Is there anything more stressful than the worry that a decision you’ve made may have been the wrong one, without ever really knowing for sure? Money, as a proxy for resources, is often a source of stress because how we gather and choose to distribute those resources are rife with choices in arenas where we may or may not have all of the information — and more often than not, we simply don’t have all of the possible information to make a decision.
Yet at some point a decision must be made.
A forthcoming study in the Journal of Consumer Research tries to get to the heart of the issue, exploring what is described as “naïve theory.” Basically, because consumers can’t know everything about a product, we fill in the gaps with our own (naïve) theories to help us make decisions about whether the cheaply priced product is a terrific deal or a piece of junk. How, then, do consumers come to one conclusion or another? Actually, sometimes they don’t. “Most people simultaneously believe that low prices mean good value, and that low prices mean low quality,” Steve Posavac, a professor of marketing at Vanderbilt University and one of the study’s authors, explained via e-mail. Yet the study’s experiments show that consumers can often be coaxed into focusing more on value or quality. Our frame of mind affects which naïve theory we use to fill in the knowledge gap—and therefore also affects how we decide to buy stuff or skip it. Whatever is going on in our heads can impact how we perceive a price, and whether or not we decide to buy something. “If a consumer has spent the morning struggling with finances, ‘value’ is likely to dominate that consumer’s thoughts for the rest of the day, and low priced products will be attractive because the ‘low price = value’ belief is likely to guide decision making,” explained Posavac. “In contrast, suppose a consumer has just had an experience with a product failing because of poor workmanship (e.g., a lawnmower, or a dishwasher). For this consumer, ‘quality’ is going to be top of mind, the belief that ‘low prices = poor quality’ will guide decision making, and this consumer will spend more on the purchase.”
But that priming – and the marketing signals used to try and fill the information gaps in our spending decisions – may not quite be a linear relationship. Quoting from phys.org:
Cornell behavioral economist Ori Heffetz and his colleague Moses Shayo of Hebrew University of Jerusalem conducted two food-related experiments to test the link between price and perceptions of quality. In a laboratory experiment, the researchers asked college students to choose from candies with different prices before and after tasting them. In a field experiment at an upscale Tel Aviv restaurant — without the knowledge of diners or servers — the researchers manipulated prices on the prix fixe menu to assess the impact of the food’s cost on choices diners made. In both instances, higher prices didn’t cause the expected higher demand suggested from findings in previous studies. “The results came as a surprise,” said Heffetz, an assistant professor economics at the Johnson School. “We expected to find large effects when we started the project, and that did not happen.”
That, however, was just one study, and when it comes to the world of economics and resource choices, it’s never a simple answer. Heck, even the old adage of fast-good-cheap – pick any two… may not be quite as simple of a rule as you’re expecting. Originally referred to as the project manager’s triangle (and now a project manager’s diamond with scope an added point and expectations at the center, this adage isn’t simply about picking what you want. Instead, it’s a recognition that those elements must all be maintained in some kind of balance. It’s not about picking just two or three elements — it’s more about balancing your expectations of what you can get with each of those elements remaining a part of the conversation.
So where do you think you may have gone wrong in that conversation? And what information were you working off of at the time?