So, back in September I wrote about one basic bias: context-dependent preferences. At its core, context-dependent preferences mean that consumer choices are based on relative value, instead of absolute value. So, instead of assessing which option is best on its own, we tend to look at which option is the best, relative to others in the choice set. With strategic selection of the items, a marketer can thus heavily drive us to choose a middle option that sits between a cheap and an expensive one. This is known as the compromise effect.
Now, Simonson is saying that the compromise effect isn’t real anymore! I picked up his claim from his talk at TEDxBayArea. Here’s the video:
Now, Simonson is saying that the compromise effect isn’t real anymore! I picked up his claim from his talk at TEDxBayArea. Here’s the video:
So, Simonson has replicated with Taly Reich his previous experiment that showed the existence of the compromise effect. He shows that the new study was pretty similar to the old one, and that the compromise effect just wasn’t there. Unfortunately, since the study hasn’t been published yet, we just have to take Simonson’s word of this. But let’s do that, and see what the implications are.
His main point is that the compromise effect doesn’t surface because modern technology helps us estimate absolute value instead of relative value. Twenty years ago, we would proxy quality with attributes such as brand, country of production and so on. These days, we have access to a host of online services that look at the product quality. Some of them directly assess products, while others provide just customer reviews. Irrespective of the way of assessment, both are pretty decent ways of assessing quality.
His main point is that the compromise effect doesn’t surface because modern technology helps us estimate absolute value instead of relative value. Twenty years ago, we would proxy quality with attributes such as brand, country of production and so on. These days, we have access to a host of online services that look at the product quality. Some of them directly assess products, while others provide just customer reviews. Irrespective of the way of assessment, both are pretty decent ways of assessing quality.
So what does it mean? Well, Simonson comes up with a list of commonly believed statements about marketing that he proceeds to debunk:
1. A company’s brand is more important today than it has ever been
Quite a few people say that precisely because there’s so much information out there, branding is even more important today. Because of information overload, consumers can either process all the information, or ignore the information and rely on brands. However, Simonson argues that we can combine the approaches: quickly glance at reviews to assess quality. Brands will still exist – for example as status markers – but they will not be effective proxies for quality.
2. Nurturing customer loyalty is the best investment
Customer loyalty is usually thought to be a sound investment. Satisfied customers will buy your products again, and thus loyalty will act as a barrier against competitor. Simonson thinks this is less likely to be true now. He claims that each product is evaluated on its own: he’s not going to buy a Toyota just because he liked the previous car. I think the example is correct, but the lesson’s not. Sure, when you buy a big pure product, you’ll evaluate the attributes with care. But with smaller purchases, brand surely matter. I seem unable to find the paper, but I remember reading that when buying groceries, customers tend to go for the products they usually buy (classic System 1 way of action – status quo).
3. Market research can predict what consumers will want
Simonson says that since our choices are these days driven much by social media and we rely on opinions of others, then market research should focus on that part, instead of looking at wants and preferences today to predict the future. Simonson argues that the prior wants are really bad predictors – what matters are the sentiments in the social environment.
All in all, I think Simonsons ideas are pretty thought-provoking. There’s a lot riding on the replication failure of just one experiment, which seems a pretty shaky justification for a new theory. However, it is just one TED Talk, so I hope there’s more to it. Apparently, Simonson has also written a book about this. Well, that’s one more book for my pile of books to read...
1. A company’s brand is more important today than it has ever been
Quite a few people say that precisely because there’s so much information out there, branding is even more important today. Because of information overload, consumers can either process all the information, or ignore the information and rely on brands. However, Simonson argues that we can combine the approaches: quickly glance at reviews to assess quality. Brands will still exist – for example as status markers – but they will not be effective proxies for quality.
2. Nurturing customer loyalty is the best investment
Customer loyalty is usually thought to be a sound investment. Satisfied customers will buy your products again, and thus loyalty will act as a barrier against competitor. Simonson thinks this is less likely to be true now. He claims that each product is evaluated on its own: he’s not going to buy a Toyota just because he liked the previous car. I think the example is correct, but the lesson’s not. Sure, when you buy a big pure product, you’ll evaluate the attributes with care. But with smaller purchases, brand surely matter. I seem unable to find the paper, but I remember reading that when buying groceries, customers tend to go for the products they usually buy (classic System 1 way of action – status quo).
3. Market research can predict what consumers will want
Simonson says that since our choices are these days driven much by social media and we rely on opinions of others, then market research should focus on that part, instead of looking at wants and preferences today to predict the future. Simonson argues that the prior wants are really bad predictors – what matters are the sentiments in the social environment.
All in all, I think Simonsons ideas are pretty thought-provoking. There’s a lot riding on the replication failure of just one experiment, which seems a pretty shaky justification for a new theory. However, it is just one TED Talk, so I hope there’s more to it. Apparently, Simonson has also written a book about this. Well, that’s one more book for my pile of books to read...
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