Effects of price discrepancies, referents for comparison and prior trust in seller on buyers perceptions of price unfairness, subsequent trust and purchase intention

Abstract

In purchase situations, buyers frequently make comparisons with reference transactions are used as a standard against which the observed purchase price of a product is evaluated. However prices in the market place vary and customers may observe a price discrepancy with respect to the respect to the reference price, deviation from reference price or price discrepancy may affect buyer’s perceptions and lead to behavioral intentions that have implications for the seller. Based on an extensive review of relevant literature, it is proposed that, once buyers encounter a price discrepancy with respect to the reference price, their perception of price discrepancy with respect to the reference price, their perceptions of price unfairness and subsequent trust in seller (pre-trust), magnitude of price discrepancy and referents (buyer’s own experience or that of other buyer) with whom the prices are compared. The study, examines the following specific questions: 1. How does pre-trust affect price unfairness perception and post- trust? 2. How do price discrepancies affect price unfairness perception & post-trust? 3. How are price unfairness perception affected by the referents? 4. What are the boundary conditions for these effects? 5. Whether and how pre-trust, post-trust and price unfairness perceptions affect intention of future purchase? Fined as “a buyer’s assessment and associated emotions that the difference between the prices offered to the buyer and that to comparative other buyer is unreasonable, unacceptable, or unjustifiable”. Trust in the seller is defined as “the expectations held by the buyer that the seller is dependable and can be relied on to deliver on its explicit and implicit promises”. Research on social comparison and trust is applied to theorize how pre-trust, magnitude of price discrepancy and referents affect perceived price unfairness and post-trust. It is proposed that perceived price unfairness will be affected by magnitude of price discrepancy, referents as well as pre-trust. It is also proposed that the effect of pre-trust on perceived price unfairness will be dependent on the magnitude of price discrepancy and also on the referent for comparison (self / other). On a similar note, it is postulated that post-trust may be affected by price discrepancies as well as pre-trust will differ, depending on the magnitude of discrepancy. To explain buyer’s future purchase intention from the seller, we propose a model which incorporates perceived price unfairness, post-trust and pre-trust. While post-trust and price unfairness To explain buyer's future purchase intention from the seller, we propose a model which incorporates perceived price unfairness, post-trust and pre-trust. While post-trust and price unfairness perception are proposed to have a direct effect on future purchase intention, pre-trust is hypothesized as having a direct effect on future purchase intention as well as indirect effects through perceived price unfairness and post-trust. A survey-based experimental method was used with scenarios for interventions. A full factorial, completely between subject design was used for the experiment, with referents (self/other), price discrepancy (low/high) and pre- trust (low/high) as independent variables, & post-trust, perceived price unfairness as dependent variables. Buyer's future purchase intention was also captured in the experiment. The study was op- rationalized in an apparel retailing context after due pre-validation and pre-tests. A final sample of 323 responses from young consumers was considered for analysis. The key findings indicate that as hypothesized, when buyer's encounter price discrepancy, perceived price unfairness is affected by referents as well as the magnitude of price discrepancy. In addition, the magnitude of price discrepancy and referents moderates the effect of pre-trust on perceived price unfairness. An interesting find is that a low pre- trust is better than high pre-trust under certain conditions. Pretest not only has a significant main effect on post-trust but this effect is also moderated by the magnitude of price discrepancy. However, the magnitude of price discrepancy does not have a significant effect on post-trust, indicating that trust responses are equally significant for small/large discrepancies. Prior trust not only has a direct effect on future purchase intention but it also has indirect effects through subsequent (post) trust. The study addresses a gap in literature and provides an empirical finding on the effect of trust on price unfairness perceptions. The effects of different referents and the magnitude of price discrepancy are also examined. To facilitate an integrated theory building, this study combines two diverse streams in perceived price unfairness literature, those based on self-self and self-other price comparisons. This study also addresses a number of key issues important for practitioners. The research has major implications for practitioners. At a broad level, it provides managers a better understanding of buyer's perceptions of price unfairness, their trust assessments and what guides their intention to purchase from the seller in future. In addition, results of the study can also provide guidelines to managers on how to align their pricing strategies in relation to in-vestments in trust, with due regard to the type of customers, products or channels they are dealing with.