an integrated model of price, satisfaction and loyalty: an empirical analysis in the service sector

An integrated model of price, satisfactionand loyalty: an empirical analysis in the

service sectorDavid Martın-Consuegra

Department of Marketing, University of Castilla-La Mancha, Ciudad Real, Spain, and

Arturo Molina and Agueda EstebanDepartment of Marketing, University of Castilla-La Mancha, Toledo, Spain

AbstractPurpose – The purpose of this paper is to investigate the effects of customer satisfaction both directly and indirectly (through loyalty) on priceacceptance. In addition, price fairness is considered as an antecedent of customer satisfaction and loyalty.Design/methodology/approach – Based on a theoretical discussion regarding the relationship among price fairness, customer satisfaction, loyalty,and price acceptance, empirical research was conducted to test the proposed relationships. Multiple-item indicators from previous studies wereemployed to measure the constructs.Findings – The results from the study provide empirical support, suggesting that perceived price fairness influences customer satisfaction and loyalty.The analysis also suggests that customer satisfaction and loyalty are two important antecedents of price acceptance.Research limitations/implications – The study ponders the relationship between customer satisfaction and loyalty and price acceptance, while otherfactors that have an influence on price acceptance are not considered.Practical implications – The research results suggest that perceived price fairness in service industries can be viewed as a threshold factor in order tomaintain satisfied and loyal customers. Additionally, managers should consider that price acceptance depends on the level of satisfaction and loyalty.Originality/value – The present study provides useful information on the relationship among price fairness, customer satisfaction, loyalty, and priceacceptance in service industries.

Keywords Prices, Fair value, Customer satisfaction, Customer loyalty

Paper type Research paper

An executive summary for managers and executive

readers can be found at the end of this article.

Introduction

In today’s highly competitive global markets, managers seek

to improve organizational effectiveness by identifying

organizational metrics which contribute to long-term success

(Deshpande and Farley, 1999). However, not all of these

strategies have proved successful, and one reason for this may

be insufficient marketing support (Lin et al., 2006). The

marketing concept stipulates that in order to achieve

sustained success, organizations should identify and satisfy

customer needs and wants more effectively than their

competitors (Drucker, 1954; McCarthy, 1960; Day, 1994).

Additionally, customer satisfaction is closely linked to many

relationship marketing dimensions and other marketing

instruments, such as customer loyalty, relational benefits or

confidence, and price or distribution, respectively. However,

factors such as price fairness or price acceptance have not

received the degree of empirical attention paid to otherantecedents and consequences of satisfaction mentionedabove. If the central role of pricing in consumer behavior as

well as cost effectiveness is considered as one of the criteriathat customers rank as being particularly important whenselecting a product or service, the fact that the price hasreceived little attention when analyzing customer satisfactionis astonishing (Huber et al., 2001). Consequently, in order to

understand the relationship between satisfaction, loyalty andprice, an empirical study should be conducted.

In addition, service marketing is different to goods

marketing, and is usually more complex to manage. Inservice industries, the distinctive features of services(intangibility, inseparability, perishability and heterogeneity)require understanding and satisfying customer needs and

expectations, creating, communicating and deliveringcustomer value, and keeping promises (Aksoy et al., 2003).This is particularly true in the case of air travel. Air travel isintangible due to the fact that customers have limited access

to any benefits until the start of a journey. Inseparabilitymeans that airline services cannot be separated from theirproviders. Perishability is significant in that an unoccupiedairline seat cannot be stored for later sale or use during peak

periods. Heterogenity is also prevalent as the standards ofairlines vary greatly, as do the multitude of variables thatinfluence the demand for airline products. In this sense, whileprice is an important determinant in purchasing and post-

purchasing processes, the central role of price is especiallywell recognized as an important variable in services with

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Journal of Product & Brand Management

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q Emerald Group Publishing Limited [ISSN 1061-0421]

[DOI 10.1108/10610420710834913]

459

complex pricing structures rather than tangible products

(Matzler et al., 2006).While product, distribution, and promotion involve the

outlay of resources, price is the one element of the marketing

mix that directly influences an inflow of resources. For this

reason, a critical activity for service managers is to set and

manage prices. To manage pricing decisions effectively,

marketing managers should attempt to understand how

consumers respond to price changes. For these reasons, the

central goal of this research is to empirically extend previous

research regarding the relationship between price fairness,

customer satisfaction, loyalty and price acceptance. As a

consequence, this study describes the theoretical relationships

between the concepts mentioned above. This research

analyzes these dimensions in a concrete consumer sample to

better understand the relationships between them. In order to

do this, a previous analysis of the features of price fairness,

customer satisfaction, loyalty and price acceptance is needed.

