Some business practices of service firms have the potential to negatively affect customer demand because they are perceived as unfair. We discuss how fairness concerns can influence customer choice, and propose a conceptualisation embedded in expected utility theory that accounts for fairness judgments. The intended contributions are (1) to advance the literature on customer decision making by combining expected utility theory with justice (fairness) theory; (2) to provide a conceptual framework capturing fairness in customer choice; and (3) to propose a research agenda concerning fairness in customer decision making.
Customers evaluate price and product/service attributes to assess the value or utility of products and services and to make their purchase choices. Some or all of these attributes can be influenced by marketing and management practices that customers perceive as unfair. Perceived fairness is particularly prevalent in (but not limited to) service industries, as the very nature of services require marketing strategies based on price and product discrimination and customisation. The most extensively researched ‘unfair’ attribute in a services context is price, where price discrimination and price bundling, yield management, and reference prices are the main culprits in causing perceived unfairness (Bolton et al., 2003, Choi and Mattila, 2006, Cox, 2001, Kimes, 1994, Maxwell, 2002 and Xia et al., 2004). Because of the intangible nature of services, perceived fairness is particularly important for the credibility of the service provider (Seiders and Berry, 1998), and can also be caused by a range of non-price attributes. For example, special product bundles to attract new telecommunication customers often disadvantage existing customers; reservation and queuing systems may favour some customers and discriminate against others; or a frequent flyer member might be unable to redeem award points for a free flight. Service failure and subsequent recovery efforts are also a main source for perceived unfairness in services and have been the focus of fairness research in services (Patterson et al., 2006 and McColl-Kennedy and Sparks, 2003). Managers of service firms need to better understand how perceived unfair marketing practices may cause confusion and fairness concerns, alienate customers, and ultimately change customers’ purchase choices.
The basic conceptualisation of customer choice, within a traditional random utility framework, disregards the effects of perceived unfairness on customers’ utility assessments of a service firm and its offerings, as well as the resulting willingness to (re-)purchase these offerings (McGill and van Ryzin, 1999). Any marketing activity that customers perceive as unfair influences their evaluation of a service and the likelihood to (re-)purchase, and ultimately dampens the overall demand for a particular service. However, research and industry practice has only slowly reacted to this issue.
This paper works to fill this void and addresses two research questions. First, how can we assess the demand effects of unfair marketing practices in a services context? Second, what role do fairness issues play within a utility model of customer choice? The intended contributions of this conceptual work are threefold. First, we outline different avenues of how perceived fairness affects customers’ utility judgments. Independent of the decision making context, fairness may account for a large part of deviations from expected utility (Konow, 2003) and influence some latent constructs such as attitudes and perceptions that play a role in choice behaviour (Ben-Akiva et al., 1999). We summarise four different ways in which fairness matters can gain leverage in customer decision making. Second, we develop one of the proposed options further and show how fairness adjustments can be incorporated into a standard utility model to specify the demand effects of potentially unfair practices. Third, we highlight how our conceptualisation helps service firms understand how to reduce perceived unfairness, and conclude with a proposed research agenda for incorporating unfairness in customer choice models that goes beyond price fairness.
