Pricing strategy & practice
The influence of price fairness on customer
satisfaction: an empirical test in the context of
automobile purchases
Andreas Herrmann
University of St Gallen, St Gallen, Switzerland
Lan Xia
Marketing Department, Bentley College, Waltham, Massachusetts, USA
Kent B. Monroe
University of Illinois and University of Richmond, Glen Allen, Virginia, USA, and
Frank Huber
University of Mainz, Mainz, Germany
Abstract
Purpose – This paper aims to link conceptually the concepts of price fairness and customer satisfaction and empirically demonstrate the influence of
perceived price fairness on satisfaction judgments. Further, it seeks to examine specific factors that influence fairness perceptions including price
perception and consumer vulnerability.
Design/methodology/approach – The study is conducted in the context of automobile purchases in major German car dealerships. Based on a
theoretical conceptualization of the constructs and an empirical pretest, 246 car buyers were surveyed and their fairness perceptions and satisfaction
judgments with the car buying process measured.
Findings – The research shows that price perceptions directly influence satisfaction judgments as well as indirectly through perceptions of price
fairness. Results also indicated that consumers’ vulnerability, which is induced by a perceived demand-supply relationship and the urgency of need from
the consumers’ side, had a negative effect on perceived price offer fairness.
Research limitations/implications – The research demonstrated the influence of perceived price fairness on satisfaction judgments empirically. The
study was conducted in the context of car purchases and the generalizability of the model should be further tested.
Practical implications – The effect of consumer vulnerability implies that sellers should not only avoid exploiting their customers but should also
anticipate consumers’ potential feelings of being exploited. Being sensitive to the buyers’ psychological state and assuring buyers of fair treatment will
enhance perceptions of price fairness without changing the price offer.
Originality/value – Both the direct and indirect effects of price perception on satisfaction judgment were examined in the paper. Specifically, the
influences of consumer vulnerability and price procedure fairness on satisfaction judgments are new and contribute to the dual-entitlement principle
and our existing knowledge in price fairness.
Keywords Fair value, Customer satisfaction, Prices, Perception
Paper type Research paper
Previous research on customer satisfaction has examined
factors that enhance customer satisfaction in various contexts
(for recent reviews see, Oliver, 1997; Szymanski and Henard,
2001; Shankar et al., 2003). As an important factor in the
marketing mix, the role of product or service price in the
formation of customer satisfaction has not been studied
extensively in previous customer satisfaction research (Voss
et al., 1998). When price has been included, it has been one of
several product attributes considered relevant (Fornell et al.,
1996; Voss et al., 1998); however, the unique influence of
product price on satisfaction judgments remains unclear. In
this research we include consumers’ price perceptions as an
important factor influencing overall satisfaction judgments.
This influence is both direct, and indirect via price fairness
perceptions.
Voss et al. (1998) argue that satisfaction is a function of
price, performance and expectations with support for the
expectations-satisfaction link being weak. They propose that,
in contrast to performance, perceived price fairness might be
The current issue and full text archive of this journal is available at
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Journal of Product & Brand Management
16/1 (2007) 49–58
q Emerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/10610420710731151]
49
the dominant determinant of satisfaction. Their empirical
results suggest that when there was a perceived priceperformance
inconsistency (i.e., an inequitable or unfair
outcome), it had a stronger effect (negative) on satisfaction
judgments. Similar results were also found by Oliver and
DeSarbo (1988) and Oliver and Swan (1989a).
In addition, research also has shown that equity is related to
satisfaction. Equity is a concept closely related to fairness and
usually defined as a fairness, rightness, or deservingness
judgment that consumers make in reference to comparative
others (Oliver, 1997; Xia et al., 2004). A recent meta-analysis
of the empirical research on customer satisfaction found that
equity exhibited a dominant effect on satisfaction judgments
with a correlation between equity and satisfaction of 0.50
(Szymanski and Henard, 2001). The correlation between
expectations and satisfaction was a lower 0.27. However,
relative to previous customer satisfaction research, little
published research has linked perceptions of price fairness
with satisfaction judgments. In this paper, we address this
link. Specifically, we extend Voss et al.’s (1998) finding to the
issue of perceived fairness. We include two components of
price fairness (price offer vs procedure) as well as a consumer
psychological characteristic (vulnerability) and examine their
effects on satisfaction judgments. We begin with an overview
of the satisfaction and fairness concepts leading to a
conceptual model and hypotheses. An empirical test of the
model using automobile purchases follows.
Conceptual framework
Customer satisfaction
Various definitions and measures of customer satisfaction
have been used in previous research (Szymanski and Henard,
2001). One approach has been to distinguish between
transaction-specific and overall satisfaction (Oliver, 1997).