To be more precise, the objective of this study is to integrate

the lines of research on prices, satisfaction and loyalty in

services through a path model that is proposed and tested.

Therefore, this research is capable of filling the empirical gap

between satisfaction and price.

Literature review

Perceptions of price fairness

Consumers may view the demand-based pricing and price

discrimination associated with revenue management as a

violation of consumer beliefs about the dual entitlement

principle. Yield management, also known as revenue

management, was originally conceived and implemented by

the airline industry at the end of the 1970s. Since that time,

revenue management has been widely adopted in other

service industries across the globe, such as the hotel, cruise-

line and car rental industries (Kimes and Wirtz, 2003).

However, the previous situation has received little empirical

attention in the marketing literature (e.g. Urbany et al., 1989;

Maxwell, 2002; Vaidyanathan and Aggarwal, 2003; Wirtz and

Kimes, 2007). In addition, the principle of dual entitlement

states that most customers believe that they are entitled to a

reference price and that firms are entitled to a reference profit.

Moreover, price increases commensurate with cost increases

will be perceived as fair, ceteris paribus (Kahneman et al.,

1986). In this sense, changes in the status quo price should not

be made arbitrarily or merely for the purpose or increasing the

firm’s profit, such as when prices are raised to take advantage

of surplus demand or newly obtained monopoly power

(Bolton et al., 2003). Based on this, it is expected that a price

increase would be evaluated as being less fair if the focus of

causality is perceived to be internal to the organization. Also,

it was found that both customers and firms compare the

selling price with the prices paid by other customers for the

same products or services (Martins and Monroe, 1994). To

sum up, consumers evaluate the fairness of a quoted price by

making appropriate comparisons with other references, but

also taking into account situational circumstances (Beldona

and Namasivayam, 2006).Fairness has been defined as a judgment of whether an

outcome and/or the process to reach an outcome is

reasonable, acceptable, or just (Bolton et al., 2003). The

cognitive aspect of this definition indicates that price fairness

judgments involve a comparison of the price of procedurewith a pertinent standard, reference, or norm.

Customer satisfaction

During the last four decades, satisfaction has been consideredas one of the most important theoretical as well as practicalissues for most marketers and customer researchers (Jamal,2004). However, no single definition of satisfaction has beenunanimously accepted by the literature related to the matter.All definitions proposed, however, agree that the concept ofsatisfaction implies the necessary presence of a goal that theconsumer wants to achieve. According to Homburg et al.(2006), previous research has recognized that both cognition(Oliver, 1980; Bearden and Teel, 1983; LaBarbera andMazursky, 1983; Oliver and DeSarbo, 1988) and affect(Westbrook, 1987; Westbrook and Oliver, 1991; Mano andOliver, 1993) significantly predict satisfaction judgments.

On one hand, within the literature on services marketing,satisfaction has traditionally been defined as a cognitive-basedphenomenon (Westbrook, 1987). Cognition has been studiedmainly in terms of the expectations/disconfirmation paradigm– also known as the confirmation/disconfirmation paradigm –which states that expectations originate from the customer’sbeliefs about the level of performance that a product/servicewould provide (Oliver, 1980). On the other hand, otherstudies have recognized that the affect experienced during theacquisition and consumption of the product or service canalso have a significant influence on satisfaction judgments(Homburg et al., 2006). The role affective dimension inestablishment evaluation has not been overlooked by research(Burns and Neisner, 2006). Liljander and Strandvik (1997)suggest that satisfaction cannot be completely understoodwithout the study of its affective dimension.

The marketing literature emphasizes price as an importantfactor of consumer satisfaction, because whenever consumersevaluate the value of an acquired product or service, theyusually think of the price (Zeithaml, 1988; Fornell, 1992;Anderson and Sullivan, 1993; Anderson et al., 1994; Croninet al., 2000). As for the relationship of price to satisfaction,Zeithaml and Bitner (1996) indicated that the extent ofsatisfaction was subject to the factors of service quality,product quality, price, situation, and personal factors.However, price has not been fully investigated in previousempirical studies (Bei and Chiao, 2001).

According to Zeithaml (1988) price is something that mustbe sacrificed to obtain certain kinds of products or servicesfrom consumers’ cognitive conception. Usually, the lower theperceived price, the lower the perceived sacrifice. In addition,a sense of price fairness should be generated. If customersview a firm’s practices as unfair, negative consumer responsesare likely to occur (Wirtz and Kimes, 2007). Immediateattitudinal and affective responses include dissatisfaction(Oliver and Swan, 1989), lower purchase intentions(Campbell, 1999a, b), heightened price consciousness andfocus on the monetary sacrifice of a purchase (Xia et al.,2004). Therefore, the following hypothesis is proposed:H1. Price fairness is positively associated with customer

satisfaction.

