Sebastian Oetzel

Andreas Luppold

33 Phenomena
of Purchasing
Decisions
Understanding Customer Behavior—
Knowledge and Inspiration
33 Phenomena of Purchasing Decisions
 Sebastian Oetzel · Andreas Luppold

33 Phenomena
of Purchasing
Decisions
Understanding Customer Behavior—
Knowledge and Inspiration
Sebastian Oetzel Andreas Luppold
Hochschule Fulda Geschäftsführung
University of Applied Sciences Yagora GmbH
Fulda, Germany Neu-Isenburg, Germany

ISBN 978-3-658-44798-4 ISBN 978-3-658-44799-1 (eBook)

[Link]

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Fachmedien Wiesbaden
GmbH, part of Springer Nature 2024

Translation from the German language edition: “33 Phänomene der Kaufentscheidung” by Sebastian
Oetzel and Andreas Luppold, © The Editor(s) (if applicable) and The Author(s), under exclusive license to
Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023. Published by Springer Fachmedien
Wiesbaden. All Rights Reserved.

This book is a translation of the original German edition “33 Phänomene der Kaufentscheidung” by Sebastian
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 Foreword

Why are we, a marketing scientist and a retail manager, writing the foreword
to this book? This is due to the fact that we share with the authors the scien-
tific approach to the topics in research and practice. But above all, because
reading this book is exciting and entertaining for both science and practice.
In our view, this book by Sebastian Oetzel and Andreas Luppold is a use-
ful stimulus for all marketing and sales managers, both on the manufactur-
er’s side and on the retailer’s side. However, it can also offer knowledge and
inspiration to all other readers interested in purchasing behavior.
Before a product can be consumed, it must be purchased. This means:
Without a shopper, there is no consumer—an aspect that is often neglected
in marketing. Marketing managers still focus much more on the consumer
than on the buyer—historically, because the “Point of Purchase” was left
more to sales. The purchasing decision behavior is complex and the drivers
of the purchasing decision are not always clear. Causal effects are becom-
ing increasingly important in identifying the right marketing measures.
Experiments play a crucial role in identifying causal effects in order to sub-
sequently design the right marketing activities. Therefore, the exchange
between research and practice should be further intensified.
The book provides a comprehensible overview of relevant topics around
purchasing decisions. The chapters show the connection between economic
theories, data, and experiments. It shows that there are often different
results on a topic because outcomes and effects often depend on various fac-
tors. The book encourages thinking about one’s own marketing problems,
developing theories, collecting data, or conducting experiments. It also
offers numerous starting points to further intensify the exchange between

v
vi      Foreword

academic research and practical application, from which both sides can
benefit.
With this in mind, we hope you enjoy reading this exciting book.

Dr. Alexander Lauer

(Aldi Nord)
Prof. Dr. Bernd Skiera
(Goethe University Frankfurt)
 Preface

Why a book that summarizes 33 scientific effects and theories about pur-
chasing decisions? For this, we need to take a small leap in time. Back to
the years 2013 to 2018. For five years, we, the authors, worked together in a
market research and consulting company, dealt with the topic of purchasing
behavior, and advised both manufacturers of branded goods and retailers.
As part of market research projects, we often experimented in supermarkets
with various marketing measures in so-called controlled store tests.
Often we were surprised that the results turned out quite differently than
we had expected. Often also different from what can be read in the numer-
ous marketing blogs or marketing guides. More choice and more varieties on
the shelf led to more sales. The introduction of the smaller package on the
shelf suddenly increased the sales of the standard product. We began to deal
more intensively with scientific studies on purchasing decision phenomena
and to start a first collection. And we had the idea to make a book out of it.
With our book, we want to facilitate your entry into the exciting topics
around purchasing decisions from our perspective. It is aimed at all those
who deal professionally with marketing topics, but also at students and read-
ers who are interested in economic contexts. We do not claim to completely
summarize the scientific literature on a topic. The subject areas are often far
too complex for that. Rather, with the book and the articles, we want to
show that the world of marketing and the topics around purchasing deci-
sions are often not that simple. We want to make it clear that there are often
different results on a topic in science. The results and effects often depend
on various factors. The articles are not just about psychological effects that
influence buying behavior. We also present economic theories and methods.

vii
viii      Preface

With all these contributions, we want to stimulate thought and bring sci-
ence and practice a little closer together.
We have described the 33 “phenomena”, i.e., scientific effects and the-
ories, in individual articles and tried to formulate them as understandably
as possible. The order in which you read the articles is essentially irrelevant.
Always tackle one article at a time. This should be possible even on a train,
on the sofa, or in an armchair with a good glass of wine.
At the end of each article, you will find a summary and recommendations
for marketing practice. However, these recommendations are not as specific
as one might wish at first glance. Here too, we believe that the world of mar-
keting is far too complex to derive generalizable recommendations from our
articles. Rather, we want to encourage you to apply the presented effects and
theories to your own problems and work on solutions. The studies we refer
to in our articles are mostly based on experiments. Experiments are the gold
standard in science as they can reveal causal relationships. With our arti-
cles, we want to encourage you to conduct experiments that will lead you to
solutions.
At this point, we would like to express our sincere thanks to everyone
who has supported us in various ways in this project. We would like to
express our gratitude to Yagora GmbH for providing the conducted shop-
per studies, to the Department of Business at Fulda University of Applied
Sciences, as well as to the student assistants Luise Straetmans and Niko
Gerlach for their support in the literature research and the creation of the
images.
Now, we hope you enjoy reading.

in July 2023 Sebastian Oetzel

Andreas Luppold
 Contents

1 Is the glass Half Full or Half Empty? Absolute-Number-

Heuristic 1
2 How Are We Influenced by Music? Acoustic Stimuli 7
3 How High is Our Willingness to Pay? Asymmetric
Information 11
4 Are We Confused by Too Much Choice? Choice Overload 17
5 Is the Choice of the Middle Rational? Compromise Effect 23
6 Do We Only Read What We Want to Read?
Confirmation Bias 29
7 Are We Deceived by a Decoy? Decoy Effect 35
8 How Well Can We Compare Prices? Ease-of-Computation
Effect 41
9 How Do Hunger and Caffeine Influence Us? Energetic
Arousal 45
10 Why is There Champagne On Offer at New Year’s Eve?
Prisoner’s Dilemma 51
11 What Influences Our Appreciation of Products? Handmade
Effect 55
12 When Do We Buy Spontaneously? Impulse Buying 61

ix
x      Contents

13 How Adapted Do We Buy? Conformity 65

14 How Do We Orient Ourselves on the Shelf? Congruence 71
15 What is a Click Worth? Correlation or Causality 77
16 Do We Spend More Money When We are Satisfied?
Customer Satisfaction 83
17 Which Numbers Influence Us? Left-Digit Effect 89
18 Do We Plan Spontaneous Purchases? Mental Accounting 95
19 Do We Get the Lowest Price With a Price Guarantee?
Low Price Guarantees 101
20 How Could We Eat Healthier? Nudging 107
21 Would We Buy One and Pay for Two? Numeracy 111
22 How are We Influenced by Scents? Olfactory Stimuli 117
23 How Well Can We Assess Ourselves? Overconfidence 123
24 Do Frequent Price Promotions Lower the Price
Assessment? Reference Price Effect 129
25 Is Advertising Overrated? Return on
Marketing Investment 135
26 Can We be Activated Unconsciously? Reverse Priming 141
27 Why Don’t We Get Anything for Free? Reciprocity 147
28 How Well Does Marketing Know Us? Rosy View Bias 153
29 Are We Influenced by Scarcity? Scarcity Effect 159
30 How Do We React to Hidden Price Increases?
Shrinkflation 165
31 What Influence Do Good and Bad News Have on
Us? Silver-Lining Principle 171
32 How are We Influenced by Social Norms? Social Norms 177
33 How are We Influenced by Ad Blockers? Ad Blockers 183
 About the Authors

