Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

How consumers discriminate

11.08.2011
Study reveals how the quality of a good and the assortment of choices available influences consumers

A forthcoming paper in the American Marketing Association’s Journal of Marketing Research by Professor Sheena Iyengar, S.T. Lee Professor of Business, Management; Marco Bertini, Assistant Professor of Marketing at London Business School; and Luc Wathieu, Associate Professor at McDonough School of Business, Georgetown University, provides evidence on the impact of the size and quality of an assortment has on a consumer when they make purchasing decisions.

When consumers are confronted with a proliferation of options, they will sharpen their appreciation of quality, and a switch to superior products will become more enticing. Subsequently, a switch to inferior products will become less tolerable. The research was inspired by the phenomenon that for many upscale goods, such as wine, while variety available to consumers has increased, prices have also increased – contrary to economic models that find competition leads to lower prices. This is the first paper to illustrate the effect of choice and quality on a consumer’s willingness to pay.

The researchers conducted three controlled experiments and observed one natural experiment to come to their findings. In one of the controlled experiments, two different groups of participants were shown displays of different dark chocolates. The researchers distorted a single factor, assortment density, in this study. One group saw a selection of 21 chocolates, the other just five. Participants were told that the chocolates were ordered from left to right according to their "premium rating" used in the industry to gauge quality. A small label indicating the name and rating accompanied each piece. Consumers were asked what they were willing to pay for one of the chocolates, and on a scale of 1 to 7, how much they agreed with the statement: "Buying good quality is always important, but it is particularly important when it comes to chocolate."

The researchers found that participants offered the greater choice set were prepared to pay 40 percent more for high-quality chocolate than their counterparts who bid on the same piece in the sparse assortment. Those presented with more choices also reported higher scores on the importance of quality in their purchase decision. Further, the group with 21 choices offered to pay 33 percent less for a low-quality chocolate than the group with five choices. The researchers conducted an additional experiment with wine to rule out the possibility that the relationship between density and willingness to pay was caused by different perceptions of the range of qualities offered or by a simple demand effect. Consistent with the outcome of the first study, participants presented with 27 alternatives were prepared to spend significantly less on a Sauvignon Blanc picked from the cheapest price tier than their counterparts presented with 9 alternatives. The same group of participants, however, were prepared to spend significantly more on a Sauvignon Blanc picked from the average price tier.

Sheena Iyengar explains the significance of the study’s findings. “When the product is desirable instead of functional, consumers flooded with a range of choices will focus on quality, and not price. The choice set size should not be dictating what you are willing to pay, and yet it does. To avoid paying more just because the assortment is large, think about what it is you're going to be using the product for, and then decide what is more important – quality or price – in that specific case.”

The researchers found supporting evidence of this conclusion in the field through the auction market. They examined 63 wine auctions conducted by a leading global auctioneer in London between January 2006 and June 2009. Multiple wine bottles were auctioned off at each event, although the exact number varied from event to event. The researchers found that at events with a denser assortment of wine, people paid more for the bottles with high appraisals and less for the ones with lower appraisals. Furthermore, participants started bidding more for the high-end wines and offering lower prices for lesser vintages when a catalog contained 40 or more different price categories.

About Columbia Business School

Led by Dean Glenn Hubbard, the Russell L. Carson Professor of Finance and Economics, Columbia Business School is at the forefront of management education for a rapidly changing world. The school's cutting-edge curriculum bridges academic theory and practice, equipping students with an entrepreneurial mindset to recognize and capture opportunity in a competitive business environment. Beyond academic rigor and teaching excellence, the school offers programs that are designed to give students practical experience making decisions in real-world environments. The school offers MBA and Executive MBA (EMBA) degrees, as well as non-degree Executive Education programs. For more information, visit www.gsb.columbia.edu

Sona Rai | EurekAlert!
Further information:
http://www.columbia.edu
http://www.gsb.columbia.edu

More articles from Studies and Analyses:

nachricht New study: How does Europe become a leading player for software and IT services?
03.04.2017 | Fraunhofer-Institut für System- und Innovationsforschung (ISI)

nachricht Reusable carbon nanotubes could be the water filter of the future, says RIT study
30.03.2017 | Rochester Institute of Technology

All articles from Studies and Analyses >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Making lightweight construction suitable for series production

More and more automobile companies are focusing on body parts made of carbon fiber reinforced plastics (CFRP). However, manufacturing and repair costs must be further reduced in order to make CFRP more economical in use. Together with the Volkswagen AG and five other partners in the project HolQueSt 3D, the Laser Zentrum Hannover e.V. (LZH) has developed laser processes for the automatic trimming, drilling and repair of three-dimensional components.

Automated manufacturing processes are the basis for ultimately establishing the series production of CFRP components. In the project HolQueSt 3D, the LZH has...

Im Focus: Wonder material? Novel nanotube structure strengthens thin films for flexible electronics

Reflecting the structure of composites found in nature and the ancient world, researchers at the University of Illinois at Urbana-Champaign have synthesized thin carbon nanotube (CNT) textiles that exhibit both high electrical conductivity and a level of toughness that is about fifty times higher than copper films, currently used in electronics.

"The structural robustness of thin metal films has significant importance for the reliable operation of smart skin and flexible electronics including...

Im Focus: Deep inside Galaxy M87

The nearby, giant radio galaxy M87 hosts a supermassive black hole (BH) and is well-known for its bright jet dominating the spectrum over ten orders of magnitude in frequency. Due to its proximity, jet prominence, and the large black hole mass, M87 is the best laboratory for investigating the formation, acceleration, and collimation of relativistic jets. A research team led by Silke Britzen from the Max Planck Institute for Radio Astronomy in Bonn, Germany, has found strong indication for turbulent processes connecting the accretion disk and the jet of that galaxy providing insights into the longstanding problem of the origin of astrophysical jets.

Supermassive black holes form some of the most enigmatic phenomena in astrophysics. Their enormous energy output is supposed to be generated by the...

Im Focus: A Quantum Low Pass for Photons

Physicists in Garching observe novel quantum effect that limits the number of emitted photons.

The probability to find a certain number of photons inside a laser pulse usually corresponds to a classical distribution of independent events, the so-called...

Im Focus: Microprocessors based on a layer of just three atoms

Microprocessors based on atomically thin materials hold the promise of the evolution of traditional processors as well as new applications in the field of flexible electronics. Now, a TU Wien research team led by Thomas Müller has made a breakthrough in this field as part of an ongoing research project.

Two-dimensional materials, or 2D materials for short, are extremely versatile, although – or often more precisely because – they are made up of just one or a...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Fighting drug resistant tuberculosis – InfectoGnostics meets MYCO-NET² partners in Peru

28.04.2017 | Event News

Expert meeting “Health Business Connect” will connect international medical technology companies

20.04.2017 | Event News

Wenn der Computer das Gehirn austrickst

18.04.2017 | Event News

 
Latest News

Wireless power can drive tiny electronic devices in the GI tract

28.04.2017 | Medical Engineering

Ice cave in Transylvania yields window into region's past

28.04.2017 | Earth Sciences

Nose2Brain – Better Therapy for Multiple Sclerosis

28.04.2017 | Life Sciences

VideoLinks
B2B-VideoLinks
More VideoLinks >>>