Customer loyalty

It is at any rate remarkable that, in recent years, marketingactivities in the service sector are preferably evaluated in

An integrated model of price, satisfaction and loyalty

David Martın-Consuegra, Arturo Molina and Agueda Esteban


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relation to business profitability. However, as businessprofitability may be influenced by many other variables, itseems more appropriate to define the concept of marketingactivities more specifically when attempting to take athorough approach. At least two key elements stand out inthe literature of marketing:1 repeat purchases; and2 word-of-mouth (Henning-Thurau et al., 2002; Wong and

Zhou, 2006).

Loyalty concerns itself with purchase reiteration behavior orrecommendation to other people and is activated by companymarketing activities. In this sense, a key challenge is to identifyand understand how managerially controlled antecedentvariables influence loyalty.

Customer satisfaction is a central element in the marketingexchange process, because it undoubtedly contributes to thesuccess of service providers (Darian et al., 2001).Furthermore, satisfaction is one of the essential factors topredict consumer behavior and, more specifically, purchaserepetition. Oliver (1997) defines loyalty as a deeply heldcommitment to repeat purchases of a preferred product orservice consistently in the future, despite situationalinfluences and marketing efforts (e.g. pricing policies)having the potential to bring out change. The moreconsumers fulfill their expectations during the purchase orservice use, the higher the probability that consumers willrepeat purchase in the same establishment (Wong and Sohal,2003). Thus, customer satisfaction along with otherantecedents are essential factors in order to acquire loyalcustomers who would also recommend their regular productor service provider to other customers. Many relatedempirical studies reported that satisfied consumersdemonstrate more loyal behavior (Gwinner et al., 1998;Reynolds and Beatty, 1999; Henning-Thurau et al., 2002;Wong and Zhou, 2006). Therefore, consumer satisfactionleads to customer loyalty, and the following hypothesis isproposed:H2. Customer satisfaction is positively associated with

customer loyalty.

In addition, when consumers perceive that the price of aservice or product is reasonable, it is possible for them todisplay the intention of repeat purchase behavior. On theother hand, if consumers do not feel that their sacrifices areworthwhile, they may not make the purchase again, evenwhen they are satisfied with the product or service (Bei andChiao, 2001). With this in mind, the following hypothesis isproposed:H3. Price fairness is positively associated with customer

loyalty.

Price acceptance

Price acceptance is based on the assimilation-contrast theory(Sherif et al., 1958; Sherif, 1963). This theory suggests that anew stimulus encountered by an individual is judged against abackground of previous experience (reference scale) in thecategory. Subsequent stimuli are judged in relation to areference scale and this provides the basis for comparisonsand evaluations. Literature in this field has applied theassimilation-contrast theory to price perceptions and positedlatitude of price acceptance (Emery, 1969; Monroe, 1971;Sawyer and Dickson, 1984; Kalyanaram and Little, 1994).

The level of price acceptance can thus be defined as the

maximum price that a buyer is prepared to pay for the

product or service (Monroe, 1990). Price acceptance has not

received the same degree of attention paid to other

consequences of satisfaction, such as repurchase intentions

(Anderson and Sullivan, 1993).To what extent does improving customer satisfaction

increase customer price acceptance and, consequently,

decrease price sensitivity? Marshall (1980) indicates that the

excess of price that a customer would be willing to pay, rather

than go without having a thing, over what he actually pays is

the economic measure of his satisfaction surplus.

Consequently, this in turn might mean that customers have

a greater price acceptance for products or services providing

greater satisfaction. In this field, Anderson (1996) investigates

whether the association between satisfaction and price

acceptance is positive or negative, as well as gauging the

degree of association between these two important constructs.

His study finds a positive association between changes in

customer satisfaction and changes in price acceptance.

According to Anderson (1996) and Huber et al. (2001), the

following hypothesis can be formulated:

H4. Customer satisfaction is positively associated with

price acceptance.

Apart from customer satisfaction, others factors can influence

the range of price acceptance:. variability in prices;. reference price level;. frequency of purchase; and. level of brand loyalty.

