Dynamic pricing and consumer price fairness perceptions in the Swiss brick-and-mortar retail market

Dynamic pricing, the practice of adjusting prices in real-time based on market demand and other variables, has become increasingly popular in various industries. Especially, airlines, accomodation booking platforms but also other demand driven vendors have implemented a dynamic pricing model.

This Bachelor-Thesis aims to explore the price fairness perception of consumers in the Swiss brick-and-mortar retail markets with dynamic pricing through a randomized survey. First, a theoretical background is provided to display the factors influencing the perception of price fairness that have been researched so far. The results of the literature showed that dynamic pricing is predominantly perceived negatively in the brick-and-mortar retail market but is nevertheless accepted by the majority. Further, key influencing factors include reference prices, the motive for a price increase, price transparency and dynamic pricing. Reference prices are prices that consumers independently evoke internally when they are standing in front of a product. If this reference price is exceeded without objective justification, this can lead to a lower perception of fairness. The motive of a price increase and therefore a price transparancy from the retailers point of view is essential in order to maintain a good relationship with their costumers.

In order to study the fairness perception of Swiss consumers a quantitative study containing a survey in a 2x2 between-subjects design was conducted. The questionnaire is structured by providing two articles and two price situations which each one is assigned to the respondent randomly. The articles mention the introduction of dynamic pricing and the continuation of statistical prices, respectively. The price situations consist of either a 30% increase or no price change. By a set of multiple closed questions, different attributes of the consumers can be tested in the experiment and be analysed statistically. The measured variables consist of price fairness, attitude, word-of-mouth, repurchase likeliness and price strategy (dynamic pricing / static pricing) and price tactic (price increase / no price increase). In a further step, age and annual gross income were considered in the analysis to find out if correlations between different demographical groups and price fairness perception are existent.

The result of the study shows that increased prices lead to a negative price fairness perception. Further, there is a significance between price fairness and repurchase intention whereas a higher price fairness leads to a higher repurchase likeliness. The correlation between price fairness and word-of-mouth, with higher price fairness leading to more positive word-of-mouth, is also significant.

Moreover, the analysis of the questionnaire showed that not price strategy matters in relation to the fairness perception but the price tactics. Therefore, consumers are more sensitive to changes in price regardless of the fact whether dynamic pricing is implemented or not. However, the attitude towards the retailer is significantly influenced by a change in price strategy as well as price tactic. Further, price fairness is proven to be influential on word-of-mouth as well as the repurchase intention of consumers.