Know your customer
Managerial Empathy Facilitates Egocentric Predictions of Consumer Preferences
Johannes Hattula et al.
Journal of Marketing Research, forthcoming
Abstract:
Common wisdom suggests that managerial empathy (i.e., the mental process of taking a consumer perspective) helps executives to separate their personal consumption preferences from those of consumers, thereby preventing egocentric preference predictions. The results of the present investigation, however, show exactly the opposite. First, the authors find that managerial empathy ironically accelerates self-reference in predictions of consumer preferences. Second, managers' self-referential tendencies increase with empathy because taking a consumer perspective activates managers' private consumer identity and thus their personal consumption preferences. Third, empathic managers are less likely to use market research results as a consequence of their self-referential preference predictions. Finally, the findings imply that when explicitly instructed to do so, managers are capable of suppressing their private consumer identity in the process of perspective taking which helps them to reduce self-referential preference predictions. To support their conclusions, the authors present four empirical studies with 480 experienced marketing managers and show that incautiously taking the perspective of consumers causes self-referential decisions in four contexts: product development, communication management, pricing, and celebrity endorsement.
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Lower Buffet Prices Lead to Less Taste Satisfaction
David Just, Özge Sığırcı & Brian Wansink
Journal of Sensory Studies, October 2014, Pages 362–370
Abstract:
A field experiment was conducted to assess how diners' taste evaluations change based on how much they paid for an all-you-can-eat (AYCE) buffet. Diners at an AYCE restaurant were either charged $4 or $8 for an Italian lunch buffet. Their taste evaluation of each piece of pizza consumed was taken along with other measures of behavior and self-perceptions. Their ratings were analyzed using 2 × 3 mixed design analysis of variance (ANOVA). Diners who paid $4 for their buffet rated their initial piece of pizza as less tasty, less satisfactory and less enjoyable. A downward trend was exhibited for each of these measures with each additional piece (P = 0.02). Those who paid $8 did not experience the same decrement in taste, satisfaction and enjoyment. Paying less for an AYCE experience may face the unintended consequence of food that is both less enjoyable and rapidly declining in taste and enjoyability. In a sense, AYCE customers get what they pay for.
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Adrian Beck et al.
Journal of Economic Behavior & Organization, forthcoming
Abstract:
Credence goods, such as car repairs or medical services, are characterized by severe informational asymmetries between sellers and consumers, leading to fraud in the form of provision of insufficient service (undertreatment), provision of unnecessary service (overtreatment) and charging too much for a given service (overcharging). Recent experimental research involving a standard (student) subject pool has examined the influence of informational and market conditions on the type and level of fraud. We investigate whether professional car mechanics – as real sellers of credence goods – react in the same way to changes in informational and institutional constraints. While we find qualitatively similar effects in the fraud dimensions of undertreatment and overcharging for both subject pools, car mechanics are significantly more prone to supplying unnecessary services in all conditions, which could be a result of decision heuristics they learned in their professional training.
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Does Conflict of Interest Lead to Biased Coverage? Evidence from Movie Reviews
Stefano DellaVigna & Johannes Hermle
NBER Working Paper, November 2014
Abstract:
Media outlets are increasingly owned by conglomerates, inducing a conflict of interest: a media outlet can bias its coverage to benefit companies in the same group. We test for bias by examining movie reviews by media outlets owned by News Corp. — such as the Wall Street Journal — and by Time Warner — such as Time. We use a matching procedure based on reported preferences to disentangle bias due to conflict of interest from correlated tastes. We find no evidence of bias in the reviews for 20th Century Fox movies in the News Corp. outlets, nor for the reviews of Warner Bros. movies in the Time Warner outlets. We can reject even small effects, such as biasing the review by one extra star (out of four) every 13 movies. We test for differential bias when the return to bias is plausibly higher, examine bias by media outlet and by journalist, as well as editorial bias. We also consider bias by omission: whether the media at conflict of interest are more likely to review highly-rated movies by affiliated studios. In none of these dimensions do we find systematic evidence of bias. Lastly, we document that conflict of interest within a movie aggregator does not lead to bias either. We conclude that media reputation in this competitive industry acts as a powerful disciplining force.