We distinguish satisfaction with the purchase process (e.g.
product comparisons and interactions with the sales people)
and satisfaction with the purchase outcome (i.e. the product
purchased). Previous research has shown that these two
components of satisfaction are correlated but conceptually
distinct (Bitner and Hubbert, 1994; Shankar et al., 2003). For
example, in the context of using online decision aids,
Bechwati and Xia (2003) found that people’s perceptions of
how much “effort” the decision aids exert in providing the
recommendations influenced their satisfaction regardless of
what options were recommended. Similarly, Spreng et al.
(1993) proposed that customers’ satisfaction with the
availability of product information when evaluating various
product options has an important influence on overall
satisfaction judgments.
These influences may occur particularly for purchases that
involve extensive information search and multiple interactions
with the seller such as an automobile. The purchase of an
automobile involves multiple stages including information
search, comparison of alternatives, and interactions with the
sales people or service provider. We propose that satisfaction
with one stage of this purchase process will have a direct
influence on the satisfaction with other stages, especially when
different aspects of the purchase process occur sequentially.
That is, people are more likely to perceive subsequent
purchase stages consistent with their initial judgment and any
positive or negative affect that occurs during one purchase
stage likely will carry over to the next stage.
Price fairness
Recent research efforts have isolated several factors that
influence consumers’ price unfairness perceptions as well as
potential consequences of these perceptions (Bolton et al.,
2003; Campbell, 1999; Vaidyanathan and Aggarwal, 2003;
Xia et al., 2004). Previous research has distinguished
distributive fairness and procedural fairness. The principle
of distributive fairness, or fairness of outcomes, maintains that
individuals judge the fairness of a relationship based upon the
allocation of rewards resulting from their contributions to the
relationship (Homans, 1961). Thus, unequal ratios of profits
to investments between all parties involved in an exchange
relationship create perceptions of unfairness.
Procedural fairness concerns judgments whether processes
are based on prevailing norms and behaviors (Thibaut and
Walker, 1975). We propose that consumers’ price fairness
perceptions are influenced by both procedural and
distributive considerations. For example, a dealer’s price
offer for an automobile may be accompanied with an
explanation of the prices of various options and delivery
charges, as well as required down payment and financing
arrangements. In such situations, both the initial price of the
car quoted by the sales person (i.e., price offer) and the terms
associated with the price and how these terms are handled
and explained to the consumer (i.e. price procedure) will
influence consumers’ fairness perceptions. Also, price offer
fairness perceptions and price procedural fairness perceptions
are positively correlated. The order of influence will be
determined by the sequence in which consumers receive the
price offer and the price procedural information (van den Bos
et al., 1997).
Another foundation of price fairness perceptions, the
principle of dual entitlement, suggests that one party should
not benefit by causing a loss to another party. When a firm
uses higher consumer demand to its own advantage by
increasing prices, consumers will feel being exploited and
hence perceive the prices as unfair. For example, one study
showed that 82 percent of the respondents judged a price
increase for snow shovels the morning after a snowstorm to be
unfair, while only 21 percent of respondents viewed an
increase in grocery prices following an increase in wholesale
prices as being unfair (Kahneman et al., 1986). While the dual
entitlement principle originated from buyers’ reactions toward
sellers’ obvious exploitation based on supply and demand
changes, it is possible that consumers may develop
perceptions of unfairness based on their own demand
situations even without explicit exploitation actions from the
seller. For example, when buyers feel that they have to buy a
product and must bear whatever the price is, they may be
concerned that potentially they could be exploited by the
seller regardless whether the seller actually performs such
actions.
Relationship of fairness perceptions to satisfaction
Recent research in marketing and psychology has shown that
satisfaction is positively correlated with fairness perceptions
(Bowman and Narayandas, 2001; Huffman and Cain, 2001;
Kim and Mauborgne, 1996; Ord?n˜ ez et al., 2000; Smith et al.,
1999). Oliver and Swan (1989a, b) found that customers’
fairness perceptions depended on a supplier’s commitment
and the quality of the goods and services relative to the price
paid. Therefore, we propose that price perceptions influence
The influence of price fairness on customer satisfaction
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber
Journal of Product & Brand Management
Volume 16 · Number 1 · 2007 · 49–58
50
consumers’ overall satisfaction judgments directly and
indirectly through price fairness perceptions.
In summary, there are various components of fairness
perceptions and satisfaction judgments. The components of
fairness perceptions are correlated with each other. And, the
components of satisfaction are also correlated with each other.
In any specific purchase process, the direction of influence
between the components of price fairness depends on the
order in which the information about price and terms of the
offer is received by the buyers. Similarly, the direction of
influence between the components of satisfaction depends on
the sequence of the purchase process. In addition, specific
factors that influence these constructs such as price fairness
perceptions likely vary depending on the specific purchase
context. Next, we develop specific testable hypotheses for
these relationships within an automobile purchase context.
