How Corporate Reputation Affects Customers
Transcript of How Corporate Reputation Affects Customers
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How corporate reputation affects customers
reactions to price increases
ABSTRACT The study investigates the impact corporate reputation has on cognitive,
affective and
behavioural customer reactions after price increases Specifically, it includes inferred
motive, price fairness,
anger and purchase intentions !n the basis of e"uity theory, attribution theory and
the theory of cognitive
dissonance, the conceptual model is developed and tested using an e#perimental
design set in the airline
industry $artial %east S"uares serves to determine direct, mediated and moderating
effects &indings confirm
that the more favourable the perceived reputation, the less li'ely customers are to
attribute negative motives for
the price increase or price unfairness A larger price increase does not diminish the
impact reputation has onperceived price fairness or on purchase intentions Reputation also has an effect on
anger mediated by price
fairness &irms should consider corporate reputation in pricing strategies as analysis
of reputation can assist in
forecasting consumer reactions to price increases and in augmenting profitability
()TR!*+CT(!)
ffective revenue and price management
re"uires correct forecast of customers reactions
to price changes -Homburg et al, .//01
Although price increases are typically three to
four times more effective in increasing profitability
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than a proportionate increase in sales
volume -2arn and Rosiello, 344.1, the actual
profit leverage depends on customers behavioural
responses towards the specific price
change (t is essential to understand possible
negative customer reactions to price increases
such as deteriorated customer attitudes, defection,
unfavourable word of mouth or boycotts,
as well as the factors that aid in preventing them
-*odds et al, 34435 Bolton and %emon, 34445
6ohli and Suri, ./331 To date, however,
customer reactions to price increases received
relatively little scholarly attention
(n this regard, the effects of perceived corporate
reputation should be of considerable managerial
and academic interest A favourable corporate
reputation may increase customers value perceptions,
willingness to pay and purchase intentions
despite the price variation -for e#ample,
%andon and Smith, 34475 berl and Schwaiger,
.//05 8raham and Bansal, .//71 (t is often
e#pected that a firm with a favourable reputation
can charge a price premium -Shapiro, 349:5
)eville et al, .//05 Cheema, .//91 because
reputation signals high "uality of products and
services -Shapiro, 349:1 and creates customerperceived
value -$etric', .//.1
Although numerous studies have attempted
to determine the e#act nature of the relationship
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between corporate reputation and financial
success -for e#ample, ;ergin and related benefit and price perceptions
of customers -Alba et al, 3441, our focus on
corporate reputation adds a broader perspective
Second, in adding to e#tant 'nowledge
regarding the interplay of reputation and
customers willingness to pay -%andon and
Smith, 34475 8raham and Bansal, .//71, we
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empirically investigate the impact of corporate
reputation on cognitive, affective and behavioural
customer reactions after price increases
&inally, this investigation of corporate reputation
provides a response to Taylor and 6imes
-./331, who advise researchers and managers to
focus on pricing fairness and its determinants
because of the strong relationship to purchase
intentions
%(TRAT+R R;(=
As has been well established, price increases
have a significant and immediate impact on
profitability of the firm !f all the tools available
to mar'eting managers, pricing has the
most immediate impact on both the top and
bottom lines -6ohli and Suri, ./33, p .1
However, price increases are also ris'y as they
tend to affect customers value perceptions
-$etric', .//.1 According to prospect theory
-6ahneman and Tvers'y, 34741, which postulates
that people have a tendency to strongly
prefer avoiding losses to ac"uiring gains, it
would seem that price increases have a larger
impact on customers value perceptions than
gains in product utility -2onroe, .//01 As
price increases ceteris paribus decrease customers
perceived value, they negatively impact attitudes
towards the firm -*odds et al, 34431,
leading to dissatisfaction, complaints and negative
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word>of>mouth intentions -Bolton and
%emon, 34445 ia et al, .//1 (n most circumstances,
raised prices will decrease demand and