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Hyojin Lee et al.
Journal of Consumer Research, December 2014, Pages 1015-1032
Abstract:
Marketing communications (e.g., advertising, packaging) can be either colorful or black and white. This research investigates how presence or absence of color affects consumer information processing. Drawing from construal-level and visual perception theory, five experiments test the hypothesis that black-and-white (BW) versus color imagery is cognitively associated with high-level versus low-level construal, respectively. Experiment 1 establishes this association via an Implicit Association Test. On the basis of this association, experiments 2 and 3 show that BW (vs. color) imagery promotes high-level (vs. low-level) construal, leading to sorting objects on the basis of high-level (vs. low-level) features, segmenting behaviors into broader (vs. narrower) units, and interpreting actions as ends (vs. means). Extending this effect into consumer decision making, experiments 4 and 5 further show that consumers presented with BW (vs. color) product pictures weight primary and essential (vs. secondary and superficial) product features more and prefer an option that excels on those features.
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Saim Kashmiri & Vijay Mahajan
Journal of Business Ethics, September 2014, Pages 81-99
Abstract:
The authors explore the relation between the way different family firms are named, and the shareholder value impact of these firms’ new product introductions. Using an event study of 1,294 product introduction announcements of 107 publicly listed U.S. family firms, the authors find that the presence of the founding family’s name as part of a family firm’s name acts as a valuable firm resource, increasing the abnormal stock returns surrounding the firm’s new product introductions. Superior returns to family-named firms’ new product introductions are partially mediated by these firms’ history of ethical product-related behavior: family-named firms, particularly those with corporate branding, and those wherein a founding family member holds the CEO or chairman position, are more likely to exhibit a history of avoiding such product-related controversies as product safety issues, and deceptive advertising. The authors highlight the managerial and theoretical contributions of this research.
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Why are Wal-Mart and Target Next-Door Neighbors?
Jenny Schuetz
Federal Reserve Working Paper, September 2014
Abstract:
One of the most notable changes in the U.S. retail market over the past twenty years has been the rise of Big Box stores, retail chains characterized by physically large stores selling a wide range of consumer goods at discount prices. A growing literature has examined the impacts of Big Box stores on other retailers and consumers, but relatively little is known about how Big Box stores choose locations. Because Big Box stores offer highly standardized products and compete primarily on price, it is likely that they will seek to establish spatial monopolies, far from competitor stores. In this paper, I examine where new Big Box stores locate with respect to three types of existing establishments: own-firm stores, other retailers in the same product space (competitors), and retailers in other product spaces (complements). Results indicate that new Big Box stores tend to avoid existing own-firm stores and locate near complementary Big Box stores. However, there is little evidence that new Big Boxes avoid competitors. Firms in the same product space may not be perfect substitutes, or firms may prefer to share consumers in a desirable location rather than cede the entire market to competitor firms.
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Crime, Punishment and the Halo Effect of Corporate Social Responsibility
Harrison Hong & Inessa Liskovich
Princeton Working Paper, September 2014
Abstract:
Three reasons are often cited for why corporate social responsibility is valuable: product quality signalling, delegated giving, and the halo effect. Previous tests focus on consumers and cannot easily separate these channels because consumers are affected by all three. We focus on prosecutors, who are only susceptible to the halo effect. Using prosecutions of the Foreign Corrupt Practices Act (FCPA), we find that more socially responsible firms pay $2.3 million or 40% less than the median fine for bribery. We use the FCPA's unexpected increase in enforcement to address reverse causality and text-mining of case files to reveal prosecutorial sentiment.
