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Restaurant server income is predominantly composed of tips received from guests and the minimum server wage received from restaurants. Grounded in equity theory, this study investigated the effect of the minimum server wage, in combination with service quality, familiarity, and perceived fairness, on tipping rate. An online scenario-based 2 (minimum server wage) x 2 (service quality) experimental design was conducted. Results revealed that the minimum server wage and familiarity with tipping have moderating roles on the indirect effect of service quality on tipping rate via perceived fairness of tipping. Findings provide new information to researchers and industry stakeholders on the effects of the minimum server wage on guest tipping behavior. [ABSTRACT FROM AUTHOR]

Online travel agencies advertise limited availability by indicating room inventories and the number of other travelers. This research investigates the effect of limited availability using supply and demand-based scarcity with price promotion on traveler decisions and cognitive dissonance. Two experimental approaches (between and within subjects) examine the causal effects of scarcity. Demand-based scarcity decreases booking decisions while supply-based scarcity increases booking decisions, especially at a discounted price in a within-subjects design. Scarcity produces cognitive dissonance and intention to undo the decisions. For effective applications, scarcity messages should be transparent, and include non-scarce options for comparison. Multiple scarcity messages minimize undo-intentions. [ABSTRACT FROM AUTHOR]

This research investigates how travel goal activates judgmental heuristics when choosing a travel package. Family travelers must consider the complex needs of all family members, whereas couples face simpler demands. Since motivations vary according to traveling companions, the decision-making processes are different by the travel goal. Pricing is a determinant of decisions for travel packages bundled with add-on items. When the decision process requires less mental effort, the availability heuristic operates when filtering products by travel goal, and the representativeness heuristic works when seeking consistency between add-on items and the travel goal. Dual processing theories suggest that goal influences the motivation to process information systematically or automatically when making choices. An experiment was conducted to examine how the decision-making process differs as a function of travel goal, price bundling, and the consistency between the travel goal and add-on item. The findings suggest that judgmental heuristics influence travel purchase decision when motivation to process information is low. Specifically, the current research supports the proposition that automatic processing influences couples' travel decisions while systematic processing works for family travel decisions. The research suggests the use of an effective segmentation for vacation packages in the online purchase environment and highlights the importance of a travel goal in decision-making. [ABSTRACT FROM AUTHOR]

Travel providers advertise low prices to attract customers, which can decrease willingness to pay through anchoring effects. Customers often approach purchases with a budget goal, which can influence price interpretation due to framing effects. Accommodation prices are typically displayed per night, whereas consumers may have a total trip budget in mind, leading to metric incompatibility. This research uses experimental methods to test the effects of price anchors, framing, and metric compatibility on willingness to pay for a Spring Break vacation. A high anchor increases willingness to pay compared to a low anchor, and consumers will pay more when exposed to an average price versus a range. Anchoring effects are reduced when the budget goal is incompatible with a high anchor but not a low anchor. The findings can be attributed to dual processing systems and asymmetry effects. The results yield practical guidelines for effective pricing strategies. [ABSTRACT FROM AUTHOR]

The relative use of an internal reference price (IRP) versus an external reference price (ERP) becomes an important issue in the travel and lodging contexts as the increased promotional activity by destinations and hotels is likely to be based on price-comparison advertisements. However, there is little guidance on how tourism and hospitality organizations can use pricing structure to influence reference price, which is cardinal to travelers’ evaluation of price acceptability. Thus, the current research examines how pricing characteristics of the lodging services shift travelers’ sensitivity to two different types of reference prices, and therefore, influence their price evaluations. Compared with IRP, our findings indicate that individuals are more sensitive to and affected by ERP. The results also demonstrate that information accessibility and perceived diagnosticity are key mechanisms that lead to the differential effect of IRP versus ERP on travelers’ price evaluations. Relevant managerial implications are drawn regarding price and promotion strategies. [ABSTRACT FROM AUTHOR]

Empirical research shows that customers form price evaluations by comparing the actual price with a reference price. The relative use of an internal reference price (IRP) versus an external reference price (ERP) is an important issue in the lodging industry due to the popularity of price-comparison–based advertising. Although prior literature shows that demographic factors influence the relative use of IRP and ERP, the impact of gender on the relationship between reference prices and price evaluations has received scant attention in both hospitality and marketing contexts. Drawing on the agency-communal theory, the current research examines the effect of gender on the use of IRP and ERP in price evaluations. The findings indicate that males are more susceptible to IRP than to ERP, whereas females are only influenced by ERP. Relevant managerial implications are drawn in terms of pricing and promotional strategies. [ABSTRACT FROM AUTHOR]