Research context
Buying a car was chosen for the study context for several
reasons. First, buying a new car is an important decision for
most consumers. Consumers’ perceived risk and uncertainty
are likely to be relatively high. Prior research suggests that,
when faced with performance or quality uncertainty,
consumers are more likely to use price as a cue in forming
performance expectations (Urbany et al., 1997). In addition,
relatively high product prices enhance the likelihood that
perceived price fairness may be an important issue. Therefore,
this context provides us with an opportunity to examine the
influence of price fairness perceptions on satisfaction
judgments. Second, an automobile purchase is a complex
process, involving price negotiation, interaction with service
people, selection of different option packages for the car,
signing a purchase contract, as well as the car delivery process.
The purchase process usually is made up of a sequence of
clearly distinguishable individual episodes typically occurring
in a similar order for most auto buyers. These different events
provide an opportunity to separate consumers’ satisfactions
with different encounters within the entire purchase
transaction procedure.
We first conducted 50 informal interviews with prospective
auto buyers as well as staff at several auto dealerships in
Germany to understand the automobile purchase process.
Based on these interviews, we developed a set of factors that
influence price fairness perceptions as well as specific
components within the purchase process that affect
satisfaction judgments. Moreover, these interviews also
enabled us to specify the direction of influences among the
fairness components and the satisfaction components based
on the temporal sequence of the purchase process, leading to
the conceptual model (see Figure 1) that was tested
empirically.
Hypotheses
In the model, we focus initially on the influence of consumers’
perceptions of price and price fairness on their satisfaction
judgments. First, we propose that perceptions of the product’s
price have both a direct influence on satisfaction judgments as
well as an indirect influence through price fairness
perceptions. As previous research suggests, people form
price fairness perceptions from both the offer and the
procedure that lead to the offer. Hence, we consider
consumers’ fairness perceptions for both the initial price
offered and the various conditions and terms that are attached
to the final price (i.e. procedure).
Effects of price perceptions and price fairness
Our interviews showed that car buyers indeed consider price
an important factor in their purchase decisions. Specifically,
consumers tend to consider the relative relationship between
price and their expectations about the performance of the
product they want to purchase (Voss et al., 1998). Hence, an
initial price quote from the seller may be compared with a
buyer’s previous experience or an expectation of an acceptable
or fair price for the product. If buyers’ perceptions of
performance or quality of the car exceed their expectations
and the car represents good value for money, then their
perceptions of the quoted or listed price should be favorable
(Voss et al., 1998). Consequently, if buyers perceive that the
benefits offered by the product relative to the perceived
sacrifice (i.e. price to be paid) is favorable, then they will be
more likely to perceive that the price is fair (Monroe, 2003):
H1. Buyers’ price perceptions positively influence their
perceptions of the fairness of price offers.
In our interviews consumers frequently talked about their
need for the car such as whether they can wait or they have a
very short span of time to get the car. For example, their
previous car may have broken down or they had an accident
and needed to get a new car quickly. Consumers have some
common knowledge that in a market economy prices are
subject to variations in supply and demand. When demand
increases relative to supply, sellers have an opportunity to
raise prices and increase their profits. Therefore, when
consumers need to purchase a car quickly and have few or no
other options, they may feel more vulnerable due to the fear
that the seller will take advantage of this opportunity to quote
a higher price than in other situations regardless whether the
seller actually takes such an action. The dual entitlement
principle implies that such situations do influence buyers’
price fairness perceptions, especially when buyers have no
other alternatives (Kahneman et al., 1986; Kalapurakal et al.,
1991). These initial interviews also revealed that the car
buyers indicated they felt some anxiety at the initial stages of
the buying process. Regardless of previous purchase
experience, they felt some concern that they would not
know whether the price would be reasonable for their
situation. Hence, we propose that consumers’ feeling of
vulnerability may contribute to their perceptions of price
unfairness:
H2. As consumers’ perceived vulnerability due to an urgent
need and their immediate demand increases, their
perceptions of price offer fairness will decrease, ceteris
paribus.
In terms of the influence between the two components of
distributive and procedural fairness, we found that when
buying an automobile, buyers typically receive an initial price
offer from the dealer before they discuss specific options that
they want and negotiate the final price and financial terms
with the seller. The principles of distributive and procedural
fairness suggest that price fairness judgments will be based on
both the outcome (i.e. price) as well as information related to
how the specific outcome was determined (i.e. procedure).
Information on outcomes and procedures may interact and
the order that the information is received influences
The influence of price fairness on customer satisfaction
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber
Journal of Product & Brand Management
Volume 16 · Number 1 · 2007 · 49–58
51
perceptions of price fairness. Hence, for a typical car purchase
process in Germany, we hypothesize an influence from
perceived initial price offer fairness to perceived price
procedure fairness:
H3. Buyers’ perceptions of price offer fairness will have a
positive effect on their perceptions of pricing procedure
fairness.