Variability in prices is incorporated in the definition and

operationalization of acceptance (Kalyanaram and Little,

1994). The reference price level and knowledge about prices

substantially affect the acceptance for a given product

category or service (Lichtenstein et al., 1988). In this sense,

Monroe (1973) also suggests that an acceptable price range is

directly proportional to the level of price acceptability.

Lichtenstein et al. (1988) affirm that consumers with a

higher purchase frequency have a narrower price acceptance

than consumers with a lower purchase frequency. Finally,

consumers who are on average more brand-loyal in relation to

a given product or service are likely to have in respect of that

brand. High brand loyalty keeps the consumer more focused

on the benefits of the brand and less focused on the price. In

contrast, with lower brand loyalty customers are more focused

on the price than on a greater price acceptance the benefits

provided by the brand. Hence, consumers with higher average

brand loyalty are hypothesized to have a greater price

acceptance than consumers with lower brand loyalty

(Kalyanaram and Little, 1994). According to this, H5

addresses the relationship between price acceptance and

customer loyalty:

H5. Customer loyalty is positively associated with price

acceptance.

The proposed relationships between the four dimensions

mentioned – i.e. price fairness, customer satisfaction,

customer loyalty and price acceptance – are summarized in

Figure 1.




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Methodology

The research process involved the following steps. First, a

literature review was undertaken to identify perceived price

fairness, customer satisfaction, loyalty and price acceptance

dimensions within the service sector. Second, the population

and sampling procedure was established. Third, a

questionnaire was constructed. Finally, the methods of data

collection and analyses were determined.

Sample data

The sample for this investigation covered one service industry

alone.Tobemorespecific, thesample includedtheairlinesector.

The selection of this industry was based on preliminary

interviews with industry experts, which revealed that the

relationship between the dual entitlement principle and

satisfaction is particularly relevant in the airline industry. The

population of the study was international airline passengers. A

representative sample was selected, taking into account the

nationality and favorite airline of each passenger. Data was

collected using a convenience sampling method. The

questionnaire was carried out through personal interviews at

the baggage reclaim area in an international airport.

Respondents were asked to focus on the airline they use most

often, not necessarily the one in which they had just arrived. A

total of 721 valid questionnaires were completed. The sample

size met with the requirements suggested by Hair et al. (1999)

that a sample size of 200 may be required to ensure appropriate

use of maximum likelihood estimation, to generate valid fit

measures and to avoid drawing inaccurate inferences.An overview of the demographic profile of the respondents

gives a fair representation of all air passengers. The sample is

primarily in the “less than 34 years” age group (60.7 per cent),

male (52.5 per cent), single (48.5 per cent), and university-

educated (65.7 per cent). In relation to the number of flights per

year, almost half of the respondents (41.2 per cent) fly more than

fivetimesayear.Thus, aquarterof the sample (27.4percent)are

members of a frequent flyer program.

Measures

The design of the questionnaire was primarily based on

multiple-item measurement scales taken from previous

research. Statements were adapted to suit the specific

characteristics of an airline industry study. The

questionnaire included questions regarding price fairness,

customer satisfaction, loyalty and price acceptance, as well as

the length, continuity and degree of relationship with the

airline.

Although some research on the relationship between price,

satisfaction and loyalty has been undertaken, to gauge the

concepts put forward, scale development and adaptation wasrequired. The scales employed were developed and adapted

using conventional psychometric procedures. The scales were

predominantly adapted from existing measures, but also onthe basis of scale development work conducted during pre-

testing. Before the questionnaire was finally designed it was

proofread by four marketing academics and five professionalsfrom the airline sector. Thus, the questionnaire was pre-tested

and, based on the debriefing of the pre-test respondents,minor changes were made to improve the clarity and visual

layout of the questionnaire. In total, four scales were used,

three of which were adapted from existing scales. These scaleswere measured on a seven-point Likert-scale ranging from

“strongly disagree” to “strongly agree”.To measure the extent of price acceptance, a four-item scale

was developed especially for the study. This scale was

designed to gauge the extent to which customers accepted agiven price. The scale was based on previous works on price

acceptance (e.g. Huber et al., 2001). In addition, the other

three scales were developed to confirm the hypothesizedrelationships. Perceived price fairness was measured using a

five-item scale that was derived from Campbell’s (1999a, b)

and Kimes’s (1994) measures of perceived fairness.Satisfaction was measured using a six-item scale through the

use of a subset of the items from Oliver (1980). Finally,loyalty was measured using an adapted version of Reynolds

and Beatty’s (1999) measure of loyalty. The items used to

measure the constructs are summarized in the Appendix.