increase switching -for e#ample, 2a#well,
.//.1 (n some cases, more drastic reactions
such as product boycotts may result -ia et al,
.//1 Such behavioural reactions following a
price increase are of specific managerial interest
because they directly impact profitability -6ohli
and Suri, ./331
The siDe of the price increase plays a central role
when studying customer reactions -for e#ample,
*awes, .//41 (n addition, price fairness
Eudgments which involve a comparison of a
price or procedure with a pertinent standard,
reference, or norm -ia et al, .//, p 31 are a
recurring variable in research studies -Campbell,
34445 Homburg et al, .//05 Campbell, .//71
As Taylor and 6imes -./33, p .7.1 pointed
out, -p1erceived fairness is paramount to longterm
revenue ma#imiDation (f a price is perceived to be unfair, the process of price
determination is also most li'ely to be perceived
as unfair -2a#well, .//.1 According to the
dual>entitlement principle -6ahneman et al,
349F1, a firm cannot increase its profits by
arbitrarily violating the entitlement of its customers
to the terms of the reference transaction
and reference price Customers will accept
passed>on cost increases, but will perceive price
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increases as unfair if they serve to ma#imiDe seller
profits -2artins and 2onroe, 3441 Thus, customer
reactions do not depend on the absolute
price increase but on the conte#t (n cases when
motives are perceived as fair -as, for instance, in
the case of increased costs for raw materials1 more
favourable customer reactions can be e#pected
compared with cases when they have no information
on motives or perceive these as unfair
-2a#well, .//.1 A perspective largely neglected
in the literature ta'es into account the emotional
reactions associated with price increases -!)eill
and %ambert, .//35 ia et al, .//1 motions
are mental states of readiness that arise from
appraisals of events or ones own thoughts
-BagoDDi et al, 3444, p 391 *epending on their
emotional state, customers will perceive the same
price differently -)am'ung and Gang, ./3/1
motions may also be an outcome of price
variation -Campbell, .//71 &or instance, price
increases may evo'e negative emotions -ia et al,
.//1 such as anger &inally, evaluations of the firm
are also relevant for customer reactions such as
satisfaction -Homburg et al, .//01, past pricing
strategies -+rbany and *ic'son, 34431 or reputation
-ia et al, .//1
Corporate reputation is a global perception
of the e#tent to which an organisation is held in
high esteem or regard -=eiss et al, 3444, p 701
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and as such reflects its relative success in fulfilling
the e#pectations of multiple sta'eholders
-=alsh and Beatty, .//71 (t is a socio>cognitive
construct based on the impressions people share
about a firm -Highhouse et al, .//41 Summarising
different definitions, 8otsi and =ilson
-.//3, p .01 conclude that corporate reputation
is a sta'eholders overall evaluation of a company
over time This evaluation is based on
the sta'eholders direct e#periences with the
company, any other form of communication
and symbolism that provides information
about the firms actions andor a comparison
with the actions of other leading rivals =hile
information sources used for assessing a firm
may differ for each sta'eholder and different
reputational perceptions may e#ist for the
same firm, it has been suggested that a core
set of reputation attributes are shared across
sta'eholders Regarding these shared attributes,
reputational perception among sta'eholders
is aligned -Bromley, .//35 Highhouse
et al, .//41
The "uality of products and services is one of
these shared attributes -Helm, .//71 All sta'eholder
groups, but specifically customers, associate
high>"uality offerings with a good corporate
reputation -Ioon et al, 344:5 )eville et al, .//01
Reputation facilitates decision>ma'ing processes
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of customers and serves as a heuristic stimulating
purchase behaviour -Chun, .//01 (ncreased
customer ac"uisition, satisfaction and loyalty,
improved product and brand attitudes, higher
repurchase and cross>buying intentions, positive
word of mouth, and increased willingness to pay
are effects of corporate reputation associated
with customer demand and firm profitability
-for e#ample, Ioon et al, 344:5 ;ergin and
off between product or service "uality and
price -for e#ample, Sweeney and Soutar, .//31 However, additional factors may add
to better
understanding of customers value perceptions
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$etric' -.//.1, for instance, suggested that corporate
reputation is a dimension of perceived
value but, in a later study, failed to determine
