The effect of base value neglect on consumer evaluations of cost‐justified price increases

Abstract

AbstractCost‐justified price increases are an important method for raising prices. However, little attention has been paid to how numeric framing affects their perceived fairness and thus purchase intentions. Building on research on price fairness and percentage processing, this article proposes that (i) a dual‐percentage frame, where both the price increase and the cost increase are presented as percentages, typically generates higher perceived fairness than alternative numeric frames as long as the percentage of the price increase does not exceed the percentage of the cost increase; and that (ii) this fairness advantage arises because a large proportion of consumers neglect the base values associated with the two percentages of a dual‐percentage frame when evaluating whether the price increase improves the firm's absolute profit. Evidence from a series of experiments supports both propositions. The article concludes with a discussion of the theoretical and managerial implications of the findings.