Consumers' Intentions to Spread Negative Word of Mouth About Dynamic Pricing for Services: Role of Confusion and Unfairness Perceptions

This paper examines the effects of dynamic pricing versus simple price differentiation for services through price confusion and price unfairness perceptions on price-disadvantaged consumers' intentions to spread negative word of mouth (WOM); we additionally differentiate between these customers based on specific service purchase frequency. To test our hypotheses regarding price confusion as an important driver of undesirable consumer reactions to differential pricing for services and as a precedent of price unfairness perceptions, we conduct one qualitative study and three quantitative studies. The findings provide key theoretical insights indicating that 1) dynamic pricing leads to more price confusion than simple differential pricing and 2) price confusion triggers price unfairness perceptions that increase consumers' intentions to spread negative WOM. For frequently purchased services, the pricing tactic's effects on intentions to spread negative WOM are based mainly on price confusion; for infrequently purchased services, the intentions to spread negative WOM are based primarily on unfairness perceptions. The major managerial insight of our findings is that dynamic pricing should be avoided or limited when there is a high likelihood of reputation damage through negative WOM among price-disadvantaged customers.

Automated summary

This paper examines the effects of dynamic pricing versus simple price differentiation for services on price-disadvantaged consumers' intentions to spread negative word of mouth (WOM) through price confusion and price unfairness perceptions. The findings indicate that dynamic pricing leads to more price confusion than simple differential pricing, which triggers price unfairness perceptions and increases consumers' intentions to spread negative WOM. The effects of pricing tactics on negative WOM intentions vary based on service purchase frequency, with price confusion being the main driver for frequently purchased services and unfairness perceptions being the main driver for infrequently purchased services. The major managerial insight is to avoid or limit the use of dynamic pricing when there is a high likelihood of reputation damage through negative WOM among price-disadvantaged customers.