Customized pricing; not always that effective


The researchers of this paper (David et al, 2017) conducted three tests to find out what the impact is of customized pricing on consumer evaluation, considering consumer’s interpersonal attachment orientation. First of all, they decided to run a survey with 172 U.S. participants. Half of them were randomly assigned to a situation in which they paid the shelf price, others also paid the shelf price or a lower, customized price. After manipulating the  prices for the consumers, they measured their level of satisfaction. They found significant evidence that there is a variation in the consumer evaluation of prices, in case of customized pricing. Thereby, this relation is influenced by someone’s attachment style, namely secure or anxious. It appears that anxiously attached consumers were satisfied paying the shelf price, whereas secure consumers were dissatisfied paying the shelf price. To find an explanation for this phenomenon, a second study was conducted with 270 students as participants. The results supported the earlier findings and showed an explanation for the mentioned phenomenon, namely that customized pricing programs create an enhanced expectation of receiving a discounting price among the secure consumers. This means that these customers are increasingly price sensitive and this could be disadvantageous for retailers, as this could affect their profits. As more and more retailers use customized pricing techniques based on the purchase pattern of their customers nowadays, this has implications; customized pricing is not always effective. A third and last survey extended the findings of the previous tests, as it showed that in the presence of customized pricing programs, securely attached consumers expect to receive discounted prices that are lower than the prices that other customers have to pay. Anxiously customers on the other hand are merely satisfied paying the shelf price despite the attendance of customized pricing systems, unless they are in a disadvantaged situation, meaning another customer receives a lower price.

As earlier research mostly highlighted the benefits of customized pricing as it encourages consumer satisfaction and purchase likelihood (Van den Bos, Peters, Bobocel and Ybema, 2006 & Xia and Monroe, 2010), the results of this study showed that there is also a downside to this sort of customization.  It is indeed the case that consumers positively evaluate customized pricing in which they receive advantage, but the effectiveness appeared to be heavily influenced by interpersonal attachments, as expectations are created among secure attached consumers for a discounted price. On the other hand, anxious attached consumers are decreasingly price sensitive. Altogether,  this paper did not only found the relationship between customized pricing and consumer valuation, which is moderated by interpersonal attachment, but they also found the specific explanation how that is possible, namely the mentioned increasing expectations. Knowing all this now, what are the (practical) implications now for managers for example, so that this information can be used in their advantage? For marketers, it is important information as understanding when and for which customers the customized pricing is effective. Thereby, it is likely that this also applies to other forms of customized offers and services, so not only customized pricing. Managers should segment their customers based on their attachment style. For example, they can offer customized products best to older people, who are securely attached and have a higher level of income, meaning they should try to individualize their marketing approach.

A strong point of this research is the fact that they conducted three tests, with many different participants, that all found the same significant results of the impact of customized pricing and the role of interpersonal attachment. This means there is strong evidence and the validity is high in my eyes. It has huge implications for managers and marketers, as they can adjust their way of customization now on an individual basis to enlarge the effectiveness. One of the weaknesses are the fact that only Americans were involved with the studies, while people from collectivistic cultures such as China might think different about customized prices, so that external generalization is more difficult. Another point of improvement is to have more data on the actual numbers a retailer could benefit from applying their implications. No real existing examples were mentioned, which could be beneficial to really test these implications and to know how much per cent their sales would increase for example.

Article:

David, M.E. Bearden, W.O. Haws, K.L. (2017) Priced just for me: The role of interpersonal attachment style on consumer responses to customized pricing. Journal of Consumer Behaviour

References :

Van den Bos, K., Peters, S. L., Bobocel, D. R., & Ybema, J. F. (2006) On preferences and doing the right thing: Satisfaction with advantageous inequity when cognitive processing is limited. Journal of Experimental Social Psychology, 42, 273-289

Xia, L., & Monroe, K. B., (2010) Is a good deal always fair? Examining the concepts of transaction value and price fairness Journal of Economic Psychology, 31, 884-894

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