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Consumers' reaction to fair trade motivated price increases

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DOI: 10.1016/j.jretconser.2015.02.005

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 Journal of Retailing and Consumer Services 24 (2015) 79–84

Contents lists available at ScienceDirect

Journal of Retailing and Consumer Services

journal homepage: www.elsevier.com/locate/jretconser

Consumers' reaction to fair trade motivated price increases

Colin L. Campbell a, Daniel Heinrich b,n, Verena Schoenmüller c,1
a
Department of Marketing and Entrepreneurship, College of Business Administration, Kent State University, USA
b
Department of Services Management, Technische Universität Braunschweig, Mühlenpfordtstr. 23, 38106 Braunschweig, Germany
c
Department of Marketing and Management, University of Basel, Peter Merian-Weg 6, 4002 Basel, Switzerland

art ic l e i nf o a b s t r a c t

Article history: Consumer perception of price increases and their reactions are a topic of great relevance for marketing
Received 8 December 2014 research and practice. We investigate consumers' acceptance of price increases justified by higher costs
Received in revised form due to company's corporate socially responsible activities by conducting two experimental studies. In the
9 February 2015
first study we examine perceived fairness and intentions following a price increase justified by a fair
Accepted 9 February 2015
trade commitment. To assess the green attitude–behavior gap in consumer behavior our second study
Available online 20 February 2015
incorporates a real world experiment to explore actual consumer behavior against stated intentions. Our
Keywords: investigation adds nuance to our understanding of the effects of corporate social responsibility on
Price fairness consumer response to price increases. Our results reveal that a price increase due to a fair trade com-
Price increase
mitment is perceived as fair and does not have a negative impact on purchase behavior. We contrast our
Fair trade commitment
findings with a price increase due to higher taxes and due to profit increase. Our results demonstrate that
Attitude–behavior gap
Corporate social responsibility fair trade justified price increases can skim twice the amount compared to tax justified increases. Fur-
Experiment thermore, consumers' actual buying behavior reveals no difference to their stated intentions. Hence,
prior research proclaiming an attitude–behavior gap in the context of consumers' socially responsible
buying behavior has to be called into question.
& 2015 Elsevier Ltd. All rights reserved.

1. Introduction
Price increases have always been a very sensitive topic for
companies out of fear of negative consumer reaction (Herrmann
et al., 2004). Research identifies the perceived fairness of a price
increase as an important psychological factor influencing con-
sumer judgment of higher prices (Kahneman et al., 1986a, 1986b)
and consequently their actual behavior (Dickson and Kalapurakal,
1994). Research demonstrates that consumers who evaluate a
price increase as unfair are generally unwilling to pay the increase,
potentially leading to a direct negative effect on a company's
profits (Campbell, 1999a). Moreover, perceived unfairness of a
price increase can lead to consumer boycotts, lower levels of sa-
tisfaction, higher switching intentions, and other negative con-
sumer reactions, like negative word-of-mouth, to name a few
(Goldman, 1994; Kaufmann et al., 1991; Oliver and Swan, 1989; Xia
et al., 2004).
There are numerous reasons why a company might increase
prices. Often a firm is confronted with higher costs or taxes and
n
Corresponding author. Fax: þ 49 531 391 63112.
E-mail addresses: ccampb51@kent.edu (C.L. Campbell),
d.heinrich@tu-bs.de (D. Heinrich),
verena.schoenmueller@unibas.ch (V. Schoenmüller).
1
Fax: þ 41 61 267 28 38.
the question whether they can pass these higher costs through to
the consumers by raising prices. Relatively new costs companies
are confronted with are those related to corporate social respon-
sibility (CSR) (McWilliams and Siegel, 2001). However, consumers
are increasingly demanding companies to pay attention to CSR
related issues such as the environment or the fair trade and pro-
duction of their products (Hira and Ferrie, 2006). At issue, though,
is whether consumers will accept higher prices associated with
corporate socially responsible activities like a fair trade commit-
ment. Beyond intentions, the more important concern is if con-
sumers will really pay more at the point of sale or if there will be a
difference between what they say to intend to do and what they
really do. Reflecting the prevalence of this issue, this separation
can be termed the attitude–behavior gap. Research exploring the
gap between consumers' attitudes and actual behavior has been in
focus of previous research (e.g., Padel and Foster, 2005, Vermeir
and Verbeke 2006).
In this study we research consumer reaction to a price increase
under different justification scenarios. As fair trade commitment is
a widely discussed topic in the field of corporate social responsi-
bility (de Pelsmacker et al., 2006), we choose the introduction of a
fair trade scheme by a company as a test condition in the present
study. In addition, we use increasing taxes for comparison. Using
different scenarios (fair trade commitment and tax increase) we
examine consumers' perception and intentions following a price

