Does Demand Fall When Customers Perceive That Prices Are Unfair? The Case of Premium Pricing for Large Sizes

We analyze a large-scale field test conducted with a mail-order catalog firm to investigate how customers react to premium prices for larger sizes of women's apparel. We find that customers who demand large sizes react unfavorably to paying a higher price than customers for small sizes. Further...

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Bibliographic Details
Published inMarketing science (Providence, R.I.) Vol. 27; no. 3; pp. 492 - 500
Main Authors Anderson, Eric T., Simester, Duncan I.
Format Journal Article
LanguageEnglish
Published Linthicum Institute for Operations Research and the Management Sciences (INFORMS) 01.05.2008
INFORMS
Institute for Operations Research and the Management Sciences
SeriesMarketing Science
Subjects
Consumer attitudes
Consumer behavior
Consumer psychology
Corporate profits
Customers
Discounts
experimental economics
Fairness
Investigations
Mail order houses
Market prices
Marketing
Marketing strategies
Pilot projects
Premiums
price discrimination
Price premiums
price promotion
Prices
Pricing policies
product line pricing
Purchasing
Research Note
Retail stores
Size
Studies
Wholesale prices
Women
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Summary:We analyze a large-scale field test conducted with a mail-order catalog firm to investigate how customers react to premium prices for larger sizes of women's apparel. We find that customers who demand large sizes react unfavorably to paying a higher price than customers for small sizes. Further investigation suggests that these consumers perceive that the price premium is unfair. Overall, premium pricing led to a 6% to 8% decrease in gross profits.
ISSN:0732-2399
1526-548X
DOI:10.1287/mksc.1070.0323