We propose that fairness and satisfaction are linked through
product or service price. Previous research on satisfaction
indicates that equity (e.g. perception of price fairness) has a
major influence on satisfaction judgments. Since Szymanski
and Henard (2001) have shown that equity has a dominant
effect on satisfaction judgments we propose the direction of
influence to be from price fairness to satisfaction:
H4. Buyers’ perceptions of price offer fairness will have a
positive effect on their overall satisfaction with the
purchase.
H5. Buyers’ perceptions of pricing procedure fairness will
have a positive effect on their overall satisfaction with
the purchase.
In addition to influencing satisfaction judgments through
fairness perceptions, price perceptions also directly influence
satisfaction judgments (Voss et al., 1998). That is, consumers
may also judge the price paid relative to the consistency of the
performance of the product or service. When consumers
compare their perceived gains or benefits of the transaction
relative to their perceived monetary sacrifice and judge that
their sacrifice is greater than the benefits derived from the
product’s performance, consumers may be dissatisfied
(Spreng et al., 1993):
H6. Buyers’ price perceptions will have a positive effect on
their overall satisfaction with the purchase.
Effects of different components of satisfaction
For a complex purchase situation, the overall judgment of
satisfaction consists of various components including both
satisfaction with the purchase process and satisfaction with
the outcome. The interviews indicated that a major aspect of
purchasing an automobile involves interactions with
salespeople and other members of the dealer’s staff.
Consumers rely on salespeople for specific information
about the car to help them make an assessment. There are
also opportunities to interact with individuals who handle the
financial aspects of the purchase. Therefore, interaction with
members of the dealer’s staff will have a direct influence on
customer’s overall satisfaction judgments. Further, although
buyers may have some general ideas about the quality of the
car they are purchasing, product conditions upon delivery
provide a direct opportunity for buyers to assess the quality of
the car that they are actually buying (i.e. satisfaction with the
outcome). Hence, satisfaction with the condition of the car
upon delivery will have a positive effect on overall satisfaction
judgments:
H7. Buyers’ satisfaction with the dealer’s service will have a
positive effect on their overall satisfaction with the
purchase.
H8. Buyer’s satisfaction with the condition of the car upon
delivery will have a positive effect on their overall
satisfaction with the purchase.
We propose that satisfaction with one stage of the purchase
process will have a positive influence on the satisfaction with
other stages, especially when the purchase process occurs in a
sequence. Within the car buying process, the initial
information that buyers obtain is usually a price quote.
Then they learn more about the pricing procedure. Next, they
Figure 1 The conceptual model
The influence of price fairness on customer satisfaction
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber
Journal of Product & Brand Management
Volume 16 · Number 1 · 2007 · 49–58
52
may develop some further impressions about the dealer based
on their interactions with the dealer’s service people. Finally,
they complete the transaction and obtain the car. This
purchase sequence determines the direction of influence from
one component of satisfaction to another.
We have hypothesized that perceptions of initial price offer
fairness have a positive effect on pricing procedure fairness.
Obtaining information on pricing procedures and terms
associated with a price quote is part of the interactions
between the customers and the dealer’s employees. Therefore,
consistent with the purchase sequence, we propose that:
H9. Buyers’ perceptions of pricing procedure fairness will
have a positive effect on their satisfaction with the
dealer’s service.
H10. Buyers’ satisfaction with the dealer’s service will have a
positive effect on their satisfaction with the conditions
of the car upon delivery.
The study
Pretest
To start the actual study, 100 car owners who recently had
bought a car from one of the dealerships of each of the five
major German car brands (DaimlerChrysler, BMW,
Volkswagen, Ford, Opel/GM) were interviewed by
well-trained interviewers and averaged 30 minutes. Based on
these interviews we refined our set of measurement items,
compiling a list of 27 items to measure the constructs. The
pretest also revealed that car buying is a highly involving task
for consumers. Overall, the respondents were familiar with the
car buying process and had some general knowledge about
purchasing a car.
Final survey
After developing the measures, we obtained a list of customers
who recently had bought a car from the dealerships. We
contacted 460 customers both via mail and subsequent phone
calls to solicit participation. Although no incentives were
offered, 246 customers agreed to participate for a completion
rate of 53.5 percent. A time was scheduled with each
participant and the survey was administered face-to-face at
the dealerships. Well-trained interviewers from a market
research company administered the survey. To help
respondents refresh their memories of their purchase
experiences, the interviews followed the purchase sequence
uncovered during the initial set of interviews that led to the
model in Figure 1. Each session lasted about 30 minutes. The
demographic characteristics of the buyers and distribution of
the brand/model of cars purchased matched that of the New
Car Buyer Study (Table I).
Measures
As summarized below, the respondents answered questions
regarding their purchase experiences using seven-point scales
ranging from “strongly disagree” to “strongly agree.” To select
the final items for each construct, we used Cronbach’s alpha,
item-to-total correlations, and exploratory factor analysis.
