An integrated model of price, satisfaction and loyalty: an empirical analysis in the service sector

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and loyalty: an empirical analysis in the service sector

David Martı´n-Consuegra

Department of Marketing, University of Castilla-La Mancha, Ciudad Real, Spain, and

Arturo Molina and A ´ gueda Esteban

Department of Marketing, University of Castilla-La Mancha, Toledo, Spain

Abstract

Purpose – The purpose of this paper is to investigate the effects of customer satisfaction both directly and indirectly (through loyalty) on price acceptance. In addition, price fairness is considered as an antecedent of customer satisfaction and loyalty.

Design/methodology/approach– Based on a theoretical discussion regarding the relationship among price fairness, customer satisfaction, loyalty, and price acceptance, empirical research was conducted to test the proposed relationships. Multiple-item indicators from previous studies were employed to measure the constructs.

Findings– The results from the study provide empirical support, suggesting that perceived price fairness influences customer satisfaction and loyalty.

The analysis also suggests that customer satisfaction and loyalty are two important antecedents of price acceptance.

Research limitations/implications– The study ponders the relationship between customer satisfaction and loyalty and price acceptance, while other factors that have an influence on price acceptance are not considered.

Practical implications– The research results suggest that perceived price fairness in service industries can be viewed as a threshold factor in order to maintain satisfied and loyal customers. Additionally, managers should consider that price acceptance depends on the level of satisfaction and loyalty.

Originality/value– The present study provides useful information on the relationship among price fairness, customer satisfaction, loyalty, and price acceptance in service industries.

KeywordsPrices, Fair value, Customer satisfaction, Customer loyalty Paper typeResearch paper

An executive summary for managers and executive readers can be found at the end of this article.

Introduction

In today’s highly competitive global markets, managers seek to improve organizational effectiveness by identifying organizational metrics which contribute to long-term success (Deshpande´ and Farley, 1999). However, not all of these strategies have proved successful, and one reason for this may be insufficient marketing support (Lin et al., 2006). The marketing concept stipulates that in order to achieve sustained success, organizations should identify and satisfy customer needs and wants more effectively than their competitors (Drucker, 1954; McCarthy, 1960; Day, 1994).

Additionally, customer satisfaction is closely linked to many relationship marketing dimensions and other marketing instruments, such as customer loyalty, relational benefits or confidence, and price or distribution, respectively. However, factors such as price fairness or price acceptance have not

received the degree of empirical attention paid to other antecedents and consequences of satisfaction mentioned above. If the central role of pricing in consumer behavior as well as cost effectiveness is considered as one of the criteria that customers rank as being particularly important when selecting a product or service, the fact that the price has received little attention when analyzing customer satisfaction is astonishing (Huberet al., 2001). Consequently, in order to understand the relationship between satisfaction, loyalty and price, an empirical study should be conducted.

In addition, service marketing is different to goods marketing, and is usually more complex to manage. In service industries, the distinctive features of services (intangibility, inseparability, perishability and heterogeneity) require understanding and satisfying customer needs and expectations, creating, communicating and delivering customer value, and keeping promises (Aksoy et al., 2003).

This is particularly true in the case of air travel. Air travel is intangible due to the fact that customers have limited access to any benefits until the start of a journey. Inseparability means that airline services cannot be separated from their providers. Perishability is significant in that an unoccupied airline seat cannot be stored for later sale or use during peak periods. Heterogenity is also prevalent as the standards of airlines vary greatly, as do the multitude of variables that influence the demand for airline products. In this sense, while price is an important determinant in purchasing and post- purchasing processes, the central role of price is especially well recognized as an important variable in services with The current issue and full text archive of this journal is available at

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Journal of Product & Brand Management 16/7 (2007) 459 – 468

qEmerald Group Publishing Limited [ISSN 1061-0421]

[DOI 10.1108/10610420710834913]

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complex pricing structures rather than tangible products (Matzleret al., 2006).