Sebastian Oetzel. Photo: Nicole Dietzel

Dr. Sebastian Oetzel has been a professor of Business Administration,

especially Marketing, at the Department of Business at Fulda University of
Applied Sciences since 2018. After studying and obtaining his doctorate
at the Goethe University Frankfurt , he worked as a consultant at Yagora
GmbH. He has extensive experience in conducting and evaluating scientific
and practice-oriented studies in the grocery retail sector. His research inter-
ests lie in the areas of Quantitative Marketing, Marketing Analytics, and
Behavioral Economics. The research focuses are on the application of quan-
titative methods to optimize marketing decisions, particularly in pricing and
promotional policy, as well as in the study of purchasing behavior in retail
and in the consumer goods industry. In his research, behavioral economic
theories are empirically tested using experiments and data analyses.

xi
xii      About the Authors

Andreas Luppold. Photo: Bernd Euring

Andreas Luppold, Dipl. Kaufmann, is the Managing Partner of the con-

sulting firm Innobrands GmbH. He is also the Leading Consultant &
Company Advisor of Yagora GmbH, a market research and consulting firm
focused on purchasing behavior. After studying at the Goethe University in
Frankfurt am Main, his professional stations were Tchibo Frisch-Röst-Kaffee
GmbH, JWT advertising agency, and the publishing group Deutscher
Fachverlag. Andreas Luppold was also a lecturer for marketing at the FOM
University of Applied Sciences in Frankfurt. Yagora conducts market
research projects in the food retail sector, primarily using implicit methods
in addition to surveys. Andreas Luppold has experience in conducting sev-
eral hundred studies for consumer goods manufacturers and the retail sector.
 1
Is the glass Half Full or Half Empty?
Absolute-Number-Heuristic

Why we should use positive frames. And why the higher number brings more.

Only through a slightly different description, representation, or arrangement

of the decision situation can a decision be influenced. This is referred to in
the scientific literature as framing. Let's consider the following example by
Levin and Geath (1988). In the study, subjects were shown either a positive
or a negative frame in connection with the purchase of ground beef:

A: Positive Frame: Ground beef 75% lean

B: Negative Frame: Ground beef 25% fat

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part 1
of Springer Nature 2024
S. Oetzel and A. Luppold, 33 Phenomena of Purchasing Decisions,
[Link]
2    
S. Oetzel and A. Luppold

Upon closer inspection, it is found that the two statements are actually iden-
tical. In the first case, the glass is, figuratively speaking, half full, in the sec-
ond case, half empty. But if both statements are identical, the representation
should have no influence on the evaluation. In the conducted experiment,
the subjects were to evaluate various characteristics such as “good tasting”,
“fat”, or “high quality”. Obviously, the two statements are identical in con-
tent. However, the subjects in the positive framing group rated all character-
istics significantly better (Levin & Geath, 1988).
But what happens when buyers evaluate prices in the context of price pro-
motions? In practice, price promotions are often presented as absolute or
percentage price reductions:

A: 20 EUR discount on an item worth 200 EUR

B: 10% discount on an item worth 200 EUR

Here too, the two statements are absolutely identical. The two price promo-
tions are merely presented differently and thus have a different framing. In
the first case as an absolute discount and in the second case as a percentage
discount on the original price of 200 EUR. In both cases, the savings for the
buyer amount to 20 EUR. Assuming a completely rational buyer, the fram-
ing of the two price promotions should have no influence on his decision.
This exact question was investigated by Gonzáles et al. (2016). In one of
their experiments, they divided the subjects into four groups. In the first
two groups, the subjects were shown a cheap product. Balloons. Some of
the subjects were presented with an absolute, others with a percentage price
reduction. The same procedure was followed in groups three and four. Only
that this was a more expensive product. A jacket. Afterwards, the subjects
were asked to evaluate the offer and their purchase intention. For cheaper
products, framing seems to play a lesser role. Here, the evaluation of the
purchase intention was slightly higher with a percentage representation of
the price promotion, but not statistically significantly different from the
absolute representation of the price reduction. However, purchase intentions
were significantly higher for more expensive products when the price reduc-
tion was presented in absolute numbers (Gonzáles et al., 2016).
The authors also provide an explanation for this result. They use the
Absolute-Number-Heuristic for this. A heuristic is a kind of “rule of
thumb”. People use such rules to simplify decisions. Let's consider the
two examples in Table 1.1. The first example involves high-priced prod-
ucts worth over 100 EUR. We take again as an example a product worth
200 EUR and a percentage discount of 10%. This results in an absolute
 1 Is the glass Half Full or Half Empty? Absolute-Number-Heuristic    
3

discount of 20 EUR. However, the number 20 of the absolute discount

is larger than the number 10 of the percentage discount. This leads to the
fact that absolute discounts work significantly better for high-priced prod-
ucts over 100 EUR. For products over 100 EUR, the number of absolute
discounts is always larger than the number of percentage discounts. The
situation is exactly the opposite for the low-priced products in the second
example. Let's take an item worth 20 EUR and again a discount of 10%.
The corresponding value of the absolute discount is 2 EUR. The number 2
is significantly smaller than the number 10. For products under 100 EUR,
the number of the percentage discount is always larger than the corre-
sponding value of the absolute discount. The Absolute-Number-Heuristic
therefore states that buyers simplify their decision in price promotions by
evaluating the number with which the price promotion is represented
(Gonzáles et al., 2016).
So far, we have dealt with the framing of price promotions as a percentage
or absolute discount. We now know that we can increase the purchase inten-
tion if we present the price promotion differently. But can the perceived
value of a price promotion be increased even further? Simply by a differ-
ent framing? Yes, that is possible. This is shown by a study by Guha et al.
(2018). The authors take as an example a product with an original price of
10 EUR, which is now offered at a promotional price of 8 EUR. Consider
the following two offers:

A: 20% cheaper than the regular price

B: Regular price 25% more expensive than the promotional price

Here too, the savings are the same in both presentations if you buy the item,
which normally costs 10 EUR, on special offer for 8 EUR. The price pro-
motion is again just presented differently. The first presentation is typically
found in the flyers of grocery retailers or in the fashion stores of this world.