Although consumer research has extensively examined the effect of product assortment on consumption choices, relatively little has been done on assortment pricing. To bridge that gap, we demonstrate that consumers react differently to assortments using parity versus differentiation pricing. Study 1, a field experiment, shows that the impact of assortment pricing on choice satisfaction is contingent on the level of uncertainty preference. For individuals with a low level of preference uncertainty, their choice satisfaction was significantly higher when all the menu items were priced at parity. Conversely, choice satisfaction was higher with varied pricing among people with high levels of preference uncertainty. In Study 2, we examine the moderating role of health consciousness on consumer reactions to parity versus differentiation pricing. The findings of Study 2 indicate that health consciousness influences consumer satisfaction with assortment pricing in a context of restaurant menus. Furthermore, findings from a moderated mediation analysis show that choice confidence is the psychological mechanism that underlies these effects. Taken together, these findings add to the relatively scant literature on assortment pricing. [ABSTRACT FROM AUTHOR]

Most hospitality services are delivered in the same location in which they are produced, and, thus, their delivery involves the presence of other customers. Yet, the role of other customers’ physical appearances in influencing service encounter evaluations has received scant attention. Moreover, previous research shows that consumers with a low sense of power are motivated to seek status by engaging in conspicuous consumption. The current study examines the joint impact of other customers’ dress styles and the observer’s sense of power in influencing customers’ approach behaviors (e.g., willingness to stay longer in a restaurant, interact with other customers). The results from our experiment show that customers’ approach behaviors among observers with a low sense of power were significantly higher when other customers’ dress styles were formal rather than informal. Conversely, the effect of other customers’ dress styles was minimal among observers with a high sense of power. Results from this study indicate that approach behaviors mediate the impact of other customers’ dress styles on word-of-mouth intentions among customers with a low sense of power. The findings of this study help hospitality operators use dress codes to their advantage. [ABSTRACT FROM AUTHOR]

Certain industry characteristics (for example, a relatively fixed capacity, varying and uncertain demand, and perishable inventories) are a prerequisite for a successful implementation of revenue management (RM) practices. Although movie theaters have these characteristics, they have failed to try RM as a pricing strategy. The current study examines the joint impact of five potential RM practices (that is, rate fences) and framing effects (surcharge versus discount) on consumers' price fairness perceptions. Several rate fences (morning-versus-noon, weekday-versus-weekend and time-of-booking-based pricing) received relatively high fairness ratings, whereas location-based and popularity-based pricing were perceived as less fair. In addition, framing ticket prices as a discount rather than a surcharge significantly improved customers' price fairness perceptions. The findings of this study provide guidance for movie theater operators in their pursuit of optimal pricing. [ABSTRACT FROM AUTHOR]

A study of 124 consumers found distinct differences in the consumers’ responses to a policy once used by Orbitz, in which prices were determined according to the computer platform used to search for bookings. The policy arose when Orbitz noticed that Macintosh users were generally willing to accept higher prices than PC users. This observation was converted into a price discrimination mechanism. The study found that Mac users took a dim ethical view of this rate fence and, moreover, indicated that they were less willing to use Orbitz as a result. Men and women in the study reacted differently from each other, however. Men expressed more outrage when they were Mac users, while women were more likely to consistently view this form of price discrimination as unreasonable and of questionable ethics. Since the hospitality industry uses many price discrimination rules, two implications of this study are choose rate fences carefully and consider explaining the rationale for any price discrimination policies. [ABSTRACT FROM PUBLISHER]

Purpose – The use of price-based promotions is common in the service industry due to their positive impact on sales in the short run. To gain a better understanding of the effectiveness of various types of promotions, the current research aims to examine the contrasting effect of two popular framing methods (i.e. percentage-off versus dollars-off) on consumers' perceived savings and willingness to buy. More importantly, this research examines the moderating effect of personal sense of power on such relationships. Design/methodology/approach – The study used 2×2 between subjects quasi-experimental design to test the hypotheses. Respondents were asked to read a scenario regarding booking a hotel room and then complete scales that measured their perceptions of savings and willingness to book. Findings – Results indicate that personal sense of power moderates the effects of the promotion frame on perceived savings and willingness to book. Individuals with a low sense of power perceive significantly more savings and exhibit significantly higher booking intentions when the promotion is framed in dollars-off rather than in percentage-off format. The framing manipulation, however, had minimal effects among high power individuals. In addition, the authors find that confidence in estimating the promoted price is the psychological mechanism that potentially explains the casual link from power to perceived savings and willingness to book. Originality/value – Drawing on the social psychology theory, the current study discovered some boundary conditions for the framing effect in the context of pricing of services. In addition, the current research advances the theoretical understanding of power's psychological and behavioural effects in the context of price promotions. [ABSTRACT FROM AUTHOR]