Title

The Influence of Social Price Comparisons on Pricing Strategies

Date of Award

December 2016

Degree Type

Dissertation

Embargo Date

7-28-2018

Degree Name

Doctor of Philosophy (PhD)

Department

Marketing

Advisor(s)

Scott Fay

Keywords

Price comparisons, Social price comparisons, Unfairness perception

Subject Categories

Marketing

Abstract

This dissertation comprises two papers on consumers' social price comparisons influence on firm's pricing strategies. The first paper examines the impact of social price comparisons on behavior-based pricing, where revisiting customers are charged a different price than new customers. Price discrimination policies vary widely from company to company across different industries and even within the same industry. Some firms offer new customers the lowest price; others give preferential prices to their most loyal customers. Social price comparisons have a negative (positive) impact on customers’ transaction utility if the existing customer’s price is higher (lower) than a new customer’s price. Using an analytical model with vertically differentiated firms, the paper shows that the low-quality firm will reward past customers with relatively low prices when social price comparisons have a sufficiently large impact on utility.

The second paper focuses on the specific market for subscription-based services, where price promotion offers are often extended only to new customers. When designing price promotion strategies, firms and managers who are interested in sustainable growth and long-term profits are not only concerned with increasing short-term revenue. It is also very important to consider the consumer behavioral impact from price promotions. The paper examines the effect of price discounts’ depth and frequency on long-term profit in service industries, comparing and contrasting the impacts that arise from changes in the reference price and unfairness perception from social price comparisons. Although both effects decrease consumers’ purchase probability, they have different impacts on the optimal promotion depth and promotion frequency.

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