a direct effect of reputation on perceived value
However, reputation strongly affected "uality
perceptions -$etric', .//1 Hansen et al -.//91
argued that corporate reputation should have
a direct effect not only on the benefit side
of the value e"uation but also on the cost
side, and e#plained that if a suppliers reputation
is superior to its competitors less resources will
be allocated towards safeguarding activities That
in turn reduces monitoring costs for customers
The authors find a strong direct effect of corporate
reputation on perceived customer value in
business services
As companies with a favourable reputation
offer customers more value, it is to be
e#pected that they can charge higher prices
Although the relationship between corporate
reputation and price premiums is increasingly
discussed in the literature, the impact of
reputation in cases of price increase has
remained rather uncertain !ur research adds
to the noted study conducted by Campbell
-34441 which was limited to a specific setting
-one>time auction1 and analysed reputation as
a moderator of the impact of inferred relative
firm profit on inferred motive =e broaden
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this perspective and investigate the effect of
corporate reputation on a wider set of reactions
in the case of a regular price increase in a
more familiar consumption setting
TH!RIA)* HI$!THSS
=e use e"uity theory, the theory of cognitive
dissonance and attribution theory to e#plain
how corporate reputation affects customer
reactions to price increases "uity theory
-Adams, 34F01 focuses on customer assessments
of the costs and benefits of a transaction "uity
theory is based on the concept of social
e#change -Homans, 34091, postulating that
people evaluate e#change situations by Eudging
the distributive fairness of the e#change
(ne"uity e#ists if an individual perceives that
their outcomeJinput relation is smaller than that
of a reference person or the e#change partner
-that is, the firm1 $erceived ine"uity leads to
tension which J as e#plicated in the theory of
cognitive dissonance -&estinger, 34071 J evo'es
emotional as well as behavioural reactions
-Adams, 34F05 )am'ung and Gang, ./3/1
Some possible reactions are dissatisfaction and
anger The e#tent of emotional reaction
depends on the degree of perceived distributive
ine"uity -Adams, 34F01 "uity theory has been
applied in the conte#t of pricing and reactions
to price increases -for e#ample, 2artins and
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2onroe, 3445 Homburg et al, .//01 and
suggests that a customer compares the relation
of outcome and input before and after the price
increase (f the net benefit after the price
increase is smaller, the customer is e#pected to
perceive dissonance -&estinger, 34071 and
reduced fairness -Adams, 34F01 The e#tent of
the dissonance is affected by attributions made
regarding the reasons for the price increase
-!)eill and $almer, .//1
Attribution theory -Heider, 34095 =einer,
349F1 e#plains how people with limited or
no information attempt to find e#planations
for events that are surprising, negative andor
important to them -=einer, 349F1, and predicts
that ascription of causes or causal attributions
influence subse"uent perceptions
and behaviour Customers ma'e attributions
about a broad range of different events
such as product and service failures, reasons
for brand switching and employee stri'es, or
celebrities motivations for endorsing products
-*ean, .//1
(t is li'ely that customers also ma'e attributions
and develop their own subEective interpretation
regarding price increases if the actual
reasons remain un'nown -Campbell, 34445
2a#well, .//.5 ia et al, .//1 The presumed
motives for the price increase are li'ely to be
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consistent with the firms reputation as the
latter derives from the firms past actions
-Campbell, 34441 As ia et al -.//, p 01 pointed out? A sellers good reputation
may KLM
decrease buyers price unfairness perceptions
when a disadvantaged price ine"uality occurs
because customers grant the benefit of the
doubt regarding the reasons for the price
increase if they li'e the firm -Campbell, 34441
Comparable findings are reported by Coombs
and Holladay -.//F1 who investigated the role
of reputation in the conte#t of product crises
and found that a favourable reputation can
create a halo shielding the firm from negative
customer reactions
!ne might, however, also come to the
contrary conclusion Customers have high
e#pectations regarding well>reputed companies
As reputation is formed over time, based
on what the organiDation has done and how it
has behaved -Balmer and 8reyser, .//:1, the
price increase may violate e#pectations regarding