Results

This section provides results of the analysis on the variablesdescribed. This will be followed by subsequent analyses of the

relationship between perceived price fairness, customer

satisfaction, loyalty and price acceptance. In addition todescriptive statistics, multivariate analysis techniques were

used in the data with the objective of contrasting the

relationship proposed and verifying the possible results, inagreement with the hypothesized relationships.

Before going deeper into the relationships abovementioned, the fit of the scales in relation to the data was

analyzed. The reliability of the measures was examined

through a confirmatory factor analysis and the calculation ofCronbach’s alpha coefficients. According to Anderson and

Gerbing (1988), confirmatory measurement models should

be evaluated and re-specified before measurement andstructural equation models are examined simultaneously.

Thus, before testing the measurement model overall, eachconstruct in the model was analyzed separately. Confirmatory

factor analysis revealed that each indicator loaded significantly

on its designated factor. In addition, the chi-square/degrees offreedom ratio was well below March and Hocevar’s (1985)

criterion. Reliability was measured through an examination of

Cronbach’s alpha coefficients, which, for scale acceptability,Nunnally (1978) suggested should be over 0.7. Cronbach’s

alpha coefficients were found which ranged from 0.88 (price

acceptance) to 0.92 (customer satisfaction), and which exceedthe threshold value, conforming to Nunnally’s (1978)

criterion.Using the criterion set forth by Hair et al. (1999), an

examination was carried out to establish whether the average

Figure 1 Path diagram of integrative model results




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variance extracted and the composite reliability for the

measures was greater than 0.5 and 0.7, respectively. The

average variance extracted and composite reliabilities in all

cases exceed the respective threshold values (Bagozzi and Yi,

1988), which provide evidence of convergent validity

(Anderson and Gerbing, 1988). Similarly, evidence of

discriminant validity was found through Fornell and

Larcker’s (1981) test, which recommends comparing the

average variance extracted with the variance shared between

the construct and other constructs in the model. This was

confirmed for all pairs of constructs. In addition, as

mentioned previously, the survey instrument was pretested

to improve content validity. To sum up, the data showed

satisfactory empirical support for our conceptualization of the

constructs of perceived price fairness, customer satisfaction,

loyalty and price acceptance (see Table I).Given the nature of the hypothesized relationships, the

proposed relationships were tested simultaneously using

structural equation modeling (SEM). This technique allows

the existing causal relationships between price fairness,

customer satisfaction, loyalty and price acceptance to be

assessed. The measurement scales used for each concept are

the result of the evaluation process described. In particular,

the model paths were estimated using EQS 6.1 following the

recommendations of Gerbing and Anderson (1988), Bentler

(1995) and Byrne (1994). The standardized path coefficients

of the structural model as estimated by EQS are given in

Figure 2. In addition, the specified model was compared with

a revised model, following the recommendations of Gerbing

and Anderson (1988), through chi-square differences and the

chi-square/degrees of freedom ratio, along with comparative

assessments of parsimony. These evaluations revealed that the

specified model was a better fit than the revised model across

all indexes examined. Consequently, the initial specified

model was examined to gauge overall validity.There are several tests to ascertain whether an SEM model fits

the observed data. The chi-square statistic provides a

measurement of how well the model fits the data. Therefore,

chi-squarewasusedtotest therelationshipproposed.Inaddition

tothechi-square testand itsassociatedp-values, thecomparative

fit index (CFI), the normed fit index (NFI), the non-normed fit

index (NNFI), and the root mean square residuals (RMR), are

used as tests of model fit. The overall fit of the measurement

model arex2 ¼ 1872:2 (p ¼ 0:00), CFI ¼ 0:954, NFI ¼ 0:941,

NNFI ¼ 0:950, and RMR ¼ 0:052. Bentler (1995) indicates

that CFI, NFI and NNFI values of above 0.9 suggest adequate

fit. In addition, RMRs were lower than 0.08 (Hair et al., 1999).

As illustrated in Figure 2, the global goodness-of-fit statistics

indicate that the structural model represents the data structure

well. Standardized parameter estimates for the model are shown

in Figure 2.

H1 states that perceived price fairness is positively associated

with customer satisfaction. The results lend support to the

claim that perceived fairness of a given price is linked to

customer satisfaction because the estimated parameter

between both constructs is both positive and significant.

Thus, the result supports the acceptance of H1 and is

consistent with previous studies (e.g. Bei and Chiao, 2001).