While product, distribution, and promotion involve the outlay of resources, price is the one element of the marketing mix that directly influences an inflow of resources. For this reason, a critical activity for service managers is to set and manage prices. To manage pricing decisions effectively, marketing managers should attempt to understand how consumers respond to price changes. For these reasons, the central goal of this research is to empirically extend previous research regarding the relationship between price fairness, customer satisfaction, loyalty and price acceptance. As a consequence, this study describes the theoretical relationships between the concepts mentioned above. This research analyzes these dimensions in a concrete consumer sample to better understand the relationships between them. In order to do this, a previous analysis of the features of price fairness, customer satisfaction, loyalty and price acceptance is needed.

To be more precise, the objective of this study is to integrate the lines of research on prices, satisfaction and loyalty in services through a path model that is proposed and tested.

Therefore, this research is capable of filling the empirical gap between satisfaction and price.

Literature review

Perceptions of price fairness

Consumers may view the demand-based pricing and price discrimination associated with revenue management as a violation of consumer beliefs about the dual entitlement principle. Yield management, also known as revenue management, was originally conceived and implemented by the airline industry at the end of the 1970s. Since that time, revenue management has been widely adopted in other service industries across the globe, such as the hotel, cruise- line and car rental industries (Kimes and Wirtz, 2003).

However, the previous situation has received little empirical attention in the marketing literature (e.g. Urbanyet al., 1989;

Maxwell, 2002; Vaidyanathan and Aggarwal, 2003; Wirtz and Kimes, 2007). In addition, the principle of dual entitlement states that most customers believe that they are entitled to a reference price and that firms are entitled to a reference profit.

Moreover, price increases commensurate with cost increases will be perceived as fair, ceteris paribus (Kahneman et al., 1986). In this sense, changes in thestatus quoprice should not be made arbitrarily or merely for the purpose or increasing the firm’s profit, such as when prices are raised to take advantage of surplus demand or newly obtained monopoly power (Boltonet al., 2003). Based on this, it is expected that a price increase would be evaluated as being less fair if the focus of causality is perceived to be internal to the organization. Also, it was found that both customers and firms compare the selling price with the prices paid by other customers for the same products or services (Martins and Monroe, 1994). To sum up, consumers evaluate the fairness of a quoted price by making appropriate comparisons with other references, but also taking into account situational circumstances (Beldona and Namasivayam, 2006).

Fairness has been defined as a judgment of whether an outcome and/or the process to reach an outcome is reasonable, acceptable, or just (Bolton et al., 2003). The cognitive aspect of this definition indicates that price fairness

judgments involve a comparison of the price of procedure with a pertinent standard, reference, or norm.

Customer satisfaction

During the last four decades, satisfaction has been considered as one of the most important theoretical as well as practical issues for most marketers and customer researchers (Jamal, 2004). However, no single definition of satisfaction has been unanimously accepted by the literature related to the matter.

All definitions proposed, however, agree that the concept of satisfaction implies the necessary presence of a goal that the consumer wants to achieve. According to Homburg et al.

(2006), previous research has recognized that both cognition (Oliver, 1980; Bearden and Teel, 1983; LaBarbera and Mazursky, 1983; Oliver and DeSarbo, 1988) and affect (Westbrook, 1987; Westbrook and Oliver, 1991; Mano and Oliver, 1993) significantly predict satisfaction judgments.

On one hand, within the literature on services marketing, satisfaction has traditionally been defined as a cognitive-based phenomenon (Westbrook, 1987). Cognition has been studied mainly in terms of the expectations/disconfirmation paradigm – also known as the confirmation/disconfirmation paradigm – which states that expectations originate from the customer’s beliefs about the level of performance that a product/service would provide (Oliver, 1980). On the other hand, other studies have recognized that the affect experienced during the acquisition and consumption of the product or service can also have a significant influence on satisfaction judgments (Homburg et al., 2006). The role affective dimension in establishment evaluation has not been overlooked by research (Burns and Neisner, 2006). Liljander and Strandvik (1997) suggest that satisfaction cannot be completely understood without the study of its affective dimension.

