Personalisation through pricing co-creation: Customer’s willingness to pay and pricing strategies in the B2C context of hospitality.

Abstract

In the era of connectivity, personalisation is an increasingly popular phenomenon in the marketplace. Modern customers are more demanding with higher barging power. The evolution towards customer-dominant logic (CDL) illuminates the transmission of value-creating roles to customers beyond visible service interaction. While the advantages of personalising the products and services are evident, a level of ambiguity persists when considering the tacit dimension of a transaction, specifically concerning pricing. The marketing and revenue management literature suggests a linear relationship between personalisation and willingness to pay (WTP). WTP is context-dependent, and further exploring the influence of personalisation benefits on customer WTP is needed. This study aims to explore how customer expectation of personalisation affects WTP in the hospitality industry, using CDL as the theoretical lens. A pragmatism stance guides the methodological design using mixed methods and leans toward the abductive approach as the central concept that derives from existing knowledge. The employed method includes two rounds of data collection: 43 semi-structured in-depth interviews and 202 online self-administrated surveys. The interpretive qualitative analysis identifies six distinctive customer types, namely: Budget Adventures, Family Explorers, Relaxation Seekers, Relation Seekers, Delight Seekers, and Must-Have Customers. Findings suggest consumers are keen to receive personalised offers, but their WTP varies. The findings from the quantitative analysis indicate that the personalisation and customer WTP relationship is not linear. WTP largely depends on the customer’s internal and external context. The study illustrates that specific context influences WTP, customer purchase behaviour, and personalisation expectations. The theoretical contribution is made to the knowledge of marketing and revenue management through CDL by advancing the understanding of experience co-creation, segmentation, and pricing. As a contribution to knowledge and practice, the study offers a novel customer typology and explains the relationship between expectations of personalisation and customer WTP. The strength of this work lies in tangible recommendations for practitioners that should lead managers and decision-makers to concentrate more on different customer clusters at different times to develop effective pricing strategies. Findings can also help managers decide what type of personalisation may best suit their customers’ context and what pricing approach they should take to optimise revenue. The findings can apply widely to other services, like airline, retail, banking, insurance, transportation, logistics, rail, or events. The avenues for future research conclude the thesis.