H2 and H3 respectively argue that customer satisfaction and

perceived price fairness are positively associated with

customer loyalty. The structural equation modeling provides

support for these hypotheses, in that each is estimated to be

significantly associated with loyalty. Therefore, this supports

the hypotheses that a fair price increases customer satisfaction

and loyalty. Evidence in support of H2 and H3 is found in the

significant links with loyalty (see Figure 2). Therefore, H2 and

H3 are fully supported and the result is consistent with

previous studies (e.g. Kalyanaram and Little, 1994). H4 and

H5 are related to the links between customer satisfaction and

loyalty and price acceptance. These hypotheses respectively

state that higher levels of customer satisfaction and loyalty are

associated with higher levels of price acceptance. Therefore,

this supports the hypotheses that a satisfied and loyal

customer is willing to pay more for the service. The results

support both H4 and H5, and show significant links between

customer satisfaction, loyalty and price acceptance, leading to

the acceptance of these hypotheses. The result is also

consistent with previous studies (e.g. Huber et al., 2001).

To summarize, all the hypothesized relationships were

supported.

Table I Descriptive statistics, correlation coefficients and measure validation

Factor Mean SD Number of items PF CS L PA Cronbach’s a Composite reliability AVE

PF 4.12 1.78 5 1.000 0.915 0.12 0.722

CS 5.17 1.56 6 0.512 1.000 0.921 0.920 0.659

L 3.65 2.12 4 0.678 0.635 1.000 0.902 0.908 0.713

PA 4.54 1.85 4 0.597 0.609 0.521 1.000 0.889 0.907 0.709

Notes: PF, price fairness; CS, customer satisfaction; L, loyalty; PA, price acceptance

Figure 2 Path diagram of integrative model results




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Conclusion

This article examines the relationship between price fairness,

customer satisfaction, loyalty and price acceptance. The study

finds a positive relationship between these variables. These

findings confirm the results of previous studies, such as

Kalyanaram and Little (1994), Anderson (1996) and Huber

et al. (2001). The present study utilizes a model that permits the

examination of consumer behaviour procedures, regarding

satisfaction, loyalty and price acceptance, resulting from

individuals’ perceptions of price fairness that underlie their

transactions with airlines. In this case, sensitivity to the total

amount of profit extracted from a single customer through a set

of transactions with a single firm drives aggregate fairness

judgments andmayhave implications for relationshipmarketing

and customer lifetime value (Bolton et al., 2003). When repeat

purchases of a service by a customer over time constitute a set of

transactions, fairness constraints in the aggregate should have

important implications for loyalty pricing.This study makes a contribution towards filling the void in

the marketing literature on satisfaction and loyalty by

including the role of perceived price fairness and price

acceptance. Price is an important element for consumers

when purchasing; it therefore has a large influence on

consumers’ satisfaction judgments (Herrmann et al., 2007).

The results indicate that price acceptance is directly

influenced by satisfaction judgments and loyalty. In

addition, price fairness influences price acceptance indirectly

through customer satisfaction and loyalty.

Theoretical and managerial implications

This study links several important marketing concepts, and

demonstrates the influence of perceived price fairness on

customer satisfaction, loyalty and price acceptance. In this

sense, this research demonstrates that perceived price fairness

increases customer satisfaction and loyalty. The study also

shows that if the customer is very satisfied and plans to repeat

the purchase, he is willing to pay different prices, as it is not

easy for the consumer to compare the performance of services

within this sector. Consequently, organizations are able to

charge different prices because these customers attach value

to maintaining the relationship (Huber et al., 2001). In this

case, the price transparency and reliability may be particularly

relevant when prices are increased or when the pricing

structure is relatively complex, such as in the airline industry.

When a service provider explains how a price is derived and

shows that price increases are due to uncontrollable external

factors, such as an increase in fuel costs, the consumer is more

likely to accept the price increase and perceive it as being fair,

or at least less unfair (Vaidyanathan and Aggarwal, 2003; Xia

et al., 2004). This means that a firm should focus more on

delivering the right quality at the right price and on treating

the customers fairly rather than focusing on competitors’

prices. Hence, a better understanding of consumer

satisfaction formation will increase marketing managers’

knowledge of how to enhance consumer satisfaction

(Herrmann et al., 2007). Taken together, our findings

suggest that higher perceived price fairness, customer

satisfaction and loyalty contribute to higher price acceptance.Some suggestions can be made after considering the results

of this study. A critical activity for many marketing managers

is to establish a product pricing strategy. The results of the

studies reported in this paper suggest that managers should be

more conscious of consumer evaluations of their pricing

tactics and judiciously apply each tactic so as not to enhance

consumer perceptions of price fairness. To set effective prices,

marketers attempts to predict how consumers are likely to

respond to different price points or price changes. To manage

pricing decisions effectively, the marketer must be able to

understand both economic and psychological responses to

various prices and price changes (Campbell, 1999a, b). For

this reason, managers should always put across price

differentials as discounts rather than surcharges. This will

not have a significant impact on perceived fairness for those

familiar with revenue management pricing practice but it will

lead to improved fairness perceptions for those less familiar

with it (Wirtz and Kimes, 2007). For example, airlines have

long used this practice and present high-rack rates and full

fares at discount prices. Pricing decisions should be made

with consideration given to the need to communicate the

price and the reasons behind it. For example, firms should

consider using marketing communications, such as

advertisements or point-of purchase materials, to provide

justifications for price increases.

