This is even the case if those purchases might include shoes that cause blisters or clothes that no longer fit, said Erica Okada, an assistant professor of marketing at the University of Washington Business School. In their minds, she said, it would be a "waste" of good money to throw a purchased item away, even if the money has already been spent and further use of the item isn't going to bring the money back.
In a study published in this month's Journal of Marketing, Okada found that in markets where there are frequent, successive introductions of new and enhanced products, consumers who have bought an older model have a similarly difficult time upgrading to a new version.
"Consumers don't always seek value in a consistent or rational way as economists assume they do," she said. "For example, in upgrading from a portable MP3 player purchased a few years ago to a newer one with more enhanced capabilities, the consumer wouldn't necessarily have to get rid of the old one, but the old one would presumably no longer be used once a new model is purchased. In effect, the old one would become redundant and be taken out of commission, which would again, be a 'waste' of good money."
According to Okada, it's the psychological cost of upgrading that hinders the purchase of newer models by consumers who have an older model. But for consumers who are first-time buyers, she found there are no psychological barriers preventing them from buying the newest model.
"People keep a mental account of the costs and benefits over time," she said. "As the cumulative enjoyment from consumption increases, the consumer gets his or her money's worth from the purchase. The account is closed once the consumer finishes using the product. If an upgrader purchases an enhanced product, he or she will no longer use the existing product, which triggers the closing of that mental account. There is a psychological cost associated with closing the existing account before consumers have gotten their money's worth out of the existing product."
For the paper, Okada did a number of studies to test her theory, including what consumers would be willing to pay for new cell phones in different situations. She asked 179 cell phone users how much they would pay for a new phone, either as an upgraded model or as a replacement purchase. On average, the users perceived the new phones to be superior to the phones they already owned. In the replacement scenario, participants were asked to imagine they had lost their existing phones. This created a situation in which there would be no existing phone to become obsolete as a result of the new purchase, and would resemble a new purchase because there would be no mental cost. Ninety people were assigned the replacement condition; 89 to the upgrade condition.
People in the replacement purchase group were willing to pay considerably more for the phone than were people who would purchase the phone as an upgrade. That makes sense, said Okada, since people in the replacement condition effectively had no working phone and the new phone's marginal benefit would presumably be greater. Replacement buyers were also willing to pay more for the new phone when they thought the features of their existing phones were made better. However, in the upgrade group people were willing to pay more for a phone with new features than they were for phones offering improved features. For example, a new cell phone with a camera feature would be more appealing than one with improved sound quality to a consumer who already has a phone without a camera.
These findings demonstrate how the decision-making process is different when there is a mental cost vs. when there is not, and they apply to the comparative preferences of upgraders vs. first-time buyers, she said. First-time buyers do not incur any mental cost in purchasing a new model, and upgraders do.
Okada theorizes that marketers can introduce an enhanced product to consumers by adding new features or improving existing features, and because the decision-making is different for those who upgrade vs. first-time buyers there is a difference in the relative preference for the two types of product enhancements. Adding new features would be more attractive to upgraders, and improving existing features would be more attractive to first-time buyers.
"There are intrinsic differences between a consumer who already has a product and is considering an upgrade, and a consumer who is purchasing for the first time," she said. "The existing assumption is that they would be the same, but in actuality the first-time buyer may have more to gain marginally because he or she starts out with nothing and may be less knowledgeable about the product category."
Nancy Gardner | EurekAlert!
Diagnoses: When Are Several Opinions Better Than One?
19.07.2016 | Max-Planck-Institut für Bildungsforschung
High in calories and low in nutrients when adolescents share pictures of food online
07.04.2016 | University of Gothenburg
Researchers from the Institute for Quantum Computing (IQC) at the University of Waterloo led the development of a new extensible wiring technique capable of controlling superconducting quantum bits, representing a significant step towards to the realization of a scalable quantum computer.
"The quantum socket is a wiring method that uses three-dimensional wires based on spring-loaded pins to address individual qubits," said Jeremy Béjanin, a PhD...
In a paper in Scientific Reports, a research team at Worcester Polytechnic Institute describes a novel light-activated phenomenon that could become the basis for applications as diverse as microscopic robotic grippers and more efficient solar cells.
A research team at Worcester Polytechnic Institute (WPI) has developed a revolutionary, light-activated semiconductor nanocomposite material that can be used...
By forcefully embedding two silicon atoms in a diamond matrix, Sandia researchers have demonstrated for the first time on a single chip all the components needed to create a quantum bridge to link quantum computers together.
"People have already built small quantum computers," says Sandia researcher Ryan Camacho. "Maybe the first useful one won't be a single giant quantum computer...
COMPAMED has become the leading international marketplace for suppliers of medical manufacturing. The trade fair, which takes place every November and is co-located to MEDICA in Dusseldorf, has been steadily growing over the past years and shows that medical technology remains a rapidly growing market.
In 2016, the joint pavilion by the IVAM Microtechnology Network, the Product Market “High-tech for Medical Devices”, will be located in Hall 8a again and will...
'Ferroelectric' materials can switch between different states of electrical polarization in response to an external electric field. This flexibility means they show promise for many applications, for example in electronic devices and computer memory. Current ferroelectric materials are highly valued for their thermal and chemical stability and rapid electro-mechanical responses, but creating a material that is scalable down to the tiny sizes needed for technologies like silicon-based semiconductors (Si-based CMOS) has proven challenging.
Now, Hiroshi Funakubo and co-workers at the Tokyo Institute of Technology, in collaboration with researchers across Japan, have conducted experiments to...
14.10.2016 | Event News
14.10.2016 | Event News
12.10.2016 | Event News
21.10.2016 | Health and Medicine
21.10.2016 | Information Technology
21.10.2016 | Materials Sciences