Effects of Price and User-Generated Content on Consumers’ Prepurchase Evaluations of Variably Priced Services

Abstract

The role of price in prepurchase evaluations for variably priced services has not been widely examined. Increased consumer awareness of variable pricing practices, coupled with growing availability of user-generated content (UGC) at the point of purchase in the online environment, may be changing the way that consumers use price in purchase decisions. This article examines the relative roles of price and UGC, specifically consumer reviews and aggregate consumer ratings, on consumers’ prepurchase evaluations in the context of the purchase of hotel accommodation, a service to which variable pricing is typically applied. Results indicate that, in the presence of UGC, price does not have a significant impact on perceived quality. Price and UGC have significant effects on perceived value, although consumers rely more on reviews than ratings when evaluating price–benefit trade-offs. These results suggest that, rather than simply competing on price, managers must also understand consumers’ perceptions of their firm versus the competition.