Archive for the ‘Ivory Tower to Real World’ Category

“What’s this for?” … when freebies are most appreciated

August 20, 2010

Marketers know that giveaways go a long way.

In a paper published in The Journal of Consumer Research, researchers show that reactions vary widely across cultures to this kind of surprise.

Specifically, American-born consumers tended to be more pleased by unexpected freebies than were consumers in Hong Kong and Taiwan.

In one experiment, consumers from each region were equally pleased when presented with a free coffee drink that they had been told to expect.

But when the drink came unexpectedly, the Westerners were more delighted.

In other experiments, Asians tended to react better to gifts that were framed as the product of luck — the lucky ticket, say, fished out of a jar.

Westerners reacted better to gifts that were ostensibly rewards for something they did.

“In Western cultures, marketers should say something like, ‘We want to thank you for your patronage and loyalty, and that is why we are giving you this gift,’ ”

 Excerpted from NYT: Where Giveaways Are Valued Most,  July 26, 2009 
http://www.nytimes.com/2009/07/27/business/27drill.html

More education means more work … so who’s the smart one ?

August 5, 2010

People tend to assume that education opens doors.

That may be true in a lot of cases, but for some American men in the past 20 years, more education has meant less leisure time.

But since 1985, a leisure-time gap has developed among men: Less educated men have devoted more time to leisure, while more educated guys have kept their shoulders to the wheel.

What’s the main explanation?

It could be that as men get more education — and thus more earning power — it becomes more rewarding for them to spend time working.

After all, they’re making more money.

Sourced from US News: Why Relax When You Can Work?, April 9, 2008
http://money.usnews.com/money/business-economy/articles/2008/04/09/why-relax-when-you-can-work.html

Is the wine fine … or just high priced ?

July 29, 2010

Peer pressure influences us …  If everyone is telling you that something is good, you’re probably going to agree — or at least that’s what your brain will try to think.

And for adults, one of the best measures of what their peers like can be found on price tags.

Researchers tested just how much the luxurious feeling that comes with using a high-priced good determines the enjoyment of that good.

People were asked to sample and rate what they were told were five different wines. In reality, there were only three wines, each with a fake price tag — a $5 wine labeled $45, for example.

The results show that those fake prices carried a lot of weight: The participants thought they tasted five different wines, and the more “expensive” the wine, the more they liked it.

And they weren’t just lying to themselves: The researchers tested parts of the participants’ brains and found that when sipping a purportedly higher-priced wine, there was more activity in the parts that experience pleasure.

Excerpted from US News: The Fine Pleasures of Paying Through the Nose.  February 28, 2008 : 
http://money.usnews.com/money/business-economy/articles/2008/02/28/the-fine-pleasures-of-paying-through-the-nose.html

Hummer: Taking the high road … huh ?

July 23, 2010

Excerpted from Canadian Business: MY HUMMER, RIGHT OR WRONG, 10/13/2009

Hummer buyers don’t hate the planet-they just love their country more

Depending on where you are sitting – or more accurately what you are sitting in – the Hummer super-SUV is either

  • a shining symbol of American consumerism gone mad, or
  • a 21st-century emblem of American frontier heritage and individualism.

It’s easy to understand the first view.

The Hummer is a hulking, slab-sided truck built by the same company that makes the Humvee military vehicles; Hummers need a gallon of gas to rumble 10 miles.

The case for the latter, according to a study in the Journal of Consumer Research, is a little more complex.

Basically, Hummer owners are aware of the criticism aimed at the vehicle but drive them anyway-not despite the critics, but to spite them.

“For Hummer owners, it is possible to claim the moral high ground.”

Hummer attitudes go beyond defending the rights of other Americans to choose, to a form of patriotism.

“They think they are particularly American by consuming this vehicle.”

Protection racket: Why do folks buy extended warranties ?

July 22, 2010

Extended warranties are often more profitable to the retailer than the product it covers.

They  generally amount to  “unnecessary and overpriced insurance” since most products don’t break within the period covered, and repairs tend to cost no more than the warranty itself.

So, why do so many consumers buy extended warranties?

Answer: Peace of mind is a benefit … especially for folks of limited means who are buying “hedonic” products.

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Shoppers tend to agonize over the relative merits of different models of electronic goods such as digital cameras or plasma televisions.

But when they get to the till, many spend freely on something they barely think about at all: an extended warranty, which is often more profitable to the retailer than the device it covers.

Shoppers typically pay 10-50% of the cost of a product to insure it beyond the term covered by the manufacturer’s guarantee. The terms of these deals vary (and there is often a great deal of fine print).

Yet products rarely break within the period covered, and repairs tend to cost no more than the warranty itself.

That makes warranties amazingly profitable: they generate some $15 billion annually for American retailers, according to Warranty Week, a trade journal.

So why, asks a paper published in the December 2009  issue of the Journal of Consumer Research, do so many consumers still buy extended warranties?

The researchers concluded that the decision to buy a warranty had a great deal to do with a shopper’s mood.

If a customer is about to buy something fun (i.e., an iPod rather than a landline phone), he will be more inclined to pay for extra insurance because consumers value “hedonic” items over utilitarian ones.

The study also found that poorer consumers are more likely to buy “potentially unnecessary and overpriced insurance”, because they are more worried about the expense of replacing a product if it breaks.

The popularity of warranties should logically depend on the likelihood of a product’s failure … but the emotional tranquility that comes with buying a new warranty is a benefit to buyers, even if “rationally, it doesn’t make sense”.

The Economist. London: Nov 21, 2009. Vol. 393, Iss. 8658; pg. 66

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An Angle: Extended warranties for laptops often cover the battery.  If your battery should wear out – say, right before the extended warranty is about to expire – you might be able to get a “free” replacement battery – that has a FMV about equal to the price you paid for the extended warranty.

The “denomination effect” … it’s about spending, not religion.

July 21, 2010

Punch line: If you want to control your spending, leave your credit cards at home and only carry around big bills …

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Excerpted from NYT: A Reluctance to Break the Large Bills, March 29, 2009

A paper  published in The Journal of Consumer Research investigates the so-called denomination effect — the additional tight-fistedness people exhibit when their money is tied up in a few large-denomination bills, as opposed to many small ones.

  • In one study, 63 % of college students who had been given four quarters splurged on candy; 74% of students given a single dollar bill, pocketed it.
  • In another study, 20 percent of Chinese women given a single 100-yuan note ($14.66) chose not to spend the money on an array of shampoo, bedding and other household goods — but the rate of abstention was only 9.3 percent among women given the same amount of money in smaller notes.

“People overvalue these large bills … It’s partly a self-control mechanism — I want to hold onto it, because if I do break that big denomination, I lose track of my spending.”

The findings are especially relevant to “places like China or India that are predominantly a cash-based economy.”

Full article:
http://www.nytimes.com/2009/03/30/business/30drill.html

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Ken’s Note: Never thought of a “single dollar bill” as a particularly big denomination …