the firms conduct (n such situations,
negative events are graver as people ta'e pree#isting
attitudes or e#pectations into account
when evaluating new events or obEects
-Brown and *acin, 34471 Thus, higher customer
e#pectations regarding future actions
might actually disadvantage well>reputed
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companies -Coombs and Holladay, .//F1 &or
instance, the study on product recalls conducted
by Rhee and Haunschild -.//F1 found that,
because of the e#pectancy violation effect, wellreputed
firms can suffer a liability relative to
badly reputed firms, ma'ing reputation a double>
edged sword in that it may have a significant
downside However, the e#pectancy violation
effect could be neutraliDed in the case of price
increases which are rather commonplace in
todays mar'ets Customers often attempt to
avoid or reduce dissonance by selective e#posure
to or re>assessment of information -&estinger,
34071 and they might ignore information that
violates or contradicts their e#pectations regarding
a firm they already view favourably -Coombs
and Holladay, .//31 This is in line with
the theory of motivated reasoning -Gain and
2aheswaran, .///1 which postulates that customers
are motivated to yield preferred conclusions
resulting in biased processing of new information
-*ean, .//1 Thus, it is li'ely that customers
will give well>reputed firms the benefit of the
doubt and not infer negative motives for a given
price increase Hence, we hypothesiDe that?
Hypothesis 3? The more favourable customers
perceptions of corporate reputation,
the less negative their perceptions of the
firms motive for the price increase
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Reputation is often associated with legitimacy
and consistency -6ing and =hetten, .//91
e#plaining why customers are more li'ely to
perceive a price increase as fair if the firm has a
favourable reputation Corporate reputation
serves as a heuristic for customers in attributing
motives for the price increase However, this
benefit of the doubt should no longer be granted
if the price increase reaches a certain level, meaning
that the siDe of the price increase negatively
moderates the relationship between reputation
and perceived fairness =e hypothesiDe that?
Hypothesis .a? The more favourable customers
perceptions of corporate reputation,
the higher their perceptions of price fairness
Hypothesis .b? The larger the price increase,
the wea'er the positive effect of corporate
reputation on perceived price fairness
(f the cause for a negative event is stable
and controllable by the firm, customers may
develop negative emotions -=einer, 349F5
&ol'es et al, 34971 which is also a li'ely response
to price increases (n his e#planation of attribution
theory,=einer -349F1 stated that customers
appraisal of an event and resulting emotions and
cognitions are guided by the identified causal
dimensions Anger, for instance, is brought
about by negative situations that one believes
could have been controlled by someone else
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-=atson and Spence, .//7, p 0/.1 Accordingly,
customers of a well>reputed firm who perceive a
price increase as fair -not controllable1 should not
be li'ely to e#perience anger (t is hypothesiDed?
Hypothesis :? The more favourable customers
perceptions of corporate reputation,
the lower their anger This relationship is completely mediated by perceived price
fairness
The positive relationship between corporate
reputation and -re1purchase intentions has been
theoretically and empirically supported in
numerous studies -for e#ample, Shapiro, 349:5
Ioon et al, 344:5 Geng, .//91 However, as the
benefit of the doubt induced by corporate
reputation may be attenuated if the price increase
surpasses a certain level, negative customer reactions
can occur despite a favourable corporate
reputation The more substantial the price
increase, the larger the decrease in customer
demand, that is, purchase intentions and purchase
behaviour -Bolton and %emon, 34445 Homburg
et al, .//05 *awes, .//41=e hypothesiDe?
Hypothesis a? The more favourable customers
perceptions of corporate reputation,
the higher their purchase intentions
Hypothesis b? The larger the price increase,
the wea'er the positive effect of corporate
reputation on purchase intentions
As noted earlier, e#tant literature accepts the
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notion that customer reactions to prices and
price increases depend on the -assumed1 reasons
or motives for the price increase that determine
perceptions of price fairness -2artins and
2onroe, 3445 Campbell, 34445 2a#well,
.//.5 ia et al, .//1 )egative motives for the
price increase lead to perceptions of unfairness
=e hypothesiDe?
