From consumer satisfaction to repurchase intention: The role of price tolerance in a competitive service market

This paper examines the relationships between consumer satisfaction, price tolerance and repurchase intention. In the literature, relevant studies focus much more on price increase tolerance (i.e. the extent to which price can be increased before satisfied consumers switch away) than on price decrease tolerance (i.e. the extent to which price should be decreased to keep dissatisfied consumers). It is argued, however, that the much neglected price decrease tolerance is equally and sometimes more influential in converting consumer satisfaction/dissatisfaction into repurchase intention, especially in competitive service markets where the 'next-best' is readily available. We therefore investigate the following two questions in the paper: (1) what is the relationship between consumer satisfaction and price increase/decrease tolerance when the market is highly competitive? and (2) does price increase/decrease tolerance mediate the relationship between consumer satisfaction and repurchase intention? Using a mediation model and survey data based on the Hong Kong Consumer Satisfaction Index (HKCSI), our findings show that satisfied consumers may not necessarily be willing to accept an increased price for competitive services while less satisfied consumers certainly demand some price discounts. Nevertheless, as it costs less for firms to keep satisfied consumers through service improvements than to attract the less satisfied through price cuts, consumer satisfaction endeavours do pay off in enhancing consumer loyalty and hence firm profitability.