http://dx.doi.org/10.1016/j.jretconser.2015.02.005
0969-6989/& 2015 Elsevier Ltd. All rights reserved.
80 C.L. Campbell et al. / Journal of Retailing and Consumer Services 24 (2015) 79–84
increase in the context of consumers' everyday consumption good:
coffee. Moreover, we investigate actual purchase behavior of par-
ticipants in a field experiment. This allows exploration of differ-
ences between the stated intentions of the consumers and their
actual behavior and thus sheds light on a potential attitude–be-
havior gap. We contribute by offering novel insight into whether
perceptions of price fairness and corresponding intentions trans-
late into actual behavior.
2. Conceptual framework and hypotheses
2.1. Perceived fairness of price increases
Fairness in general can be described as the consumers' judg-
ment of whether an outcome and/or the process to reach an
outcome are reasonable, acceptable or just (Bolton et al., 2003).
Studies exploring the acceptance and the impact of price increases
on consumer behavior are predominantly embedded in the con-
cept of price fairness (Campbell, 1999b; Kahneman et al., 1986a,
1986b). Consumer perception of price fairness is defined as the
subjective feeling of whether a price is fair, legitimate or right
versus unfair, illegitimate or unjust (Campbell, 2007). Conse-
quently, perceived fairness of a price increase has a strong influ-
ence on consumer reaction (Etzioni, 1988). Existing research offers
first insight into consumer perception of price increases.
The dual entitlement principle describes fairness perceptions
by drawing on the concept of reference transactions (Kahneman
et al., 1986a, 1986b). Consumers are shown to perceive having an
entitlement to a reference price and companies, in turn, are en-
titled to reference profits (Haws and Bearden, 2006). Hence, a firm
is not allowed to increase prices, thus violating consumer enti-
tlement to the reference price, simply to increase profits (Herr-
mann et al., 2007). If, however, the reference profit of a company is
threatened, the firm may increase prices enough to protect its
profit, even if this increase comes at the expense of consumers
(Vaidyanathan and Aggarwal, 2003). The dual entitlement princi-
ple thus predicts consumers will better receive a profit main-
tenance-based rationale for a price increase than a rationale driven
by a desire for increased profits (Kahneman et al., 1986a).
Attribution theory provides understanding of fairness percep-
tions in the absence of otherwise identified causes. Attribution
theory research finds that consumers are likely to search for causal
explanations for events that are surprising and/or negative such as
an unexpected increase in price (Folkes, 1988; Weiner, 1985). In
the absence of alternative information, consumers often infer a
negative motive for an unjustified price increase (Kalapurakal
et al., 1991; Martin et al., 2009; Urbany et al., 1989). According to
the dual entitlement principle this leads to lower perceived fair-
ness for an increase in price than if the company can provide a
justification such as rising costs (Bies and Shapiro, 1988; Franciosi
et al., 1995; Kachelmeier et al., 1991; Urbany et al., 1989). In the
absence of an explanation, consumers are prone to infer a nega-
tive, profit-driven motive for a firm's price increase, negatively
impacting perceived price fairness. Stated formally, we predict:
H1. A price increase justified by an explanation will lead to higher
perceived fairness of a price increase than an increase without any
given justification by the company.
In addition to perceived motive, research shows that the nature
of a justification has an impact on perceived price fairness. Higher
costs can stem from numerous different reasons, ranging from
those that improve the product or service being offered to those
