The IKEA effect: Why labor leads to love - PowerPoint PPT Presentation

1 / 30
About This Presentation
Title:

The IKEA effect: Why labor leads to love

Description:

100 pounds of pasta. What You Actually Buy. What You Intend to Buy. Or in my father's case... vs. Netflix and Blockbuster. Thanks... Can Fees Bias Memory? ... – PowerPoint PPT presentation

Number of Views:421
Avg rating:3.0/5.0
Slides: 31
Provided by: Harv181
Category:
Tags: ikea | costco | effect | labor | leads | love | netflix

less

Transcript and Presenter's Notes

Title: The IKEA effect: Why labor leads to love


1
(No Transcript)
2
Discount Clubs and Membership Fees, or Why We
Buy 100 Pounds of Spaghetti
  • Michael Norton
  • Harvard Business School
  • Leonard Lee
  • Columbia Business School

3
A trip to Costco
Eggs Paper Towels Bread Toilet
Paper Toothpaste Aspirin
Portable Air Conditioner 8 Bottles of Wine New
Sheets 10 pounds of venison New Bath Towels 100
pounds of pasta
What You Actually Buy
What You Intend to Buy
  • Eggs
  • Paper Towels
  • Bread
  • Toilet Paper
  • Toothpaste
  • Aspirin

Or in my fathers case
4
Discount Clubs
  • Large and growing presence
  • One recent survey reported that Costco sells to 1
    in every 11 people in the United States and
    Canada (Spector, 2005)
  • Estimated to be a 110 billion industry

5
Why do they work?
  • Rational
  • Volume discounts
  • Irrational
  • 100 pounds of pasta
  • Purchasing behavior over and above any real
    savings
  • Fees?

6
Why do they work?
  • Why might fees decrease profits?
  • Deterrent from entering the store
  • Why might fees increase profits?
  • Price Perceptions
  • Implicit contracts between store and consumer
  • Price increases acceptable when firm incurs more
    costs (Bolton Alba, 2006)
  • Membership fees signal deeper discounts?

7
Overview
  • Impact of fees on
  • Consumer Behavior
  • Willingness to Pay Fees
  • Subsequent Spending
  • Price Perception
  • Company profits
  • Four Studies
  • Study 1 Predictions about Fees
  • Study 2 Fees and Real Spending
  • Studies 3A, 3B, 4 Fees and Price Perception
  • Study 5 Fees and Choice of Retailers

8
Our Store
6 of each item
9
Manipulation (between-subjects)
  • No Fee
  • As experimenters, we frequently buy a variety of
    products and items that we use as experimental
    stimuli or prizes, and we would like to make some
    of these items available to our participants for
    purchase.
  • Fee
  • To make this program available to our
    participants on a continual basis, we would like
    to request that you pay a fee of 0.50 to enter
    the store.

10
Study 1 Predictions
Would you buy something? If yes, how much
would you spend?
N 76
11
The Store
6 of each item
12
Study 2 Behavior
N 80
13
Studies 1 and 2
  • People predict twice as much value for no fee
  • In reality, three times as much value for fees

14
Studies 3A and 3B Price Perceptions
  • Study 3A
  • Which has lower prices?
  • Study 3B
  • What price?

p
ps
15
Study 4 The Whole Picture
  • Replication of Study 2 real buying
  • Assessed price perceptions (5-point scale)

N 78
16
Study 5 Retailer Choice
  • In Study 1, consumers predicted fees would
    dissuade them from entering stores
  • Can the presence of fees lead consumers to choose
    one retailer over another?
  • Even given the same amount of savings?

17
Newspaper Circulars
Manipulate which store charges fee
18
(No Transcript)
19
(No Transcript)
20
Study 5 Retailer Choice
  • Will consumers realize their mistake?
  • Cant compare different sizes
  • Wont compare stuck with membership fee
  • Sunk costs (Arkes Blumer, 1985 Staw, 1981
    Thaler, 1980)

21
Summary
  • Despite predictions to the contrary, fees (at
    least small fees) can lead to greater spending
  • Related to perceptions of lower prices
  • For the same products
  • Can lead to choice of merchant, based on illusion
    of better deals

22
Fees and Visibility
  • Companies that charge fees for services
  • Motivated to have consumers pay fee and never
    show up
  • Increased usage when aware of fees (Gourville,
    Soman)
  • Implication Hide fees

23
Fees and Visibility
  • Companies that charge fees for products (Costco)
  • Motivated to have consumers pay fee and
    frequently show up
  • Our results Fees spur spending
  • Implication Constant reminders of fees?

24
What is the right fee to charge?
  • May be a curvilinear relationship between fee and
    price perceptions
  • When fees are low ? too good to be true
  • 10 CDs for .01
  • When fees occupy a middle ground ? low price
    perceptions
  • Our studies, Costco, Sams Club
  • When fees are high ? quality/exclusivity
    perception
  • Country clubs

25
Next
  • Manipulate visibility and fee level
  • In the field
  • Local video rental retailer
  • vs. Netflix and Blockbuster

26
  • Thanks

27
(No Transcript)
28
Can Fees Bias Memory?
  • Fees lead to greater usage of services (Soman,
    Gourville)
  • Might they lead to the belief that one has used
    services more in the past?
  • Back to service providers
  • Gym
  • Reminder/no reminder

29
Memory - Gym
F(1, 192) 4.93, p 30
Memory - Gym
Interaction F(1, 192) 4.16, p
Write a Comment
User Comments (0)
About PowerShow.com