Table 1.1 Absolute and percentage discounts for high-priced and low-priced
products
Example 1: Example 2:
High-priced products > 100 EUR Low-priced products < = 100 EUR
Absolute 20 EUR discount on an item worth 2 EUR discount on an item worth
200 EUR 20 EUR
Percentage 10% discount on an item worth 10% discount on an item worth
200 EUR 20 EUR
Heuristic 20 > 10 10 > 2
4    
S. Oetzel and A. Luppold

Here, the discount is based on the regular price. You divide the discount of
2 EUR by the regular price of 10 EUR. The result is a saving of 20% com-
pared to the original price. The second presentation is rather rare. At least
we have never noticed it. But what is the difference? In the second frame,
the discount is not based on the regular price, but on the promotional price.
You divide the discount of 2 EUR by the promotional price of 8 EUR. The
result is the 25%, which is the regular price more expensive than the promo-
tional price. The saving of 2 EUR is still the same, but the number 25 in the
second presentation is higher than the number 20 in the first presentation
(Guha et al., 2018).
If buyers also use the Absolute-Number-Heuristic here, then the presenta-
tion “Regular price 25% higher than promotional price” should lead to a
better price perception and thus increase sales during the price promotion.
This is exactly what Guha et al. (2018) investigated in Swedish supermarkets
for the four household products shampoo, napkins, coffee and cream. In all
stores, both the regular prices and the promotional prices were displayed.
In one half of the stores, the promotional price was presented as “now
31% lower”, in the other half as “was 44% higher”. The results confirm the
hypothesis. The promotion uplift was significantly higher for all products
in the group where the price reduction was based on the promotional price
(Guha et al., 2018).

Summary and Recommendations

The manner of presentation, especially of prices, can significantly influence
the purchasing decision, even if the content of the presentation in the var-
ious frames is identical. This plays a major role in marketing practice, par-
ticularly in the presentation of prices during price promotions. Therefore,
the following can be noted as a recommendation for marketing managers
responsible for price promotions: Absolute discounts for products over
100 EUR and percentage discounts for products under 100 EUR. However,
profits can be further increased by experimenting with the way prices are
displayed. For example, retailers could replace the commonly used presenta-
tion “X% cheaper than the regular price” with the presentation “Regular
price Y% more expensive than the promotional price”, thereby increasing
the intention to buy. The value of Y is higher than the value of X, mak-
ing the price promotion appear even more advantageous. In science, this is
referred to as the Absolute-Number-Heuristic. However, we have not yet
encountered this type of presentation in practice. Give it a try. Perhaps you
should not immediately change all price tags, but initially experiment with
individual products or categories.
 1 Is the glass Half Full or Half Empty? Absolute-Number-Heuristic    
5

References
González, E. M., Esteva, E., Roggeveen, A. L., & Grewal, D. (2016). Amount off
versus percentage off—When does it matter? Journal of Business Research, 69(3),
1022–1027.
Guha, A., Biswas, A., Grewal, D., Verma, S., Banerjee, S., & Nordfält, J. (2018).
Reframing the discount with a comparison to the sale price: Does it make the
discount more attractive? Journal of Marketing Research, 55, 339–351.
Levin, I. P., & Gaeth, G. J. (1988). How consumers are affected by the framing of
attribute information before and after consuming the product. Journal of con-
sumer research, 15(3), 374–378.
 2
How Are We Influenced by Music? Acoustic
Stimuli

How country music or classical music influences purchasing decisions. And why we
shouldn’t listen to loud music while eating in a café.

Music is everywhere. When we get up in the morning, for many, the radio
is already playing in the bathroom and during breakfast. Those who drive
to work in the morning often automatically turn on the radio and let them-
selves be distracted a little by pop and rock on the journey. Then there’s
music again in the elevator to the office. We also encounter music when
shopping. Some grocery retailers even have their own radio. From a mar-
keting perspective, music is an easily deployable tool and many store owners
want to create a pleasant atmosphere in their sales rooms with music and
put potential customers in a positive mood. But music, which constantly
plays in the background, naturally also influences our buying behavior.

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part 7
of Springer Nature 2024
S. Oetzel and A. Luppold, 33 Phenomena of Purchasing Decisions,
[Link]
8    
S. Oetzel and A. Luppold

However, the way music works is not as clear-cut as many believe. This
is because music is very complex. Music tracks consist of many different
components and differ, for example, in melody, rhythm, beat, tempo, or the
musical instruments used. Controlling this in scientific studies proves to be
extremely difficult. This is evident, for example, in the investigation of the
influence of music tempo on buying behavior. In an experiment, one would
have to play a slow song to one test group and a fast song to another test
group and then compare the buying behavior of the two groups. However,
by choosing a slow and a fast song, not only the speed changes, but also all
other components of the song at the same time.
A frequently cited study investigating music tempo comes from Milliman
(1982). The scientist examined the influence of the tempo of background
music in a grocery store on buying behavior. To this end, 40 songs were
played in a grocery store over a period of nine weeks. The results of the
experiment show that customers spend more time in the store with slow
music than with fast music. At the same time, it was observed that signifi-
cantly more money was spent on days with slow music (Milliman, 1982).
However, the music tempo does not seem to be independent of other
variables. In a similar experiment, the authors Knöfferle et al. (2012) inves-
tigated the influence of music tempo on sales in department stores. The
authors drew on over 330 songs, which they divided into fast and slow songs
based on the number of beats per minute. At the same time, they took into
account the key of the song, i.e., major or minor. The results of the experi-
ment show that higher sales can only be observed when slow music in minor
is played. The authors argue that the fit between “slow” and “minor” is sig-
nificantly higher than between “slow” and “major”. This is culturally condi-
tioned. In Western music culture, there is either the combination of “slow”
and “minor” or the combination of “fast” and “major” (Knöfferle et al.,
2012).
The fit or match seems to play a crucial role in scientific research on the
effect of music. How well does the music fit, for example, the image of the
business or the product? North et al. (1999) argue in their famous wine
study that background music in a store leads to the activation of music-re-
lated knowledge structures in the brain. If customers hear, for example,
French music in the supermarket, knowledge about France is activated
in the brain. This could lead to more French wines being bought, so the
hypothesis. To test this, the authors set up a display of German and French
wines in an English supermarket. The display with the wines stood in this
supermarket for a total of 14 days. Each day either German or French music
was played. The result was clear. On the days when French songs were
 2 How Are We Influenced by Music? Acoustic Stimuli    
9

