Jöreskog and Sörbom, 1996).
various interactions that the buyers had with the dealer Testing the comparative fit of the two models, the normed
including the friendliness of the staff, the impression obtained fit index (NFI) (Bentler and Bonett, 1980) was 0.98 (0.97),
when purchasing accessories, satisfaction with the also exceeding the suggested criterion value of 0.90. The
information provided by the dealer, and satisfaction with the comparative fit index (CFI) of 0.99 (0.99) exceeded the
dealer’s general commitment (Burmann, 1991; Ostrom and criterion value of 0.90 (Bentler, 1990). The incremental fit
Spreng et al., 1996). index (IFI) was 0.98 (0.97), again indicating a good fit.
Alternative model configurations were considered, but as
Satisfaction with the car upon delivery these indices indicate, improvements in fit could not be
This aspect of satisfaction was measured by obtaining buyers’ obtained by any alternative configurations.
perceptions of the car relative to their expectations, the
condition of the car when it was delivered, and whether all Test of the hypotheses
options or features of the car that the buyers requested had The standardized estimates for the various model paths for
been met. the study are shown in Table IV along with the results of the
hypotheses tests according to the sequence of paths depicted
Overall satisfaction in Figure 2. As hypothesized, respondents’ perceptions of
Two items were used for this construct: overall satisfaction price offer fairness were positively influenced by their price
with the purchase and intention to complain. perceptions (b ¼ 0:64, t ¼ 14:62, p ¼ 0:04, supporting H1),
and negatively influenced by their perceived vulnerability
(b ¼ 20:21, t ¼ 4:63, p ¼ 0:05, supporting H2). When
Measurement properties of the scales buyers perceive that the price offer is consistent with or
Using exploratory and confirmatory factor analyses, the exceeds their expectations about the car’s perceived quality or
measurement model was assessed for the dimensionality of performance, they are more likely to perceive the price offer as
the scales, their reliability and the construct validity of the fair. Further, an increase in buyers’ need and demand
measures. Item reliability, construct reliability, and variance enhances a feeling of vulnerability, which, ceteris paribus,
extracted of the items are shown in Table II. A single-factor increased their concern as to whether the price offered by the
confirmatory factor analysis (WLS estimate) was conducted dealer was fair, producing a negative effect. Thus, our results
to further check scale reliability and validity. The complement past research results (Kahneman et al., 1986;
confirmatory assessment of the measurement properties of Maxwell, 1995). Moreover, price perceptions also exerted a
all four scales with at least three items indicated that the small direct influence on overall satisfaction with the purchase
confirmatory factor loadings (lambdas) were high and (b ¼ 0:15, t ¼ 1:95, p ¼ 0:09). We also ran the model without
significant (p , 0:001), satisfying the criteria for convergent the direct effect of price perceptions and compared it with the
validity. Moreover, Cronbach’s alpha for these four scales was hypothesized model. The difference was significant
0.77 or higher, indicating adequate reliability. (x2 ¼ 66:97, p , 0:01) so we kept the path. The combined
Except for perceived price offer fairness, all construct direct and indirect effect of price perceptions on overall
reliabilities were greater than 0.50. The variances extracted satisfaction with the purchase is 0.48. Thus, these results
were greater than 0.75. These two assessments exceed the support our argument that price perceptions have a major
established minimum criteria (Fornell and Larcker, 1981). All influence on overall customer satisfaction (see also Singh and
t-values shown in Table II were statistically significant, Sirdeshmukh, 2000; Voss et al., 1998).
providing evidence of convergent validity of the measures We hypothesized (H3) that perceived price offer fairness has
(Fornell et al., 1982). The M2 measure developed by Fornell a positive effect on perceived pricing procedure fairness since
et al. (1982) had a value of 0.46 which is above the required car buyers are more likely to obtain an initial price offer before
threshold of 0.40. All inter-construct correlations were 0.50 a final price is negotiated. The initial perceptions of the
or less, indicating the measures had discriminant validity. The fairness of the offer are likely to influence perceptions of price
squared correlation coefficients of each latent variable with procedure fairness (van den Bos et al., 1997). This
relevant others was smaller than the average variance recorded relationship was supported (b ¼ 0:89, t ¼ 17:78, p ¼ 0:05).
in 31 of 42 possible comparisons, providing more evidence of Regarding the relationship between fairness and
discriminant validity. satisfaction, we hypothesized that perceived price offer

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The influence of price fairness on customer satisfaction Journal of Product & Brand Management
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber Volume 16 · Number 1 · 2007 · 49 –58

Figure 2 Effects of price fairness on customer satisfaction

Table IV Testing the model (Figure 2) relationships


From To Sign Standardized relationship estimate t-value p-value
Perceived vulnerability Price offer fairness 2 2 0.21 4.63 0.05
Price perceptions Price offer fairness þ 0.64 14.62 0.04
Price offer fairness Pricing procedure fairness þ 0.89 17.78 0.05
Pricing procedure fairness Satisfaction with dealer’s service þ 0.61 10.30 0.06
Satisfaction with dealer’s service Satisfaction with car þ 0.44 12.97 0.03
Satisfaction with car Satisfaction with purchase þ 0.30 5.02 0.06
Price perceptions Satisfaction with purchase þ 0.15 1.95 0.09
Price offer fairness Satisfaction with purchase þ 0.22 2.53 0.04
Pricing procedure fairness Satisfaction with purchase þ 0.32 2.56 0.05
Satisfaction with dealer’s service Satisfaction with purchase þ 0.36 4.06 0.09

