Abstract
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.
Keywords
Introduction
Imagine you are visiting a new restaurant called “Culinary Connections.” As you browse through the menu, an interesting note catches your eye: “Pay-What-You-Want!.” You pause, both fascinated and slightly uneasy. How can you determine a fair price? Your first instinct is to pay a low price, since your budget is always tight. But then you notice a subtle appeal on the menu, where the restaurant owner draws your attention to some key cost elements she/he faces: “Fresh ingredients,” describing the local, organic produce sourced directly from nearby farms; “Skilled chef,” highlighting the hours of preparation by the experienced chef to ensure quality dishes; and “Great service,” emphasizing the friendly staff who serve the meals. Suddenly, you find yourself recalibrating your initial price. What seemed like a simple choice turns into a thoughtful reflection on fairness to cover the restaurant owner’s costs and to better assess the provided value. This scenario illustrates how cost appeals can influence individual decisions and the broader dynamic between businesses and their customers.
Communicating costs can benefit B2B and B2C relationships and outcomes, as it stimulates non-opportunistic behavior (Caglio and Ditillo 2012) and trustworthiness (Hoffjan and Kruse 2006). It also has symbolic value (Suomala et al. 2010) by signaling fair price calculation (Hoffjan and Kruse 2006) and can differentiate firms from competitors, positively influencing consumer preferences and fairness perceptions (Lim et al. 2018; Mohan, Buell, and John 2020; Stich et al. 2024).
As cost disclosure has initially been used to improve supply chain performance, the question is how easily and meaningfully this concept can be applied to the service industry. As costs incurred in delivering services can be a good indicator of quality, service providers could use cost-related information to signal their high quality. Therefore, building on the dual entitlement theory, which states that consumers and businesses expect fairness in transactions (Kahneman, Knetsch, and Thaler 1986), providing cost information could be meaningful for quality service providers. However, the mix of fixed and variable costs can limit a provider’s intention to share monetary cost information in practice. Since a client’s overall fixed costs share depends on the number of other clients and their consumption patterns, full monetary costs of a service usually cannot be assessed in real time. Relevant research (Lim et al. 2018) also identifies situations (a high perceived quality and relatively low unit costs), where disclosing monetary cost information is not recommended. As monetary cost information represents a second low anchor to externally provided reference prices, monetary costs could even negatively affect voluntary payments. Due to these difficulties with monetary costs, our research investigates whether service providers could still benefit from communicating cost information, even if it consists only of structural instead of monetary information. While not as detailed as monetary costs, a cost structure appeal (i.e., listing cost elements) might still be beneficial, reducing managerial reluctance (Kajüter and Kulmala 2005) and the cognitive load of processing the provided cost information for customers (Lowe 2015). The idea is that a cost structure appeal may prove more practically feasible and therefore allow for a broader dissemination of the idea while providing similar benefits. This research studies whether such benefits are achievable and whether these benefits depend on the actual cost structure provided, that is, the types of costs.
Extant literature suggests that cost disclosure is particularly relevant in the context of participative pricing (e.g., name-your-own-price or pay-what-you-want [PWYW]), where the knowledge gap between suppliers and customers is often large, and fairness is at the core of sustainable win–win relationships. According to Chung (2017), PWYW is a value-based pricing model in which the price reflects the value consumers gain, thereby increasing the perceived transaction utility when aligned with personal valuations. Thus, PWYW pricing situations seem especially suitable for investigating the effects of cost structure appeals on monetary consequences.
Our research consists of two field studies and a series of scenario-based laboratory studies. The field studies aimed to assess the feasibility of implementing cost structure appeals in business practice and to validate the link between cost structure appeals, fairness perceptions, and voluntarily paid prices (studies 1 and 2). The scenario-based laboratory experiments were conducted to explore variations in diverse service sectors with varying price levels and cost structure elements (studies 3 and 4). In study 4, we additionally manipulated general negative and positive price perceptions triggered by the media to investigate whether the effects of cost structure appeals depend on a firm’s price image. Finally, study 5 provides insights into the behavior of low-paying customers.
In the mentioned experiments, we compare the effects of different cost structure appeals in service contexts where payments usually take place before consumption. Based on the idea that customers develop fairness attitudes toward different types of cost information (Ferguson and Scholder Ellen 2013), we distinguish between cost structure appeals consisting of costs that are more or less aligned with the value customers associate with a service. Alignable cost structure appeals in our article, therefore, mean that the cost elements of the service provide direct value to the customer and thus create tangible benefits for them. Thus, the term “alignable costs” represents more of the external view of the customer. Consequently, (non-) alignable costs differ substantially from what is commonly known as fixed and variable costs. Fixed and variable costs represent more of an internal view. Think, for instance, of a teacher in a language school who could either work on a per-course basis (variable costs to the school) or be employed on a fixed salary (fixed costs). In both cases, however, the teacher is strongly aligned with the perception of the service experience, whereas providing the classroom may not be as directly linked to the service experience.
Grounded in the dual entitlement theory, the findings of this research result in multiple key theoretical contributions: (a) We show that cost structure appeals can yield substantial financial benefits for the provider. (b) Our results shed light on the impact of different types of cost structure appeals (i.e., non-alignable, mixed, or alignable cost structure appeals) on prices paid for services where consumption occurs after payment. We show that alignable cost structure appeals positively affect customers’ fairness perceptions of reference prices, which in turn result in higher payments. (c) We find that alignable cost structure appeals are especially effective for customers who would pay low prices (less than 50% of the external reference price) without such appeals. Thus, our findings underscore that customers consider the extent to which specific cost types personally benefit or appeal to them. Notably, we show that the alignable cost type (e.g., costs for teachers, fees for artists) as a source of service value is directly linked to customers’ fairness attitudes and helps to increase voluntarily paid prices. (d) Our research shows that the effectiveness of cost structure appeals depends on the price image of firms. While alignable cost structure appeals eliminated the potential negative effects of a price stigma on payments, they further increased payments for firms with a positive price image. Overall, our results add to the current knowledge base concerning customers’ payment behavior, providing alignable cost structure appeals in general and to the PWYW literature. To facilitate practical implementations, we provide managerial implications, including how promotional price tags may look like (see Supplemental Appendix 1).
Literature Review and Hypotheses Development
Cost Information Provision
Customers typically have less product information than sellers (Greiff, Egbert, and Xhangolli 2014; Kahneman, Knetsch, and Thaler 1986). As the better-informed party, sellers can build trust and signal product quality by sharing information about themselves to the under-informed customers. Cost information is the most direct indicator of product quality (Hoffjan and Kruse 2006; Suomala et al. 2010). Evidence from the apparel context shows that cost breakdowns improve quality perceptions and brand attitudes (Tong and Su 2022).