played on the accordion next to the display, more French wine was also sold.
Conversely, significantly more German wine was sold on days when German
brass music was played (North et al., 1999).
Music can also influence how products feel. Here too, the match between
music and product plays a crucial role. In one of their experiments,
Imschloss and Kuehnl (2019) investigated the influence of soft music on the
haptic perception of fabrics. The study is of great importance from a retail
perspective, as a large part of customers want to hold or try on the product
before buying. This applies especially to fashion stores or dealers for decora-
tion and furniture. But what is soft music? According to their definition, it
is music that is rather slow, uses soft instruments, sounds harmonious, and
is played legato. They chose two songs by the band Sunrise Avenue, which
they played to the participants of the study. The band’s song “Welcome to
My Life” was rated as rather soft in a preliminary study, the song “I Don’t
Dance” as rather hard. At the same time, the test subjects were presented
with either a soft velvet-like fabric made of 20% cotton or a harder fabric
made of 100% cotton, which they were to evaluate. When the test subjects
were exposed to softer music, they also rated the fabric as softer. Here too,
the same hypothesis was underlying. The perception of soft music and the
perception of a soft fabric are linked in our brain. We probably transfer both
stimuli to a similar semantic scale. The results also show that the willingness
to buy and pay for a pillow made of such a fabric increases when the fabric is
perceived as softer (Imschloss & Kuehnl, 2019).
The influence of background music on willingness to pay was also inves-
tigated by the authors North et al. (2016). They argue that music genres can
evoke associations that are unconsciously transferred to the products being
sold. Thus, classical music probably activates brain nodes like “prestige”
or “sophisticated”, while country music tends to lead to a utility-oriented
mindset. In the experiments, the participants listened to either classi-
cal music or country music. Afterwards, they were asked to indicate their
willingness to pay for 20 products. Ten products were more utilitarian, the
others more hedonistic. Hedonistic products serve the consumer’s pleasure
and enjoyment, while utilitarian products mainly have a functional bene-
fit and thus serve more practical purposes. The participants were willing to
pay more for utilitarian products when country music was played instead of
classical music, and more for hedonistic products when classical music was
played instead of country music (North et al., 2016).
Finally, a tip on how to use music to eat healthier. If you want to eat
healthily, it is important to avoid loud background music. Studies by Biswas
et al. (2019) show that loud background music in cafes leads us to order
10    
S. Oetzel and A. Luppold

more calorie-rich and unhealthy dishes. Surprisingly, the type of music—

rock, classical or R&B—does not matter. Quiet music leads us to order
healthier dishes. So salad instead of cake. Quiet background music makes us
relax, loud background music makes us feel stressed. When we are relaxed,
we can resist tempting, unhealthy dishes more easily and choose the health-
ier alternatives (Biswas et al., 2019).

Summary and Recommendations

As difficult as it is to investigate the influence of music on purchasing behav-
ior, the good news from a retailer’s perspective is that music overall has a
positive influence on purchasing behavior. This is shown by the meta-analy-
sis of Roschk et al. (2017), in which a total of 47 effects from various stud-
ies on the effect of music were analyzed. According to this, music correlates
positively with the joy of buying, general satisfaction, and purchase inten-
tion. Crucial for the success of music in influencing the purchase decision is
the situational fit of the music. The music must match the target group, the
time of day, and the product.

References
Biswas, D., Lund, K., & Szocs, C. (2019). Sounds like a healthy retail atmospheric
strategy: Effects of ambient music and background noise on food sales. Journal of
the Academy of Marketing Science, 47(1), 37–55.
Imschloss, M., & Kuehnl, C. (2019). Feel the music! Exploring the cross-modal
correspondence between music and haptic perceptions of softness. Journal of
Retailing, 95(4), 158–169.
Knoferle, K. M., Spangenberg, E. R., Herrmann, A., & Landwehr, J. R. (2012).
It is all in the mix: The interactive effect of music tempo and mode on in-store
sales. Marketing Letters, 23(1), 325–337.
Milliman, R. E. (1982). Using background music to affect the behavior of super-
market shoppers. Journal of Marketing, 46(3), 86–91.
North, A. C., Hargreaves, D. J., & McKendrick, J. (1999). The influence of
in-store music on wine selections. Journal of Applied Psychology, 84(2), 271.
North, A. C., Sheridan, L. P., & Areni, C. S. (2016). Music congruity effects on
product memory, perception, and choice. Journal of Retailing, 92(1), 83–95.
Roschk, H., Loureiro, S. M. C., & Breitsohl, J. (2017). Calibrating 30 years of
experimental research: A meta-analysis of the atmospheric effects of music, scent,
and color. Journal of Retailing, 93(2), 228–240.
 3
How High is Our Willingness to Pay?
Asymmetric Information

Why a second-price auction solves the problem of asymmetric information of negotiating

partners. And why auction principles should be used for market research.

Do you often use classifieds to sell things you no longer need? The bicycle
that has become too small for the children or the living room table because
you could finally afford the long-desired wooden table. But what price
should you write in the ad for the table or the bicycle? After all, there are
no comparable products for many used goods where you can quickly check.
On the other hand, those who are looking for a bicycle or a cheap table for
the student apartment often have a very precise idea of how much they are
willing to pay for the product. Economists refer to such a situation as asym-
metric information. One side, in this case the buyer, has more information
than the other side, the seller.
Johann Wolfgang von Goethe faced a similar challenge. How much
should he demand from his publisher for his epic “Hermann and
Dorothea”? Towards his publishers, the recipients of his manuscripts, Goethe

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always had certain reservations, as he feared they might have a knowledge

advantage. He suspected that the publishers, due to their precise knowledge
of the demand for such manuscripts, were also able to determine their value
exactly (Tietzel, 1999). In a letter, he expressed these concerns:

“However, let me express the main evil …: it is this: that the publisher always
knows exactly what is beneficial to him and his family, while the author is
completely in the dark about it.” (Tietzel, 1999).

How could he prevent his publisher from taking advantage of him? Goethe
had a brilliant idea and offered his manuscript to his publisher Vieweg
under the following conditions (Tietzel, 1999):

“I am inclined to leave an epic poem Hermann and Dorothea, which will

be approximately two thousand hexameters strong, to Mr. Vieweg in Berlin
for publication. As for the honorarium, I am sending Mr. Counsel Böttiger
a sealed note containing my demand and I am waiting for what Mr. Vieweg
believes he can offer me for my work. If his offer is less than my demand, I
take back my sealed note unopened and the negotiation breaks down, if it is
higher, I do not demand more than is listed in the note to be opened by Mr.
Böttiger.” (Tietzel, 1999)

Goethe’s proposal is a kind of second-price auction. The procedure was later

developed by William S. Vickrey, who in 1996 received the Alfred Nobel
Memorial Prize in Economic Sciences for his economic theory of incentives
in asymmetric information. Asymmetric information is present in auctions.
The buyer knows his willingness to pay and thus the value of the goods, the
seller does not. This is exactly what Goethe accused his publishers of.
The auction proposed by Vickrey is a procedure in which it is optimal
from the bidder’s point of view to offer his true willingness to pay. The trick
is that the bidder who wins the auction does not have to pay his own bid in
the end. In the Vickrey auction, all bidders submit a sealed bid. The bidder
with the highest bid wins the auction. However, the winner does not have to
pay the price of his bid, but the price corresponds to the second highest bid.
The auction is therefore also called a second-price auction (Vickrey, 1961).
If you consider the price deposited by Goethe as a bid, there are two bid-
ders in this case. Goethe and Vieweg. The following numerical example is
intended to illustrate that Goethe forces his publisher Vieweg to offer exactly
his willingness to pay. Let’s assume that Goethe estimates the value of the
 3 How High is Our Willingness to Pay? Asymmetric Information    
13

