Published

Money, Time, and the Stability of Consumer Preferences

Journal of Marketing Research

Consumers often make product choices that involve the consideration of money and time. Building on dual-process models, we propose that these two basic resources activate qualitatively different modes of processing: while money is processed analytically, time is processed more affectively. Importantly, this distinction then influences the stability of consumer preferences. An initial set of three experiments demonstrate that, compared to a control condition free of the consideration of either resource, money consideration generates significantly more violations of transitivity in product choice, while time consideration has no such impact. The next three experiments use multiple approaches to demonstrate the role of different processing modes associated with money versus time consideration in this result. Finally, two additional experiments test ways in which the cognitive noise associated with the analytical processing that money consideration triggers could be reduced, resulting in more consistent preferences.

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Price Promotion for Emotional Impact

Journal of Marketing

Managers and academics often think of price promotions merely as incentives that entice consumers to accept offers that they might not have considered otherwise. Yet the prospect of paying a lower price for a product of given quality can also discourage deliberation, in a sense “dumbing down” the purchase encounter by making it less consequential. The authors examine this possibility in a dual-system theory of consumer behavior. Specifically, they argue that price promotion lowers a consumer’s motivation to exert mental effort, in which case purchase decisions are guided less by extensive information processing and more by a quicker, easier, strong conditioner of preference: affect. Field data from a large daily deal company and four controlled experiments support this idea and document its implications primarily for product choice, in turn providing insight into the form and cause of brand switching that manufacturers and retailers can leverage to improve the allocation of promotional budgets and category management.

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Beyond Posted Prices: The Past, Present, and Future of Participative Pricing Mechanisms

Customer Needs and Solutions

Driven by the low transaction costs and interactive nature of the internet, customer participation in the price-setting process has increased. Today, platforms such as eBay have popularized online auctions on a global scale, Priceline has made headlines with its name-your-own-price (NYOP) business model, and Humble Bundle has enabled independent musicians and game developers to market their works through pay-what-you-want (PWYW) pricing. Advertising exchanges conduct several hundred million individual auctions per day to sell online advertising slots. The present paper contributes to the literature on participative pricing in three ways. First, we propose a definition of participative pricing mechanisms, as well as a useful taxonomy. Second, we discuss the current understanding by synthesizing conceptual and empirical academic literature. Third, we outline promising research questions with a key focus on the related behavioral aspects of buyers and sellers.

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The Discriminating Consumer: Product Proliferation and Willingness to Pay for Quality

Journal of Marketing Research

The authors propose that a crowded product space motivates consumers to better discriminate between options of different quality. Specifically, this article reports evidence from three controlled experiments and one natural experiment that people are prepared to pay more for high-quality products and less for low-quality products when they are considered in the context of a dense, as opposed to a sparse, set of alternatives. To explain this effect, the authors argue that consumers uncertain about the importance of quality learn from observing market outcomes. Product proliferation reveals that other consumers care to discriminate among similar alternatives, and in turn, this inference raises the importance of quality in decision making.

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The Impact of Add-On Features on Consumer Product Evaluations

Journal of Consumer Research

The research presented in this article provides evidence that add-on features sold to enhance a product can be more than just discretionary benefits. We argue that consumers draw inferences from the mere availability of add-ons, which in turn lead to significant changes in the perceived utility of the base good itself. Specifically, we propose that the improvements supplied by add-ons can be classified as either alignable or nonalignable and that they have opposing effects on evaluation. A set of four experiments with different product categories confirms this prediction. In addition, we show that the amount of product information available to consumers and expectations about product composition play important moderating roles. From a practical standpoint, these results highlight the need for firms to be mindful of the behavioral implications of making add-ons readily available in the marketplace.

