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PY1118: Social Psychology 1 Consumer Psychology

Prof Richard Tunney

Lecture Aims

This lecture will might save you money!* However, you’ll need to understand these concepts: Consumerism Anchoring effects Manipulation of prices to influence sales References at the end – there are some entertaining books on this topic! * Small print: This not a legally binding promise!

Question…

When shopping, how do you decide what is good value?

What is Value? C19th philosophers and economists questioned how the value of goods is established… The exchange-value can vary even though the object itself is unchanged A log in a forest has little value, but taken to a town it has value as firewood or material for a carpenter à now you can sell it for money. What everyday examples of this do we encounter?

Use-value vs Exchange-value In Das Capital Karl Marx (1867) differentiated between the use-value of goods and their exchange-value. Gold has a higher exchange-value than a blanket, yet, unlike the blanket, it has very little use-value. Premium products and brands attract a higher price even though the use-value might be the same as a cheaper product Marx called the attachment of extra value to goods object fetishism (N.B. Marx didn’t intend a Freudian connection but probably was trying to be provocative and satirise the supposedly rational basis of capitalism.)

Consumer Culture Modern consumer culture is different from historical consumption – in the past people generally focused on the biological needs necessary to maintain life (e.g., food, warmth, shelter). Now we have elaborate social standards of ‘decency, property [and the] good life’ (Bauman (2001, p. 12) Modern consumption is separated from material or bodily limits, whereas pre-modern needs were relatively fixed and more concerned with sustaining life.

Consumer Culture Fixed consumption – a coat for warmth Consumerism – coats for fashion, leisure, sportswear… Coats replaced because styles change, or a new brand is desirable. We don’t just buy things because we need them to survive, but because we desire them e.g., upgrading to the latest phone.

Commodification – Extending Markets “People don’t know what they want until you show it to them” Steve Jobs (1955-2011, former CEO of Apple) Deodorants – invented late 1800s but marketed in the 1950s. Prior to this most people didn’t know they needed deodorant. Tablet computers – the iPad popularised the idea of a different type of computer – something that wasn’t a smartphone and wasn’t a laptop. Tablets have gone from not existing, to selling 314m units in 2014! Creation of wearable technology e.g. FitBit, smartwatch

Consumerism Advertising adds values to a product that extend beyond its real physical properties e.g. a car isn’t just a mode of transport but says something about your status (e.g. personalised number plates) Bauman (2001, p13) describes ‘the consuming desire of consuming’ – it is acquisition that is satisfying rather than ownership Consumerism is satisfying while we are purchasing something – once we own a item the thrill wears off. Post-acquisition research (e.g. reading product reviews) to validate the choice and experience the thrill again.

Anchoring and Uncertainty How old was Mahatma Gandhi when he died? Anchor 1: “Did he die before or after the age of 9?” OR Anchor 2: “Did he die before or after the age of 140?” Now, let’s pose the original question and ask for an actual age… Anchor 1 mean = 50 Anchor 2 mean = 67 Strack, F. and Mussweiler, T. (1999). Explaining the enigmatic anchoring effect: Mechanisms of selective accessibility. Journal of Personality and Social Psychology, 73(3), 437-446.

Origins of Anchoring Tversky and Kahneman (1974) Wheel of fortune rigged to either land on 10 or 65 – this is called the anchor Participants then asked a totally unrelated question – “What percentage of African nations are in the UN?” Wheel = 10: Participants guess 25% in UN Wheel = 65: Participants guess 45% in UN The wheel of fortune is obviously totally unrelated to the question about Africa and the UN, yet the anchoring works Even when people are told about the effect in advance, the anchoring still works! N.B. Do read their work – see references at the end – it even won a Nobel Prize!

Extreme Anchoring – does it still work? Two paired questions (Q1 provides the anchor for Q2): 1. How many top-ten records did the Beatles release – more than 100,025, or less than 100,025? 2. Now give your estimate of the number of top-ten Beatles records. The numbers in Q1 are absurdly high, but yet people primed with a high anchor do give higher estimates! Where might anchoring apply to prices?

