Executive summary of “Consumer reaction to price increase: an investigation in gasoline industry”
Article Type: Executive summary and implications for managers and executives From: Journal of Product & Brand Management, Volume 23, Issue 3
This summary has been provided to allow managers and executives a rapid appreciation of the content of this article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefits of the material present.
Many consumers use price to ascertain the value inherent in products and services they purchase. The inclusion of price as a key marketing mix element further illustrates its importance and influence on the image and equity of a brand. However, it is normal for consumers to consider variables in addition to price when making purchase decisions. This is particularly true of products that are “derived and routine” such as energy, tires and gasoline. Such products are not directly consumed but are essential to different aspects of life.
The largely upward price trend of gasoline over several years has a significant impact on the financial well-being of many people. Economic pressures, natural disasters and oil company monopolies are among the reasons cited for fuel price rises. That higher prices are now regarded as the norm means that consumers are often faced with making lifestyle changes. These can include buying less gasoline or changing to vehicles with better fuel-efficiency. Making adjustments to household expenditure and reducing the number of non-essential purchases like vacations are other possible outcomes.
Various studies have explored the impact of gasoline price increases on consumer behavior, but the affective component of this relationship has been largely ignored. In the current study, Paswan et al. thus propose that how consumers react will be influenced by the anxiety caused when prices rise. Anxiety is closely associated with other negative emotions like discontentment and arises as a consequence of an individual’s perception of unfairness. Such feelings materialize when experience of something falls short of their prior expectations.
In this context, it is mooted that anxiety might be prompted by factors additional to price. Driving-related variables like vehicle type, miles driven and amount spent on fuel can also shape consumer response. The fact that consumers will have a subjective price threshold influences their perceptions too. Scholars argue that people will react only when price exceeds this limit. By the same token, paying extra for their gasoline should be less daunting for those whose individual threshold is higher.
According to some sources, consumers react in different ways when they have to pay more for fuel. The proposal is that consumers engage in mental calculations of their finances to ensure resources are allocated accordingly. When any price increase is perceived to have a temporary impact on their finances, they may amend or cancel plans involving, for example, a vacation or dining out. More drastic lifestyle alterations that might include changing vehicle type or relocation are likelier should price hikes be perceived as having a longer-term impact on financial health.
Earlier research noted differences between single-car households and higher-income families with multiple cars. One assumption is that the latter will be less pressured to change their behaviors in the wake of gasoline price rises. In the light of such evidence, the authors believe that the impact on the mental accounting conducted by individual consumers can be subject to variation. For instance, price increases might force some households to reduce gasoline expenses and also further compensate by limiting other activities. Anxiety can prompt various types of change that are directly associated with fuel usage including switching to more fuel-efficient vehicles (technological change), changing gasoline brand or using alternative modes of transportation. Other behaviors like fewer vacations, leisure activities and shopping trips could be classified as “major lifestyle changes”. A final option is to do nothing, although Paswan et al. believe that fuel price increases will usually induce some lifestyle modifications.
These issues are further investigated in a study involving 351 drivers interviewed in a large metropolitan area in Southwestern USA. Females accounted for 59 per cent of the sample, of which 44 per cent were students. Respondent age varied from < 25 to > 45 years, and annual income ranged from < $20,000 to > $60,000. Subjects drove a variety of vehicles and indicated that demographic variables did not influence their gasoline price threshold which was $4.59 on average.
A pilot study was conducted to ascertain consumer knowledge of recent price rises and what behavioral changes they would make if gas prices moved above a certain level. The authors used the price last paid for fuel in the main study. Analysis revealed that:
Price paid for gasoline does have an impact on anxiety. However, for anxiety to occur, consumers must notice the price, purchase higher than average levels of fuel and have comparatively low price thresholds.
Amount of money spent on gas does not increase consumer anxiety. This unexpected finding could be attributable to the strong attachment that many Americans have to their automobile, which is often perceived as part of their self-identity. Such loyalty may give rise to greater tolerance of gasoline price fluctuations and higher costs. Extent of product utility may essentially outweigh the negatives associated with fuel price rises.
Likeliest changes were ones connected with lifestyle involving cutbacks on the purchase of, for example, clothing, leisure activities and vacations. Driving less and car-sharing with others were other likely developments. Buying hybrids or other fuel-efficient vehicles was the next likeliest change. The least likely to happen is for a consumer to switch either brand or type of gasoline.
In the opinion of Paswan et al., these findings indicate that people rely on gasoline to an extent that reducing fuel consumption is less preferable to making sacrifices in other areas of their lives. They also propose that prices have not yet reached a ceiling that would trigger changes to the brand and type of fuel used. Participant reactions in this study also provide support for the authors’ belief that indifference among consumers in the face of gasoline prices would not prevail.
At this point, it would seem that any consumer anxiety following an increase in the cost of gasoline may not affect their consumption of the product. This is positive news for marketers, who will also need to determine the likely differences in price thresholds to segment the market by the type of vehicle driven. In this respect, the authors compare fuel-efficient vehicles with “gas guzzlers”.
Future research might help identify other factors which could have an impact on anxiety levels, such as concern about the environment. A longitudinal approach to explore the relationship between price rises and behavior is suggested, along with the recommendation to consider samples in other parts of the Unites States. Similar research in product categories like electricity is another option to pursue.
To read the full article, enter 10.1108/JPBM-09-2013-0377 into your search engine.
(A précis of the article “Consumer reaction to price increase: an investigation in gasoline industry”. Supplied by Marketing Consultants for Emerald.)