The marketing literature emphasizes price as an important factor of consumer satisfaction, because whenever consumers evaluate the value of an acquired product or service, they usually think of the price (Zeithaml, 1988; Fornell, 1992;

Anderson and Sullivan, 1993; Andersonet al., 1994; Cronin et al., 2000). As for the relationship of price to satisfaction, Zeithaml and Bitner (1996) indicated that the extent of satisfaction was subject to the factors of service quality, product quality, price, situation, and personal factors.

However, price has not been fully investigated in previous empirical studies (Bei and Chiao, 2001).

According to Zeithaml (1988) price is something that must be sacrificed to obtain certain kinds of products or services from consumers’ cognitive conception. Usually, the lower the perceived price, the lower the perceived sacrifice. In addition, a sense of price fairness should be generated. If customers view a firm’s practices as unfair, negative consumer responses are likely to occur (Wirtz and Kimes, 2007). Immediate attitudinal and affective responses include dissatisfaction (Oliver and Swan, 1989), lower purchase intentions (Campbell, 1999a, b), heightened price consciousness and focus on the monetary sacrifice of a purchase (Xia et al., 2004). Therefore, the following hypothesis is proposed:

H1. Price fairness is positively associated with customer satisfaction.

Customer loyalty

It is at any rate remarkable that, in recent years, marketing activities in the service sector are preferably evaluated in

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relation to business profitability. However, as business profitability may be influenced by many other variables, it seems more appropriate to define the concept of marketing activities more specifically when attempting to take a thorough approach. At least two key elements stand out in the literature of marketing:

1 repeat purchases; and

2 word-of-mouth (Henning-Thurauet al., 2002; Wong and Zhou, 2006).

Loyalty concerns itself with purchase reiteration behavior or recommendation to other people and is activated by company marketing activities. In this sense, a key challenge is to identify and understand how managerially controlled antecedent variables influence loyalty.

Customer satisfaction is a central element in the marketing exchange process, because it undoubtedly contributes to the success of service providers (Darian et al., 2001).

Furthermore, satisfaction is one of the essential factors to predict consumer behavior and, more specifically, purchase repetition. Oliver (1997) defines loyalty as a deeply held commitment to repeat purchases of a preferred product or service consistently in the future, despite situational influences and marketing efforts (e.g. pricing policies) having the potential to bring out change. The more consumers fulfill their expectations during the purchase or service use, the higher the probability that consumers will repeat purchase in the same establishment (Wong and Sohal, 2003). Thus, customer satisfaction along with other antecedents are essential factors in order to acquire loyal customers who would also recommend their regular product or service provider to other customers. Many related empirical studies reported that satisfied consumers demonstrate more loyal behavior (Gwinner et al., 1998;

Reynolds and Beatty, 1999; Henning-Thurau et al., 2002;

Wong and Zhou, 2006). Therefore, consumer satisfaction leads to customer loyalty, and the following hypothesis is proposed:

H2. Customer satisfaction is positively associated with customer loyalty.

In addition, when consumers perceive that the price of a service or product is reasonable, it is possible for them to display the intention of repeat purchase behavior. On the other hand, if consumers do not feel that their sacrifices are worthwhile, they may not make the purchase again, even when they are satisfied with the product or service (Bei and Chiao, 2001). With this in mind, the following hypothesis is proposed:

H3. Price fairness is positively associated with customer loyalty.

Price acceptance

Price acceptance is based on the assimilation-contrast theory (Sherifet al., 1958; Sherif, 1963). This theory suggests that a new stimulus encountered by an individual is judged against a background of previous experience (reference scale) in the category. Subsequent stimuli are judged in relation to a reference scale and this provides the basis for comparisons and evaluations. Literature in this field has applied the assimilation-contrast theory to price perceptions and posited latitude of price acceptance (Emery, 1969; Monroe, 1971;

Sawyer and Dickson, 1984; Kalyanaram and Little, 1994).

The level of price acceptance can thus be defined as the maximum price that a buyer is prepared to pay for the product or service (Monroe, 1990). Price acceptance has not received the same degree of attention paid to other consequences of satisfaction, such as repurchase intentions (Anderson and Sullivan, 1993).