Similar to cost breakdowns, partitioned pricing has also shown to impact consumers’ fairness perceptions (Morwitz, Greenleaf, and Johnson 1998). Partitioned pricing can be thought of as providing an indirect link to cost elements via prices for specific elements. However, as part of a literature review, Greenleaf et al. (2016) argue that partitioned pricing makes the total costs less transparent for the customer and harder to process. Therefore, it might backfire if service providers try to signal fairness via partitioned pricing.
Although some practical examples of service providers using different cost appeals exist (see Supplemental Appendix 2), Table 1 highlights limited exploration in research, particularly in the services sector and when combined with voluntary payments. Instead, many high-quality service organizations often rely on the use of relatively high prices to signal high quality (Gabor and Granger 1966). However, prices are only an indirect quality measure, as the provided price information is subject to perception and interpretation (e.g., Bolton, Warlop, and Alba 2003). To influence this interpretation, communication tactics are used. For example, price increases in contractual service settings are typically accompanied by communication tactics to limit churn. Explaining price increases to customers as a consequence of supplier or sourcing cost increases have been shown to be quite effective in retaining customers (e.g., Ferguson and Scholder Ellen 2013). When customers are informed about cost increases in the market, they are compelled to reassess previous prices and adjust their reference price. After all, the previous price (as a reference) is no longer informative for the purchase decision. There is therefore a relationship between cost information and reference prices or reference price credibility (Mazumdar, Raj, and Sinha 2005).
Literature Table.
Note. PWYW = pay-what-you-want.
How research presented cost information, that is, either in a monetary way, as a share (e.g., percentage of price, relative to industry standard), or in a structural way.
Willingness to pay.
Thus, the intriguing relationship between cost structure appeals and external reference price information prompts us to explore the role of reference prices in voluntary payment situations like PWYW, as discussed in previous literature.
The Role of Reference Prices in PWYW
Most applications of PWYW use reference prices as they will result in higher average payments compared to no price information. Since payments are typically higher with higher external reference prices (e.g., Jang and Chu 2012; Jung, Perfecto, and Nelson 2016; Kim, Kaufmann, and Stegemann 2014), sellers have a motivation to use relatively high reference prices. However, the effect of external reference prices may be limited if customers are in the spotlight of other customers (Roy et al. 2021) or if they do not perceive the reference price as fair (Greiff and Egbert 2016). A general limitation of providing only external reference prices (without cost information) is that it does not assist the customer to assess its fairness. In other words, knowledge differences between the customer and the supplier cannot be resolved by using reference prices only, because a reference price neither provides insights about the profit margin of the organization, nor how reasonable the price is for a customer. Although correlations between stated production costs and payment levels have been found (Gerpott 2017), buyers usually overestimate a supplier’s profit and underestimate costs (Bolton, Warlop, and Alba 2003). Customers may see a price as unfair if they perceive that a seller’s profit is too high (Bolton and Alba 2006). Consequently, in such a situation, a seller can decrease consumers’ resistance to buy by informing them, not only about prices, but also about costs (Bertini, Buehler, and Halbheer 2018). Customers might need cost information to judge the product value and hence, reference price fairness (Greiff, Egbert, and Xhangolli 2014). Based on these general considerations, which draw on the notion of the dual entitlement principle (Kahneman, Knetsch, and Thaler 1986), we next develop our hypotheses.
Hypotheses Development
The dual entitlement principle states that businesses should receive a fair payment, while consumers are entitled to pay a fair price (Kahneman, Knetsch, and Thaler 1986). Customers judge fairness based on past experience, competitor prices, or additional information provided (e.g., Greiff and Egbert 2016), such as cost structure details.
Cost Structure
Consumers’ lack of information about production costs and cost structures (i.e., all different types of fixed and variable costs incurred to produce a given product) only got very limited attention both in general and in the PWYW context (Greiff, Egbert, and Xhangolli 2014). Since customers’ cost estimates are often faulty (Bolton, Warlop, and Alba 2003), Greiff, Egbert, and Xhangolli (2014) argue in their theoretical paper that PWYW is only profitable for sellers if customers are well informed about sellers’ costs. Hence, drawing on the limited empirical research in the traditional pricing literature on the cost information provision in a B2C setting (Mohan, Buell, and John 2020), cost transparency should also affect customers’ perception of a fair price in a PWYW context.
Schmidt, Spann, and Zeithammer (2014) reveal that the payment of fair-minded customers depends on a seller’s costs. However, their study does not provide insights into differences between costs as they tell all study participants about the costs. Using different tangible products (i.e., recorded album, DVD title, cake, and mobile phone), Jang and Chu (2012) conducted various experiments in a PWYW setting focusing on fairness. One of these experiments uncovered that students behave more fair-minded and pay more if cost information (i.e., the monetary level of costs) is signaled. These studies examine cost information provision as a marketing strategy using the monetary level of (unit) costs (Jang and Chu 2012; Lim et al. 2018). However, as argued in the introduction, we propose that providing cost structure appeals may be more practically feasible. Some organizations that have successfully applied the PWYW approach for years have also recognized this and therefore provide cost structure appeals (e.g., Cassidy 2018; Der Wiener Deewan 2012; Geyrhalter 2018; Instituto Cháo 2019). Cost structure appeals seem to trigger customers to care about a company and to behave more fairly. Customers use cost knowledge to estimate a fair price following the dual entitlement principle (Kahneman, Knetsch, and Thaler 1986), which means a price that is reasonable from a customer’s perspective but also sustainable for organizations. Customers’ misjudgements of cost structure can lead to misperceptions of what price is fair (Akerlof 1970). In the PWYW context, this will typically result in an underestimation of what a fair price would be (Greiff, Egbert, and Xhangolli 2014; Kim, Natter, and Spann 2009). Providing cost structure appeals not only increases customers’ knowledge but also assists customers with price fairness evaluations. In other words, cost structure appeals directly increase cost knowledge and indirectly affect the judgment of the fairness of an external reference price. According to previous research (e.g., Ferguson and Scholder Ellen 2013; Nunes, Hsee, and Weber 2004), the impact strength depends on the content of the cost structure appeal.
Different Types of Costs
Kahneman, Knetsch, and Thaler (1986) showed that consumers perceive higher prices due to increased product costs as fairer than those due to increased profits. Later studies confirm that higher prices based on causes outside the seller’s control are perceived as fair (Bolton and Alba 2006). Nunes, Hsee, and Weber (2004) reveal that the type of costs (in their case: fixed and variable costs) matters. In cases of high fixed costs (i.e., costs that are constant regardless of the number of services or goods produced) and low variable costs (i.e., costs that vary with the output level), customers paid less than in cases with low fixed and high variable costs. They argue that customers see prices above variable costs as a seller’s profit and prices below variable costs as a loss. Thus, in order not to harm the seller, they pay prices that cover variable costs. Naquin, Kurtzberg, and Krishnan (2015) make the same argument and claim that customers perceive a price as fairer when the offer is mainly determined by material costs. In a services context, this means that customers perceive a price as fairer when it largely covers the costs necessary to directly deliver a service experience (e.g., frontline staff), that is, when the costs enhance the value proposition, as discussed in the comment by Lowe (2015). They further point out that customers underestimate intangible cost components when judging price fairness. From the experiments of Bolton, Warlop, and Alba (2003), we also know that, for tangible goods, customers ignore cost categories (e.g., rent and markdowns) beyond the cost of goods sold (i.e., material). They conclude that signaling these costs, or providing more details or more cost types, leads to adjustments in price perception.
