The “locus continuum” of price increase perception – Is communicating a good cause for price increases always beneficial?

Abstract

Purpose

Governmental regulations aiming to protect environmental goals often require firms to increase sales prices with negative consequences on price fairness perception. Companies might therefore either justify the price increase by highlighting the good cause (environmental framing) or they could blame the government for the regulation (governmental framing). Firms might also communicate their investments in the relationship to motivate customers to stay. This paper aims to examine the impact of such communication content on price increase fairness perception and switching intention in a contractual service setting.

Design/methodology/approach

This paper first examines the content of 119 price increase letters from electricity suppliers in a qualitative pilot study. The main study then tests our research framework with 552 respondents using a 2 x 2 x 2 between-subjects experimental scenario design (manipulating framing, effort and regret communication).

Findings

Customers perceive governmental framing as fairer than environmental framing. Effort and regret communication by firms weaken or reverse this effect. They reduce customers’ fairness perception for the governmental framing, while regret communication increases it for the environmental framing. However, regret communication also increases switching intention in both framings through a strong direct effect.

Research limitations/implications

Cost-induced price increases are perceived on a “locus continuum” on which reason-framing and relationship investments can shift the consumer perception. Future studies may apply our framework in different industries and contexts.

Practical implications

The results provide guidelines for communicating price increases. Firms should prefer a governmental framing and they should also hesitate to communicate relationship investments, which signal internal locus of the firm, such as effort or regret.

Originality/value

Our results question the naive assumption of general positive effects of environmental framings and relationship investments on customer responses. Based on a new view on attributions of cost-caused price increases, we suggest and find several counterintuitive results. We argue that the framing and relationship investments shift the cause perception of an external cost increase on the attributional locus continuum.

Citation

Pick, D. and Zielke, S. (2024), "The “locus continuum” of price increase perception – Is communicating a good cause for price increases always beneficial?", European Journal of Marketing, Vol. 58 No. 10, pp. 2288-2318. https://doi.org/10.1108/EJM-05-2022-0345