that have little impact. Increased taxes represent an example of a
justification that does not change the product or service being
consumed, but does offer a negative, albeit justifiable rationale for
a price increase. The intention of such a price increase is to
maintain companies' profits due to higher taxes they have to pay.
Hence, consumers will evaluate the price increase as fair on the
one hand but are also aware the fact that they are not gaining
anything with these higher prices. In contrast, adoption of fair
trade sourcing policies represents a more positive and benevolent
motive for a price increase compared to the first scenario, which is
expected to have a positive impact on consumers' fairness eva-
luations (Campbell, 1999a). Moreover, it is reasonable to assume
fair trade sourcing generates an additional ethical benefit for
consumers by providing a feeling of charity by supporting de-
prived producers in the third world. Applied to the present study,
these considerations lead to the formulation of the following
hypothesis:
H2. A price increase justified by higher costs due to fair trade
commitment will lead to higher perceived fairness of a price in-
crease than an increase attributed to higher taxes.
Prior studies find that the perceived fairness of a price increase
has an effect on attitude towards the company as well as on
consumers' repurchase intention following a price increase
(Campbell, 1999a; Homburg et al. 2005). Hence, we develop the
following hypotheses relating to the consequences of a price
increase.
2.2. Attitude toward the company
A reasonable consequence companies do fear following a price
increase is the negative impact of a price increase on consumer
attitudes. Research demonstrates a positive impact of perceived
price fairness on attitude towards the company (Maxwell, 2002).
This implies higher perceived price fairness of a price increase
maintains a more positive attitude towards the company. Studies
within the field of corporate social responsibility identify a general
positive influence of the social commitment of a company on
consumers' attitude towards this company (Sen and Bhattacharya,
2001). As fair trade commitment is one manifestation of corporate
social responsibility, this relationship is expected to be significant
in this context (de Pelsmacker et al., 2006). Integrating these
findings, those justifications that elicit higher levels of perceived
price fairness should be associated with more positive attitudes
towards the company. As such, we expect:
H3. Attitudes towards the company will be highest in the fair
trade commitment justification, followed next by the tax justifi-
cation, and with no justification expecting the lowest attitudes.
2.3. Repurchase intention
Repurchase intention is another critical factor when a company
decides to increase prices and is defined as the voluntary choice of
a consumer to buy the product again. Research often explores the
repurchase intention of consumers following a price increase
(Homburg et al. 2005). Past research demonstrates greater per-
ceived fairness of a motive for a price increase that is associated
with higher repurchase intention (Campbell, 1999a). A justification
of a price increase due to growing costs (either due to a tax or due
to a fair trade commitment) for the company provides a positive
motive for the consumer compared to an increase without any
justification as consumers will assume a company's intention to
raise profits (Urbany et al., 1989). As a commitment to fair trade
sourcing is seen as a positive motive consumers should regard
such a price increase as fair. Again it can be also assumed that the
fair trade attribute can generate an additional benefit for the
consumer by giving them the feeling of contributing to a good
 C.L. Campbell et al. / Journal of Retailing and Consumer Services 24 (2015) 79–84 81