Considering a payment context in which customers decide what to pay, we deliberately refrain from using fixed or variable costs (which reflect a firm’s internal view) but use the concept of alignable costs as it takes a customer-oriented view. As defined in the introduction, alignable costs are those that add value to the customer (e.g., material, or front-line labor costs). This is important because the PWYW pricing approach is a value-based pricing model, where the payment reflects the value that consumers derive from a service. Value is determined by the balance between perceived benefits and costs (Chung 2017). When prices are aligned with customers’ personal valuations, their perceived transaction utility increases. Thus, they think they are getting a better deal, as they compare the selling price to their internal reference price (Grewal et al. 1998). Value-based pricing is often seen as superior to cost- or competitor-based strategies due to its positive impact on purchase intentions through perceived transaction value (Liozu et al. 2012; Grewal et al. 1998).
We propose that a cost structure appeal works better with alignable costs (e.g., teacher) than with non-alignable costs (e.g., administration costs). The rationale is that customers judge price increases to compensate for alignable costs as fairer than those for non-alignable costs (Bolton and Alba 2006). While Mohan, Buell, and John (2020) did not investigate different cost types on actual payments, but the positive effect of cost disclosure on willingness to buy, Ferguson and Scholder Ellen (2013) confirm that customers perceive alignable costs as fairer than non-alignable costs. They found that price fairness depends on whether companies announce price increases and provide reasons. Thus, communicating costs do not always yield the desired outcome; signaling the “right” type of costs is crucial for success.
To signal the “right” type of costs, the value-based pricing approach emphasizes the importance of fully understanding what customers value about a product (Hinterhuber 2004). In other words, there must be a clear link between the service’s value to customers, their reasons for purchasing, and the organization’s goals (Maynes and Rawson 2016). More than 60% of customers value the experience of a service, while the price itself is less important (Sorofman and McLellan 2014). Hence, organizations should focus on the customer and align actions and costs, recognizing that customer experience is directly tied to alignable costs. We therefore hypothesize that signaling alignable costs directly impacting a customer’s experience (e.g., teachers’ salaries) will outperform other cost structure types in terms of prices paid. This aligns with our aim to contribute to the under-researched area of cost structure provision, as highlighted in Table 1, which reveals that presenting cost structures—regardless of the cost type—has received limited research attention.
The term “payments” in H1 refers to actual prices paid by consumers for a given service in our field studies and hypothetical prices in our scenario-based laboratory studies. Before finalizing a price decision, consumers usually evaluate external reference prices and assess the price fairness by comparing them with their internal reference price.
Reference Price Fairness Perception
Various studies identified perceived fairness of a reference price as an essential psychological factor that affects customers’ reaction to prices (Kahneman, Knetsch, and Thaler 1986; Reisman, Payne, and Frow 2019). If customers perceive a reference price as unfair due to past or competitor prices, underestimation of costs, assumptions about excessive profits, or immoral actions, it can result in purchase resistance or lower PWYW prices paid (Bechwati, Sisodia, and Sheth 2009; Bettray, Suessmair, and Dorn 2017; Bolton, Warlop, and Alba 2003). The dual entitlement principle (Kahneman, Knetsch, and Thaler 1986) provides predictions about the effects of fairness perceptions. The dual entitlement principle suggests that people seek a balance between what they give and what they receive. Alignable cost structure appeals are expected to lead to higher payments by helping customers make fairer decisions by matching the price with what the seller is entitled to (Machado and Sinha 2013). In other words, alignable cost structure appeals are expected to lead to higher payments by increasing customers’ knowledge, enabling them to make fairer decisions aligned with what the seller deserves (Greiff, Egbert, and Xhangolli 2014; Mohan et al. 2018; Narwal and Nayak 2020). Jang and Chu (2012) also provide evidence of customers’ desire to act fairly toward organizations. We, therefore, assume alignable cost structure appeals to influence reference price fairness perception, which in turn affects PWYW prices paid. Consequently, we formally state the following mediation:
While fairness perceptions of provided external reference prices are an important factor in assessing a specific service, the assessment may also be driven by the more general price image of the provider (Chernev and Hamilton 2018). Therefore, we next discuss how cost structure appeals and reference price perceptions may be influenced by the general price image of a service provider, for instance, triggered by positive or negative media reports.
Price Image
Extant research has examined marketplace stigma in contexts such as service encounters and the influence of stereotypes on consumer behavior (e.g., Mirabito et al. 2016). From an organizational perspective, these insights highlight the importance of managing price image to mitigate negative perceptions and align consumer expectations. Price image refers to the overall perception and reputation (here: positive reputation, if the customer thinks the seller only charges necessary costs and adds little margin; and negative, if the seller is known to add a considerable margin on top of their costs) of a brand’s pricing strategy (Lombart, Louis, and Labbé-Pinlon 2016). Price image can significantly impact consumers’ perceptions of price fairness. Previous studies examined how price image is formed (e.g., by the seller or by external stakeholders such as the media), how a seller’s efforts to provide information are related to customers’ cognitive and emotional image perceptions of that seller, and how this affects purchase intentions (Chang and Wang 2014; Rai and Narwal 2022).
Based on the price image literature, we would expect that a positive (negative) price image (stigma) of a firm triggered by an external source (e.g., the media) should increase (decrease) the credibility of the external reference price provided, which in turn should lead to higher (lower) payments. While we expect that the positive price image effect should be maintained and increased in the context of alignable cost structure appeals, we propose that the negative effects of price stigma on prices paid should be eliminated or reduced because PWYW by itself signals trust to the customer and alignable cost structure appeals contribute to trust building, leading us to the following hypothesis:
Very Low Payments
Low and very low payments in a PWYW context may be a consequence of the so-called fairness paradox or paradox of conflicted fairness (Dai 2016), which claims that the fair behavior of one group may lead to a loss for the other group (Dai 2019). In other words, customers want to be fair and genuinely think they are acting in good faith, but because they do not know any better (due to the lack of missing information), their “fair” behavior results in unfair outcomes for suppliers. As a fairness theory, the dual entitlement principle focuses on the fairness of price changes (Kahneman, Knetsch, and Thaler 1986), and that people generally seek to behave in a reasonable and fair way (Bolton, Warlop, and Alba 2003). However, as noted earlier, acting fairly can also lead to the paradox of conflicting fairness, where, for instance, in a business relationship, fair behavior by a customer can lead to unfair outcomes for the service provider (Dai 2019). Applying this to a participative payment context, several empirical PWYW studies show that people’s fairness behavior impacts payments (Jang and Chu 2012; Kunter 2015). However, there is also evidence that people pay only very little for services such as cinema tickets (Kim, Natter, and Spann 2009) or more complex services such as holiday packages (León, Noguera, and Tena-Sánchez 2012). These low payments seem to be an unfair result for service providers and may be rooted in customers’ inability to determine a fair price by underestimating the costs of intangible components (Naquin, Kurtzberg, and Krishnan 2015). This underestimation stems from the higher perceived risk of services, as prepurchase evaluations are more difficult (e.g., McDougall 1987; Murray 1991). Prior to purchase and consumption, customers cannot adequately assess a service’s value (Viglia et al. 2019). Thus, in the context of participative payments for services, which are intangible, this leads to a high risk of low PWYW payments, even though fairness is the most important aspect to determine a price (e.g., Ajzen 1982; Thaler 1985).