fairness (H4) and perceived pricing procedure fairness (H5) Finally, satisfaction with the dealer’s service had a positive
have positive effects on buyers’ overall satisfaction judgments. effect on satisfaction with the condition of the car upon
These propositions are supported by a direct effect of price delivery (b ¼ 0:44, t ¼ 12:97, p ¼ 0:03, H10). Overall, the
offer fairness (b ¼ 0:22, t ¼ 2:53, p ¼ 0:04) and a direct effect results indicate that buyers’ satisfaction with an automobile
of pricing procedure fairness (b ¼ 0:32, t ¼ 2:56, p ¼ 0:05). purchase is influenced by their price fairness perceptions as
The combined effect of price offer fairness perceptions on well as their satisfaction with various transactions that occur
overall satisfaction judgments, including the direct effect and during their purchase process.
the indirect effect through price procedure fairness, is 0.77.
The results indicated that both satisfaction with the dealer’s Discussion
service (b ¼ 0:36, t ¼ 4:06, p ¼ 0:09, H7) and satisfaction Our research contributes to the literature on satisfaction by
with the conditions of the car upon delivery (b ¼ 0:30, incorporating the role of perceived price fairness. Price is an
t ¼ 5:02, p ¼ 0:06, H8) positively influence overall important element in consumers’ purchases; therefore it has a
satisfaction. Also, buyers’ perceptions of pricing procedure large influence on consumers’ satisfaction judgments. The
fairness positively influenced the respondents’ satisfaction results showed that price perceptions directly influence
with the dealer’s service (b ¼ 0:61, t ¼ 10:3, p ¼ 0:06, H9). satisfaction judgments as well as indirectly through

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The influence of price fairness on customer satisfaction Journal of Product & Brand Management
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber Volume 16 · Number 1 · 2007 · 49 –58

perceptions of price fairness. Our research has linked these These elements are correlated but distinct components of
two important concepts and demonstrated the influence of overall satisfaction judgments. By partitioning satisfaction
perceived price fairness on satisfaction judgments empirically. into several distinct components, sellers can determine which
Further, we have extended research relative to the influence component influences satisfaction at the various stages of the
of demand-supply relationships on price fairness perceptions purchase process. Hence, a better understanding of
by examining the demand side perceptions (i.e., consumer consumers’ satisfaction formation will increase our
vulnerability) without actual supply side actions. Results knowledge of how to enhance consumers’ satisfaction.
indicate that consumers’ perceived vulnerability, which is This research linking perceived price fairness and customer
induced by a perceived urgency of need by the consumers, satisfaction was examined in an automobile purchase context.
had a negative effect on perceived price offer fairness. The Nevertheless, we believe the results reported in this article can
results extend the dual entitlement principle and imply that be generalized to other consumer purchases of relatively high-
sellers should not only avoid exploiting their customers but priced products and complex purchase processes involving
should also anticipate consumers’ potential feelings of being multiple interactions with the sellers’ employees. However,
exploited. Being sensitive to the buyers’ psychological state whether and how the relationship between price fairness and
and assuring buyers of fair treatment will enhance perceptions customer satisfaction extends to other product and service
of price fairness without changing the price offer. When purchase contexts needs to be examined. Further, as we
buyers are relaxed relative to their feelings of vulnerability, suggested, the direction of influence among the components
price fairness perceptions will be higher, thereby enhancing of fairness perceptions and satisfaction judgments depends on
satisfaction judgments. the sequence of interactions within the purchase process and
However, we did not measure respondents’ prior the order that consumers receive relevant information. Hence,
relationship with the dealerships. Presumably, a good another area needing additional research is when consumers
existing relationship with the dealerships may serve as a first receive information about the pricing procedure as well as
“safety net” that consumers may use to reduce their feelings the price offer itself.
of vulnerability. In addition, the felt vulnerability within our
study context may also be due to the respondents’ high
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Further reading
Oliver, R.L. and Swan, J.E. (1989a), “Equity and
disconfirmation perceptions as influence on merchant and Bagozzi, R. and Yi, Y. (1988), “On the evaluation of
product satisfaction”, Journal of Consumer Research, Vol. 16, structural equation models”, Journal of the Academy of
December, pp. 372-83. Marketing Science, Vol. 16, Spring, pp. 74-94.
Oliver, R.L. and Swan, J.E. (1989b), “Consumer perceptions
of interpersonal equity and satisfaction in transactions: About the authors
a field survey approach”, Journal of Marketing, Vol. 53,
April, pp. 21-35. Andreas Herrmann is Professor of Media and
Ordóñez, L.D., Connolly, T. and Coughlan, R. (2000), Communications Management at the University of St
“Multiple reference points in satisfaction and fairness Gallen, Switzerland.
assessment”, Journal of Behavioral Decision Making, Vol. 13 Lan Xia is Assistant Professor, Marketing Department,
No. 3, pp. 329-44. Bentley College, Waltham, Massachusetts, USA. Lan Xia is
Shankar, V.S., Smith, A.K. and Rangaswamy, A. (2003), the corresponding author and can be contacted at:
“Customer satisfaction and loyalty in online and offline lxia@bentley.edu
environments”, International Journal of Research in Kent B. Monroe is J.M. Jones Distinguished Professor of
Marketing, Vol. 20 No. 2, pp. 153-75. Marketing Emeritus, University of Illinois, and Distinguished
Singh, J. and Sirdeshmukh, D. (2000), “Agency and trust Visiting Scholar, University of Richmond, Glen Allen,
mechanism in consumer satisfaction and loyalty Virginia, USA.
judgments”, Journal of the Academy of Marketing Science, Frank Huber is Professor of Marketing at the University of
Vol. 28, pp. 150-67. Mainz, Germany.

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