Tuesday, February 28, 2012

Effect Endowment via Customer Coproduction

When your customer participates in the production of a product she’ll be using, she’ll like the product more. Her attraction to the store or website where she purchased the product also will rise.
     Researchers at Norwegian School of Economics found that when consumers prepared a meal themselves rather than having it prepared for them, the evaluation both of the meal and the raw ingredients climbed. Not only that, but the consumers’ reports of the degree of saltiness and spiciness they preferred in a meal changed toward whatever the level of saltiness and spiciness were in the meal they had prepared. These consumers were giving themselves reasons to savor what they’d created.
     The lesson for retailers from research findings such as these is to invite shoppers to participate in the design of products they buy and the delivery of services they purchase. One reason is that the product or service will then be more likely to reflect the characteristics of the consumer. Another reason is that the invitation to coproduce prepares for the “endowment effect.”
     The endowment effect refers to people placing a higher value on objects they feel is their own than on equivalent objects that they do not. Among other consumer behaviors, it helps explain why people resist selling used items at a price others will find attractive and why people hesitate tossing foods with an expiration date from last week when they wouldn’t eat the same food at a friend’s house if the expiration date has passed.
     The endowment effect is set off when the purchaser takes physical possession of the product. In a bricks-and-mortar store, this often occurs before the customer pays for the product, as he grasps the product to place it in the shopping cart or as he carries it to the cash/wrap.
     With ecommerce—as with phone and mail orders—the purchase occurs before physical possession. Researchers at California State University-Sacramento found that when a direct marketing customer has confirmation of payment and shipment, there are signs of the endowment effect, but it is not at its strongest until the customer is holding the product.
     Remember to present the coproduction offer as an invitation to the shopper, not as a requirement. Many consumers prefer to purchase turnkey solutions, with the retailer taking full responsibility for production decisions. There are plenty of diners who appreciate a restaurant meal much more than their home-cooked ones.

Click below for more:
Reconfigure Your Own Endowment Effect
Personalize the Shopping Experience

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