Consumers are less selfish than companies perceive


Have you ever been to a retail store to just check out a certain product, but end up buying it elsewhere online for a much cheaper price? We all must have done that at least once. If we look back at the situation, we can actually describe it as a free ride on the sale service of offline retailers by visiting them to obtain information about the product, with no intention of buying. We often require firms to behave fairly, but never thought about the other side, the customers.

People tend to apply different concepts of fairness, depending on whether they transact with friends or strangers (including companies). The fact that exchanges on the market are made with the company-consumers relationship and not the individual-individual relationship can cause consumers to act less fairly. There are two reasons:

  • People tend to rationalize their dishonest behavior by thinking of companies’ immoral and deceptive practices, so much that the companies “deserve” unfair treatment.
  • People feel less guilt when they steal from large and impersonal organizations.

In the paper: “Are consumers Acting Fairly Toward Companies?”, HyunKyu Jang and WuJin Chu examined fair actions of consumers toward companies through a series of experiments with the pay-what-you-want model.

When consumers know that their behavior will hurt the company, they act different
According to the results of the experiments, consumers who do not want to hurt the company pay much more, and when cost information of the selling company is provided, it even encourages them to exhibit more fairness to companies.

Consumers have motives to send signals of their fairness to themselves
Apparently, consumers’ decisions are also influenced by their signaling motives. They pay more only when they believe the additional payment will contribute to their appearance of fairness. If their payment decisions are only made by considering the company’s losses, they would have paid more when informed that the company’s costs were higher than they expected.  However, when appearing fair requires a significant much higher investment, consumers pay less, even if it will hurt the company’s financial situation. This behavior reveals that consumers care more about their self-image rather than the loss to the companies.

Providing a fair descriptive norm influence consumers’ behavior
Consumers are influenced by descriptive norm (i.e., what most people do) in the context of PWYW. Consumers will pay more when recognize that most of the other consumers respond fairly. On the other hand, they will pay less when the opposite information is provided (that most people pay nothing).

If companies can utilize consumers’ signaling motives and induce the conformity of consumers to the descriptive norm, they can induce consumers into fair action by appropriate guidelines. Giving power to customers can be more effective than controlling them through a strict marketing policy. Companies implementing the PWYW should carefully think about the provided mechanism in this paper to make most out of it.


 

References
Jang, H. and Chu, W. (2012). Are Consumers Acting Fairly Toward Companies?: An Examination of Pay-What-You-Want Pricing. Journal of Macromarketing, 32(4), pp.348-360.

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