In summary, a customer’s perception of the costs associated with a service is related to the perceived fairness of a price. Thus, if a cost structure appeal increases customers’ cost estimates of a service, then higher prices paid can be expected, especially if customers perceive the costs to be in line with their direct benefits from the service. Customer value theories support our argument by emphasizing that accurate value judgments require cost knowledge (Babin, Darden, and Griffin 1994; Holbrook and Hirschman 1982). Given the expected positive impact of alignable cost structure appeals on fairness, and the fact that providing cost information requires a minimum level of fairness toward the service provider, we propose:
Study Overview
Table 2 summarizes the study objectives, which focus on assessing the efficacy of alignable cost structure appeals in PWYW pricing across different settings, price ranges, payment methods (online vs. offline), and levels of consumer engagement (high vs. low involvement, with the latter being more routine).
Research Design and Study Objectives.
Note. PWYW = pay-what-you-want.
Study 1. Cost Structure Impact on PWYW Prices
The objective of study 1 is to understand how different cost structure appeals (alignable vs. no, non-alignable, or a mix of alignable and non-alignable appeals) affect actual voluntary payments of dance workshops (regularly sold for €135) in a field experiment.
Methodology
Study Context
We partnered with Europe’s largest contemporary dance festival provider ImPulsTanz (www.impulstanz.com/en/), known for offering over 240 workshops by renowned choreographers to participants from over 80 countries in Vienna, Austria. ImPulsTanz was interested in testing PWYW to cross-sell workshops to customers who had already booked at least one workshop before the booking period closed.
Manipulations
We used a control group (i.e., G1 = no cost structure appeal) and three treatment groups (i.e., G2 = non-alignable cost structure appeal, G3 = mixed cost structure appeal, combining alignable and non-alignable costs, and G4 = alignable cost structure appeal). To ensure that participants had a common reference price understanding, we reported the previous regular price as an external reference price (see Supplemental Appendix 3 for the scenario descriptions).
Measurement
The questionnaire, which comprised the booking process, had two main parts. The first part required customers to choose the workshop they wished to book, specify the price they wanted to pay (see Table 3), and confirm their actual payment. Personal information was collected to complete the booking. The second part focused on gathering demographics (income, age, gender, and country of residence) and the dance level.
Adapted Measurement Scales from Previous Literature.
Note. PWYW = pay-what-you-want.
Data Collection
ImPulsTanz emailed 1,806 people who had already booked a workshop an invitation to book another workshop, for which they could pay what they wanted. To book, customers had to follow a link provided in the email and complete our questionnaire. Individuals were randomly assigned to one of our four scenarios (G1–G4) using a computer-aided randomization algorithm.
Data Analysis
To preserve data integrity, cases exceeding three standard deviations from the mean prices were excluded. One-way ANOVAs and chi-square analyses indicate no significant differences between the treatment groups in age, income, and gender (see Supplemental Appendix 4). We used a general linear model (GLM; fixed-effect ANOVA) with cost structure type as a fixed effect and payments as the dependent variable, controlling for age and gender, as research provides evidence that these factors impact PWYW payments (e.g., Kim, Kaufmann, and Stegemann 2014; León, Noguera, and Tena-Sánchez 2012).
Results
Sample Description
In total, 164 customers booked another workshop, with 40 in the control group (G1), 41 in G2, 40 in G3, and 43 in G4. 85.89% were females, with an average age of 33.05 years (min = 15, max = 68, SD = 11.47). 66.67% resided in Austria, 9.26% in Germany. The majority (67.92%) reported incomes below €1,200, while only 11.95% earned above the average net income in Austria. The distribution of dance levels was balanced.
Impact of Cost Structure Appeals on PWYW Payments
As depicted in the top part of Table 4 (H1) and consistent with H1, we find that cost structure appeals have a pronounced impact on payments (p < .001). Customers getting alignable cost structure appeals pay 46.19 percentage points more than the control group (p < .001), 46.56 percentage points more than the group exposed to non-alignable cost structure appeals (p < .001), and 37.56 percentage points more than the group with mixed cost structure appeals (p < .001).
Differences Between the Experiment Groups.
Note. PWYW = pay-what-you-want.
Cost structure
We used the price relative to the reference price to calculate the overall model and the absolute price for the individual models to test H1.
p≤.1. *p≤.05. ** p≤.;01. ***p≤.001.
Discussion
These first findings suggest that alignable cost structure appeals have a strong positive impact on payment behavior. However, questions remain about the applicability across contexts and the underlying psychological processes.
Study 2. External Validation and Mediation Effect of Reference Price Fairness
For generalization purposes, the second field study tests cost structure appeals in a different context (i.e., museum ticket), with a different price level (i.e., low price), and with a different payment type (i.e., payment at a ticket counter). We also explored whether perceived price fairness mediates the link between cost structure appeals and payments (H2).
Methodology
Study Context
This field study was in collaboration with the museum Kunsthalle Wien (https://kunsthallewien.at/en/), which presents exhibitions and researches art practices.
Manipulations
We used the same groups as in study 1, providing the traditional museum entrance fee (i.e., €8) as reference price. G2 got two examples of non-alignable costs (i.e., advertising and operating costs). G3 got a non-alignable and an alignable cost element example. G4 got two alignable cost examples (i.e., fees for artists and production costs for new artistic works). See Supplemental Appendix 5 for treatment texts.
Measurement
In the paper-and-pencil questionnaire, participants had to provide information about their current visit, such as the entrance fee they chose to pay, and the number of people covered by that fee. Then, they rated the perceived fairness of the reference price (i.e., the traditional entrance fee of €8) on a scale from 1 (not fair at all) to 6 (very fair) and provided demographics (age, gender, country of residence, and monthly income).
Data Collection
At the museum entrance, visitors were greeted and given verbal information about the PWYW campaign and the regular price. For treatment group allocation, we aimed for similar sample sizes across all groups. Initially, the scenarios were rotated daily to ensure equal exposure on each weekday, later, we switched to hourly changes to maintain the balance of group size. Next, visitors paid at the cashier. They then completed the questionnaire in English or German (forward–backward translation by Bradley 1994).
