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. 

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Why Do Discounts Backfire When You Make Consumers Wait?

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. 

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How Do Consumers See a Product When They Hear Music?

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.” 

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VIP Loyalty Programs: Consumers Prefer Awards They Can Share

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.”

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

Warning of Potential Side Effects of a Product Can Increase Its Sales

Drug ads often warn of serious side effects, from nausea and bleeding to blindness, even death. New research suggests that, rather than scaring consumers away, these warnings can improve consumers’ opinions and increase product sales when there is a delay between seeing the ad and deciding to buy or consume the product.

“Messages that warn consumers about potentially harmful side effects — presumably with the intent to nudge them to act more cautiously — can ironically backfire,” says psychological scientist Ziv Carmon of INSEAD in Singapore.

Working with Yael Steinhart of Tel Aviv University and Yaacov Trope at New York University, Carmon has been exploring how adding a warning of potential side effects can impact consumer decision making. Their new findings are published in the September 2013 issue of Psychological Science, a journal of the Association for Psychological Science.

“We were struck by just how detailed, clear, and scary many warnings had become with regard to potential negative side effects of products,” says Carmon.  “It then occurred to us that such warnings might perversely boost rather than detract from the appeal of the risky product.”

Carmon and colleagues tested their hypothesis in four experiments. In one experiment, for example, smokers saw an ad for a brand of cigarettes: One version of the ad included a warning that smoking causes lung cancer, heart disease, and emphysema, while another version did not include the warning.

Predictably, participants who had the opportunity to purchase the cigarettes soon after seeing the ad bought less if the ad they saw included the warning.

In contrast, participants who were given the opportunity to purchase the cigarettes a few days later bought moreif the ad included the warning. The same outcome emerged when the researchers ran a similar experiment with ads for artificial sweeteners.

According to Carmon and his colleagues, the warnings backfired because the psychological distance created by the delay between exposure to the ad and the decision to buy made the side effects seem abstract—participants came to see the warning as an indication of the firm’s honesty and trustworthiness.

In fact, participants evaluated drugs for erectile dysfunction and hair loss that had potentially serious side effects more favorably, and as more trustworthy, when they were told the products weren’t on the shelves yet.

While conventional wisdom suggests that explicit warnings about dangerous side effect will make people think twice before taking medical risks, these findings suggest otherwise. The researchers believe that their findings are important because these kinds of warnings are so ubiquitous, accompanying many different products or services beyond medications, including medical procedures, financial investments, and sporting activities.

Given how frequently we are exposed to such warnings, Carmon hopes to bring greater attention to their potential to backfire.

“This effect may fly under the radar since people who try to protect the public — regulatory agencies, for example — tend to test the impact of a warning shortly after consumers are exposed to it,” says Carmon. “By doing so, they miss out on this worrisome delayed outcome.”

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Warning of Potential Side Effects of a Product Can Increase Its Sales

Report: Digital Shopper Relevancy

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Report: Digital Shopper Relevancy

How Do Consumers Compare Prices? It Depends on How Powerful They Feel

Your reaction to the price on a bottle of wine or another product is partly a response to how powerful you feel, according to a new study in the Journal of Consumer Research.
“The degree to which one feels powerful influences which type of price comparison threatens their sense of self-importance and, in turn, affects the perception of price unfairness,” write authors Liyin Jin, Yanqun He (both Fudan University), and Ying Zhang (University of Texas, Austin).
Variations in price are common in today’s market, the authors explain, but companies risk consumers’ wrath when those customers perceive unfairness. According to the authors, consumers have two main ways of evaluating the fairness of a price: they compare with what they’ve paid for the same item in the past (self-comparison) or they ask how the price compares with what other customers are paying (other-comparison). The authors looked at the ways consumers’ self-perceptions affected their reactions to the two kinds of comparisons.
In one study, the authors found that participants who felt powerful experienced more unfairness when it appeared that they were paying more than others. But people who did not feel powerful experienced more unfairness when they used self-comparisons. The study also revealed that “high-power” participants were more likely to get angry about unfairness and indicated they were more likely to complain about the perceived unfairness. Meanwhile the “low-power” individuals were more likely to feel sad and to use tactics to avoid thinking about the unfair price.
“Our findings suggest important ways that marketing professionals can engage customers of different power statuses,” the authors write. “For example, when marketing to high-power customers, one can better elicit preference by highlighting the special treatment that they are receiving in relation to other customers. Conversely, when the target customers are relatively low in power, loyalty may be better cultivated by highlighting the consistency in service or the level of commitment to these customers.” 

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How Do Consumers Compare Prices? It Depends on How Powerful They Feel