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Attention Arousal through Price Partitioning

Marketing Science

Existing evidence suggests that preferences are affected by whether a price is presented as one all-inclusive expense or partitioned into a set of mandatory charges. To explain this phenomenon, we introduce a new mechanism whereby price partitioning affects a consumer’s perception of the secondary (i.e., nonfocal) benefits derived from a transaction. Four experiments support the hypothesis that a partitioned price increases the amount of attention paid to secondary attributes tagged with distinct price components. Characteristics of the offered secondary attributes such as their perceived value, relative importance, and evaluability can therefore determine whether price partitioning stimulates or hinders demand. Beyond its descriptive and prescriptive implications, this theory contributes to the emerging notion that pricing can transform, as well as capture, the utility of an offer.

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Price as a Stimulus to Think: The Case for Willful Overpricing

Marketing Science

Consumers aware of a new benefit will often experience uncertainty about its personal relevance or usage value. This paper shows that the decision to deliberate further to resolve this uncertainty and reach a polarized judgment of personal relevance critically depends on the posted price. In particular, a price above the consumer’s initial willingness to pay might be thought provoking and enhance the perception of relevance with a certain probability. This behavioral mechanism is introduced formally and by way of an experiment with reference to the purchase of organic lettuce and fair-trade coffee. Accounting for the effect of price as a stimulus to think, a monopolistic firm should either over price (“transgressive pricing”) or under price (“regressive pricing”) in comparison to the consumer’s willingness to pay. Under certain circumstances, the firm should also empower consumers with means that reduce the effort of deliberation.

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Research reports

Cashback is Cash Forward: Delaying a Discount to Increase Future Spending

Marketing Science Institute
Online cashback shopping is a relatively young but fast-growing phenomenon. Briefly, cashback companies advertise cashback offers—usually refunds equaling a percentage of money spent—on their websites on behalf of cooperating retailers. Registered users interested in a particular offer click through from the cashback company’s website to the retailer’s online store. For each referred purchase that takes place, the cashback company later receives a commission from the retailer and deposits the promised saving, or cashback payment, into the bank account indicated by the user. Prasad Vana, Anja Lambrecht, and Marco Bertini study purchase behavior in this context. Specifically, they study the possibility that aside from the predictable positive impact of a cashback offer on initial demand, the cashback payment that follows a purchase with delay induces further spending. They find evidence of such a “repurchase effect” in panel data obtained [...]
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Self-Serving Behavior in Price-Quality Competition

Marketing Science Institute
Managers like to think well of themselves, and of the firms that employ them. However, positive illusions can bias a manager’s evaluation of market outcomes, self-servingly crediting success on the superior quality of one’s own product but blaming failure on the aggressive price of a competitor’s offering. Driving this prediction is the basic idea that individuals are more likely to ascribe good outcomes to forces under one’s control, and bad outcomes to forces outside of one’s control. In this study, Marco Bertini, Daniel Halbheer, and Oded Koenigsberg suggest and find evidence that price and quality serve this psychological motivation in differing ways. Their discussion is as follows: Product quality is a defining feature of the firm. A manager’s decision to improve quality is perceived to reflect the core competence of the organization and engage the identity and values of its employees. Put differently, what the firm sells is often [...]
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Price Promotion for Emotional Impact

Marketing Science Institute
A familiar concern with the use of price promotion is that it can exacerbate deal-seeking behaviors, creating consumers who are more calculated in their purchase decisions than otherwise may be the case. Aware of this possibility, some managers understandably fear that price promotion, though generally successful at lifting immediate sales, turns shopping into a dispassionate affair that dilutes the emotional connection between brand and customer and perhaps even accelerates the process of commoditization in a market. Most of the research in marketing on price promotion presumes this calculated consumer, traditionally portraying a shopper whose objective is to maximize quality per dollar spent. In this calculus, a price promotion clearly improves the consumer’s payoff, boosting the appeal of the discounted product relative to competition. Aylin Aydinli and Marco Bertini present a different interpretation of the way consumers respond to [...]
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Starting Prices and Consumer Sensitivity to Customization