Data Analysis
We used the same data cleaning procedure and analysis as in study 1 to test H1. For H2, we applied Hayes’ model 4 PROCESS procedure (with a 95% confidence interval and 10,000 bootstrap resamples) controlling for age and gender.
Results
Sample Description
Four hundred sixty-four participants were assigned to the groups: G1 (n = 119), G2 (n = 116), G3 (n = 116), and G4 (n = 113). 66.30% were females and the age ranged from 15 to 66 years (M = 28.29, SD = 11.18). 59.40% earned below the Austrian average, and 27.29% above. The majority were Austrians (38.98%) and Germans (37.64%). No significant differences in age, income, or gender were found between the treatment groups (see Supplemental Appendix 4).
Impact of Cost Structure Appeals on PWYW Payments
Study 2 validates the findings of field study 1 (see Table 4—H1). In support of H1, alignable cost structure appeals increased payments compared to the baseline scenario (24.23 percentage points, p < .001), as well as compared to non-alignable cost appeals (21.73 percentage points, p < .001), and mixed cost appeals (19.62 percentage points, p = .008).
Mediation Effect of Reference Price Fairness Perception on PWYW Prices Paid
As shown in Figure 1, H2 is confirmed as alignable cost structure appeals not only directly affect prices paid (β = .382; p = .002), but also indirectly via reference price fairness perception (alignable cost structure appeals → fairness perception of reference price → payments: β = .137; BootLLCI = 0.059, BootULCI = 0.233; p < .05).
Underlying processes.
Discussion
The findings indicate the robustness of the external validity of the effects of alignable cost structure appeals in a different context. The results of the two field studies suggest that alignable cost structure appeals not only work well in different contexts, but also for services with different (posted) price levels and in different payment situations (private and public). From a theoretical perspective, we find that alignable cost structure appeals lead customers to perceive the reference price as fairer (β = .436; p = .001), resulting in higher payments (β = .315; p < .001), confirming H2.
Study 3. Cross-context Validation, Fairness, and Cost Type Valuation
In study 3, we seek to confirm H1 and H2 across contexts and to examine whether the manipulated cost structure appeals are perceived and valued differently.
Methodology
Study Context
This study uses three different contexts, namely a restaurant lunch buffet, a walking tour, and a one-to-one online course. We chose the Pakistani restaurant Der Wiener Deewan in Vienna (http://deewan.at/) because of its success with PWYW for its lunch buffet since May 2005 (reference price €12). We also looked at hypothetical bookings: a PWYW guided walking tour (many of the so-called “free” walking tours involve PWYW) and personalized online lessons. Reference prices, based on typical market prices, were set at €12 for the tour and €25 for the online course.
Manipulations
We kept the treatment groups G1–G4 from the field studies, adapting them to fit the specific contexts (see Supplemental Appendixes 6–8).
Measurement
We used five-section questionnaires in English and German (translation procedure by Bradley 1994): (a) We screened participants for relevant knowledge and interest (i.e., involvement), excluding those without it. (b) Participants were instructed to familiarize themselves with their assigned scenario and to set both a PWYW and a fair price, followed by manipulation and attention checks. (c) We assessed their perceptions of the value and importance of all cost type elements (e.g., financial reward for your highly qualified and experienced local tour guide, administration costs). (d) Questions explored reference price fairness perceptions and control variables such as price consciousness, PWYW familiarity, and cost knowledge using a six-point Likert Scale (see Table 3 for details). (e) We collected demographics.
Data Collection
Participants were recruited through the TGM Research online panel, employing stratified sampling to achieve a diverse sample. An Austrian-based sample was used for the restaurant context and a German-based sample for the other contexts to match the locations of the organizations. Finally, the participants were randomly assigned to the different scenarios applying the Qualtrics randomization feature.
Data Analysis
We used the same data cleaning procedure and analyses as before. To further investigate the fairness effect, we estimated GLMs with PWYW prices in relation to the perceived fair price as the dependent variable, and cost structure appeal as fixed effects. In addition to the previously used control variables, we included involvement, as the existing literature highlights its impact on information processing (Bloch, Sherrell, and Ridgway 1986) and certainty in price-related decisions (Biswas and Sherrell 1993). Pairwise t-tests identify differences in the valuation of the cost structure types.
Results
Sample Description
After data cleaning, the sample comprised 1,253 participants with 412 participants in the restaurant (G1: n = 105, G2: n = 106, G3: n = 101, and G4: n = 100), 413 in the walking tour (G1: n = 96, G2: n = 98, G3: n = 108, and G4: n = 111), and 428 in the one-to-one online course context (G1: n = 115, G2: n = 101, G3: n = 105, and G4: n = 107). We had a balanced gender distribution, with an average age of 45.24 years (SD = 15.18), ranging from 18 to 84 years, with no significant difference between the three contexts (p > .05). 21.37% earned less than €1,200, while 53.15% earned more than €2,000. In line with the customer profiles, the restaurant context had more average earners than the others, and the walking tour context had more higher income earners. However, there are no differences in these variables between the treatment groups within each context (see Supplemental Appendix 4).
Impact of Cost Structure Appeals on PWYW Payments
While controlling for involvement, age, and gender, the GLM indicated strong support for H1 in the restaurant context (p = .002). Alignable cost structure appeals led to a price increase of 10.64 percentage points compared to scenarios without cost structure appeals (p = .013), 14.66 percentage points compared to appeals involving non-alignable costs (p < .001), and 12.42 percentage points compared to appeals with mixed costs (p = .003). For the walking tour and the one-to-one online course contexts, we also observed an effect of the alignable cost structure appeals on payments (p = .043 and .011, respectively). Specifically, alignable cost structure appeals increased prices by 12.18 percentage points for walking tours (p = .007) and 47.40 percentage points for one-to-one online courses (p = .003), relative to scenarios without cost structure appeals. Similarly, non-alignable cost structure appeals resulted in price increases of 8.61 percentage points for walking tours (p = .047) and 34.04 percentage points for one-to-one online courses (p = .041).
Mediation Effect of Reference Price Fairness Perception on Payments
Using a mediation analysis (PROCESS model 4) while controlling for age, gender, and involvement, we find that the alignable cost structure appeals directly affect payments (restaurant: β = .263, p = .061; walking tour: β = .294, p = .045; online course: β = .346, p = .010). In all contexts, we also observed an indirect (mediating) effect (alignable cost structure appeals → fairness perception of reference price → PWYW payments; restaurant: β = .050; BootLLCI = 0.001, BootULCI = 0.118; p < .05; walking tour: β = .083; BootLLCI = 0.000, BootULCI = 0.194; p < .05; online course: β = .075; BootLLCI = 0.009, BootULCI = 0.153; p < .05), providing further evidence for H2 (see Figure 1) in a setting with high internal validity.