Exploratory factor analysis indicated that the measures loaded
on the correct factors and provided initial assessments of the
discriminant and convergent validities of the measures. The
final 20 items used are given in Table II and the construct
correlation matrix is in Table III. As shown in Table III, 20 of
the 21 inter-construct correlations are less than 0.50 and one
is exactly 0.50, providing strong evidence of discriminant
validity. Overall, the measures displayed very good convergent
and discriminant validities.
Perceived vulnerability
Buyers are more likely to perceive a price is unfair when they
feel vulnerable to possible exploitation by a seller. This
vulnerability is more severe when buyers’ need for the product
or service is urgent and they are limited by the availability of
other alternatives. Using items from Cook and Emerson’s
(1978) “feeling of vulnerability,” respondents were asked
whether the car was absolutely required, and whether there
were other transportation alternatives.
Price perceptions
We argue that buyers’ perceptions of a price are based on the
relativity of price and the perceived performance or quality of
the product as well as their comparisons with their
expectations (Monroe, 2003; Voss et al., 1998). When
buyers perceive the quality or performance is consistent
with the price, their perceptions of the price will be favorable,
enhancing a fair price perception. Similarly, when a price offer
meets one’s expectation, the evaluation is likely to be positive.
Table I Socio-demographic structure of the respondents
NCBS Sample
(%) (%)
Gender
Male 76.3 75.2
Female 23.4 24.8
Age
<25 5.6 6.1
23-49 55.8 56.1
50-65 29.3 29.3
>66 7.5 8.5
Marital status
Single or living alone 17.8 18.7
Married or living together 82.2 81.3
Persons living in house
1 12.4 12.2
2 40.2 40.6
3 21.5 21.8
4 18.8 17.9
>5 7.1 7.3
Education level
Elementary school 8.5 7.7
Middle school 28.0 28.1
High school 32.5 30.9
College 8.4 9.7
University 22.7 23.6
Residence
City 27.0 26.8
Town 40.7 41.9
Village 24.0 24.0
Country 8.3 7.3
Note: The demographic structure of the study corresponds with the new car
buyer study (NCBS) (German)
The influence of price fairness on customer satisfaction
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber
Journal of Product & Brand Management
Volume 16 · Number 1 · 2007 · 49–58
53
Therefore, price perceptions were measured using: the price
of the new car is appropriate relative to its performance; the
price of the new car meets my expectations; and the car is
good value for money comparing to other cars.
Perceived price offer fairness
Since our research is in the specific context of automobile
purchases, we developed our own price offer fairness
measures drawing on literature sources related to procedural
fairness. We emphasized equality of treatment across buyers
(Xia et al., 2004), the degree that buyers understood how the
price offer was determined (Kim and Mauborgne, 1996), and
the responding buyers’ perceptions of the relationship
between their needs and the price quoted by the dealer
(Oliver and Swan, 1989b). The German word gerecht
meaning fair and just was used to measure fairness
perceptions. Also, research indicates that a cost-based
pricing strategy is perceived to be fairer (Kalapurakal et al.,
1991). Therefore, perceived price offer fairness was measured
using: the price offer of the dealer is understandable; all
customers are treated equally by the dealer; the price of this
Table II Scale items and measurement properties
Scale items by construct t-value
Item
reliability
Construct
reliability
Variance
extracted Alpha
Price perception 0.55 0.80 0.80
The price of the new car is appropriate relative to its performance 22.53 0.53
The price of the new car meets my expectations 24.28 0.69
The price of the new car is good value for money comparing to other cars 22.12 0.49
Buyer vulnerability 0.71 0.86 r ¼ 0:71
The car is absolutely required for private or business use 19.21 0.79
It is not possible for me to use other means of transportation 19.32 0.64
Price offer fairness 0.51 0.84 0.95
The price of the new car of this dealer is clear understandable) 16.24 0.57
All customers are treated equally by the dealer’s pricing 22.08 0.45
I think the price of this dealer is based on cost 15.34 0.43
The price of the car is independent of customer’s needs 15.23 0.60
Pricing procedure fairness 0.30 0.79 r ¼ 0:85
The terms of this dealer are fair 20.25 0.34
The procedure of buying the car from the dealer is fair 9.07 0.26
Satisfaction with the dealer’s service 0.57 0.78 0.93
The dealer’s employees are friendly 19.21 0.67
The dealer offers a lot of accessories 15.79 0.60
I am satisfied with the information that was provided by the employees 14.95 0.54
I am satisfied with the dealer’s commitment 15.16 0.51
Satisfaction with the car upon delivery 0.53 0.78 0.77
The car was in perfect condition when it was delivered 9.32 0.50
All option requests were fulfilled 14.57 0.67
The car is the same as my expectations 9.01 0.44
Satisfaction with the purchase 0.56 0.86 r ¼ 0:55
I am satisfied with the car purchase 14.43 0.68
There is no reason to complain 12.36 0.45
Table III Construct and inter-construct correlations
Price
perception
Buyer
vulnerability
Price
offer
fairness
Price
procedure
fairness
Satisfaction with
dealer’s service
Satisfaction
with car
Satisfaction
with purchase
Price perception 0.57
Buyer vulnerability 0.35 0.71
Price offer fairness 0.32 0.23 0.76
Price procedure fairness 0.44 0.37 0.14 0.85
Satisfaction with dealer’s service 0.26 0.23 0.24 0.14 0.68
Satisfaction with car 0.23 0.24 0.20 0.20 0.12 0.53
Satisfaction with purchase 0.40 0.38 0.46 0.37 0.50 0.34 0.55
The influence of price fairness on customer satisfaction
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber
Journal of Product & Brand Management
Volume 16 · Number 1 · 2007 · 49–58
54
dealer is based on cost; and the price of the car is not affected
by the individual customer’s needs.