Limitations and directions for future research

In interpreting the results of this study, a number of limitations

must be considered. From a theoretical point of view, the

frameworkof this research is restricted to itsownobjectives.This

study has pondered the relationship between price fairness,

customer satisfaction, loyalty and price acceptance, while other

antecedents or consequences, such as relational benefits or

confidence, have not been considered. Furthermore, another

limitation is that different segments of customers might exist in

term of price acceptance (Anderson, 1996). Finally, from a

methodological perspective, the fact that this investigation

covered one service industry alone could be considered a

limitation, because the results from this study can only be

generalized for service industries with complex pricing

structures, such as the hotel or cruise-line industries.Additionally, this research and the model it proposes have

been devised as a basis for future studies. It would be interesting

to analyze how the proposed relationships may differ when

compared with other services with simple pricing structures or

tangible products. In addition, due to the fact that service

industriesareheterogeneous,presentingawidevarietyofpricing

structures, further research should be carried out in respect of

other services, concentrating on analyzing other antecedents

and consequences. Finally, it should be noted that the study

focused on traditional airlines alone, ignoring low-cost airlines.

Future research may derive benefit from focusing on consumer

behavior in the low-cost industry.To summarize, this research has examined perceived price

fairness, customer satisfaction, loyalty and price acceptance in

the service sector context. Nevertheless, the results reported

in this paper may be relevant for other services that involve

multiple interactions with providers. In conclusion, the

information provided by this research can be best used

when designing marketing strategies for airlines or service

industries with complex pricing structures. They need to

continue their basic strategy of maintaining a stable

relationship with their customers, through prices, in order

to improve customer satisfaction and loyalty.




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& Pricing Management, Vol. 2 No. 3, pp. 216-27.




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Appendix

About the authors

David Martın-Consuegra is an Associate Professor in the

Marketing Department at the University of Castilla-La

Mancha. His teaching and research interests span marketorientation, customer relationship, services and tourism

issues. His research has been published in the EuropeanJournal of Marketing, Journal of Travel & Tourism Marketing,International Journal of Bank Marketing, Asian Journal ofTourism and Hospitality Research, and the Journal of FinancialService Marketing. He is also the author and co-author of

several marketing books. He has won several awards for his

research (including the Tribuna FITUR-Jorge Vila Fradera).

He has spent several periods of research at European and

North American Universities. David Martın-Consuegra is thecorresponding author and can be contacted at:

[email protected] Molina is an Associate Professor in the Marketing

Department at the University of Castilla-La Mancha. Histeaching and research interests are focused on services,

retailing, relationship marketing and image tourism. He is the

author and co-author of several marketing books. In addition,

he has published in journals such as the European Journal ofMarketing, Annals of Tourism Research, Journal of Travel &Tourism Marketing, International Journal of Bank Marketing,Asian Journal of Tourism and Hospitality Research, and the

Journal of Financial Services Marketing. He has spent several

periods of research at European, North American and

Canadian Universities. He has won several awards for his

research.Agueda Esteban is a Professor of Marketing. She is Head of

the Marketing Department. She has a particular research

interest in the marketing of the tourist services. She has

published numerous journal articles, conference papers and

books, including Principios de Marketing (Marketing Principles)

and La Investigacion de Marketing en Espana (Marketing

Research in Spain).

Executive summary and implications formanagers and executives

This summary has been provided to allow managers and executives

a rapid appreciation of the content of the article. Those with a

particular interest in the topic covered may then read the article in

toto to take advantage of the more comprehensive description of the

research undertaken and its results to get the full benefit of the

material present.Price fairness matters. The idea of getting a “fair deal” goes

back beyond the earliest of marketing texts, indeed beyond

the earliest of printing presses. Indeed in assembling his first

printing press, one can image Caxton himself in the English

Middle Ages haggling over prices on the component parts.If he did he would be following in a long and fine tradition.