To assess the impact of different cost structure appeals on participant i’s payment fairness, we calculate the proportion of customer (i’s) actual payment to her/his perceived fair price (i.e., payment fairness [i] = payment [i]/fair price [i]). Participants exposed to alignable cost structure appeals (G4) show a notably higher payment fairness, paying between 94.37% and 99.90% of the fair price in the different contexts. This is significantly higher compared to no cost structure appeals or non-alignable cost structure appeals in the restaurant and walking tour context (p < .001 to p = .013). For online courses, we find marginal differences (p = .067 and .095). Taking all three contexts together, we see an increase in participants’ payment fairness of 12.79 percentage points compared to G1 (no cost), 8.73 percentage points compared to G2 (non-alignable), and 4.70 percentage points compared to G3 (mixed). Thus, alignable cost structure appeals (G4) significantly foster perceptions of reference price fairness as reflected in higher payment fairness (see Table 4—H2).
Value and Importance of Cost Type Elements
As Figure 2 shows, alignable costs are not only more important in setting prices, but also create more value, deliver more benefits, are more meaningful to individuals, and improve the perceptions of service quality compared to non-alignable cost elements in all three contexts (p < .001; see Table 5). Mixed costs fall in the mid-range and are significantly different from the other two types of cost elements (p < .001). In addition, we find the following order of decreasing importance of the participants’ service assessment: alignable costs > mixed costs > non-alignable costs (p < .001; see Table 5).
Value-importance matrix of cost structure types.
Value and Importance of Cost Elements.
Note. Regardless of the experiment group a participant was in, all participants rated all cost elements of E1 to E3 (for cost elements see treatment texts in the Supplemental Appendixes) and then the index was calculated according to the cost type. If a study only focused on alignable cost structure, we used the non-alignable cost elements of the same context from a previous study.
Index out of four variables with.
(1) Does not create value for me as ____|(6) Creates value for me as ____.
(1) Does not benefit me as ____|(6) Benefits me as ____.
(1) Is not significant for me as ____|(6) Significant for me as ____.
(1) Diminishes my perception of a high quality ___|(6) Enhances my perception of a high quality ___.
p < .001.
Interestingly, there are also differences in the value placed on different alignable cost elements. Customers value high-quality ingredients (M = 4.64) over well-trained waiters (M = 4.28, p < .001) when assessing the costs of restaurants. Similarly, for walking tours, admission to attractions (M = 4.65) is valued higher than compensation for well-trained and experienced local tour guides (M = 4.50, p < .001). Surprisingly, there are no differences between the two alignable cost elements in the case of the online course. Both cost elements, personalized learning resources and payment for well-trained and experienced teachers, receive similar ratings (M = 4.47 vs. M = 4.51; p = .482) and thus, seem to be of equal educational value. However, when it comes to their importance in evaluating the service and deciding on the price, we observe that, for walking tours both, the access to key attractions and the reward of qualified tour guides are equally important (M = 4.86 vs. 4.88, p = .654), whereas in the online course context, rewarding qualified and experienced teachers is more important than costs for personalized teaching sources (M = 4.92 vs. 4.43; p < .001).
Discussion
Our findings consistently highlight the importance of alignable cost structure appeals in shaping pricing decisions and customer perceptions across contexts. Alignable cost structure appeals are crucial in evaluating services, enhancing perceived value, and promoting quality perceptions, leading to better outcomes. However, not all alignable costs have the same impact; they go beyond mere valuation to influence perceptions of fairness. Building on this, our next study will explore how a company’s media-driven price image interacts with different cost structure appeals to influence customer behavior.
Study 4. How a Company’s Price Image Moderates the Effect of Cost Structure Appeals on Payments
The aim of this study is to examine how different provider images shaped by media portrayals, whether favorable or unfavorable, affect customer behavior in the context of cost structure appeals.
Methodology
Study Context
The online version of the Austrian quality newspaper DER STANDARD has been available since 1995. While access is free, DER STANDARD offers subscriptions and encourages PWYW support by explicitly communicating that independent quality journalism and diversity of opinion must be worth something to readers.
Manipulations
We designed a 4 × 2 × 2 mixed between-within-subjects experiment, comprising the four types of cost structure appeals (between-subjects: G1, G2, G3, and G4) adapted to the newspaper context, and two media-induced price images (between-subjects: A: negative price image, B: positive price image). Time was the within-subjects factor, with two conditions: T1 (facing cost structure appeals before receiving firm price image information) and T2 (facing cost structure appeals after receiving firm price image information). Scenario A presented information about a media report suggesting that companies often exaggerate their costs, raising concerns about pricing fairness, while scenario B presented that companies only add essential costs allowing them to survive (see Supplemental Appendix 9 for text details). Thus, Qualtrics randomly assigned participants to the scenarios.
Measurement
The same questionnaire was used as in study 3. After facing one of the cost structure appeals and the payment decision in T1, participants either received negative (B) or positive (A) price image information published by the media and were asked to reconsider their payment using the same cost structure appeal in T2.
Data Collection
We recruited participants via the TGM Research online panel using stratified sampling for Austrians with knowledge of the newspaper, ensuring that these participants did not take part in our restaurant study.
Data Analysis
We followed the approach used previously to test H1 and H2. Pairwise t-tests were conducted to test the relative importance of cost structure types in T1. H3 was tested with a GLM using cost structure appeals and price image as fixed effects and payments in T2 as the dependent variable. We also compared changes in payments from T1 to T2.
Results
Sample Description
After data cleaning (same procedure as before), we had a sample of 412 participants (G1 = 99, G2 = 107, G3 = 106, and G4 = 100). Gender was balanced, and the average age was 45.21 years (SD = 14.99), ranging from 18 to 81 years. Consistent with the context, the income level was higher, with only 16.99% earning less than €1,200 and 50.97% above the average income. One-way ANOVAs and chi-square analyses show no significant differences between the treatment groups in terms of age, income, gender, price consciousness, PWYW familiarity, and cost knowledge (see Supplemental Appendix 4).
Impact of Cost Structure Appeals on Payments
Consistent with H1, this study confirms the positive impact of alignable cost structure appeals. Participants pay on average 24.23 percentage points more when provided with alignable cost structure appeals compared to the control group, 21.73 percentage points more than for non-alignable cost structure appeals, and 19.62 percentage points more than for mixed cost structure appeals (see Table 4—H1). Furthermore, the results confirmed the relative importance and value of cost structure types with alignable costs > mixed costs > non-alignable costs (p < .001; see Table 5).
Mediation Effect of Reference Price Fairness Perception on Payments
Using the PROCESS model 4 with controls for age, gender, and topic interest, we found that alignable cost structure appeals positively influence payments (β = .258, p = .021). Also, there is a mediation effect of alignable cost structure appeals on perceived fairness of the reference price, which in turn affects payments (β = .188; BootLLCI = 0.011, BootULCI = 0.371; p < .05), supporting previous findings regarding H2 (see Figure 1).
