Ethical pricing in consumer behavior illustration.

Benevolent Price Discrimination: Does Doing Good Hurt Your Bottom Line?

Samir D’Costa in Business & Economy July 2025 • 4 min read.

"Uncover how altruistic pricing impacts consumer behavior and whether businesses can balance social responsibility with profitability."

In today's economy, businesses are increasingly aware of their social responsibility. One way this manifests is through "benevolent price discrimination" (BPD) – offering lower prices to disadvantaged groups. While it sounds like a win-win, the reality is complex. New research digs into how consumers react to this pricing strategy, revealing some unexpected challenges and potential benefits.

The concept of BPD aims to address inequality by making goods and services more accessible to those who might otherwise be priced out. Think of student discounts, senior citizen rates, or programs like Amazon's SNAP discount. The intention is noble: improve equity without negatively impacting other consumers. But does it work in practice?

A recent study, "Consumer Behavior under Benevolent Price Discrimination," explores this very question. Through a series of experiments, researchers examined how consumers respond when a store offers discounts specifically to low-income individuals. The findings challenge some common assumptions about fairness, altruism, and consumer behavior.

The Unexpected Downside: Why Some Consumers Reject Benevolent Discounts

Ethical pricing in consumer behavior illustration.

The research reveals a significant hurdle: many consumers exhibit an aversion to BPD, even when it doesn't directly cost them more. In fact, a notable percentage are willing to switch to a different store, incurring extra costs, simply to avoid supporting a business that offers targeted discounts.

Why this seemingly irrational behavior? The study suggests it's rooted in a sense of unfairness. Even if high-income consumers aren't paying more, the mere fact that others are paying less can trigger negative reactions. It challenges the common perception of equal treatment and can lead consumers to feel devalued or overlooked.

Peer Comparison: Consumers often evaluate prices based on what their peers are paying. When prices differ, it can be perceived as unfair, particularly if the reasons aren't clearly justified.
Loss Aversion: Even though high-income consumers don't experience a financial loss, they may feel a sense of relative loss compared to those receiving the discount.
Fairness Perceptions: Consumers may believe that everyone should pay the same price for the same product, regardless of their financial situation. Deviations from this norm can be viewed as unjust.

The study also examined whether highlighting the reasons behind income inequality or emphasizing the benevolent nature of BPD could mitigate these negative reactions. Surprisingly, these efforts had little impact. Consumers remained resistant to the idea of differential pricing, even when presented with compelling justifications.

The Future of Benevolent Pricing: Finding a Path Forward

The study offers valuable insights for businesses considering BPD strategies. While consumer aversion is a real challenge, it's not insurmountable. The key lies in understanding the underlying motivations and finding ways to address the perceived unfairness. Here are some potential approaches:

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2404.03581,

Title: Consumer Behavior Under Benevolent Price Discrimination

Subject: econ.gn q-fin.ec

Authors: Alexander Erlei, Mattheus Brenig, Nils Engelbrecht

Published: 04-04-2024

Everything You Need To Know

What is Benevolent Price Discrimination (BPD) and how does it work?

Benevolent Price Discrimination (BPD) is a pricing strategy where businesses offer lower prices to disadvantaged groups. The goal is to make goods and services more accessible to those who might otherwise be priced out, thereby addressing inequality. Examples of BPD include student discounts, senior citizen rates, and programs like Amazon's SNAP discount. The core idea is to provide equitable access without negatively impacting other consumers. However, studies show consumers' reactions to BPD can be complex.

Why do some consumers react negatively to Benevolent Price Discrimination, even when it doesn't affect their own costs?

Consumers may exhibit an aversion to Benevolent Price Discrimination rooted in a sense of unfairness. The study suggests that, even if high-income consumers aren't paying more, the mere fact that others are paying less can trigger negative reactions. Peer comparison, loss aversion, and fairness perceptions contribute to this. Peer comparison occurs when consumers evaluate prices based on what their peers are paying. Loss aversion means that high-income consumers may feel a sense of relative loss compared to those receiving the discount. Finally, consumers may believe that everyone should pay the same price for the same product, regardless of their financial situation.

How does peer comparison influence consumer reactions to BPD?

Peer comparison plays a significant role in shaping consumer reactions to Benevolent Price Discrimination. Consumers frequently evaluate prices based on what their peers are paying. When prices differ, it can be perceived as unfair, particularly if the reasons for the price difference aren't clearly justified. This is a fundamental aspect of how individuals assess value and fairness in market transactions. When some individuals are offered lower prices, those who don't receive the discount may feel slighted, leading to negative perceptions of the business offering BPD.

Can businesses mitigate negative consumer reactions to Benevolent Price Discrimination? If so, how?

While the study revealed that explicitly explaining the reasons for income inequality or emphasizing the benevolent nature of BPD had little impact on reducing consumer aversion, the findings suggest a key to addressing the perceived unfairness of Benevolent Price Discrimination. The study offers valuable insights for businesses considering BPD strategies, implying that understanding the underlying motivations and finding ways to address the perceived unfairness may help. Though the precise tactics aren't detailed in the provided text, the research implies that strategies that address the sense of unfairness are important to explore.

What are the potential challenges and benefits of implementing Benevolent Price Discrimination for businesses?

The potential challenges of implementing Benevolent Price Discrimination (BPD) include consumer aversion rooted in perceptions of unfairness, as highlighted by the study. Consumers may react negatively, potentially leading to a loss of business or damage to brand reputation. However, the benefits of BPD include enhanced social responsibility by making goods and services more accessible to disadvantaged groups, boosting market participation, and fostering a positive brand image. Businesses can position themselves as socially conscious, which resonates with an increasing number of consumers. The key is to balance these potentially conflicting factors and develop strategies that mitigate negative reactions while maximizing the benefits of BPD.