Hypothesis 0? The more negative customers
view the motive for the price increase, the
lower their perceptions of price fairness
$rior empirical analysis of customer reactions
to price increases has mostly emphasiDed cognitive
factors such as attribution of motives and
fairness -!)eill and %ambert, .//35 Campbell,
.//71, neglecting emotional factors -!)eill and
%ambert, .//35 ia et al, .//1 But already
Homans -34091 argued that when the outcome
of an e#change is lower than e#pected the
recipient is li'ely to feel anger As a price increase
diminishes the customers outcomeinput ratio
while potentially benefitting the firm, this unbalanced
transaction can lead to perceived unfairness
-Adams, 34F01, negative emotional reactions
such as anger, and decreased purchase intentions
This leads us to hypothesiDe that?
Hypothesis F? The larger the price increase,
the lower perceived price fairness
Hypothesis 7? The larger the price increase,
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the greater customers anger
Hypothesis 9? The larger the price increase,
the lower purchase intentions
Customers have been found unli'ely to
continue patroniDing a firm that has behaved in
an unfair manner -6ahneman et al, 349F5
Campbell, 34445 Taylor and 6imes, ./331 &airness
perceptions are also li'ely to impact negative
emotions such as anger -ia et al, .//5
)am'ung and Gang, ./3/1 which in turn strongly
affect behaviour -&ol'es et al, 34971=e therefore
e#pect the effect of fairness perceptions on behavioural
intentions to be mediated by anger -ia
et al, .//1 and hypothesiDe?
Hypothesis 4? The higher customers perceptions
of price fairness, the higher their
purchase intentions This relationship is
partially mediated by anger
The conceptual model for the study is
summariDed in &igure 3
$R(2)TA% ST+*I
Research design and participants
(n order to establish the hypothesiDed relationships,
we conducted an e#periment utiliDing a
.N. between>subEects design =e manipulated
corporate reputation -favourable versus unfavourable1
and price increase -large versus moderate1
All groups were completely randomiDed
(n accordance with prior e#perimental studies
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-for e#ample, *ollinger et al, 34475 Campbell,
34445 Taylor and 6imes, ./331, we employed a
scenario design =e chose the airline industry as the setting
because corporate reputation is specifically
important in airline services due to customers
high>ris' perceptions -%ee, .//05 )eville et al,
.//01 Specifically, as the introduction of lowcost,
new entrant airlines, price variations are
common in this industry -Brunger and $erelli,
.//41 and the price discrimination tactics broadly
employed emphasiDe the role of perceived fairness,
customer trust -2c2ahon>Beattie, ./331
and corporate reputation =e used a student
sample to achieve homogeneity of the sample5
prior studies in reputation research as well as
pricing have successfully employed student samples
as well -Campbell, 34445 2a#well, .//.5
8raham and Bansal, .//71 (n total, .7F business
students from two 8erman public universities
participated in the study =e e#cluded .F "uestionnaires
from further analysis? 3. students
indicated that they had not used airlines in the
year preceding the study and 3 were e#cluded
due to their incomplete data This procedure led
to a net sample siDe of .0/ !f these, 330 -F per
cent1 students were female $articipants were on
average .. years old and their average monthly
income was O0:.
