The Impact of Cost Structure Appeals on Fairness Perceptions and Payments

Recent research shows promising effects of monetary cost transparency on consumer response, even though firms have traditionally kept cost information hidden. This research examines whether similar benefits can be achieved from cost structure appeals, even when monetary costs remain disclosed. Considering the dual entitlement theory, we investigate payments by comparing the effectiveness of different cost structure appeals with a setting that lacks such appeals. Our research, which includes 2 field studies and a series of scenario-based laboratory studies with a total of 2,606 participants across 6 service sectors, reveals the following key insights: (a) Cost structure appeals can significantly increase payments; (b) cost structure appeals work best when the cost structure consists of cost elements of service experiences that directly align with customer’s service valuation; (c) alignable cost structure appeals work particularly well for customers inclined toward lower prices; (d) alignable cost structure appeals influence perceptions of fairness in relation to external reference prices; and (e) offer enhanced benefits for firms facing a price stigma. Our findings provide valuable learnings for service providers on how to use cost structure appeals in pay-what-you-want pricing to improve financial results, while ensuring that both consumers and businesses perceive fairness in transactions.