intellectual vanities… about close to everything

Would you buy the “short end of the stick”?

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Firms have long practiced target marketing, offering special deals to specific groups of customers or tailoring their offers to appeal to specific sets of consumers. Charging different prices or providing differential benefit across different customer groups allows firms to increase the attractiveness of their offering to specific groups without undercutting their profits serving other groups. However, whenever targeted customers are favored, the non-targeted customers “get the short end of the stick.”

If you are on the outside of some deal that benefits another group more than you, would this make you more or less interested in the product? Traditional view in marketing, psychology, and economics conclude that, holding constant the offer a seller makes to a buyer, the buyer will be repelled by learning that some other group of buyers is getting a better price for the same benefits or receiving more benefits for the same price.

Past research did attribute this repulsion to perceptions that the offer is inequitable, fits others better than oneself, or that the offer suggests that the core product is of low value.

According to research from Duke University’s Fuqua School of Business, the excluded consumers would be turned off by this relative mistreatment and would be less likely to make a purchase.

But what, when a seller provides a better deal to a set of buyers who are perceived to be experts in determining quality? Is it, that a disadvantaged buyer might use this fact to infer higher quality of the core brand? For example, the superpremium Belvedere vodka was launched by having free vodka tasting events exclusively for bartenders.

Researchers in the quoted article below asked study participants to choose between drills and other products with different promotions.

In these conditions, the consumer ends up wanting the product more, sais Alison K. C. Lo, a recent doctoral graduate at the Fuqua School of Business. “As consumers, we sometimes buy things when we feel clueless in telling good-quality products from bad but we think more savvy consumers can tell the good stuff simply by inspecting the merchandise,” Lo said. “In such cases, naive consumers are attracted to a product with a freebie that is not available to them but is offered to a more savvy group of buyers, like bartenders … These savvy buyers presumably would turn up their noses at low-quality merchandise, so the naive consumers reason that products promoted to experts must be good.” Obviously, quality inferences that attract non-targeted consumers operate in parallel to thoughts that repel those consumers.

Four conditions must be met before positive quality inferences will dominate idiosyncratic fit and fairness in affecting novice consumers’ choices:
– 1 The disadvantaged customers must believe that the advantaged customers are better
able than they are to judge quality prior to purchase.
– 2 It must be costly for the seller to provide a promotion to lure the advantaged group to inspect the core product.
– 3 The uncertainty of disadvantaged consumers must be associated primarily with
concerns about “more is better” attributes.
– 4 Quality uncertainty must be salient and an inference rule to infer quality must be accessible and diagnostic.

“On the other hand, if we are excluded from a deal and the group benefiting is not more savvy or we are more certain of the product’s quality, we are put off,” she explained. “We buy less — like the woman who sees that Victoria’s Secret is offering a better deal to men than to women.”

In one experiment reported by Lo and her colleagues, student volunteers in Duke’s master of business administration program were asked to choose which of two cordless drills they would prefer to receive as a gift.

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(Credit: Image courtesy of Duke University)

The researchers tested the effects of varied promotions by pairing the drills with either a $15 Nordstrom gift card or the book “Graphic Guide to Frame Construction: Details for Builders and Designers.”

The study participants overwhelmingly preferred the gift card, but they thought the book would be more appealing to people with expertise in construction and carpentry.

Participants then were asked to guess the prices of the drills, and they gave a higher price to whichever drill was paired with the book compared with the one paired with the gift card.

“This is important because even though the book was not as valuable as the gift card to our participants, they realized the book would be valuable to someone who might know a good drill when he or she sees one,” Lynch said. “They reasoned that only a manufacturer of a high-quality drill could lure such an expert to buy.”

The research team found similar results in experiments focusing on other products, including camcorders and headphones.

The researchers say the findings challenge some long-held notions regarding consumer reaction to targeted promotions. “Our findings apply to a specific set of circumstances where the customer is not able to judge the quality of a product, but believes that other consumers are expert in judging that product,” Staelin said. “But a lot of marketers sell in exactly those kinds of categories, so our findings can be used to sell products from wine to jewelry to home electronics to financial services.”

In Conclusion: your and my consumer beliefs vary systematically with the purchase context and are endogenous. This contrasts with economic signaling models that typically treat consumer beliefs as exogenous and independent of the purchase context. For instance, in case of investments we find financial offerings hard to evaluate. Often enough we are lured in by promotions that would only appeal to very knowledgeable investors in order to signal the quality of the financial product. The effect is similar to the Argumentum ad verecundiam (argument from authority – see logical fallacies). Similarly, sellers of hard-to-evaluate electronics do offer lucrative trade-ins to current owners, who new customers look upon as informed users. In all these cases, customers must decide between a promotion that has mass appeal or a promotion that attracts a niche segment, and the real product quality and it’s price.

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http://faculty.fuqua.duke.edu/~jglynch/Working%20Papers/Lo%20Lynch%20Staelin%20JMR%20in%20press.pdf

Written by huehueteotl

March 30, 2007 at 1:51 pm

Posted in Psychology

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