manuscript at 90. This value results from his costs for the production of
the manuscript. So he writes the number 90 on the card and sends it sealed
to Böttiger. Vieweg knows the sales chances of the epic very well and has
a willingness to pay for Goethe’s work of 100. If his bid is now above that
of Goethe, he receives the manuscript, but only has to pay the price of the
second highest bid, i.e. Goethe’s bid of 90. How should Vieweg behave?
Should he act strategically and offer something below his willingness to pay?
If Vieweg offers a price below his willingness to pay, e.g. 95, then he is lucky.
He gets the manuscript and only pays 90, i.e. the second highest bid. His
consumer surplus would be positive in this case 100 − 90 = 10. But Vieweg
does not know that Goethe has written a 90 on the card. There could also
have been a 97 on Goethe’s card. Then Vieweg would not have received the
manuscript, although his willingness to pay is actually higher than 97. A bid
below the willingness to pay is therefore not a good idea. What if you offer
a value above your own willingness to pay of 110? Here there is the risk
that Goethe has noted a 105 on his note. In this case, Vieweg would indeed
receive the contract, but the amount to be paid would be higher than his
willingness to pay with 105. The optimal strategy for Vieweg in this case
is therefore to submit a bid equal to his actual willingness to pay (based on
Skiera & Revenstorff, 1999).
From the perspective of a marketing manager responsible for pricing his
products, such a procedure is naturally ingenious. However, if you partici-
pate in surveys, you will probably still encounter the question: “How much
are you willing to pay for the product?” Two points always come to mind
with this direct question. First: How do I know how much I am willing to
pay for this product? As long as I don’t have to pay for the product in the
end, I don’t really care, many probably think. Many people also find it dif-
ficult to express their willingness to pay in a single number. Some can only
name a certain range. Second. The respondents could anticipate that their
judgment in this market research study will later influence the price in the
store. Then they prefer to give a lower price. Economists refer to such direct
questions about willingness to pay as a lack of incentive compatibility. The
respondents therefore have no incentive to reveal their true willingness to
pay to the interviewer. And it is precisely this lack of incentive compatibility
that the Vickrey auction solves.
In scientific research, another method is often used to measure willing-
ness to pay—the so-called Becker-DeGroot-Marschak mechanism, or
BDM for short (Becker et al., 1964). In a scientific study, Wertenbroch
and Skiera (2002) used this method to determine the willingness to pay for
14    
S. Oetzel and A. Luppold

a caffeinated lemonade. In one of their experiments, they auctioned off a

can of Coca-Cola on a beach in Kiel in Germany. Half of the test subjects
only had to state their willingness to pay. The other half was asked to place
a bid equal to their willingness to pay for the can. A price was then drawn
from an urn. If the drawn price was less than or equal to the subject’s bid,
the subjects had to buy the can of cola. The price then corresponds to the
price drawn from the urn. If the price drawn from the urn was higher than
the subject’s bid, the purchase did not take place. The procedure is theoret-
ically very similar to the Vickrey auction. There are two bidders here, too.
The randomly drawn price from the urn is nothing more than another bid.
And as the above numerical example shows, from the perspective of the
other bidder, it is optimal to place a bid equal to his true willingness to pay.
The results of the cola experiment show that the subjects had significantly
lower willingness to pay with the incentive-compatible BDM mechanism
(Wertenbroch & Skiera, 2002).
The problem of directly querying willingness to pay is of course also
known in practice. Many textbooks on pricing policy also contain the note
that direct surveys should never be used as a valid method for determining
willingness to pay. For this reason, market research and marketing practice
often resort to indirect surveys. In such indirect surveys, the subjects have
to decide between different products in several choice situations. The prod-
ucts are described by various attributes and prices. The willingness to pay is
then determined from the choice behavior. So the willingness to pay is not
asked directly, but only indirectly. These procedures are referred to as con-
joint experiments.
And how should willingness to pay be measured? There are now numer-
ous scientific studies that have examined the validity of the various methods.
For example, the authors Miller et al. (2011) compare a direct approach,
an indirect approach, and the BDM mechanism with data from an online
shop—i.e., real purchase decisions—for a cleaning product. The results of
the study show that the BDM mechanism performs best. On average, the
willingness to pay determined with the BDM mechanism was only 6%
above the actual willingness to pay, which was determined via the online
shop. With the direct approach it was 30% and with the indirect approach
even over 76%. However, if a purchase obligation is built into the survey in
the case of the indirect approach, the willingness to pay is only 11% above
the actual one. Next, the authors examined the optimal price that can be
calculated from the distribution of willingness to pay. Here too, the BDM
mechanism performed best, although the other methods did not provide
 3 How High is Our Willingness to Pay? Asymmetric Information    
15

statistically significantly different results. From a statistical point of view,

all methods were suitable for determining the optimal price (Miller et al.,
2011).
Schmidt and Bijmolt (2020) come to a similar result, who evaluated 77
studies on the measurement of willingness to pay in their meta-analysis. If
the willingness to pay is measured hypothetically, i.e., without a purchase
obligation at the end of the survey, the bias of the willingness to pay survey
is more than 21% above the actual willingness to pay. Here too, the recom-
mendation is to raise the “true” willingness to pay within the framework of
an auction (Schmidt & Bijmolt, 2020).

Summary and Recommendations

In today’s marketing and market research practice, willingness to pay is often
still determined by directly asking for willingness to pay. However, scientific
studies show that this method often overestimates actual willingness to pay.
Through auctions or a purchase obligation at the end of the survey, market
researchers and marketing managers can get much closer to the actual will-
ingness to pay. This insight is supported by the scientific studies conducted
and reminds us of a saying by Goethe:

“If you demand a wise answer, you must ask a sensible question.”

We would like to encourage you to use auctions and the BDM mechanism
to determine willingness to pay more frequently in market research. Give it
a try.

References
Becker, G. M., DeGroot, M. H., & Marschak, J. (1964). Measuring utility by a
single-response sequential method. Behavioral Science, 9(3), 226–232.
Miller, K. M., Hofstetter, R., Krohmer, H., & Zhang, Z. J. (2011). How should
consumers’ willingness to pay be measured? An empirical comparison of state-of-
the-art approaches. Journal of Marketing Research, 48(1), 172–184.
Schmidt, J., & Bijmolt, T. H. (2020). Accurately measuring willingness to pay for
consumer goods: A meta-analysis of the hypothetical bias. Journal of the Academy
of Marketing Science, 48(3), 499–518.
Skiera, B., & Revenstorff, I. (1999). Auktionen als Instrument zur Erhebung von
Zahlungsbereitschaften. Schmalenbachs Zeitschrift für betriebswirtschaftliche
Forschung, 51(3), 224–242.
16    
S. Oetzel and A. Luppold

Tietzel, M. (1999). Goethes Strategien bei der wirtschaftlichen Verwertung seiner

Werke. Buchhandelsgeschichte, 1, B2–B18.
Vickrey, W. (1961). Counterspeculation, auctions, and competitive sealed tenders.
The Journal of Finance, 16(1), 8–37.
Wertenbroch, K., & Skiera, B. (2002). Measuring consumers’ willingness to pay at
the point of purchase. Journal of Marketing Research, 39(2), 228–241.
 4
Are We Confused by Too Much Choice?
Choice Overload

Why product diversity and risk reduction are related. And why Choice Overload exists
and yet does not exist.

