Examining Consumers’ Reactions and Firms’ Responses to Price Mistakes: An Abstract

Abstract

As shopping and transactions shifted from brick-and-mortar stores to online, it offers challenges as well as opportunities for businesses. One of such opportunities is the adoption of dynamic pricing—offering different prices on the same/similar products to different consumers. Dynamic pricing is typically automated. With price automation, mistakes occur, either due to technical glitches or human errors. As consumers become more powerful supported by various social media and access to greater amount of information (Cattaneo and Chapman 2010; Labrecque et al. 2013), these mistakes can be quickly caught by consumers. Such price mistakes offer an interesting scenario to examine whether and how consumers would act fairly or unfairly toward retailers. Using a set of studies, we examine whether consumers take advantage of these price mistakes and whether the seller should grant the mistaken price. We also investigate whether canceling the orders leads to negative word of mouth and damaged future sales. We propose that the attractiveness of the low mistake price, coupled with consumers’ opportunistic characteristic, leads consumers’ intention to take advantage of these price mistakes. However, not all consumers will take advantage of them given their individual differences, moral beliefs, their perceptions of the seller, and relationships with the seller. In addition, consumers may not treat all businesses in the same way given the well-documented role of company reputation. In three studies, we show that various factors influence the likelihood of consumers taking advantage of them including the magnitude of the mistake, company characteristics (size), consumer characteristics (individual power), and company reputation (perceived service fairness). More importantly, we conceptually develop the different impacts of company customer service fairness and empirically demonstrate how higher perception of service fairness both positively and negatively influence consumers’ intention of taking advantage of the price mistakes. Finally, how companies handle the price mistakes influences consumer behavior intentions. We hypothesize that granting the mistake price will have a positive effect while denying it will have a negative effect on purchase intention and positive WOM. Overall, our research is the first one to examine consumers and sellers’ reactions to price mistakes, providing both theoretical and empirical implications.