The Effect of Consumer Participation on Price Sensitivity

Article excerpt

This study examined the noneconomic factors affecting consumers' participation in purchase decisions, focusing in particular on the social aspect of the buyer-seller interaction. In addition, we attempted to clarify the association between consumer participation and price sensitivity. Of the four social dimensions of consumer participation--preparation, relationship building, information exchange, and intervention--our results indicated that the first three dimensions are negatively associated with price sensitivity but the intervention dimension is not. Additionally, we also found that, given the same level of preparation, industries typically characterized by higher participation, such as hair salons, are associated with lower consumer price sensitivity as compared to those typically characterized by lower participation, such as fast food restaurants. Similarly, given the same level of relationship building, information exchange, and intervention, industries typically characterized by higher participation have lower consumer price sensitivity than those typically characterized by lower participation.


Firms should be interested in maintaining low consumer price sensitivity since it enhances their ability to extract price premiums that stand to improve their long-term profitability (Shankar and Krishnamurthi 1996). The effect of several different factors on price sensitivity has already been studied, including: the effect of consumer satisfaction (Anderson 1996); the effect of brand loyalty (Krishnamurthi and Raj 1991); the effect of reference price, purchase frequency, and brand loyalty (Kalyanaram and Little 1994); and the effect of advertising (Kalra and Goodstein 1998; Krishnamurthi and Raj 1985; Papatla 1995; Wittink 1977). The first three studies cited above focused on the effect of consumers' post-purchase experience on price sensitivity, whereas the latter ones focused on the effect of consumers' pre-purchase experience on price sensitivity. As a result of these studies, we know that, whether before or after, purchase experiences will affect the price sensitivity of consumers. According to Kellogg, Youngdahl, and Bowen (1997) consumer participation is a form of consumer behavior which includes preparation, relationship building, information exchange, and intervention; in other words, consumer participation includes preparation for the purchase, communication with the firm during the purchase, and the interventions with or suggestions to the firm after the purchase. In contrast to the earlier research, Kellogg, Youngdahl, and Bowen view consumer participation as more accurately characterized as behaviors of purchase that are assumed to have a greater effect on price sensitivity.

One of the distinctive characteristics of the service industry is the inseparability of production and consumption, which means the consumer should take some part in the creation of the service. Bitner et al. (1997) stated that the consumer's greater participation in service delivery would lead to greater knowledge about the product. Others have pointed out that the process of negotiation and information exchange inherent in the consumer's participation will lead the consumer to understand the production process and become more knowledgeable as to what quality the service provider can reliably provide (Mills and Morris 1986; Kellogg, Youngdahl, and Bowen 1997). When consumers have a better understanding of what quality of service to expect, they understand better what benefits they will obtain. This means the consumer will be more aware of what "value"-the ratio of benefits to sacrifices (Zeithaml 1988)--the service provider can provide. When rational consumers better understand the actual value of the service, they will be more sensitive to changes in value (e.g., if the firm changes the price), which may affect the intention to purchase (Chang and Wildt 1994). Thus, it could be inferred that when consumers increase participation, they become more aware of the value of the service, and this enhanced awareness results in increased price sensitivity. …


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