Category Management deals with the optimization of the assortment com-

position and the structuring of products on the shelves of supermarkets. As
a category manager, you always think from the perspective of the potential
customer, because after all, the assortments and products on the shelves of
supermarkets should be oriented towards the needs of the customers. If you

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[Link]
18    
S. Oetzel and A. Luppold

work in category management or attend a conference or congress, there is

a high probability that you will be introduced to the jam experiment. The
results of the experiment are often used to justify assortment decisions, often
in connection with assortment reductions and delisting of items. And per-
haps you feel like us when someone presents the jam experiment to you
again and you think: “Not the jam experiment again”.
The famous jam experiment by Iyengar and Lepper (2000) shows that
too much choice within a category overwhelms customers, leading to
abandoned purchase and thus overall to sales losses. To test their hypoth-
esis, the research team set up a tasting booth for jam in a supermarket in
California on two consecutive Saturdays. Either six or 24 types of jam were
offered at the tasting booth. The offer changed hourly, with popular vari-
eties like strawberry or raspberry not being available. Potential customers
who came to the tasting booth could try the types of jam and received a
coupon with a discount of one dollar. One might think that the customers
would have been pleased about the large selection of types of jam. Classical
economics would suspect here: The more choice, the better. Because the
greater the variety on the supermarket shelf, the higher the probability that
the customer will find a product that meets his needs (Iyengar & Lepper,
2000).
However, the results of the experiment paint a different picture. At the
tasting booth with 24 types of jam, 60% of supermarket customers stopped.
This is significantly more than at the tasting booth with only six varieties.
Here it was only 40% of customers. A high variety of types thus arouses the
interest of customers. But do the customers at this tasting booth also buy
more? Far from it. At the tasting booth with 24 different types of jam, only
3% of the customers bought, at the tasting booth with six types it was 30%.
The results of the experiment show that too much choice, while generat-
ing interest, can overwhelm potential customers and reduce the likelihood
of purchase. This is referred to in the scientific literature as Choice Overload
(Iyengar & Lepper, 2000).
But is it really always the case that too much choice on the shelf leads
to an overload in the purchase decision? Don't customers look for variety,
new products and types? We first came into contact with the topic of Choice
Overload when we conducted a similar experiment for a manufacturer.
However, there were significant differences from the jam experiment. This
time it was not about jam, but about chocolate. And the chocolate bars were
not offered at a tasting booth, but during a price promotion on a so-called
display. The retailer refers to a secondary placement, as it is an additional
placement of the product in the store.
 4 Are We Confused by Too Much Choice? Choice Overload    
19

To test the influence of a different variety of types on a display on the

sales, an experiment with a test and a control group was conducted in real
supermarkets. In the stores of the control group, displays with all 23 types of
chocolate were placed. In the stores of the test group, 16 types were placed
on the displays. The experiment was conducted during a price promotion
week, with the price promotion also being announced in the retailer's flyer.
The results of the subsequent scientific study by Sachse et al. (2023) differ
significantly from the results of the jam experiment. Of course, the price
promotion had a strong sales effect in both groups. However, the sales effect
of the display with only 16 types was about 12% lower than that of the dis-
play with 23 types. With chocolate bars, customers seem to be more moti-
vated to buy by a large selection (Sachse et al., 2023).
Why are the results of the jam and chocolate experiments so different?
Sachse et al. (2023) analyzed the promotion effect of the individual varieties
of the brand using statistical models. For the secondary placement with a
high variety of types in the display, the following result could be determined:
Varieties that have a high sales in weeks without a price promotion have at
the same time only a relatively low promotion effect. Varieties that have a
low sales in normal weeks without a price promotion, on the other hand,
show a disproportionate promotion effect. The results of the experiment sug-
gest that new products are particularly tried out when there is a large selec-
tion. The short-term price reduction probably also reduces the risk of bad
purchases. If I try a new variant that I don't like after all, the loss due to the
price reduction is not so great (Sachse et al., 2023).
Science has dealt intensively with the Choice Overload effect and there
are now numerous empirical studies that have investigated Choice Overload
in various categories or decision situations. The first meta-analysis on the
Choice Overload effect comes from Scheibehenne et al. (2010) and was
published in the Journal of Consumer Research. The research team bases
its analysis on 50 experiments with more than 5000 subjects from the years
2000 to 2009, with the data coming from various categories. The results of
the meta-analysis show that the Choice Overload effect on average is close
to zero. This means that on average across all examined experiments there
is no Choice Overload. At the same time, however, the results show a high
variance. This in turn means that Choice Overload must depend on certain
factors that were not further investigated in the present study (Scheibehenne
et al., 2010).
The second meta-analysis comes from Chernev et al. (2012) and was pub-
lished in the Journal of Consumer Psychology. This time, the data comes
from 53 studies with over 7000 respondents. The authors identify four
20    
S. Oetzel and A. Luppold

factors responsible for choice overload in customers. Possible influencing

factors include, for example, the “decision task difficulty”, i.e., the difficulty
of the choice situation. If products are described by many characteristics or
customers are under time pressure, this can more likely lead to customers
suffering from choice overload. The “choice set complexity” can also play a
role. Scientific studies show that the presence of a dominant alternative in an
assortment can facilitate the selection decision. If potential customers cannot
clearly recognize the advantages and disadvantages of individual products,
the selection decision is significantly complicated. This is the case, for exam-
ple, with relatively new product categories with which customers have not
yet gained experience. The authors refer to this as “preference uncertainty”.
As the last factor, the authors discuss the “decision goal”. For example, if a
customer enters a fashion store with the specific goal of buying a new dress
or a new pair of trousers, this decision can be significantly more difficult
than if he only has the goal of browsing. The authors show in their study
that all four factors have a significant influence on the choice overload of
customers in connection with large assortments (Chernev et al., 2012).

Summary and Recommendations

Although choice overload is familiar to many and is often used as an argu-
ment for assortment decisions, the results of the jam experiment cannot
be easily transferred to other products or product categories. The choc-
olate experiment differs in one essential point from the jam experiment.
Chocolate is an impulse product that probably rarely appears on the buyer's
shopping list. Emotional processes probably influence the purchase decision
more than with jam. Often the results are not generalizable, but depend on
further factors. If factors are changed, the result, whether choice overload
exists or not, can also change. This is also shown by the results of the sec-
ond meta-analysis. So before you throw products out of the range next time
because the jam experiment is shown to you, it is better to test it beforehand
with an experiment.