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Two birds, one stone? Positive mood makes products seem less useful for multiple-goal pursuit
Anastasiya Pocheptsova, Francine Espinoza Petersen & Jordan Etkin
Journal of Consumer Psychology, forthcoming
Abstract:
Negotiating the pursuit of multiple goals often requires making difficult trade-offs between goals. In these situations, consumers can benefit from using products that help them pursue several goals at the same time. But do consumers always prefer these multipurpose products? We propose that consumers’ incidental mood state alters perceptions of products in a multiple-goals context. Four studies demonstrate that being in a positive mood amplifies perceptions of differences between multiple conflicting goals. As a consequence, consumers are less likely to evaluate multipurpose products as being able to serve multiple distinct goals simultaneously. We conclude by discussing implications of these findings for marketers of multipurpose products.
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When Consistency Matters: The Effect of Valence Consistency on Review Helpfulness
Simon Quaschning, Mario Pandelaere & Iris Vermeir
Journal of Computer-Mediated Communication, forthcoming
Abstract:
When evaluating the helpfulness of online reviews, review valence is a particularly relevant factor. This research argues that the influence of review valence is highly dependent on its consistency with the valence of other available reviews. Using both field and experimental data, this paper show that consistent reviews are perceived as more helpful than inconsistent reviews, independent of them being positive or negative. Experiments show that this valence consistency effect is driven by causal attributions, such that consistent reviews are more likely to be attributed to the actual product experience, while inconsistent reviews are more likely to be attributed to some reviewer idiosyncrasy. Supporting the attribution theory framework, reviewer expertise moderates the effect of consumers' causal attributions on review helpfulness.
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Flowers and an honour box: Evidence on framing effects
Achim Schlüter & Björn Vollan
Journal of Behavioral and Experimental Economics, forthcoming
Abstract:
This paper analyses the behaviour of customers in a flower field, where payment is made into an honour box. There is a price indicated for the flowers. However, as no monitoring takes place and the farmer has never enforced formal law, people can decide how much they want to pay. If people were to make a narrow rational choice they would simply take the unattended flowers without paying. The market would collapse. However, payments were and are in general high enough to make considerable profits. The business is flourishing. In the experiment we left several different messages next to the cashbox to influence payments. Legal threats and moral appeals have been studied in similar field settings with mixed results. We hypothesize that legal threats and moral appeals are less important than the context in which people make their decision. Once we indicated that the flower field belongs to a family, turnover and payment rate per customer increased substantially. We also observed a switch to less but more expensive flowers. However, we did not get significant results for other treatments: business framing, moral appeal and legal threats. The results show that for understanding market success of a business, we have to investigate the expectations and meanings of people they associate to the particular business context.
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The Economic and Cognitive Costs of Annoying Display Advertisements
Daniel Goldstein et al.
Journal of Marketing Research, forthcoming
Abstract:
Some online display advertisements are annoying. While publishers know the payment they receive to run annoying ads, little is known about the cost such ads incur, for instance, by causing website abandonment. Across three empirical studies, we address two primary questions. What is the economic cost of annoying ads to publishers? What is the cognitive impact of annoying ads? First we conduct a preliminary study to identify sets of more and less annoying ads. Second, in a field experiment, we calculate the compensating differential, the amount of money one would need to pay users to generate the same number of impressions in the presence of annoying ads as they would generate in their absence. Third, we conduct a mouse-tracking study to investigate how annoying ads may affect reading processes. We conclude that in plausible scenarios the practice of running annoying ads can cost more money than it earns.
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The Reach and Persuasiveness of Viral Video Ads
Catherine Tucker
Marketing Science, forthcoming
Abstract:
Many video ads are designed to go viral so that the total number of views they receive depends on customers sharing the ads with their friends. This paper explores the relationship between the number of views and how persuasive the ad is at convincing consumers to purchase or to adopt a favorable attitude towards the product. The analysis combines data on the total views of 400 video ads, and crowd-sourced measurement of advertising persuasiveness among 24,000 survey responses. Persuasiveness is measured by randomly exposing half of these consumers to a video ad and half to a similar placebo video ad, and then surveying their attitudes towards the focal product. Relative ad persuasiveness is on average 10% lower for every one million views that the video ad achieves. The exceptions to this pattern were ads that generated views and large numbers of comments, and video ads that attracted comments that mentioned the product by name. Evidence suggests that such ads remained effective because they attracted views due to humor rather than because they were outrageous.