Exploring Price Fairness Perceptions in China and U.S.

Imagine two consumers who, at the same time, each buy an airline ticket. Sitting side-by-side on the flight, the consumers discover that the airline charged them different prices for what is essentially the exact same product. This concept is called dynamic pricing or tailoring prices to different customers in the marketplace. It’s a growing practice in the marketplace—and customers don’t always like it.

Lisa Bolton, associate professor of marketing at Penn State’s Smeal College of Business, along with Hean Tat Keh from Peking University and Joseph W. Alba from the University of Florida, delve deeper into consumer reactions to dynamic pricing, examining the issue from a cross-cultural perspective.

Forthcoming in the Journal of Marketing Research, their paper, “How Do Price Fairness Perceptions Differ Across Culture,” contrasts price fairness perceptions in two dominant economies—China and the United States, which Bolton describes as a “classic contrast of the largest emerging market  versus the largest established market, each with its own unique culture.” In multiple experiments that sample more than 1,000 undergraduate students from China and the United States, Bolton and her colleagues investigate how consumers perceive price fairness in relation to other consumers and across different cultures.

Bolton, Keh, and Alba find that both Chinese and American consumers judge it fair to pay a lower price but unfair to pay a higher price than paid by another customer. In other words, “what’s good for me is fair”—a kind of egocentric bias at work.  However, the Chinese are especially sensitive to the type of comparison. For example, Chinese consumers judge it unfair to pay a higher price than a friend but are indifferent to the price paid by a stranger. In contrast, Americans are indifferent to the friend-stranger distinction, judging it equally unfair to pay a higher price than paid by either a friend or a stranger.

These findings reflect the tendency of Western cultures to possess an independent, individualistic identity, whereas Eastern cultures are interdependent or collectivist in nature. Bolton says the Chinese “view the world as a network of social relationships and are, as a result, strongly oriented toward the in-group (friends and loyal relationships).” In contrast, Americans see the world in terms of independent and autonomous individuals and are less sensitive to relational information.  For example, prior research shows that Americans perceive friends, coworkers, and business owners as equivalents, but such is not the case for the Chinese, who put greater emphasis on their personal social networks.

Another concept that comes into play in the research conducted by Bolton and her colleagues is a culture’s sensitivity to mianzi or “face.”  Face is defined as status earned in a social network, and a person can either gain or lose face depending on the situation. Keeping in mind the difference between the collectivist Chinese consumer and the individualist American consumer, Chinese consumers typically experience a greater loss of face if they pay a higher price than a person in their in-group as opposed to someone in an out-group. For example, paying a higher price than a friend affects the Chinese consumer’s status or “face” within the social network and is experienced as a feeling of shame. In contrast, the American consumer tends to feel anger at paying a higher price than another consumer, friend, or stranger. 

Ultimately, consumer price fairness response and emotional reactions affect customers’ interactions with the firm in regards to purchase intent. For example, American consumers report lower intentions to re-purchase after paying a higher price than another consumer, whether friend or stranger. Chinese consumers are less likely to re-purchase after paying a higher price than a friend, but are unaffected by what a stranger paid. 

Interestingly, the cultural differences in sensitivity to relationships among consumers also extend to relationships between consumers and firms. The researchers find that “Chinese consumers judge it unfair to pay a higher price than another customer when in a loyal relationship with a firm but are relatively indifferent when in a first-time buyer situation. In contrast, Americans judge paying a higher price than another customer as unfair regardless of past loyalty to the firm.” Again, the results appear to be driven by face:  Chinese consumers experience a greater loss of face when they pay a higher price to a vendor with whom they have a long relationship as opposed to a new vendor.

These findings by Bolton and her colleagues suggest that price perceptions are more a matter of psychology than economics—with many implications for marketers, particularly in the areas of dynamic pricing and relationship marketing. If consumers feel that dynamic pricing is unfair, marketers can defend themselves against consumer backlash by using differentiation to reduce the impact of the price comparison. Doing so may be especially important with American consumers, who will resist paying a higher price regardless of the identity of the other consumer.

In terms of relationship marketing, conventional wisdom states that loyal consumers are less price sensitive, so they’re willing to pay a higher price. According to Bolton, “Our research suggests that, if anything, loyal consumers are more price sensitive.” Americans are equally sensitive regardless of whether they’re loyal or first-time buyers, and Chinese consumers are more price sensitive when loyal. As a result, marketers need to take into account the importance of culture, and the role of social networks and personal relationships, in order to effectively market their products in the United States and China.

According to Bolton, “Consumers’ understanding of the marketplace—how it actually works, and how it should work—is quite different from that of marketers and managers.  That disconnect likely extends beyond the pricing practices that we studied—and may be the underlying source of a great deal of perceived unfairness, dissatisfaction, and even conflict between buyers and sellers in the marketplace.”