cause. Hence we propose:

H4. Repurchase intention will be highest in the fair trade com-

mitment justification, followed next by the tax justification, and
with no justification expecting the lowest repurchase intention.

3. Study 1: Perceived price fairness and its consequences

3.1. Methodology and procedure

Study 1 adopted a between-subjects design testing four dif-

ferent justifications for a price increase (respective our experi-
mental groups) employing an online experiment. To manipulate
the independent variable (justification for the price increase) four
scenarios (S1–S4) were used, in line with prior research on per-
ception of price fairness (Bolton et al., 2003; Bolton et al., 2010;
Gielissen et al., 2008; Homburg et al. 2005). In total, 512 partici-
pants were randomly assigned to one of the four different sce-
narios. In each condition a participant was informed that a local
coffee shop was raising prices and given one of four scenarios: a
20-cent price increase without any justification given (S1); a 20-
cent price increase justified by an increase in taxes on coffee beans
(S2); a 20-cent increase due to the coffee shop switching to now
use fair trade coffee beans (S3); or a fourth scenario featuring the
same rationale of switching to fair trade coffee, but with a 40-cent
price increase (S4).
Coffee was selected as it is one of the most important fair trade
consumer products (Raynolds, 2002) and is supported by growing
academic literature on coffee markets and the fair trade concept
(Hudson and Hudson, 2003; Raynolds, 2002; Renard, 2003; Tal-
lontire, 2002). Participants were asked to carefully read through
the scenario they were given. They were asked to imagine they
were in their regular coffee shop and that the store had raised the
price of a café latte by either 20- or 40-cent - depending on the
scenario they were assigned to. A pre-test confirmed that a 20-
cent increase represented a significant change in price to con-
sumers, representing an approximately 10% increase on the aver-
age price of café lattes in the area. Participants then completed
questions concerning perceived price fairness, attitude towards
the company, and repurchase intention. Moreover, manipulation
checks were included to test the perceived benefit of the company
as well as perception of the goodness of the firm's motive, ranging
from “good motive” to “bad motive”. In all conditions results of
manipulation checks were as expected (please see Figs. 1 and 2).
Our sample consisted of 57.8% females with an average age of
29.7 years. 63.7% of participants were students, reflecting our re-
cruitment of participants via leaflets and emails mainly within a
university environment.
Fig. 2. Mean values for manipulation check perceived company benefit, Study 1.
3.2. Measures
Perceived price fairness was captured with four items adapted
from Campbell (1999a) and Grewal et al. (2004) and measured
using Likert scales (α ¼.888). Participants indicated their agree-
ment with the following statements about the price increase:
“How fair is the price of the café latte?” (1 ¼ “very unfair” through
7 ¼“very fair”); “It is acceptable that the price for café latte in-
creased” (1 ¼“strongly disagree” to 7 ¼ “strongly agree”); “The new
price that you were charged represents a fair price” (1 ¼“strongly
disagree” to 7¼ “strongly agree”); “The price increase is unfair”
(1 ¼“strongly disagree” to 7 ¼“strongly agree”).
We also measured re-purchase intention using three items
(α ¼.948) based on the measures from Sirohi et al. (1998): “It is
most likely that I buy café latte at this coffee shop again”, “It is my
intention to stay loyal to this coffee shop” and “I plan to continue
buying café latte at this shop”, all measured using Likert scales
anchored with 1 ¼“totally disagree” and 7 ¼“totally agree”.
Participants were also asked to rate their attitude towards the
coffee shop using a five-item Likert scale adapted from prior re-
search (Boulding and Kirmani, 1993; Lafferty et al., 2002)
(α ¼.947): “How does the action/price increase influence your at-
titude toward the coffee shop?” (anchored with 1 ¼“negative” to
7 ¼“positive”, and 1 ¼ “bad” to 7 ¼“good”, as well as 1 ¼“not reli-
able” to 7 ¼”reliable”). Moreover, attitude towards the company
was measured by asking about the trustworthiness (1 ¼“not
trustworthy” to 7 ¼“trustworthy” and “I like the product”) (Pe-
terson et al., 1992).
In addition to computing Cronbach's alpha for each scale,
construct validity was analyzed (see Table 1) using exploratory
factor analysis (Gerbing and Anderson, 1988), and discriminant
validity of the constructs was assessed and confirmed with the
help of the test recommended by Fornell and Larcker (1981).
3.3. Results
3.3.1. Perceived price fairness
We examined participants' evaluation of whether the price

Table 1
Construct measurement and evaluation.