To what extent does improving customer satisfaction increase customer price acceptance and, consequently, decrease price sensitivity? Marshall (1980) indicates that the excess of price that a customer would be willing to pay, rather than go without having a thing, over what he actually pays is the economic measure of his satisfaction surplus.

Consequently, this in turn might mean that customers have a greater price acceptance for products or services providing greater satisfaction. In this field, Anderson (1996) investigates whether the association between satisfaction and price acceptance is positive or negative, as well as gauging the degree of association between these two important constructs.

His study finds a positive association between changes in customer satisfaction and changes in price acceptance.

According to Anderson (1996) and Huberet al.(2001), the following hypothesis can be formulated:

H4. Customer satisfaction is positively associated with price acceptance.

Apart from customer satisfaction, others factors can influence the range of price acceptance:

. variability in prices;

. reference price level;

. frequency of purchase; and

. level of brand loyalty.

Variability in prices is incorporated in the definition and operationalization of acceptance (Kalyanaram and Little, 1994). The reference price level and knowledge about prices substantially affect the acceptance for a given product category or service (Lichtensteinet al., 1988). In this sense, Monroe (1973) also suggests that an acceptable price range is directly proportional to the level of price acceptability.

Lichtenstein et al. (1988) affirm that consumers with a higher purchase frequency have a narrower price acceptance than consumers with a lower purchase frequency. Finally, consumers who are on average more brand-loyal in relation to a given product or service are likely to have in respect of that brand. High brand loyalty keeps the consumer more focused on the benefits of the brand and less focused on the price. In contrast, with lower brand loyalty customers are more focused on the price than on a greater price acceptance the benefits provided by the brand. Hence, consumers with higher average brand loyalty are hypothesized to have a greater price acceptance than consumers with lower brand loyalty (Kalyanaram and Little, 1994). According to this, H5 addresses the relationship between price acceptance and customer loyalty:

H5. Customer loyalty is positively associated with price acceptance.

The proposed relationships between the four dimensions mentioned – i.e. price fairness, customer satisfaction, customer loyalty and price acceptance – are summarized in Figure 1.

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Methodology

The research process involved the following steps. First, a literature review was undertaken to identify perceived price fairness, customer satisfaction, loyalty and price acceptance dimensions within the service sector. Second, the population and sampling procedure was established. Third, a questionnaire was constructed. Finally, the methods of data collection and analyses were determined.

Sample data

The sample for this investigation covered one service industry alone. To be more specific, the sample included the airline sector.

The selection of this industry was based on preliminary interviews with industry experts, which revealed that the relationship between the dual entitlement principle and satisfaction is particularly relevant in the airline industry. The population of the study was international airline passengers. A representative sample was selected, taking into account the nationality and favorite airline of each passenger. Data was collected using a convenience sampling method. The questionnaire was carried out through personal interviews at the baggage reclaim area in an international airport.

Respondents were asked to focus on the airline they use most often, not necessarily the one in which they had just arrived. A total of 721 valid questionnaires were completed. The sample size met with the requirements suggested by Hairet al.(1999) that a sample size of 200 may be required to ensure appropriate use of maximum likelihood estimation, to generate valid fit measures and to avoid drawing inaccurate inferences.

An overview of the demographic profile of the respondents gives a fair representation of all air passengers. The sample is primarily in the “less than 34 years” age group (60.7 per cent), male (52.5 per cent), single (48.5 per cent), and university- educated (65.7 per cent). In relation to the number of flights per year, almost half of the respondents (41.2 per cent) fly more than five times a year. Thus, a quarter of the sample (27.4 per cent) are members of a frequent flyer program.

Measures

The design of the questionnaire was primarily based on multiple-item measurement scales taken from previous research. Statements were adapted to suit the specific characteristics of an airline industry study. The questionnaire included questions regarding price fairness, customer satisfaction, loyalty and price acceptance, as well as the length, continuity and degree of relationship with the airline.

