Dynamicpricing

The Impact of Perceived Price Fairness of Dynamic Pricing on Customer Satisfaction and Behavioral Intentions: The Moderating Role of Customer Loyalty by Bo Dai

A dissertation submitted to the Graduate Faculty of Auburn University in partial fulfillment of the requirements for the Degree of Doctor of Philosophy Auburn, Alabama August 9, 2010

Keywords: dynamic pricing, perceived pricefairness, customer loyalty, satisfaction, behavioral intentions

Copyright 2010 by Bo Dai

Approved by Sandra Forsythe, Chair, Wrangler Professor, Department of Consumer Affairs Wi-Suk Kwon, Assistant Professor, Department of Consumer Affairs Sang-Eun Byun, Assistant Professor, Department of Consumer Affairs Gisela Buschle-Diller, Professor, Department of Polymer and Fiber EngineeringAbstract

Applying theories and principles rooted in consumer behavior including equity theory and distributive justice, the current research presents a conceptual framework to explain the formation of price fairness perceptions that includes the impact of the magnitude and temporal proximity of price differences and the moderating effect of customer loyalty on the relationship betweendynamic pricing mechanism and perceived price fairness. The current study also examines the impact of price fairness perceptions on customer satisfaction with purchase and behavioral intentions. A three-way (2 levels of magnitude of price difference X 2 levels of temporal proximity of price difference X 3 types of products) between-subjects experimental design was employed to collect data.Participants were recruited from a convenience sample of college students at Auburn University, Auburn AL, for pre- and pilot tests. Main experiment data was collected using student samples at Auburn University and Sam Houston State University, Huntsville TX. Using Structural Equation Modelling (SEM), this study finds that both the magnitude and temporal proximity of price difference arenegatively associated with consumers’ perceptions of price fairness. Customer loyalty is found to be a significant moderator on the relationship between the magnitude and temporal proximity of price difference and perceived price fairness. Perceived price fairness has a strong positive impact on customer satisfaction with purchase. The study finds that perceived price fairness has a strongnegative impact on consumers’ self-protection and revenge intentions, but a strong positive impact on re-purchase intention. The present study also finds that satisfactions with purchase fully mediates the relationship between perceived price fairness and repurchase intention, but only partially the relationship between perceived price fairness and self-protection

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and revengeintentions. Theoretical and practical implications for these findings, along with recommendation for future study, are discussed.

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Acknowledgments

I would like to express my sincere gratitude and appreciation to my adviser, Dr. Sandra Forsythe, for her intellectual support and encouragement throughout my doctoral program and her dedication of time and effort to guide my dissertationresearch. Special thanks go to Dr. Wi-Suk Kwon for serving on my dissertation committee and for providing me statistical guidance. I would like to deeply thank Dr. Sang-Eun Byun and Dr. Gisela Buschle-Diller for their valuable comments on and strong support for my dissertation. Appreciation is extended to the Graduate School, the College of Human Sciences, and the Department of ConsumerAffairs for their financial support throughout my doctoral program. Finally and most importantly, I would like to express special thanks to my husband, Lei Chen, and my mother, Qinhe Mao, for supporting and encouraging me throughout my doctoral program. Without their love, I would not have been able to complete my doctoral program and dissertation.

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