Abstract
Personalized dynamic pricing (PDP) involves dynamically setting individual-consumer prices for the same product or service according to consumer-identifying information. Despite its profitability, this pricing provokes strong negative fairness perceptions, explaining why managers are reluctant to implement it. This research provides important insights into the effect of two PDP dimensions (price individualization level and segmentation base) on fairness perceptions and the moderating role of privacy concerns. The results of two experimental studies indicate that consumers perceive individual prices as less fair than segment prices. They also evaluate location-based pricing as less fair than purchase history-based pricing. Consumer privacy concerns moderate these effects.
Highlights
Recent advances in information technology have given online retailers the ability to identify and track individual consumers on the Internet in real time and at virtually no cost
We find that consumers had higher fairness perceptions when sellers engaged in segment pricing rather than individual pricing
We tested the impact of a varying price individualization level on fairness perceptions only for pricing based on location data; yet there are many more individualizing segmentation bases
Summary
Recent advances in information technology have given online retailers the ability to identify and track individual consumers on the Internet in real time and at virtually no cost. ZipRecruiter, an online employment marketplace, indicates that it could increase profits by 84% by experimenting with personalized prices (Wallheimer 2018). Other players, such as travel sites (e.g., Orbitz, Hotel Tonight; DeAmicis 2015; Mattioli 2012), retailers (e.g., Amazon.com, Home Depot, Staples; Streitfeld 2000; Valentino-DeVries et al 2012), and even grocery stores (e.g., Safeway; Clifford 2012) have reportedly begun implementing personalized prices for their customers based on individual characteristics. A possible reason retailers are still reluctant to do so is the fear of consumer backlash if customers become aware of its implementation
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