Pricing procedure fairness
Research on procedural fairness suggests that the procedure
of setting the price, in addition to the price itself would
influence buyers’ fairness perceptions. For a car purchase, a
price is a combination of several elements and carries with it
various terms and conditions. Therefore, how these terms and
the price setting procedures were explained to and accepted
by the buyers were measured using two items: the terms of the
dealer are fair; and the procedure of buying a car from the
deal was fair.
Satisfaction with the dealer’s service
The measures used for this construct were based on the
various interactions that the buyers had with the dealer
including the friendliness of the staff, the impression obtained
when purchasing accessories, satisfaction with the
information provided by the dealer, and satisfaction with the
dealer’s general commitment (Burmann, 1991; Ostrom and
Spreng et al., 1996).
Satisfaction with the car upon delivery
This aspect of satisfaction was measured by obtaining buyers’
perceptions of the car relative to their expectations, the
condition of the car when it was delivered, and whether all
options or features of the car that the buyers requested had
been met.
Overall satisfaction
Two items were used for this construct: overall satisfaction
with the purchase and intention to complain.
Measurement properties of the scales
Using exploratory and confirmatory factor analyses, the
measurement model was assessed for the dimensionality of
the scales, their reliability and the construct validity of the
measures. Item reliability, construct reliability, and variance
extracted of the items are shown in Table II. A single-factor
confirmatory factor analysis (WLS estimate) was conducted
to further check scale reliability and validity. The
confirmatory assessment of the measurement properties of
all four scales with at least three items indicated that the
confirmatory factor loadings (lambdas) were high and
significant (p , 0:001), satisfying the criteria for convergent
validity. Moreover, Cronbach’s alpha for these four scales was
0.77 or higher, indicating adequate reliability.
Except for perceived price offer fairness, all construct
reliabilities were greater than 0.50. The variances extracted
were greater than 0.75. These two assessments exceed the
established minimum criteria (Fornell and Larcker, 1981). All
t-values shown in Table II were statistically significant,
providing evidence of convergent validity of the measures
(Fornell et al., 1982). The M2 measure developed by Fornell
et al. (1982) had a value of 0.46 which is above the required
threshold of 0.40. All inter-construct correlations were 0.50
or less, indicating the measures had discriminant validity. The
squared correlation coefficients of each latent variable with
relevant others was smaller than the average variance recorded
in 31 of 42 possible comparisons, providing more evidence of
discriminant validity.
Evaluating the structural model
The structural model (Figure 2) was tested using LISREL 8.3
(Jo¨reskog and So¨rbom, 1996). PRELIS was used to generate
the input matrix. Analysis was conducted separately for an
exogenous model that included the exogenous constructs and
their indicators and an (endogenous model that included the
endogenous constructs and their indicators). To test the
absolute fit of each of these two models, the goodness of fit
index (GFI) was 0.99 (0.98) and the adjusted goodness of fit
index (AGFI) was 0.98 (0.96). Thus, the goodness of fit
indices were well above the minimum criterion values of 0.90.
For the full model, the root mean square error of
approximation (RMSEA) was 0.043 for both models, which
is below the recommended upper threshold of 0.08. These
indices clearly indicate a good absolute fit to the data
(Jo¨reskog and So¨rbom, 1996).
Testing the comparative fit of the two models, the normed
fit index (NFI) (Bentler and Bonett, 1980) was 0.98 (0.97),
also exceeding the suggested criterion value of 0.90. The
comparative fit index (CFI) of 0.99 (0.99) exceeded the
criterion value of 0.90 (Bentler, 1990). The incremental fit
index (IFI) was 0.98 (0.97), again indicating a good fit.
Alternative model configurations were considered, but as
these indices indicate, improvements in fit could not be
obtained by any alternative configurations.