Impact of Cost Structure Appeals and Price Image on Payment Fairness
First, validating previous results (H2) in this context, we find that alignable cost structure appeals lead to fairer payments (99.80%) compared to scenarios without any cost structure appeals (82.88%, p = .004), non-alignable (84.06%, p = .006), or mixed cost structure appeals (86.48%, p = .024) before the image manipulation.
Considering the interplay of sentiments raised by the media about companies’ price setting practices and cost structure appeals, several key observations emerge. As expected, even in the scenario where the media creates a price stigma (doubts about firms’ pricing fairness), payment fairness is not affected when alignable cost structure appeals (G4) are employed. The average price paid when prompted with an alignable cost structure appeal has a payment fairness of 99.92%. In contrast, payment fairness is 19.54% lower for no cost structure appeal, 20.70% lower for mixed cost structure appeal, and 6.84% lower for the non-alignable cost structure appeal, confirming H3a (see Table 4—H3a). When the media attest that companies have a fair pricing policy in place, we find that alignable cost structure appeals cause customers to exceed the fair price by 21.39 percentage points. In contrast, in the other scenarios, the excess payment is only 3.96 percentage points (without cost structure appeals) and 2.47 percentage points (with mixed cost structure appeals). For non-alignable cost structure appeals, payments fall below the fair price (−2.87 percentage points), resulting in 97.13% of the fair price being paid. This supports H3b, indicating that alignable cost structure appeals enhance fair payments when companies’ price image is positive (see Table 4—H3b).
Discussion
In conclusion, we find that alignable cost structure appeals maintain their effectiveness and mitigate the negative effects of a company’s price stigma (supporting H3a). Also, these appeals are even more effective when firms have a favorable price image (supporting H3b).
Study 5. Low Payers’ Response to Alignable Costs
Previous studies have consistently shown higher payments when alignable cost structure appeals are used (see Figure 3 for the price distribution and average payments per group).
Distribution of prices paid.
However, because our previous studies used between-subjects designs, they limited the analysis of individual reactions to cost structure appeals. Thus, in study 5, we use a within-subjects design to test our hypothesis H4, which posits that alignable cost structure appeals particularly influence customers who are likely to make lower payments without an appeal.
Methodology
Study Context
We revisited the Austrian newspaper subscription context and again added a museum context. This time, we used the Albertina (https://www.albertina.at/en), an art museum in Vienna known for its extensive collection of graphic and classical modern art, including masterpieces by Dürer, Monet, and Picasso. These contexts cover both digital and physical engagement, contrasting the passive nature of low-involvement media consumption with the active, cultural experience of visiting a museum.
Manipulations
This study comprised two phases. In the first phase, participants were exposed to the G1 scenario without any added cost structure appeals to identify low-, mid-, and high-range payers. The external reference price, set at the regular entrance fee of €26 (see Supplemental Appendix 10), was used to classify participants as low-range (paying 50% or less of the reference price), mid-range (paying more than 50% but less than 100% of the reference price), and high-range (paying the reference price or more) payers. This classification allows for comparisons across contexts. Two weeks later, the same participants were invited to the second phase. In this phase, the participants faced alignable cost structure appeals (G4). The short duration was chosen to minimize the influence of external factors such as changes in economic conditions, personal financial status, and social influences, thus increasing the validity of our results and ensuring that the observed differences were indeed a consequence of the alignable cost structure appeal.
Measurement
The first-phase questionnaire began by assessing participants’ contextual familiarity and engagement to ensure that only those with relevant knowledge were included. Next, participants received the scenario without cost structure appeal (G1) and were asked to provide their PWYW prices (see Table 3), followed by demographic questions and personal codes to link responses across both phases. The second-phase questionnaire started with familiarity questions, followed by the alignable cost structure appeal (G4) and payment decisions. After the manipulation check, participants rated the value of alignable and non-alignable cost type elements and reflected on their price choices made in the first phase, providing the price initially paid (we controlled for whether they could remember and gave them the option to state their best guess if they were unsure), noting any changes and their reasons as a reply to an open-ended question. The survey ended with the collection of their personal code.
Data Collection
For the newspaper context, Austrians who had not participated in our previous studies and who were familiar with DER STANDARD were recruited via the TGM Research online panel. After the second phase and data cleaning, the sample comprised 152 participants who completed both phases (response rate: 61.30%).
For the museum, we used Prolific to gather 161 German participants (who completed both phases, response rate in the second phase: 56.70%) interested in travel and culture.
Data Analysis
Pairwise t-tests confirmed the value hierarchy of cost structure types (see Table 5). To examine payment changes between the two phases, we used Wilcoxon tests and paired t-tests. For the comparison between the different payment groups, we used chi-square tests and a moderation analysis.
Results
Sample Description
The online newspaper subscription sample (study 5a) had a balanced gender distribution (46.05% female) with an average age of 42.18 years (SD = 15.79), ranging from 18 to 79 years. More than half reported incomes above the national average, reflecting the demographic profile of the readership (Statista 2024). In the museum context (Study 5b), 49.69% were females, and the mean age was 33.81 years (SD = 10.46, min = 18, max = 73). The income levels represented a full range across the income spectrum.
Impact of Alignable Cost Structure Appeals on Low-range Payers
In the newspaper study, 65.13% were classified as “low-range payers,” as they paid less than or equal to half of the provided reference price. 27.63% were classified as “mid-range payers.” A small fraction of 7.24% were identified as “high-range payers,” paying at or above the reference price. Without alignable cost structure appeals, low-range payers paid an average of €6.47 (SD = 3.42). However, when alignable cost structure appeals were used, their payment increased substantially by 55.44% to €10.12 (SD = 6.49; p < .001). In an open-ended response, low-range payers acknowledged the long working hours and in-depth research journalists undertake, as well as the behind-the-scenes costs, making their initial newspaper payments seem insufficient to be fair. In contrast, mid- and high-range payers had more modest increases of 11.88% and 12.00%, respectively (p = .003). The alignable cost structure appeals significantly encouraged many customers to increase their prices, with notable differences among payment groups (p = .037). Specifically, 59.60% of low-range payers, 40.48% of mid-range payers, and 27.27% of high-range payers increased their payment.
In the museum context, there were only 26.71% low-range payers, with one individual choosing not to pay at all in the first phase, and a larger segment of high-range payers (15.53%) compared to the newspaper context. The majority were classified as mid-range payers (57.76%). The low-range payers contributed on average €9.35 (SD = 2.97) without cost information and €14.02 (SD = 6.81) with alignable cost structure appeals, reflecting a substantial 50.00% increase (p < .001) of their initial payment. Participants cited a better understanding of costs, additional information, and a greater appreciation of the museum as reasons for increasing payments. They also expressed a desire to support the future of the museum and access to art. While price increases were observed across all groups, they were less pronounced for mid-range (+15.68%) and high-range payers (+6.71%) compared to low-range payers (p < .001). Again, alignable cost structure appeals motivated many participants to increase their prices (i.e., 74.42% of low-range payers, 63.44% of mid-range payers, and 32.00% of high-range payers), however, with significant differences between payer groups (p = .002), supporting H4.