Marketing Science Institute
At first glance, customization is a remarkable proposition that enables consumers to express their preferences and their identity more effectively than they can with standard off-the-shelf alternatives. For the firm, investing in customization can increase the probability of a transaction and reduce wasteful marketing expenditure. For these and other reasons, business experts have praised this concept as an increasingly efficient source of competitive advantage. Yet, in reality, firms that develop processes of customization often run into two obstacles. The first problem is that people seldom know with precision what they want. The second problem is that the additional choice steps that occur with customization can prove overwhelming. Here, Marco Bertini and Luc Wathieu propose a simple design intervention that can overcome these barriers and make consumers more mindful of the fruits of customization. Specifically, they propose that [...]
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The Branding of Next-Generation Products

Marketing Science Institute * Second most downloaded report of 2007
One of the firm’s most important marketing decisions is choosing a product name. While previous studies have examined criteria for selecting individual brand names, naming decisions that involve multiple product generations have received almost no attention. In this study, authors Bertini, Gourville, and Ofek examine the effect of a firm’s naming strategy on consumer perceptions of next-generation products. In a series of experiments, participants evaluated a next-generation product (a camera or tax software) whose brand name was either a continuation of, or a deviation from, an established naming convention. They found that consumers infer the level of product change offered by a next-generation product by the similarity of its brand name to that of its predecessors: consumers anticipate both greater risks and greater rewards with a new brand name. Further, the likelihood that a consumer will [...]
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Work in progress

Price and Quality Decisions by Self-Serving Managers

This paper presents a theory of price and quality decisions by managers who are self-serving. In the theory, managers are self-serving in the sense that they exploit any ambiguity on the link between decisions and the market outcome to cast their firms in a positive light. The focus on price and quality stems from the observation that firms seldom approach a market emphasizing both factors. This norm matters because, in the absence of a clear account of performance, certain explanations are more gratifying than others are: the self-serving manager wants to credit success to the dominant factor and blame failure on the other. We document this phenomenon in experiments with samples of experienced professionals and develop a model to quantify the cost to the firm.

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Consumer Reactance to Conditional Discounts

We present a theory of psychological reactance to conditional discounts—the practice of tying the receipt of a saving by consumers to some action other than the purchase of the product on sale. While conditional discounts are typically justified as a sharper means of price discrimination, we argue that the tactic can frustrate consumers and, consequently, provoke behaviors that harm a business. In particular, we argue that the use of non-monetary conditions (such as completing a questionnaire or making a referral), while increasingly popular, implies that reactance can manifest precisely as a cut in spending: consumers retaliate by choosing fewer or cheaper options than they would in response to a standard (unconditional) discount. We report experiments from the laboratory and field that support this prediction and the causal role of reactance. The closing section details the contributions of our work and opportunities for future studies

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Cashback is Cash Forward: Delaying a Discount to Encourage Future Spending

This paper examines purchase behavior in cashback shopping—a novel form of price promotion where consumers initiate purchases at the website of a cashback company and later receive the savings promised to them. In general, the literature recognizes two reasons to delay paying a discount: consumers may fail to claim the money, and tying the rebate to an additional purchase. Yet cashback payments are automatic and unconditional, which brings into question the usefulness of the practice. In this context, we analyze panel data from a large cashback company and show that, aside from the predictable effect of cashback offers on initial demand, cashback payments induce and increase future spending through its website. Specifically, at the average values in the data an additional $1.00 in cashback increases the likelihood of purchase by 0.02% and spending by $0.32. We consider three explanations, and the leading hypothesis is that consumers fail to treat money as a fungible resource.

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Putting Customer Back into Customization: A Pricing Intervention

The benefits of customization are not always self-evident to consumers who seek to minimize decision costs or are generally uncertain of what they really want. We argue that the mere posting of a starting price can increase a consumer’s readiness to appreciate customized goods. We discuss this phenomenon in the context of a simple model of reference-dependent preferences and propose four experiments to support our predictions. In experiment 1 and 2, we show that announcing a starting price accentuates consumer sensitivity to the match quality and relevance of customization, respectively, enhancing purchase intent and perceived product value to the extent that these qualities are present. Experiment 3 reveals that the effect of starting prices implicates the judgments of novices more so than those of experts. In experiment 4, we revert the effect and demonstrate that consumers who seek conformism and avoid personalization will be more likely to reject customized products when exposed to a starting price.

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