Korean Management Science Review (경영과학)

The Korean Operations Research and Management Science Society (한국경영과학회)
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A Consumer-Oriented Study of Price Increases and Downsizing : Focused on Roles of Competitor's Pricing Strategy and Risk-Aversion

가격인상과 용량감소에 관한 소비자 관점의 비교 연구 : 경쟁사 가격전략과 위험회피성향을 중심으로

  • Kim, Hye Young (Department of Business Administration, University of Seoul) ;
  • Kang, Yeong Seon (Department of Business Administration, University of Seoul)
  • 김혜영 (서울시립대학교 경영대학 경영학부) ;
  • 강영선 (서울시립대학교 경영대학 경영학부)
  • Received : 2015.05.12
  • Accepted : 2015.06.20
  • Published : 2015.09.30
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Abstract

The main objective of this study is to investigate the moderating roles of the competitor's pricing strategy and the degree of consumer's risk-aversion on perceived risk and perceived benefit in responding to price increases and package downsizing. Based on Prospect Theory, several prior researches find that consumers perceive increased price as more loss than package downsizing and perceive package downsizing as more benefit than increased price. We extend these behavioral economics approach using the reference effect of competitor's pricing strategy. We focus on consumer heterogeneity on risk-aversion, measure the degree of consumer's risk-aversion, and divide the consumers into two groups of high levels of risk-aversion vs. low levels of risk-aversion. We find that the firm's pricing strategies of both price increases and package downsizing do not significantly influence the perceived benefit for relatively low risk-aversion consumers. We find that when the firm reduce the package size, relatively high risk-aversion consumers perceived more benefit and had higher purchase intention compared to price increases. We also find that the competitor's pricing strategies do not significantly influence the consumer's response for relatively low risk-aversion consumers. For relatively high risk-aversion consumers, they perceived more loss when the firm has different pricing strategy from the competitor's.

Keywords

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