Although some research on the relationship between price, satisfaction and loyalty has been undertaken, to gauge the concepts put forward, scale development and adaptation was required. The scales employed were developed and adapted using conventional psychometric procedures. The scales were predominantly adapted from existing measures, but also on the basis of scale development work conducted during pre- testing. Before the questionnaire was finally designed it was proofread by four marketing academics and five professionals from the airline sector. Thus, the questionnaire was pre-tested and, based on the debriefing of the pre-test respondents, minor changes were made to improve the clarity and visual layout of the questionnaire. In total, four scales were used, three of which were adapted from existing scales. These scales were measured on a seven-point Likert-scale ranging from

“strongly disagree” to “strongly agree”.

To measure the extent of price acceptance, a four-item scale was developed especially for the study. This scale was designed to gauge the extent to which customers accepted a given price. The scale was based on previous works on price acceptance (e.g. Huber et al., 2001). In addition, the other three scales were developed to confirm the hypothesized relationships. Perceived price fairness was measured using a five-item scale that was derived from Campbell’s (1999a, b) and Kimes’s (1994) measures of perceived fairness.

Satisfaction was measured using a six-item scale through the use of a subset of the items from Oliver (1980). Finally, loyalty was measured using an adapted version of Reynolds and Beatty’s (1999) measure of loyalty. The items used to measure the constructs are summarized in the Appendix.

Results

This section provides results of the analysis on the variables described. This will be followed by subsequent analyses of the relationship between perceived price fairness, customer satisfaction, loyalty and price acceptance. In addition to descriptive statistics, multivariate analysis techniques were used in the data with the objective of contrasting the relationship proposed and verifying the possible results, in agreement with the hypothesized relationships.

Before going deeper into the relationships above mentioned, the fit of the scales in relation to the data was analyzed. The reliability of the measures was examined through a confirmatory factor analysis and the calculation of Cronbach’s alpha coefficients. According to Anderson and Gerbing (1988), confirmatory measurement models should be evaluated and re-specified before measurement and structural equation models are examined simultaneously.

Thus, before testing the measurement model overall, each construct in the model was analyzed separately. Confirmatory factor analysis revealed that each indicator loaded significantly on its designated factor. In addition, the chi-square/degrees of freedom ratio was well below March and Hocevar’s (1985) criterion. Reliability was measured through an examination of Cronbach’s alpha coefficients, which, for scale acceptability, Nunnally (1978) suggested should be over 0.7. Cronbach’s alpha coefficients were found which ranged from 0.88 (price acceptance) to 0.92 (customer satisfaction), and which exceed the threshold value, conforming to Nunnally’s (1978) criterion.

Using the criterion set forth by Hair et al. (1999), an examination was carried out to establish whether the average Figure 1Path diagram of integrative model results

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variance extracted and the composite reliability for the measures was greater than 0.5 and 0.7, respectively. The average variance extracted and composite reliabilities in all cases exceed the respective threshold values (Bagozzi and Yi, 1988), which provide evidence of convergent validity (Anderson and Gerbing, 1988). Similarly, evidence of discriminant validity was found through Fornell and Larcker’s (1981) test, which recommends comparing the average variance extracted with the variance shared between the construct and other constructs in the model. This was confirmed for all pairs of constructs. In addition, as mentioned previously, the survey instrument was pretested to improve content validity. To sum up, the data showed satisfactory empirical support for our conceptualization of the constructs of perceived price fairness, customer satisfaction, loyalty and price acceptance (see Table I).

Given the nature of the hypothesized relationships, the proposed relationships were tested simultaneously using structural equation modeling (SEM). This technique allows the existing causal relationships between price fairness, customer satisfaction, loyalty and price acceptance to be assessed. The measurement scales used for each concept are the result of the evaluation process described. In particular, the model paths were estimated using EQS 6.1 following the recommendations of Gerbing and Anderson (1988), Bentler (1995) and Byrne (1994). The standardized path coefficients of the structural model as estimated by EQS are given in Figure 2. In addition, the specified model was compared with a revised model, following the recommendations of Gerbing and Anderson (1988), through chi-square differences and the chi-square/degrees of freedom ratio, along with comparative assessments of parsimony. These evaluations revealed that the specified model was a better fit than the revised model across all indexes examined. Consequently, the initial specified model was examined to gauge overall validity.