References
Chernev, A., Bockenholt, U., & Goodman, J. (2012). Choice overload: A concep-
tual review and meta-analysis. Journal of Consumer Psychology, 25(2), 333–358.
Iyengar, S., & Lepper, M. (2000). When choice is demotivating: Can one desire
too much of a good thing? Journal of Personality and Social Psychology, 79(6),
995–1006.
 4 Are We Confused by Too Much Choice? Choice Overload    
21

Sachse, M., Oetzel, S., & Klapper, D. (2023). I'll try that, too (No. 404). CRC
TRR 190 Rationality and Competition.
Scheibehenne, B., Greifeneder, R., & Todd, P. M. (2010). Can there ever be too
many options? A meta-analytic review of choice overload. Journal of Consumer
Research, 37, 409–425.
 5
Is the Choice of the Middle Rational?
Compromise Effect

Wines

Why the choice of the middle is not as irrational as it seems. And why chocolate helps in
making rational decisions.

Do you also find it exhausting to purchase a product in certain product cat-

egories? An example from our perspective are electronic items. Televisions,
tablets, or smartphones can be described with countless features. And with
each new model of a brand, another one is added. Ultra or smart are often
chosen descriptions by manufacturers. Anyone who wants to keep track

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of Springer Nature 2024
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[Link]
24    
S. Oetzel and A. Luppold

here has to read a lot and compare many products and features. This can
be cognitively very exhausting. Numerous scientific studies have shown in
this context that customers tend to choose the product in the middle when
choosing between several such alternatives.
Imagine you want to buy a new television. The old one is broken, so a
new one is needed. It should be smart. Once you arrive at the electronics
store, you are overwhelmed by an almost endless selection of different tel-
evision sets. There are Smart TVs, Ultra HD TVs, LED TVs, QLED TVs,
and even OLED TVs. Then the televisions also have different operating sys-
tems and differ in picture quality. Who can keep track of all this? We always
thought the buyer should have it as easy as possible. So you need a sales-
person who makes the selection easier. The salesperson first suggests two
products that differ in quality and price. If we imagine the whole thing in
two dimensions in a very simplified way, then these are products A and B in
Fig. 5.1. Product A is a bargain, but it is also not the product with the best
quality. You only get the higher quality of product B if you are also willing
to pay a higher price.
Of course, the choice is not easy. Should you spend a bit more and get
better quality? Then the lifespan is probably also longer. On the other hand,
the production of a television cannot be that difficult. Maybe the televisions
come from the same factory. The salesperson understands the mind games
and the associated uncertainty and adds another television to the selection.
He suggests the top device in the category, with everything you can imagine.
Quality

*** C

** B

* A

€€€ €€ € Price

Fig. 5.1 The Compromise Effect

 5 Is the Choice of the Middle Rational? Compromise Effect    
25

High quality, but also expensive. This corresponds to product C in the fig-
ure. Now it looks different again. All product features of the most expen-
sive television C are probably unnecessary and do not justify the high price.
On the other hand, the television should last a while, so alternative A is no
longer an option. So the choice falls on alternative B. Done, it wasn’t that
hard after all.
This is the so-called compromise effect. Customers more often choose
alternative B over alternative A when an additional option C is included in
the choice situation between alternatives A and B. A is in this case the alter-
native that is rated well in one attribut—here the low price—and C in the
other attribut—in our case the high quality. The same customer behavior
can probably be observed in many product categories. Think, for example,
of the selection of a wine on the supermarket shelf or on the wine list of
a restaurant. Here too, many customers find it difficult to assess the qual-
ity and the price-performance ratio, and they will probably choose the
wine in the middle price range. Mattress stores often offer three alternatives
because they know exactly that the customer will choose the middle variant.
Probably the retailers have the highest margin with the middle option.
Now one could argue that the choice of the middle alternative is very
intuitive. If we rely more on our gut feeling and decide intuitively, then our
thinking system 1 is probably more involved. Our system 1 works quickly,
automatically, and associatively and is often referred to as our autopilot.
Thought processes and the associated weighing of alternatives play a sub-
ordinate role here. We use simple heuristics, i.e., simple rules of thumb, to
make decisions (Kahneman, 2012, p. 32 f.). We can also be wrong in this.
Quite irrational, one might think.
However, some researchers attempt to explain behavior in such decisions
using Prospect Theory 2005. In Prospect Theory, negative deviations from a
reference point are perceived as a loss. In our example, the reference points
are the three alternatives A, B, and C (example based on Sheng et al., 2005).
If a customer chooses alternative C, as shown in Fig. 5.2 on the left, devi-
ations from this reference point are associated with losses. For simplicity’s
sake, we assume that the loss when switching from C to B is 1 and when
switching from C to A is 2. In the situation depicted in the figure, there is
no dominant alternative. All three alternatives lie on a trade-off line. One
could therefore assume that the probability that an alternative is rated as the
best after purchase is 1/3. If we now also assume that customers try to min-
imize the loss when choosing an alternative, we can calculate the expected
loss when choosing the individual alternatives. This is nothing more than
the deviation from the reference product multiplied by the respective
26    
S. Oetzel and A. Luppold

Quality Choice of alternative C Choice of alternative B

Quality
0

1
1
*** C
*** C

1
** B ** B

* A
* A

€€€ €€ € Price €€€ €€ € Price

Fig. 5.2 Expected losses in selection decisions

probability that the alternative will be rated as the best after purchase. For
example, the expected loss when choosing alternative C can be calculated as
follows:
Expected loss if C is chosen = 1/3 ∗ 0 + 1/3 ∗ 1 + 1/3 ∗ 2 = 1.
The same expected loss results if alternative A is chosen. What would it look
like if we chose the middle, i.e., the compromise solution B? This is shown
in Fig. 5.2 on the right. In this case, both the switch from B to C and the
switch from B to A are associated with a loss of 1. The expected loss when
choosing alternative B can be calculated as follows:
Expected loss if B is chosen = 1/3 ∗ 0 + 1/3 ∗ 1 + 1/3 ∗ 1 = 2/3.
The expected loss decreases by choosing the compromise option B.
Choosing the middle alternative is probably not as irrational as it may seem
at first glance. By choosing the middle alternative, the customer reduces the
risk of buying an overpriced product and at the same time receiving poor
quality (Sheng et al., 2005).
Lichters et al. (2016) show in several experiments that cognitive pro-
cesses play a role in the Compromise Effect and our thinking system 2 is
involved. Our system 2 is responsible for the more complex cognitive pro-
cesses. However, it only gets going slowly and is quite strenuous. For this,
decisions are made logically, calculating, and more consciously (Kahneman,
2012, p. 32 f.). In their experiments, Lichters et al. (2016) vary the seroto-
nin levels of the subjects. Serotonin is a so-called neurotransmitter, a mes-
senger substance that transmits signals in the brain and is known to many as
a happiness hormone. The hormone performs various tasks in the body. The
 5 Is the Choice of the Middle Rational? Compromise Effect    
27