Anchoring with Expensive Products £600 for a (big) bottle of vodka Presumed to be good quality or the price couldn’t be justified If it is on sale for £600, then surely someone must be buying it? But it doesn’t really matter if the £600 bottle never sells, because now the £200 one next to it seems more reasonable…

Anchoring with Brand Names £1070 Prada handbag: The very high price manipulates perceptions of other prices. The bag is for sale, but it doesn’t matter if no one buys it because now the £95 keychain seems good value Items that don’t sell can change what does sell! Prices are understood in relative rather than absolute terms

Anchoring Menu Prices Balthazar seafood platter for $115 (the anchor) Le Grand platter is a mere $70 ½ Lobster for $23 Shrimp (prawn) cocktail for $15 Can we judge the value of these dishes having been anchored at $115? Poundstone (2010)

Menu Techniques Bundling – putting together several items for a “bargain” price e.g. Burger, chips and drink priced together for less than the sum of the separate prices If the 3-item bundle costs only slightly more than two of the items separately, then we feel we will miss out by not opting for it (risk aversion) – for that small amount more, you may as well get the chips! Bundles confuse our expectations – if the burger is really small we might attribute it to the deal, rather than complaining The bundling effect wears off with time so menus have to be regularly re-designed and re-priced

Up-selling the Menu Up-sell is a “foot in the door” strategy – the customer has already committed to buying something, so the trick is to get them to buy more Luxury options – e.g. a gourmet burger might cost £1 more on the menu Surely it must be better because it costs more But, it isn’t always clear how it is better Social cost of declining the desirable gourmet option

“Big Texan’s” Free 72-ounce Steak The meal: Just over 2kg of steak, plus a baked potato, prawn cocktail, and bread roll Pay $72 up-front, but this will be refunded if you can eat it all in one hour Success rate is 14% - so most people pay for it Majority of Big Texan customers don’t attempt the 72oz challenge and order from the normal menu However, the 72oz anchors them when making decisions about what size steak to order. This results in people buying more food!

The 72-ounce Anchor The 72oz challenge is so dominant in the Big Texan’s marketing and in the menu that the customer is repeatedly exposed to the concept of the free 72oz steak. Implicitly, it is the equivalent of anchoring like this: 1.Can you eat 72 ounces of steak? 2.How much steak do you want to order? Even customers who don’t go for the 72oz steak, still choose larger steaks than they would have done otherwise!

Evidence for the Meaty Anchor Jacowitz & Kahneman (1995): 1.Does the average American eat more or less than 50 pounds of meat a year? 2.How much meat does the average American eat in a year? Median response: 100 pounds of meat. Shift the anchor to 1000 pounds of meat (!) and the median estimate becomes 500 pounds. Although the anchor is absurd, it still works!

Anchors Away! – how to resist Anchoring works in retail because a high value makes us focus on the things that must justify the price A strategy of “consider the opposite” can help counter this: Students were asked if a politician’s chances of winning an election were greater or less than 80% (the anchor) Then asked the actual chances - this showed the normal anchoring effect Finally asked to name three reasons why the politician wouldn’t win – this reduced the anchoring effect Mussweiler, Strack & Pfeiffer (2000) Make a conscious decision to consider the opposite If that doesn’t work, delay the purchase as the anchoring effect fades with time!

Summary Commodification creates new products (this may necessitate the creation of new “problems” that require solutions!) Anchoring effects can be used to manipulate how much we are prepared to spend – we assume that a high price must be justified However, lower prices can also be used to nudge us towards an apparently safe middle option – if a retailer anticipates this they can ensure a generous margin for themselves

Directed Study Kahneman, D. (2011). Thinking, Fast and Slow. London: Penguin. (Covers anchoring – but a really good read in general) Poundstone, W. (2010). Priceless: The hidden psychology of value. Oxford: One World. (Interesting to dip into) Poundstone, W. (2010). How restaurants entice us into choosing expensive meals. The Guardian. Retrieved from http://www.theguardian.com/lifeandstyle/2010/jan/21/menuscunning-marketing-ploys The classic anchoring paper: Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases, Science. 185, 1124–1131....