There are several tests to ascertain whether an SEM model fits the observed data. The chi-square statistic provides a measurement of how well the model fits the data. Therefore, chi-square was used to test the relationship proposed. In addition to the chi-square test and its associatedp-values, the comparative fit index (CFI), the normed fit index (NFI), the non-normed fit index (NNFI), and the root mean square residuals (RMR), are used as tests of model fit. The overall fit of the measurement model arex²¼1872:2 (p¼0:00), CFI¼0:954, NFI¼0:941, NNFI¼0:950, and RMR¼0:052. Bentler (1995) indicates that CFI, NFI and NNFI values of above 0.9 suggest adequate fit. In addition, RMRs were lower than 0.08 (Hairet al., 1999).

As illustrated in Figure 2, the global goodness-of-fit statistics indicate that the structural model represents the data structure well. Standardized parameter estimates for the model are shown in Figure 2.

H1states that perceived price fairness is positively associated with customer satisfaction. The results lend support to the claim that perceived fairness of a given price is linked to customer satisfaction because the estimated parameter between both constructs is both positive and significant.

Thus, the result supports the acceptance of H1 and is consistent with previous studies (e.g. Bei and Chiao, 2001).

H2andH3respectively argue that customer satisfaction and perceived price fairness are positively associated with customer loyalty. The structural equation modeling provides support for these hypotheses, in that each is estimated to be significantly associated with loyalty. Therefore, this supports the hypotheses that a fair price increases customer satisfaction and loyalty. Evidence in support ofH2andH3is found in the significant links with loyalty (see Figure 2). Therefore,H2and H3 are fully supported and the result is consistent with previous studies (e.g. Kalyanaram and Little, 1994).H4and H5are related to the links between customer satisfaction and loyalty and price acceptance. These hypotheses respectively state that higher levels of customer satisfaction and loyalty are associated with higher levels of price acceptance. Therefore, this supports the hypotheses that a satisfied and loyal customer is willing to pay more for the service. The results support bothH4andH5, and show significant links between customer satisfaction, loyalty and price acceptance, leading to the acceptance of these hypotheses. The result is also consistent with previous studies (e.g. Huber et al., 2001).

To summarize, all the hypothesized relationships were supported.

Table I Descriptive statistics, correlation coefficients and measure validation

Factor Mean SD Number of items PF CS L PA Cronbach’sa Composite reliability AVE

PF 4.12 1.78 5 1.000 0.915 0.12 0.722

CS 5.17 1.56 6 0.512 1.000 0.921 0.920 0.659

L 3.65 2.12 4 0.678 0.635 1.000 0.902 0.908 0.713

PA 4.54 1.85 4 0.597 0.609 0.521 1.000 0.889 0.907 0.709

Notes:PF, price fairness; CS, customer satisfaction; L, loyalty; PA, price acceptance

Figure 2Path diagram of integrative model results

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Conclusion

This article examines the relationship between price fairness, customer satisfaction, loyalty and price acceptance. The study finds a positive relationship between these variables. These findings confirm the results of previous studies, such as Kalyanaram and Little (1994), Anderson (1996) and Huber et al.(2001). The present study utilizes a model that permits the examination of consumer behaviour procedures, regarding satisfaction, loyalty and price acceptance, resulting from individuals’ perceptions of price fairness that underlie their transactions with airlines. In this case, sensitivity to the total amount of profit extracted from a single customer through a set of transactions with a single firm drives aggregate fairness judgments and may have implications for relationship marketing and customer lifetime value (Boltonet al., 2003). When repeat purchases of a service by a customer over time constitute a set of transactions, fairness constraints in the aggregate should have important implications for loyalty pricing.

This study makes a contribution towards filling the void in the marketing literature on satisfaction and loyalty by including the role of perceived price fairness and price acceptance. Price is an important element for consumers when purchasing; it therefore has a large influence on consumers’ satisfaction judgments (Herrmann et al., 2007).

