Research On The Effect Of Customer Satisfaction On Price Tolerance

This study sets out in the context of the intensifying price war among Chinesecompanies to address the association between customer satisfaction and pricetolerance. In specific, we investigate if a satisfied customer would be more willing topay more for a product even when cheaper competing market offerings are available.We conceptualize that customer satisfaction relates to price tolerance at four levels,i.e., product category, brand, consumer demographics and consumer psychologies.We utilize hierarchical linear model to study the relationship at the first three levelsrespectively, and that at the level of consumer psychologies is examined withstructural equation model.Our study proposes 21 hypotheses, 19 of which are supported. The majorfindings suggest the following: customer satisfaction positively relates to pricetolerance, and the positive relationship also exists between perceived price fairnessand price tolerance;the impact by customer satisfaction on price tolerance variesacross product categories, with the most concentrated category claiming the weakestassociation between the two variables;the average price tolerance turns out lower fordurable goods than nondurable goods;while industry concentration explainsvariance in price tolerance across product categories, the cross-brand variance can beexplained by brand image, product quality and market share. In relation to consumerdemographics, males appear more tolerant of higher price for durable goods thanfemales, younger consumers demonstrate higher price tolerance than seniorconsumers, and consumers with a higher household income seem to be more tolerantof more expensive price. Contrast to what international researchers have found outabout consumers in Western countries, better educated Chinese are less tolerant ofhigher price. In terms of consumer psychologies, involvement, familiarity with theproduct and conspicuous consumption affect both customer satisfaction and pricetolerance.This study contributes to marketing research in the sense that it offers adeepened understanding of the determinants of price tolerance as well as theassociation between customer satisfaction and price tolerance. As to the practice ofmarketing management, our findings suggest competitive alternatives to thecurrently overused "price war". Based on our research, products with goodperformance are probably a more sustainable option for companies to earn customersatisfaction, which in turn would cultivate customers' willingness to pay a higherprice. Companies can also develop pricing models and segment markets based on thedeterminants of price tolerance.