The ancient Sumerian people, for example, living in what is

now war-torn Iraq, created writing systems to catalogue

quantities and values at a time when their contemporaries in

Egypt and China were worrying more about the abstract

considerations of religion and philosophy.

Customer satisfaction, loyalty and pricing

Price fairness obsesses modern marketers as it did those of

previous generations going back to when the labels were of

trade and exchange. David Martın-Consuegra, Arturo Molina

and Agueda Esteban of University of Castilla-La Mancha in

Spain have researched this area, in particular examining the

connection between customer loyalty and price acceptance.Printing and the printing presses were once Europe’s state-

of-the-art industry among the moneyed elite, defining their

age. Perhaps the same could be said today of the airline

industry, the business selected by the University of Castilla

team as the basis of their study. Using a combination of

literature review and empirical data they set out to determine

the following issues, that:. price fairness is positively associated with customer

satisfaction;. customer satisfaction is positively associated with

customer loyalty;. price fairness is positively associated with customer

loyalty;. customer satisfaction is positively associated with price

acceptance; and. customer loyalty is positively associated with price

acceptance.

Their results support the proposition that perceived price

fairness influences customer satisfaction and loyalty.

Conversely, their study also suggests that customer

satisfaction and loyalty are two important antecedents of

Table AI Items used to measure constructs

Factor Item

Price fairness (PF) I paid a fair price for the airline ticket

A situation where whether it is fair that two airline

passengers are seated next to one another but have

paid different prices

I consider the airline’s pricing policy as fair

I consider the airline’s pricing policy as ethical

I consider the airline’s pricing policy as acceptable

Customer I am satisfied with my purchase decision

satisfaction (CS) I would feel differently, if I purchase again

My choice was wise

I feel bad about my purchase decision

I think that I selected the right airline I am not

happy

Loyalty (L) I am very loyal

I am very committed

I don’t consider myself a loyal customer

I don’t plan to buy any more tickets in the future

Price acceptance Sometimes I am willing to pay more

(PA) I know the reference price level

I usually accept changes in prices

I have a good knowledge of price distribution in the

airline industry




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price acceptance. To return to the start it underlines that price

fairness matters.

Advice on relationships!

It is interesting to see the development of the principles of

customer relationship management evolve in new, specific

areas of marketing such as pricing decisions. They are among

the most crucial ones. Relationships can quickly deteriorate if

one partner feels that the other is perpetually seeking

advantage over them, or taking ever more and never giving

back. In short, relationship management implies some sort of

equivalence between both parties, between seller and buyer.A strategy among many acquisitive corporate raiders has

been to assume that the company they are taking over have

probably become too close to their customers, too sensitive to

complaints and that in fact prices can be raised significantly

post-acquisition. Short-term it has often worked for them.

Among the howls of protest and the barrage of complaints, a

financial pattern often emerges that profits have increased

from higher margins, albeit generated from fewer customers.Short-term is a key phrase. It is essentially playing on

loyalty for a quick gain. It goes against the tenets of

relationship building. For customers it can feel almost like a

breach of trust. Managers remote from the frontline may be

able to view the figures with satisfaction. For those in the call

centres and the check-ins and checkouts life at work can seem

almost not worth living. The lagging financial indicators may

look fine, but the leading indicator of customer dissatisfaction

will present a much less healthy picture.

Implications for pricing strategists

The research reveals that a customer believing that prices arefair is a prerequisite, or a threshold factor for customersatisfaction and subsequent loyalty. It is that important, atleast in the service sector that they explore. Fair pricesincrease customer satisfaction and loyalty.

Such loyalty provides the basis for some level of priceadjustment. Customers who are satisfied with the relationshipthey have with a company are less likely to readily give it up.In the airline industry pricing issues are complex. Someelements such as the cost of fuel will be uncontrollable by thefirm. Transparency with customers with this sort of issue willenhance perceptions of price fairness.

The challenge thrown down by these research results is forfirms to concentrate more on delivering the right value at theright price and less on basing prices on a survey ofcompetitors. That is likely to be controversial, but is themain implication of this study, and the studies on which it isbased.

That and when you increase prices be sure to take care injustifying the increase and communicating this effectively. If itis perceived as being fair then the underlying relationship withcustomers is not likely to be damaged. If not, even theincrease may seem fair to managers they are likely to findthemselves misunderstood in the marketplace.

Justifying price increases matters, but the justifications hadbetter be believable!

(A precis of the article “An integrated model of price, satisfactionand loyalty: an empirical analysis in the service sector”. Suppliedby Marketing Consultants for Emerald.)




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