Test of the hypotheses
The standardized estimates for the various model paths for
the study are shown in Table IV along with the results of the
hypotheses tests according to the sequence of paths depicted
in Figure 2. As hypothesized, respondents’ perceptions of
price offer fairness were positively influenced by their price
perceptions (b ¼ 0:64, t ¼ 14:62, p ¼ 0:04, supporting H1),
and negatively influenced by their perceived vulnerability
(b ¼ 20:21, t ¼ 4:63, p ¼ 0:05, supporting H2). When
buyers perceive that the price offer is consistent with or
exceeds their expectations about the car’s perceived quality or
performance, they are more likely to perceive the price offer as
fair. Further, an increase in buyers’ need and demand
enhances a feeling of vulnerability, which, ceteris paribus,
increased their concern as to whether the price offered by the
dealer was fair, producing a negative effect. Thus, our results
complement past research results (Kahneman et al., 1986;
Maxwell, 1995). Moreover, price perceptions also exerted a
small direct influence on overall satisfaction with the purchase
(b ¼ 0:15, t ¼ 1:95, p ¼ 0:09). We also ran the model without
the direct effect of price perceptions and compared it with the
hypothesized model. The difference was significant
(x2 ¼ 66:97, p , 0:01) so we kept the path. The combined
direct and indirect effect of price perceptions on overall
satisfaction with the purchase is 0.48. Thus, these results
support our argument that price perceptions have a major
influence on overall customer satisfaction (see also Singh and
Sirdeshmukh, 2000; Voss et al., 1998).
We hypothesized (H3) that perceived price offer fairness has
a positive effect on perceived pricing procedure fairness since
car buyers are more likely to obtain an initial price offer before
a final price is negotiated. The initial perceptions of the
fairness of the offer are likely to influence perceptions of price
procedure fairness (van den Bos et al., 1997). This
relationship was supported (b ¼ 0:89, t ¼ 17:78, p ¼ 0:05).
Regarding the relationship between fairness and
satisfaction, we hypothesized that perceived price offer
The influence of price fairness on customer satisfaction
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber
Journal of Product & Brand Management
Volume 16 · Number 1 · 2007 · 49–58
55
fairness (H4) and perceived pricing procedure fairness (H5)
have positive effects on buyers’ overall satisfaction judgments.
These propositions are supported by a direct effect of price
offer fairness (b ¼ 0:22, t ¼ 2:53, p ¼ 0:04) and a direct effect
of pricing procedure fairness (b ¼ 0:32, t ¼ 2:56, p ¼ 0:05).
The combined effect of price offer fairness perceptions on
overall satisfaction judgments, including the direct effect and
the indirect effect through price procedure fairness, is 0.77.
The results indicated that both satisfaction with the dealer’s
service (b ¼ 0:36, t ¼ 4:06, p ¼ 0:09, H7) and satisfaction
with the conditions of the car upon delivery (b ¼ 0:30,
t ¼ 5:02, p ¼ 0:06, H8) positively influence overall
satisfaction. Also, buyers’ perceptions of pricing procedure
fairness positively influenced the respondents’ satisfaction
with the dealer’s service (b ¼ 0:61, t ¼ 10:3, p ¼ 0:06, H9).
Finally, satisfaction with the dealer’s service had a positive
effect on satisfaction with the condition of the car upon
delivery (b ¼ 0:44, t ¼ 12:97, p ¼ 0:03, H10). Overall, the
results indicate that buyers’ satisfaction with an automobile
purchase is influenced by their price fairness perceptions as
well as their satisfaction with various transactions that occur
during their purchase process.
Discussion
Our research contributes to the literature on satisfaction by
incorporating the role of perceived price fairness. Price is an
important element in consumers’ purchases; therefore it has a
large influence on consumers’ satisfaction judgments. The
results showed that price perceptions directly influence
satisfaction judgments as well as indirectly through
Figure 2 Effects of price fairness on customer satisfaction
Table IV Testing the model (Figure 2) relationships
From To Sign Standardized relationship estimate t-value p-value
Perceived vulnerability Price offer fairness 2 20.21 4.63 0.05
Price perceptions Price offer fairness þ 0.64 14.62 0.04
Price offer fairness Pricing procedure fairness þ 0.89 17.78 0.05
Pricing procedure fairness Satisfaction with dealer’s service þ 0.61 10.30 0.06
Satisfaction with dealer’s service Satisfaction with car þ 0.44 12.97 0.03
Satisfaction with car Satisfaction with purchase þ 0.30 5.02 0.06
Price perceptions Satisfaction with purchase þ 0.15 1.95 0.09
Price offer fairness Satisfaction with purchase þ 0.22 2.53 0.04
Pricing procedure fairness Satisfaction with purchase þ 0.32 2.56 0.05
Satisfaction with dealer’s service Satisfaction with purchase þ 0.36 4.06 0.09
The influence of price fairness on customer satisfaction
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber
Journal of Product & Brand Management
Volume 16 · Number 1 · 2007 · 49–58
56
perceptions of price fairness. Our research has linked these
two important concepts and demonstrated the influence of
perceived price fairness on satisfaction judgments empirically.