$rocedure
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airline because several of their friends had used it
in the past and they had also seen the airlines
commercials &urthermore, they had recently
read an article on current airline ran'ings conducted
by an independent testing facility To
manipulate reputation positively, participants
were told that, as in recent years, passengers
ran'ed the airline first in service and value for
money The airline was also described as a very
popular employer (n the negative reputation
scenario, the airline was said to have been
ran'ed last and was a very unpopular employer
To establish price and price increase of the
tic'et, we used real mar'et data generated from
a 8erman (nternet flight agency The average
price for the one>way tic'et to %ondon was O00
and price increases between 9 and ./ per cent
were recorded over the time period of the
research proEect Accordingly, we manipulated
the price increase by informing participants that the airline increased prices by O: and
O3/,
respectively Specifically, participants were told
that shortly before they intended to boo' their
flight to %ondon, they learned that the airline
had announced price increases so that the tic'et
would now cost OK:3/M more -the price rose
from O00 to O09F0 including ta#es and fees1
To facilitate subEective attributions of motive
and fairness, we did not provide information
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regarding reasons for the price increase
2easurements of the dependent variables
and the constructs for manipulation chec's were
based on established scales -see Table 3 for
individual items and literature1 Specifically, we
used a global measure for corporate reputation
to reflect shared meanings as reputation, according
to =eiss et al -3444, p 701, tends to be
regarded as a unidimensional, not multidimensional,
construct All items were measured on
seven>point scales with 3 indicating low or
unfavourable values and 7 indicating high or
favourable values &inally, the "uestionnaire
contained demographic information, participants
average annual flight fre"uency, measures
for the realism of the scenario and participants
understanding of the goal of the research
Results
&irst, we chec'ed the realism of the scenarios
$articipants regarded the scenario as realistic and
they could imagine the situation well -Prealistic Q
07, Pimagine Q091 Second, we ensured that
our manipulations of reputation and price
increase were successful =e established a significant
main effect of the factor corporate
reputation on perceived reputation -&-35
.F1Q00FF., $///31 whereas the main
effect of the siDe of the price increase was not
significant -&-35 .F1Q/:47, ns1 This means
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that perceived reputation was only influenced
by the manipulation of reputation, not the
manipulation of price increase =e then confirmed
successful manipulation of positive and
negative reputation -Ppos repQ00., Pneg repQ
., t-df Q.91Q.:9F, $///31 2anipulation
of price increase did not affect
reputation -P$(lowQ:4, P$(high Q:4/, t-dfQ
.91Q/397, ns1
)e#t, we assessed convergent validity for the
construct measures using factor loadings
-/7F1, t>values -370F1 and composite reliability
-CR/971 To fully satisfy re"uirements
for discriminant validity, average variance
e#tracted -A;1 has to e#ceed the recommended
threshold of /0 and to be larger than
the variance shared between constructs -&ornelland %arc'er, 34931 All s"uared covariances
were smaller than the A; -A;/7/1 See
Table 3 for detailed results
&ollowing BagoDDi et als -34431 suggestions
for analysing e#perimental data, we employed
$artial %east S"uares -$%S1 analysis which wor's
well with comparatively small sample siDes and
binary variables -see also %ei et al, .//91 As a
non>parametric estimation procedure, $%S uses
as its conceptual core an iterative combination
of principal components analysis that relates
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measures to constructs and path analysis that
captures the structural model of constructs
+sing the bootstrap procedure pac'aged in the
Smart$%S ./ software -Ringle et al, .//01, we
calculated the standard deviation and an
appro#imate t>statistic To assess the structural
model, we evaluated path coefficients and t>tests
as well as the coefficient of determination -R.1
(n addition, the predictive relevance of the $%S
model can be assessed using the Stone>8eisser
sample reuse techni"ue -
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Anger on $urchase intention and the effect of
#tent of price increase on Anger, effects were
significant at the 0 per cent level
To better understand potential mediated
effects, mediation was tested according to the
method suggested by Baron and 6enny -349F1
Structural e"uation models allow for simultaneously
estimating the direct path -for e#ample,
Corporate reputationJAnger1 and the indirect
path -for e#ample, Corporate reputationJ$rice
fairnessJAnger1 That is, the mediated effect is
tested while statistically controlling for the
direct path To establish the mediating effect,
the indirect effect must be significant To test
for significance, we applied a Sobel test -Baron
and 6enny, 349F1 The relationship between
Corporate reputation and Anger was fully
mediated by $rice fairness -DQ:731, meaning
that the effect of Corporate reputation on
Anger was fully dependent on how customers
perceive the fairness of the price increase $rice
fairness affected purchase intentions significantly
but, contrary to our e#pectation, the effect was
not mediated by Anger 8iven that no significant
effect of Anger on $urchase intention
could be established, there also was no mediation
effect
&inally, we chec'ed the proposed moderating
effects of #tent of price increase
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2oderating effects impact the strength andor
direction of the relationship between e#ogenous
and endogenous variables -Baron and
6enny, 349F1 and can be estimated based on
interaction effects -for e#ample, %ei et al, .//91
The interaction effect can be assessed using the
coefficient of determination -R.1 to calculate
the effect siDe - f .1 However, effect siDes of
#tent of price increase were negligible
- f .Q///: and ///9/1
*(SC+SS(!)
