Surcharges and Price Increase

[We’re pleased to welcome authors Dr. Florian Pallas of Iskander Business Partner GmbH, Dr. Lisa E. Bolton of Pennsylvania State University, and Dr. Lara Lobschat of the University of Groningen. They recently published an article in the Journal of Service Research entitled “Shifting the Blame: How Surcharge Pricing Influences Blame Attributions for a Service Price Increase” which is currently free to read for a limited time.” Below, Dr. Pallas reflects on the inspiration for conducting this research and its impact on the field:]

02JSR13_Covers.inddWhat motivated you to pursue this research?

Dealing with price increases—which are frequently unavoidable and/or beyond a company’s control—remains a significant challenge for firms. Surcharges (i.e., additional mandatory charges for performing a service, which are added to the base price) are frequently used when prices and, moreover, price increases, are communicated to consumers. In the service sector, surcharges account for up to 20% of total revenues of companies across different industries, such as airlines or car rentals. A case in point is the U.S. lodging industry, where fees and surcharges increased by nearly 60% over 10 years to a record level of $2.55 billion in 2016. Understanding how surcharges affect consumer blame responses addresses several key questions regarding surcharge pricing: when should service companies use surcharge pricing to accompany a price increase? what types of surcharges help (vs. hurt) companies? and, what are the consumer consequences of surcharge pricing? Our research addresses these managerially important questions in several ways.

In what ways is your research innovative, and how do you think it will impact the field?

Our research contributes theoretically by drawing upon attribution theory to understand its role in consumer response to surcharge pricing. We propose that various kinds of surcharge information act in concert to drive blame attribution for a price increase: Internal (vs. external) surcharges increase blame attribution and minimize the influence of other drivers captured in surcharge information, such as temporal stability, surcharge benefit, and more than one kind of surcharge. In comparison to all-inclusive pricing, we find that (i) surcharge pricing is detrimental to service firms when surcharges cue internal locus of causality, regardless of the temporal stability or surcharge benefit; whereas (ii) surcharge pricing is beneficial when surcharges cue external locus of causality, particularly when the surcharges are permanent and high-benefit; (iii) consumers are more sensitive to increases in the magnitude of internal (vs. external) surcharges, and (iv) in the case of mixed surcharges, internal surcharges are more prominent and minimize the buffering effect of adding external surcharges. Together, these findings demonstrate how surcharges that accompany price increases drive blame attributions in systematic ways as a function of theoretically distinct and managerially relevant surcharge characteristics

What advice would you give to new scholars and incoming researchers in this particular field of study?

We expand the literature on surcharge pricing to incorporate additional theoretically and pragmatically relevant surcharge characteristics (e.g., temporal stability, perceived benefit), as well as the case of both individual and multiple surcharges. Future research is encouraged to examine the impact of causal information in surcharge pricing in other contexts, such as when communicating a price decrease, or in the absence of price change or total price information. Furthermore, our research points to a new and important avenue for future research that takes into account the inter-relationships across surcharges when considering their impact. Last, we find that—in the absence of surcharge pricing—firms do not entirely attribute price increases to internal locus of causality. Does this goodwill benefit depend upon the reputation of the firm or other aspects of consumer-firm relationships?

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