The results indicate that price acceptance is directly influenced by satisfaction judgments and loyalty. In addition, price fairness influences price acceptance indirectly through customer satisfaction and loyalty.

Theoretical and managerial implications

This study links several important marketing concepts, and demonstrates the influence of perceived price fairness on customer satisfaction, loyalty and price acceptance. In this sense, this research demonstrates that perceived price fairness increases customer satisfaction and loyalty. The study also shows that if the customer is very satisfied and plans to repeat the purchase, he is willing to pay different prices, as it is not easy for the consumer to compare the performance of services within this sector. Consequently, organizations are able to charge different prices because these customers attach value to maintaining the relationship (Huberet al., 2001). In this case, the price transparency and reliability may be particularly relevant when prices are increased or when the pricing structure is relatively complex, such as in the airline industry.

When a service provider explains how a price is derived and shows that price increases are due to uncontrollable external factors, such as an increase in fuel costs, the consumer is more likely to accept the price increase and perceive it as being fair, or at least less unfair (Vaidyanathan and Aggarwal, 2003; Xia et al., 2004). This means that a firm should focus more on delivering the right quality at the right price and on treating the customers fairly rather than focusing on competitors’

prices. Hence, a better understanding of consumer satisfaction formation will increase marketing managers’

knowledge of how to enhance consumer satisfaction (Herrmann et al., 2007). Taken together, our findings suggest that higher perceived price fairness, customer satisfaction and loyalty contribute to higher price acceptance.

Some suggestions can be made after considering the results of this study. A critical activity for many marketing managers is to establish a product pricing strategy. The results of the studies reported in this paper suggest that managers should be

more conscious of consumer evaluations of their pricing tactics and judiciously apply each tactic so as not to enhance consumer perceptions of price fairness. To set effective prices, marketers attempts to predict how consumers are likely to respond to different price points or price changes. To manage pricing decisions effectively, the marketer must be able to understand both economic and psychological responses to various prices and price changes (Campbell, 1999a, b). For this reason, managers should always put across price differentials as discounts rather than surcharges. This will not have a significant impact on perceived fairness for those familiar with revenue management pricing practice but it will lead to improved fairness perceptions for those less familiar with it (Wirtz and Kimes, 2007). For example, airlines have long used this practice and present high-rack rates and full fares at discount prices. Pricing decisions should be made with consideration given to the need to communicate the price and the reasons behind it. For example, firms should consider using marketing communications, such as advertisements or point-of purchase materials, to provide justifications for price increases.

Limitations and directions for future research

In interpreting the results of this study, a number of limitations must be considered. From a theoretical point of view, the framework of this research is restricted to its own objectives. This study has pondered the relationship between price fairness, customer satisfaction, loyalty and price acceptance, while other antecedents or consequences, such as relational benefits or confidence, have not been considered. Furthermore, another limitation is that different segments of customers might exist in term of price acceptance (Anderson, 1996). Finally, from a methodological perspective, the fact that this investigation covered one service industry alone could be considered a limitation, because the results from this study can only be generalized for service industries with complex pricing structures, such as the hotel or cruise-line industries.

Additionally, this research and the model it proposes have been devised as a basis for future studies. It would be interesting to analyze how the proposed relationships may differ when compared with other services with simple pricing structures or tangible products. In addition, due to the fact that service industries are heterogeneous, presenting a wide variety of pricing structures, further research should be carried out in respect of other services, concentrating on analyzing other antecedents and consequences. Finally, it should be noted that the study focused on traditional airlines alone, ignoring low-cost airlines.

Future research may derive benefit from focusing on consumer behavior in the low-cost industry.

To summarize, this research has examined perceived price fairness, customer satisfaction, loyalty and price acceptance in the service sector context. Nevertheless, the results reported in this paper may be relevant for other services that involve multiple interactions with providers. In conclusion, the information provided by this research can be best used when designing marketing strategies for airlines or service industries with complex pricing structures. They need to continue their basic strategy of maintaining a stable relationship with their customers, through prices, in order to improve customer satisfaction and loyalty.

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