The study results provide support for most of
the hypothesiDed direct effects Results confirm
that perceived corporate reputation plays an
important role in understanding customer reactions
to price increases &irst, we could establish
a significant effect of reputation on perceived
motives of the firm, supporting Hypothesis 3
The more favourable the perceived reputation,
the less li'ely customers are to attribute negative
motives for the price increase However, the
share of variance e#plained is low, meaning that
reputation alone is not sufficient in determining
the valence of the motive Additional factors
such as the general economic conditions of the
industry or competitors actions might additionally
aid customers in attributing motives for
price increases (n support of Hypothesis .a,
perceived reputation was found to impact perceived
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price fairness (f companies with a
favourable reputation are raising prices, customers
are more li'ely to accept this as a fair move
compared with companies with an unfavourable
reputation The moderating effects of the
e#tent of the price increase suggested in
Hypothesis .b could not be established indicating
that the relationship between perceived
reputation and perceived price fairness is not
affected by the e#tent of the price increase
ven if customers perceive a price increase as
larger, this may not diminish the impact reputation
has on perceived price fairness
=e could also show that perceived corporate
reputation has an effect on anger which in
confirmation of Hypothesis : is completely mediated by perceived price fairness
Reputation
alone does not affect the emotional reaction
to a price increase5 emotional reaction
largely depends on perceived fairness of the
price increase (n addition, while directly and
significantly impacting purchase intentions in
support of Hypothesis a, the moderating effect
of the e#tent of the price increase suggested in
Hypothesis b could also not be established
The impact of reputation on purchase intentions
is not affected by the e#tent of the price
increase This may mean that corporate reputation
is a stable determinant of purchase intentions
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regardless of the siDe of a price increase
The e#tent of the price increase showed a
significant negative effect on purchase intentions
in support of Hypothesis 9 $erceived
price fairness is significantly affected by the
e#tent and the perceived motive for the price
increase, supporting Hypothesis 0 and Hypothesis
F (f the price increase appears to be large or
customers perceive a negative motive for the
price increase, perceived price fairness decreases
The e#tent of the price increase, however, did
not directly affect anger leading us to reEect
Hypothesis 7 $rice fairness directly and significantly
affected purchase intentions as well as
anger as an emotional reaction to price
increases This means that the more positive
the cognitive appraisal of a price increase, the
less li'ely customers are to become angry =e
found no significant relationship, however,
between anger and purchase intentions, meaning
that the mediated effect of anger on the
relationship between price fairness and purchase
intentions as hypothesiDed in Hypothesis 4 had
to be dismissed
(2$%(CAT(!)S
The study results indicate that it pays off for
companies to invest in their reputation as it
buffers from negative repercussions of price
increases This might be specifically relevant for
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industries using dynamic pricing where competitors
face the ris' of entering price wars, such
as airlines -Burger and &uchs, .//01 Here,
perceptions of fairness and reputation may
become particularly important as multiple
prices e#ist for ostensibly identical units of
output -2c2ahon>Beattie, ./331 8iven the
high effectiveness of price increases in augmenting
profitability -2arn and Rosiello, 344.5
Homburg et al, .//01, such findings are important
in gauging customer reactions =e showed
that a favourable reputation enables firms to
command higher prices without having to face
the negative reactions a badly reputed firm
would have to fear Higher reputation also leads
to increased purchase intentions, positively
impacting sales Although pricing has to be
modified very carefully -6ohli and Suri, ./331,
a firm with a good reputation seems to have
more leeway in raising prices
Before establishing price increases, managers
should therefore ta'e into account the firms
reputational standing But not only is reputation
notoriously hard to monitor -=alsh and Beatty,
.//71, a strong emphasis on short>term sales
ma#imiDation could conflict with the achievement
of a favourable reputation -Avlonitis and
(ndounas, .//01 2anagers may feel tempted by
the short>term profits resulting from e#ploitation
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of a favourable reputation, specifically as