Discussion
Alignable cost structure appeals not only lead customers to pay higher prices but also associate these offers with quality experiences. Analyzing differences between customers over a two-phase experiment across two different contexts, we find that low-range payers are more affected by alignable cost structure appeals than mid- or high-range payers.
General Discussion
Theoretical Discussion
This article extends the scarce amount of literature on the impact of cost information provided to consumers to increase voluntary payments (Mohan, Buell, and John 2020). Given the risks of revealing monetary cost information, we propose to employ alignable cost structure appeals instead of monetary cost information when allowing customers to pay as they wish. Our research provides an analysis of different cost structure appeals (i.e., non-alignable vs. mixed vs. alignable cost structure) in service situations where actual payments typically occur prior to consumption.
We conducted two field experiments to test the proposed approach in real-world PWYW settings for external validity. Additionally, we conducted a series of scenario-based laboratory experiments in diverse service sectors with different price levels and cost structure elements (cost elements addressed in the appeal) to investigate the approach in terms of internal validity, generalizability, and to understand the process of its effectiveness. Furthermore, we studied individual reactions to cost structure appeals with a focus on the problematic group of low-range payers. Our key findings are:
First, and most importantly, we find that it is not necessary to provide monetary cost information to benefit payments. Across all studies, we find that alignable cost structure appeals are sufficient to substantially and positively impact payments. Organizations do not have to disclose sensitive monetary cost information (as e.g., in the study conducted by Mohan, Buell, and John 2020) and can thus avoid issues such as data misuse, inability to specify costs (Gundlach, Achrol, and Mentzer 1995), or the risk of revealing information that competitors should not see. Importantly, we find that cost structure appeals are increasingly effective if they contain higher shares of alignable cost elements as these elements make customers aware of the value provided by the service. Alignable costs (vs. non-alignable costs) are not only more important when setting prices, they also create more value, deliver more benefits, and improve the perceptions of service quality. Since payment levels are direct “feedback” from customers about what they value in a service, we propose that analyzing the importance of different alignable cost elements in product evaluation and payment decisions may create interesting insights for service providers. In the context of online teaching, for instance, it was more important for customers to reward qualified and experienced teachers than to compensate for personalized teaching sources. Accordingly, organizations should have a good understanding of what they stand for, and which services add value for customers (i.e., which alignable costs are most relevant).
Second, we provide insight into how cost structure appeals affect payments. Using the theoretical foundation of the dual entitlement principle (Kahneman, Knetsch, and Thaler 1986), we show that reference price fairness perceptions exert a mediating effect of cost structure appeals on payments.
Third, customers seem to make assumptions about an organization’s motivation to provide cost structure type information (Machado and Sinha 2013). Our results not only offer insights into a reward effect linked to a positive price image but also demonstrate that cost structure appeals can offset negative effects of a firm’s price stigma. As such, we add to price image theory, which is currently concerned with how information is related to customers’ image perceptions of sellers, and how this impacts purchase intentions (Chang and Wang 2014; Rai and Narwal 2022), highlighting the need for businesses to manage price reputation.
Fourth, we find that alignable cost structure appeals are especially effective in increasing PWYW payments of customers who would pay relatively low prices without appeals. This is especially significant for providers in various contexts considering the use of PWYW. Given the fairness paradox (Dai 2019), our studies show that signaling the value of the service through cost structure appeals can resolve this paradox. Alignable cost structure appeals effectively communicate service value, encouraging low-paying customers to pay more.
Managerial Implications
Our findings suggest important management messages when framing PWYW promotions to influence the payments by certain target groups in general and by low-paying customers in particular.
First, alignable cost structure appeals (see Supplemental Appendix 1 for example promotion or price tags) allow customers to gain a better understanding of the value of the service. Consequently, decision-making concerning how much to pay in a PWYW setting is facilitated and boosts customers’ payments. This information is particularly valuable because suppliers do not have to disclose sensitive monetary cost information. Alignable cost structure appeals seem sufficient to encourage fairer payments while avoiding the risks of revealing sensitive cost information, for example, to competitors.
Second, managers need to be very careful about what information to present. Customers are willing to support the organization as long as they perceive its actions as fair and value adding. Customers are willing to pay more when a company provides alignable cost structure appeals, as this allows them to better judge the fairness and credibility of the reference price, thereby increasing their desire to pay a fair price. The rationale behind this is that the alignable cost type directly signals how the service creates value for customers. In contrast, customers are unlikely to increase payments if a company announces that it will use the money to cover non-alignable costs. Consequently, cost structure appeals seem to be highly suitable for organizations that can manage to generate value-aligned costs and keep non-alignable costs at a low level. This implies that the management must clearly understand the organization’s purpose and how it creates value for customers, with key knowledge about the value sources.
Third, and linked to the previous point, managers should recognize that providing alignable cost structure appeals are especially effective in motivating low-paying customers to pay more, even when used repeatedly.
Limitations and Future Research
In our studies, we focused on the short-term effects of cost structure appeals. Of course, it would be very interesting to see future research that builds on this limitation, that is, research that studies long-term effects of cost structure appeals. While the existing literature on the repeated or long-term use of PWYW suggests that revenues may decline over time (Ma, Wang, and Liu 2022; Schons et al. 2014), we assume that alignable cost structure appeals consistently enhance the perceived fairness of the reference price. As in repeat purchase situations, the last price paid would also be higher due to cost structure appeals, we expect that this should lessen the negative effect on customers’ internal reference price updates.
Further limitations of our research stem from the specific study designs and contexts used in our experiments. More specifically, depending on the contexts chosen in the different service industries, we had to choose specific cost components to use in the study designs. Our specific choices may limit the use of cost structure appeals in other contexts or with other cost components. While our choice of cost components worked out well for the alignable cost types, there may be other cost components that even work better (or worse). A limitation in applying the proposed cost structure appeals may also arise in service industries where costs consist mainly of non-alignable costs like cinemas (see, e.g., Kim, Natter, and Spann 2009). It would be interesting to see future research that develops effective communication approaches that help to raise fairness in customer payments in such industries.
Footnotes
Acknowledgements
The authors wish to thank Karl Regensburger (Director of ImPulsTanz), Rio Rutzinger (Artistic Director Workshops & Research of ImPulsTanz), Gabriel Schmidinger (Commercial Director of ImPulsTanz), and Katharina Baumgartner (Head of Marketing of Kunsthalle Wien) for the productive collaboration that made this study possible. We further value the constructive and helpful comments on a former draft and suggestions for developing this paper provided by Martin Schreier, Petra Tipaldi, and Giampaolo Viglia. Finally, the third author received financial support from the University Research Priority Program (URPP) by the University of Zurich on Social Network which is gratefully acknowledged.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
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