Construct Items Cronbach's α Factor Explained Factor

loadings variance reliability

Perceived 4 .888 .78  .85 .749 .888

price
fairness
Attitude to- 5 .947 .81  .94 .833 .970
wards the
company
Repurchase 3 .948 .86  .96 .906 .949
intention
Fig. 1. Mean values for manipulation check goodness of the firm's motive, Study 1.
82 C.L. Campbell et al. / Journal of Retailing and Consumer Services 24 (2015) 79–84
Fig. 3. Mean values of dependent variable perceived price fairness, Study 1. Notes:
An ANOVA performed on perceived price fairness revealed a main effect of the four
treatment groups (S1–S4) F(3, 512) ¼ 44.79, p o .001. Significant differences (p o .05)
exist between all pairings except S3 and S4, which are not significantly different
(p4 .05).
Fig. 4. Mean values of dependent variable attitude toward the company, Study 1.
Notes: An ANOVA performed on participants' attitude toward the company re-
vealed a main effect of justification scenarios F(3, 512) ¼82.82, p o .001. Significant
differences (p o .05) exist between all pairings except S3 and S4, which are not
significantly different (p 4.05).
increase of the café latte was perceived as fair or not. An ANOVA
performed on perceived price fairness revealed a main effect of the
four treatment groups (S1–S4) F(3, 512) ¼44.79, p o.001. Follow up
post-hoc tests shed light on this effect, finding significant differ-
ences (p o.05) between all conditions except for the case of con-
ditions S3 (20-cent) and S4 (40-cent) were not significantly dif-
ferent (p 4.05). Perceived price fairness was significantly lower
within experimental groups S1 (M ¼3.98) than in S2 (M¼4.30), and
between each of S1 and S2 with both S3 (M ¼5.29) and S4
(M ¼5.21), the two conditions where price increases were justified
by a fair trade commitment. Cell means for the dependent variable
are reported in Fig. 3.
3.3.2. Attitude toward the company
An ANOVA on participants' attitude toward the company re-
vealed a main effect of the justification scenarios F(3, 512) ¼82.82,
p o.001. In detail, attitude toward the company was lower
amongst those assigned to scenarios S1 (no justification, M¼ 3.67)
than in S2 (tax justification, M¼ 3.91), as well as between S1 and S2
compared to both fair trade scenarios S3 (20-cent, M ¼5.05) and S4
(40-cent, M¼ 5.06), all multiple comparisons p o.05. Similar to the
first ANOVA, attitude toward the company was not significantly
different between the fair trade scenarios S3 and S4, p 4.05. Cell
means for the dependent variable are reported in Fig. 4.
3.3.3. Repurchase intention
An ANOVA with participants' repurchase intention as the de-
pendent variable uncovered a significant main effect of the sce-
nario participants were exposed F(3, 512) ¼18.89, p o.001. In
condition S1 with no justification (M¼ 4.50) and condition S2 with
Fig. 5. Mean values of dependent variable repurchase intention, Study 1. Notes: An
ANOVA performed on participants' repurchase intention revealed a main effect of
the four treatment groups (S1–S4) F(3, 512) ¼ 18.89, p o.001. Significant differences
(p o .05) exist between S1 and both S3 and S4, as well as between S2 and both S3 and
S4. Mean values of S3 and S4, are not significantly different (p 4.05).
tax as a justification for the price increase given (M¼ 4.78), parti-
cipants' reported a lower repurchase intention compared to both
fair trade conditions S3 (M ¼5.49) and S4 (M ¼5.51) (see Fig. 4).
However, post-hoc testing shows no significant differences be-
tween conditions S1 and S2 as well as between both fair trade
scenarios S3 and S4 (p4 .05). Cell means for all the dependent
variables are reported in Fig. 5.
3.4. Discussion
Study 1 demonstrates that the rationale provided for a price
increase impacts evaluation of perceived price fairness, attitude
toward the company, and repurchase intentions. Our results in-
dicate companies can influence consumers' evaluations through
their justifications for a price increase. Justification based on a tax
increase was effective, as compared to no justification, in ameli-
orating the negative aspects of the increase. However, price in-
creases justified by a fair trade commitment were evaluated far
more positively even compared to the tax increase justification.
Hence, shifting the responsibility for a price increase to a third
party—in our case a tax increase—resulted in only a minimal, albeit
significant, change in evaluations. In contrast, justification based
on a fair trade rationale was identified with yielded superior
outcomes on all tested constructs. In addition, since there was not
a significant difference between the 20- and 40-cent fair trade
increase conditions, a fair trade commitment potentially allows
companies to charge a higher price.
4. Study 2: The green attitude–behavior gap in the spotlight
4.1. Conceptual background and hypothesis
Research finds that consumers generally hold positive attitudes
toward fair trade products and express a willingness to pay a
premium for products that are produced under such conditions
(de Pelsmacker et al., 2005, 2006; Loureiro et al.,. 2002; Loureiro
and Lotade, 2005; Maietta, 2003). Various models of ethical con-
sumption behavior point to consumer perceptions and attitudes
impacting behavior (Ferrell and Gresham, 1985; Shaw and Clarke,
1999; Vitell et al., 2001). Yet it has been demonstrated that con-
sumers' attitudes do not always translate into actual purchase
behavior (Chang, 2011; Cobb-Walgren et al. 1995), an effect most