most incentive schemes implemented in firms
today are not necessarily geared to safeguard
long>term assets such as reputation
Some industries are in the limelight of public
discourse more than others $rice increases that
affect broad segments of the population such as
travel and mobility, food, insurance or health
care are widely discussed by the media and the
citiDens Here, favourable corporate reputation
can help to reduce negative repercussions (n
the long term, however, reputation is also li'ely
to be affected by pricing decisions, calling for
a careful approach in communicating price
changes (t is important to note that customer
perception of the reason underlying a price
increase has a strong impact on perceived price
fairness As our study implies, perceptions of
motives for the price increase and price fairness
are affected by corporate reputation, granting
good companies the benefit of the doubt when increasing prices Airlines and other
companies
should recogniDe how important psychological
aspects such as perceived corporate
reputation are in the establishment of effective
pricing strategies -)am'ung and Gang, ./3/1
%(2(TAT(!)S A)* &+T+R
RSARCH !$$!RT+)(T(S
!ur study e#hibits limitations and offers several
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opportunities for further research &irst, general
disadvantages from using a student sample have to
be considered, although we may assume acceptable
e#ternal validity as we ensured that the
student participants were familiar with the service
category -%ynch, 34441 +sing a more heterogeneous
customer sample could result in more
variance and would also facilitate inclusion of
additional personal characteristics Similarly, general
concerns regarding the use of fictitious
scenarios and e#perimental designs apply As
online channels account for the maEority of airline
tic'et sales -Brunger and $erelli, .//41, our
scenario was realistic However, information presented
to participants may have been more
condensed than is usually the case although airline
customers have been found to use rather limited
search strategies -Brunger and $erelli, .//41 By
including real companies or brands, future studies
could focus on the interplay between reputation
and participants prior e#periences with the firm,
thereby shedding light on possible conte#t or
e#pectancy violation effects -Brown and *acin,
34475 Rhee and Haunschild, .//F1
The manipulation of reputation in e#perimental
designs is prone to criticism, given that
reputation is thought to evolve over time -8otsi
and =ilson, .//31 !ur e#perimental manipulations
aimed at improving internal validity by
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identifying shared reputational criteria while
including different hypothetical information
sources -Bennett and 6ottasD, .///1 As we
attempted to create a realistic scenario, we
e#cluded information on the firms motivations
in increasing prices which are often not made
public However, this may have decreased the
manipulations strength in evo'ing a strong
emotion such as anger A similar finding
was reported by )am'ung and Gang -./3/1 (n
their study on service fairness, they established
a non>significant relationship between
negative emotion and behavioural intentions
and interpret this as a result of participants
variations in emotional e#pressivity andor
involvement that could obstruct the e#pression
of negative feelings, even on self>reported "uestionnaire
-)am'ung and Gang, ./3/, p 3.0/1
A scenario suggesting a self>interested motive of
the firm might elicit stronger anger in participants
(n addition, anger resulting from the price
increase might not impact purchase intentions
but variables outside the nomological networ'
of our study, for instance complaint intentions
or word of mouth -=atson and Spence, .//71
This suggests that future studies might include
additional outcome variables as well as other
emotional reactions The strength of these
emotions might also depend on the way the
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price increase is communicated to customers,
adding another possible avenue for research
Studies in different industries characteriDed
by more or less price transparency could add to
a better understanding of the role of reputation
and possible customer reactions *etermination
of thresholds between large and small price
increases or inclusion of dynamic pricing
schemes would offer clear guidance for mar'eters
in optimiDing pricing strategies To date,
research on dynamic pricing has only e#plored
revenue impacts -Burger and &uchs, .//01, but
not the effects on other value components, such
as reputation &inally, it would be beneficial to
analyse how pricing strategies that focus on
short>term profit ma#imiDation affect long>term
management of intangible assets such as reputation
-*oyle, .//91 This would not only be of
interest for pricing and reputation management
but would also be relevant at the level of
corporate governance and public discourse