Further, we have extended research relative to the influence
of demand-supply relationships on price fairness perceptions
by examining the demand side perceptions (i.e., consumer
vulnerability) without actual supply side actions. Results
indicate that consumers’ perceived vulnerability, which is
induced by a perceived urgency of need by the consumers,
had a negative effect on perceived price offer fairness. The
results extend the dual entitlement principle and imply that
sellers should not only avoid exploiting their customers but
should also anticipate consumers’ potential feelings of being
exploited. Being sensitive to the buyers’ psychological state
and assuring buyers of fair treatment will enhance perceptions
of price fairness without changing the price offer. When
buyers are relaxed relative to their feelings of vulnerability,
price fairness perceptions will be higher, thereby enhancing
satisfaction judgments.
However, we did not measure respondents’ prior
relationship with the dealerships. Presumably, a good
existing relationship with the dealerships may serve as a
“safety net” that consumers may use to reduce their feelings
of vulnerability. In addition, the felt vulnerability within our
study context may also be due to the respondents’ high
involvement with the purchase. Hence, future research should
examine when consumer vulnerability would occur as well as
its impact on perceptions of fairness and satisfaction across
different levels of prior experience or relationship with the
seller. By manipulating vulnerability and prior experience
with the seller, we might expect that the effects of
vulnerability on price perceptions would be attenuated when
the prior relationship with the dealer is satisfactory (Homburg
et al., 2005). Conversely, when perceived vulnerability is high
and the buyer has no prior experience with the dealer, the
negative effects on price perceptions we observed in this study
would be more substantial. Results from such future research
would offer additional guidelines for sellers to anticipate and
handle consumer vulnerability.
Second, both the price offer and the procedure used to
develop a price are important in influencing satisfaction
judgments. In complex purchases such as an automobile,
consumers need to understand the procedure for setting the
price and terms and conditions related to a price in order to
make a judgment about the price offered. Therefore,
explaining this procedure and offering such information to
consumers will enhance the transparency of the price and
perceived fairness, further positively influencing satisfaction
judgments. This price transparency may be particularly
relevant when prices are increased or when the price
structure is relatively complex. When a seller explains how a
price is derived and shows that price increases are due to
uncontrollable external factors such as an increase in raw
material prices, the buyer is more likely to accept the price
increase and perceive it fair or at least as less unfair
(Vaidyanathan and Aggarwal, 2003; Xia et al., 2004).
Third, consistent with previous research, we showed that
overall judgments of satisfaction are influenced by consumers’
satisfaction with various stages in a purchase process. In the
context of automobile purchases, overall judgments of
satisfaction were determined by satisfaction with the dealer’s
service and satisfaction with the conditions of the product
upon delivery in addition to perceptions of price fairness.
These elements are correlated but distinct components of
overall satisfaction judgments. By partitioning satisfaction
into several distinct components, sellers can determine which
component influences satisfaction at the various stages of the
purchase process. Hence, a better understanding of
consumers’ satisfaction formation will increase our
knowledge of how to enhance consumers’ satisfaction.
This research linking perceived price fairness and customer
satisfaction was examined in an automobile purchase context.
Nevertheless, we believe the results reported in this article can
be generalized to other consumer purchases of relatively highpriced
products and complex purchase processes involving
multiple interactions with the sellers’ employees. However,
whether and how the relationship between price fairness and
customer satisfaction extends to other product and service
purchase contexts needs to be examined. Further, as we
suggested, the direction of influence among the components
of fairness perceptions and satisfaction judgments depends on
the sequence of interactions within the purchase process and
the order that consumers receive relevant information. Hence,
another area needing additional research is when consumers
first receive information about the pricing procedure as well as
the price offer itself.
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About the authors
Andreas Herrmann is Professor of Media and
Communications Management at the University of St
Gallen, Switzerland.
Lan Xia is Assistant Professor, Marketing Department,
Bentley College, Waltham, Massachusetts, USA. Lan Xia is
the corresponding author and can be contacted at:
lxia@bentley.edu
Kent B. Monroe is J.M. Jones Distinguished Professor of
Marketing Emeritus, University of Illinois, and Distinguished
Visiting Scholar, University of Richmond, Glen Allen,
Virginia, USA.
Frank Huber is Professor of Marketing at the University of
Mainz, Germany.
The influence of price fairness on customer satisfaction
Andreas Herrmann, Lan Xia, Kent B. Monroe and Frank Huber
Journal of Product & Brand Management
Volume 16 · Number 1 · 2007 · 49–58
58
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