The Effects of Price Fairness Perceptions on Customer Response Behaviors in Budget Hotel Sector

The Effects of Price Fairness Perceptions on Customer Response Behaviors in Budget Hotel Sector

1. Introduction

The advances in online distribution booking channels helps customers to complete the hotel reservations via internet 24/7, and the growth of online booking systems may cause the huge changes to the way of customers purchasing the products. (Law et al., 2007). Selling the right product to the right customer with the right price through the right distribution channel is what the hotel revenue management focus on and these characteristics are more likely to lead the unfairness between the hotels and customers. Sometimes, the situation which customers enjoying the same service at the same time are charged different prices may be considered as an unfair service, and the reason may cause of the pricing strategy in hotel revenue management. My one year working experience in reservation department helped me engage with a diversity range of customers’ perception towards the pricing strategy of revenue management in hotel. Since the customers in upscale hotel would not have that obvious value judgments on the price received, I would like to study on the factors of price fairness perceptions from customers towards the customers’ response behaviors in budget hotel.

1.1 Statement of problem

This study examines the relationship between the customers’ price fairness perceptions and their response behaviour considering the three variables like price expectation, experience treatment, and the customer familiarity level. The significance of the study is to provide an opportunity for hotel managers to identify the customer-centre pricing strategy, for example, the budget hotel should investigate the price fairness to make appropriate pricing strategy that result in gaining the positive customer behaviour response.

1.2 Research Hypotheses

1.2.1 Customers’ demographic background factors would play a role in the customers’ price fairness perception

H1: Gender will have a significant effect on customers’ perceptions of price fairness.

H2: Age will have a significant effect on customers’ perceptions of price fairness.

H3: The income level of guests would influence the level of customers’ price fairness.

1.2.2 Price fairness perception have a significant influence on the customer response behaviours causing of the effect of some variables.

H4: Customers’ level of familiarity will have an effect on the price fairness perception.

H5: Customers’ price expectation has a significant influence on their price fairness perception.

H6: The experience treatment of this staying in hotel would have an obvious effect on the customers’ price fairness.

1.3 Limitations

Since the data in this paper were collected from the budget hotel sector, and the sample for this study is the customers who consider price as an important factor in decision making. Also, the research scale based in Hong Kong, so the sample size leaves some room for improvement in the future study, the influences of reference prices and the brand loyalty also could be measuring the customers’ intension under the response behaviour.

2. Review of Literature

2.1 The concept of price fairness perception

Fairness issues have been extensively studied in the pricing field literature. In the most of the literature on fairness perception, it was defined as a criteria measuring whether the outcome of the product is acceptable. Customers would compare the actual price of products with some undistinguishable, expected reference price, as well as the price of other people received. Xia, Monroe, (2004) suggested price fairness is a kind of customers' perceptions and their related emotions about how fair and reasonable the difference is between two prices.

Until now, most previous studies of price fairness focus on the characteristics factors of consumer and examined the price fairness with the previous transaction situation, while little study on relationship between buyers and sellers especially a specific hotel sector, therefore, this study focus on the effect of the price fairness towards the customer response in a main hotel sector budget hotel.

2.2 The factors influencing price fairness perception

2.2.1 Demographic factors of customers

Consumers may have different degrees of price sensitivity based on the demographic backgrounds factors such as gender, age, and education level and so on. Beldona and Namasivayam (2006) suggested that differences in socialization would lead consumers to interpret social and economic exchanges in different ways. A lot of research reports trend on the gender differences in perception of price fairness (Brody, 1984; Witt & Nye, 1992), suggested that female is more sensitive than male. As for the income level factor, some existing literature surprisingly reveals there is no investigations into the effect of household income level factors, although some researchers radically state that price acceptability is the key element to the customers’ perception of price fairness.

2.2.2 Frequency of use: price knowledge and experience

Ahmat et al., (2010) suggested that factors influencing price fairness perception could be looked into two broad aspects which are knowledge and experience (Ahmat et al., 2010). Price knowledge means those customers developed a reference price based on their knowledge of market prices and previous transactions through practical understanding (Sinclair, 2010). Experience consist of skill in or observation of something gained through involvement in or exposure to the subject (Sindair, 2010).

Customers’ familiarity with a product or the service plays an important role in facilitating comparisons consist of the price knowledge and the experience of customers which has an effect on enhancing customers’ behavior (Taylor and Kimes, 2010). For example, the customers who are the repeat buyer of hotel rooms may have different perceptions of price fairness than those first timers. Therefore, research into price fairness must consider the moderating effects of familiarity level (first time customer vs. repeat customer) on customer response behavioral.

Apart from the customers’ familiarity level, the expectation price of this staying and