Internet Pricing, Price Satisfaction, and Customer Satisfaction

Abstract

Given the challenges of increasing margins and building a loyal customer base, the interaction between pricing and customer satisfaction is of great interest to e-tailers. The present research models the relationships between e-tailer pricing, price satisfaction, and satisfaction with the ordering and fulfillment processes. The model is calibrated using data about book e-tailers from BizRate.com and a database of market-basket prices. By providing a satisfactory ordering process, e-tailers can somewhat ameliorate the negative effects of higher prices and will have higher overall ratings for fulfillment satisfaction. This is critical because fulfillment satisfaction creates loyal customers. As expected, higher prices lead to lower price satisfaction, but the effect of price satisfaction on fulfillment satisfaction was negative. This unexpected result has important implications for e-tailers intending to compete based on low prices. Increased levels of price satisfaction due to low prices do not positively affect satisfaction with the fulfillment process. Therefore, competing on price may not be a viable long-term strategy for on-line retailers.