Wednesday, October 16, 2013

Why Do Discounts Backfire When You Make Consumers Wait?

Consumers like to reap the benefits of discounts immediately (not
later), according to a new study in the Journal of Consumer Research. Consumers enjoy discounted products much less if they have to wait for them.

“Price promotions are common in the marketplace. For consumers, these promotions translate into real economic savings, guide buying decisions, encourage trial of new products, and make consumers feel smart and good about themselves,” write authors Leonard Lee (Columbia University) and Claire I. Tsai (University of Toronto). But sometimes discounts backfire, especially if consumers need to wait to enjoy the product.
The authors examined how discounts influence pleasure-related consumption experiences. They found that discounts generally make consumers happier. But they also found that paying a lower price for a product reduces the need to justify the expenditure, which causes people to pay less attention during consumption, dampening enjoyment. The relative strength of these opposing forces depends on when the product is consumed after payment—right away or after a delay.
The authors conducted four experiments involving real spending and consumption, using a variety of products (chocolates, music, orange juice) and different durations of consumption delay. In one of the experiments, participants purchased one of two types of chocolate truffles at either the regular price of $1 or a discount of 50 cents. Half of the participants consumed the chocolate right away, and the other half waited for a week before consuming the chocolate. Consumers enjoyed the chocolate less when they had to wait a week.
“Our research provides new insight for better understanding the mixed effects of discounts on sales and loyalty, offering an explanation for why discounts may increase sales in the short run, but could have negative long-term effects on customer satisfaction and brand loyalty,” the authors conclude. 

How Do Consumers See a Product When They Hear Music?

Shoppers are more likely to buy a product from a different location when a pleasant sound coming from a particular direction draws attention to the item, according to a new study in the Journal of Consumer Research.
“Suppose that you are standing in a supermarket aisle, choosing between two packets of cookies, one placed nearer your right side and the other nearer your left. While you are deciding, you hear an in-store announcement from your left, about store closing hours,” write authors Hao Shen (Chinese University of Hong Kong) and Jaideep Sengupta (Hong Kong University of Science and Technology). “Will this announcement, which is quite irrelevant to the relative merits of the two packets of cookies, influence your decision?”
In the example above, most consumers would choose the cookies on the left because consumers find it easier to visually process a product when it is presented in the same spatial direction as the auditory signal, and people tend to like things they find easy to process.
In one lab study, consumers were asked to form an impression of pictures of two hotel rooms on a computer screen, one of which was at the right of the screen and the other at the left, while listening to a news bulletin from a speaker placed on either side. Consumers found it easier to process the picture of hotel room located in the direction of the news and also indicated a greater preference for that room. In another study, consumers were more likely to choose soft drinks from a vending machine that broadcast a local news bulletin.
But things get a little more complicated if the signal is one we wish to avoid, like an unpleasant noise. In that case, people first turn their attention to the unpleasant noise in order to decipher the signal. Then avoidance kicks in as they voluntarily turn their attention away from the unpleasant signal.
In another set of studies, consumers examined pictures of two restaurants while listening to either annoying or pleasant music that came from their left or right side. The music was played for either a very short time (20 seconds) or a relatively long one (1.5 minutes). “The predicted impairment effect was observed when the unpleasant music was played for a longer time—now, it was the picture in the direction away from the music that was preferred,” the authors conclude. 

VIP Loyalty Programs: Consumers Prefer Awards They Can Share

Consumers appreciate being able to share their perks with others, and will sacrifice exclusivity to do so, according to a new study in the Journal of Consumer Research.
“Companies spend billions of dollars each year on customer loyalty or VIP programs in an effort to reward loyal customers and make them feel both special and a sense of status,” write authors Brent McFerran (University of Michigan) and Jennifer J. Argo (University of Alberta). Many loyalty programs, like airline lounges, luxury boxes, and hotel rooms extend benefits to guests of the VIP, or “an entourage.”
“These entourage members have typically done nothing to earn the preferential treatment, and may potentially dilute the prestige of the services, because the perks are extended to people merely on the basis of who they know,” the authors explain. “In other words, entourage members receive undeserved perks, and these people make VIP rewards less scarce.”
The authors wondered whether extending the preferential treatment to the entourage dilutes the prestige of rewards programs. Across six studies, they found that loyalty program members value the ability to share an experience with their guests. Most surprisingly, they are willing to trade the scarce nature of preferential treatment in order to do so. For example, in one study, consumers imagined attending a dinner party with a political figure of their choice. The bigger the entourage, the more the feeling of status increased.
In another study, consumers were invited up to a luxury box during a professional football game. Those who had an entourage with them felt a higher degree of status. Finally, they showed that feelings of social connection underlie the effect. An entourage makes one feel socially connected, and these feelings of connectedness with others make consumers feel a sense of personal status.
“Scarcity and value are strongly linked. What we found most interesting was not just that people want to bring guests, but that they were willing to trade off scarcity of rewards in order to do so,” the authors write. “People are willing to trade rare rewards for more common ones, if they get to share these experiences with their friends.” 

Wednesday, October 2, 2013

People place higher value on what they’re waiting for; higher value makes them more patient

Let’s face it – no one likes to wait. We’re a culture of instant gratification. But what if the very act we dislike can actually help make us more patient and help us make better financial decisions?
According to a recent study by Ayelet Fishbach, Jeffrey Breakenridge Keller Professor of Behavioral Science and Marketing at the University of Chicago Booth School of Business, waiting actually does make people more patient, which can provide a payoff for consumers by helping them make better decisions.
Historically, research on patience has been approached by offering people the choice between a smaller reward sooner or a larger reward later. Given the choice between $10 now or $15 later, for instance, many people choose the $10 now, even though it makes them less well-off financially.
“People tend to value things more in the present and discount their worth in the future,” Fishbach says. “But my research suggests that making people wait to make a decision can improve their patience because the process of waiting makes the reward for waiting seem more valuable.”
Co-authored with former Chicago Booth postdoctoral fellow Xiani Dai, the study, titled “When Waiting to Choose Increases Patience,” was published in a recent edition of the Journal of Organizational Behavior and Human Decision Processes.
To test their hypothesis, the two researchers conducted a series of experiments in the U.S., mainland China and Hong Kong. In one study, the researchers invited participants to sign up to join a subject pool for online studies. In exchange for signing up, all participants were invited to enter one of two lotteries: one would pay out a $50 prize sooner; the other would pay out a $55 prize later.
The participants were divided into three groups, each having to wait a different amount of time before given their potential prize: the first group was told they could win $50 in three days or $55 in 23 days; the second could win $50 in 30 days or $55 in 50 days; and the third group was told they could win $50 in 30 days or $55 in 50 days, but they had to wait before choosing a potential reward.
Researchers contacted members of the third group 27 days later to ask for a decision, at which point the participants, like those in the first group, had to choose between waiting three days or 23 days to potentially receive a prize.
Fishbach and Dai found that in the first group only 31 percent of participants chose to wait for the larger reward. In the second group, that number rose to 56 percent. But among people in the third group, who had been waiting several weeks to make their choice, 86 percent chose to wait for the larger reward. Even though they were making the same choice as people in the first group ($50 in three days or $55 in 23 days), the fact that they had been waiting to choose increased their patience.
“When people wait, it makes them place a higher value on what they're waiting for, and that higher value makes them more patient,” Fishbach says. “They see more value in what they are waiting for because of a process psychologists call self-perception—we learn what we want and prefer by assessing our own behavior, much the same way we learn about others by observing how they behave.”