Consumer response to unit price increase: The role of pricing tactics and consumer knowledge

Abstract

The study investigates how consumers react to unit price increases framed in an overt vs covert way (total price increase vs product downsizing). Using experimental data, covert (vs overt) unit price increase is proved to lead to a more positive consumer response in the short term when consumers have no access to external information and can rely only on their internal knowledge on covert pricing tactics usage. In the long term, when consumers have access to external information on covert pricing tactics usage, the effect of covert (vs overt) pricing tactics tends to become less favorable for companies: there is a deterioration of product attitude and producer trust judgements, acceleration of price unfairness perception, and lower purchase intention. The long-term effect is moderated by the source of consumer knowledge on pricing covert tactics usage: consumers who managed to internally invoke the knowledge on pricing tactics usage react differently to covert unit price increase in the long term than those whose knowledge on pricing tactics usage was externally invoked.