notable in social marketing (Grail Research 2009; Shaw and Clarke,
1999). The phenomenon of fair trade products falling short of
stated intentions has become known as the attitude–behavior gap
(Castaldo et al., 2009). Cost has been widely discussed as one
possible reason for this gap between stated intentions and actual
 C.L. Campbell et al. / Journal of Retailing and Consumer Services 24 (2015) 79–84
behavior (de Pelsmacker et al., 2005). We thus expect to see this
effect in the context of our present study, with actual consumer
behavior falling short of stated intentions. Stated formally:
H5. According to the attitude–behavior gap, the majority of con-
sumers who indicated a willingness to purchase fair trade coffee
will not actually purchase fair trade coffee when presented with
the opportunity.
4.2. Study design
In our second study we investigate the actual purchase beha-
vior of participants who already participated in our first study. We
worked in conjunction with a local coffee shop to set up a five-
week period during which a fair trade café latte of the same brand
as usual would be offered. Throughout the period, all consumers
(not just original participants of the study) purchasing a café latte
were asked whether they wanted to buy the conventional café
latte or a café latte made of fair trade beans. In line with our earlier
results indicating no significant difference between the 20- and
40-cent conditions—and to orient any possible bias against our
expected results—we elected to set the price of the fair trade café
latte at 40 cents above the price of a conventional one. This re-
presented a 22% increase in the price of a café latte, raising it from
1.80 to 2.20. Consistent with the left-digit effect (Thomas and
Morwitz, 2005) and study 1, a pre-test confirmed the higher price
was evaluated as significantly different (higher) compared to the
previous price.
To control for possible confounds the fair trade coffee beans
were provided by the same company/brand that also produced the
conventional beans. Price boards in the coffee shop solely high-
lighted that the new café lattes were fair trade and would cost 40
cents more compared to the conventional latte. In conjunction
with the coffee shop, we were able to track the actual purchase
decisions of participants from our first study. In order to reduce
any possible contamination due to cognitive consistency on the
part of participants, study 2 was conducted after the summer
break, six weeks following study 1. Throughout the five-week
period a total of 52 people who participated in study 1 purchased
a café latte at this coffee shop, representing a 10% engagement
rate.
4.3. Results
Of the 52 participants, 24 opted to buy a conventional café
latte, while 28 opted to buy a fair trade version at an additional
cost of 40 cents. We assessed the consistency of each group by
comparing their stated purchase intentions (from study 1) with
their actual behavior (as revealed in study 2). Of the 24 who opted
to buy a conventional latte, 20 had indicated that they would do
so, representing an 83% attitude–behavior consistency rate. Of the
28 who chose the fair trade latte, 27 had indicated they would,
representing a 96% attitude–behavior consistency rate, and thus
disproving hypothesis 5. Together, the behavior of 47 of the 52
participants was consistent with their stated purchase intentions,
representing a 90% consistency rate and thus not providing sup-
port for the hypothesized attitude–behavior gap (see H5).
5. Conclusion
Results show that a price increase justified by the introduction
of fair trade sourcing is perceived as fair and does not negatively
influence attitude towards the company or repurchase intention.
Our findings point to the introduction of fair trade sourcing as an
acceptable reason to increase the price of the product, confirming
83
the assumption that corporate social responsibility can foster
customer acceptance—particularly in behavioral terms—of price
increases (Dean, 2004). Additional investments in social commit-
ment might therefore be considered as a way of justifying price
increases. Consumer acceptance of price increases justified by fair
trade sourcing seems to stem from a feeling of contributing to
something good, consistent with the ‘warm glow’ effect (Winter-
ich and Barone, 2011). Evidence across our findings shows a con-
sistent relationship between perceived price fairness, repurchase
intentions, and attitude towards the company.
In addition, the most interesting finding of this study is the
disconfirmation of the attitude–behavior gap. Our field study re-
sults, based on tracking of actual purchase behavior, show that
those consumers who state a willingness to pay more for fair trade
coffee overwhelmingly purchase fair trade when given an oppor-
tunity. An important limitation of our study, however, is the pro-
duct category and price level investigated. It is possible that dif-
ferent products and different price differentials might affect con-
sumer decisions. Likewise, even in the absence of awareness of the
tracking of their decisions, participants might have felt some
pressure to accept the fair trade option due to perceived social
pressure from either the barista taking the order or other con-
sumers in the vicinity. Exploration of this and other possible
moderators would help to enrich understanding of this emerging
area of interest.
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