most well-known is probably its influence on mood and well-being. Many

antidepressants increase the concentration of serotonin in the brain.
The influence of serotonin on buying behavior is still little researched.
Lichters et al. (2016) therefore investigated the effect of serotonin lev-
els on the purchase decision in connection with the Compromise Effect.
Their hypothesis is as follows. When choosing between three alternatives,
cognitively demanding comparisons of product characteristics probably
play an important role. Our system 2 is activated and weighs the con-
sequences of the purchase. Transferred to the purchase of a television,
perhaps the characteristics of price and quality are weighed against each
other. So-called trade-off decisions. What does a better picture quality
bring me if the television costs 100 EUR more for it? Am I willing to pay
that? It is also likely to take into account the impact of a potential bad
purchase on satisfaction. So an evaluation that only takes place after the
purchase. Psychologists call this cognitive dissonances, which should be
avoided. You see, the choice of the middle does not seem to be so intu-
itive. If this is the case, then a low serotonin level should be associated
with a lower tendency to choose the middle alternative when it is added
to the selection (Lichters et al., 2016).
To test this hypothesis, Lichters et al. (2016) divided the participating
students into two groups. Both groups were given a drink at the beginning
of the experiment, but only one group’s drink caused serotonin levels in
the brain to fall. The students were healthy and agreed to the experimental
conditions. Five hours after consuming the drink, they had to make pur-
chasing decisions. Four product categories were examined: hazelnut cream,
headphones, ketchup, and mulled wine. First, they had to choose between
two products. Then a third product was offered for selection. The experi-
ment was structured in the same way as our introductory example with the
television. In addition, the prices were varied, so each student had to make
a total of 48 purchasing decisions. Was the hypothesis confirmed? How
many switched from the cheaper alternative to the middle alternative? In
the placebo group with normal serotonin levels, just under 15% switched
to the middle alternative. In the test group with the lower serotonin level,
on the other hand, no one did. In other words: The compromise effect was
not observed with lower serotonin levels. In the selection decisions, the
students also had the option of not choosing an alternative. The results
show that the test group with the lower serotonin level more often chose
this non-purchase option. The scientists explain this by the fact that the
test subjects simply avoided the cognitively demanding selection decision
(Lichters et al., 2016).
28    
S. Oetzel and A. Luppold

Summary and Recommendations

The results have important implications for marketing practice. They show
that the compromise effect is the result of a cognitively demanding thought
process. Our thinking system 2 is probably more involved than one would
suspect at first glance. A low serotonin level leads to customers more likely
avoiding the purchase of a product and postponing the strenuous weighing
of the pros and cons of a purchase decision. If you as a marketing manager
want to exploit the compromise effect and sell the middle option, make sure
that your customers’ serotonin levels increase. Try it at the point of sale with
chocolate. Chocolate contains tryptophan, which serves as a starting product
for the happiness hormone serotonin. The results are also clear for you as a
customer. If you want to make a rational purchase decision, increase your
serotonin level before, for example, buying your next television. Go for a jog
or ride your bike to the store.

References
Kahneman, D. (2012). Schnelles Denken, langsames Denken. Siedler.
Lichters, M., Brunnlieb, C., Nave, G., Sarstedt, M., & Vogt, B. (2016). The influ-
ence of serotonin deficiency on choice deferral and the compromise effect.
Journal of Marketing Research, 53(2), 183–198.
Sheng, S., Parker, A. M., & Nakamoto, K. (2005). Understanding the mecha-
nism and determinants of compromise effects. Psychology & Marketing, 22(7),
591–609.
 6
Do We Only Read What We Want to Read?
Confirmation Bias

Congratulation

Why we like to seek confirmation. And why average ratings influence us in this regard.

Imagine you have bought a new laptop and opted for the slightly more
expensive alternative. After the purchase, you try out the new device at
home and find that the laptop is not as fast as you expected, and that you
no longer find the price-performance ratio as good as before the purchase.
Before the purchase, you actually had a positive attitude towards the brand.
You are annoyed and consider whether you should exchange the laptop. The
state associated with negative emotions after the purchase is referred to by
psychologists as cognitive dissonance. It occurs, for example, when the cus-
tomer realizes after the purchase that he may have made a wrong decision.
The theory of cognitive dissonance goes back to Festinger (1957) and states
that consumers strive for a mental balance. This is referred to as consonance.

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of Springer Nature 2024
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Cognitive consonance exists when mental elements such as knowledge, atti-

tudes, opinions, and experiences coincide. If, for example, you previously
had a positive attitude towards the brand of the laptop and have a negative
experience with the device after the purchase, the balance may be disturbed.
This cognitive imbalance is referred to as dissonance and generates negative
emotions, which are perceived as unpleasant (Festinger, 1957).
What can we do to end this unpleasant state? We humans tend to seek
or interpret information that confirms existing beliefs and attitudes. This is
referred to in the scientific literature as confirmation bias (Nickerson, 1998).
This unpleasant state of tension after the purchase of the laptop exerts pres-
sure on us humans, which we want to eliminate as quickly as possible. A
reduction of the dissonance can be achieved, for example, by seeking only
information after the purchase that helps us regain cognitive balance. For
example, you watch YouTube videos or read test reports that justify the
high price of the laptop. In the search for information, we avoid dissonant
information. Videos in the YouTube playlist that contain critical statements
about the price-performance ratio are more likely to be skipped. This is
referred to as a bias. Because the information we skip could be useful for our
judgment.
Cognitive dissonance thus describes the unpleasant state we experience
when we have two contradictory thought patterns, e.g. experiences and
attitudes towards—in our case—products. On the other hand, confirma-
tion bias refers to the human tendency to specifically search for information
that confirms our existing knowledge about products, experiences, attitudes,
and opinions. We only look for evidence that confirms our hypothesis and
neglect information that would refute our hypothesis.
Consider the following experiment by Wason (1960). In front of you are
four cards.

Card 1: E
Card 2: K
Card 3: 4
Card 4: 7

The cards show the letters E and K as well as the numbers 4 and 7. On each
card, there is a number on one side and a letter on the other. You only see
one side of the card. How would you test the following hypothesis?

“If there is a vowel on one side, there is an even number on the other side.”
 6 Do We Only Read What We Want to Read? Confirmation Bias    
31

Turn as few cards as possible. Which cards would you reveal? The results of
the experiment by Wason (1960) show that most test subjects reveal card E
and the card with the 4. These two cards confirm the hypothesis. However, to
test the hypothesis, it would have been better to turn the card with the letter E
and the card with the number 7. If you had revealed the vowel E on the back
of card 7, you would have had proof of the invalidity of the hypothesis. If you
were to reveal cards E and the card with the 4, you would have the same infor-
mation and no proof of the invalidity of the hypothesis. The confirmation bias
thus leads to essentially only searching for information—in this case cards—
that confirm the hypothesis. However, we try to avoid searching for informa-
tion or revealing cards that might not confirm the hypothesis (Wason, 1960).
Confirmation bias naturally also plays an important role in marketing in
connection with purchase decisions. And not only in the search for infor-
mation after the purchase, but also in the search for product information
before the purchase—for example at an online retailer. Do you also often
read product reviews before deciding to buy a product? On many online
platforms, customers can rate their experiences with products with stars. The
rating scale often ranges from one to five, with five stars representing the
best rating for the product. The number of stars and the average rating of
the product are then often visually displayed by the online retailers next to
the offer. At the same time, you still have the opportunity to read the indi-
vidual reviews. Such information can help in the purchase decision by high-
lighting the pros and cons of the product.
The authors Yin et al. (2016) analyzed in their study the influence of
these aggregated star ratings in connection with the confirmation bias and
the assessment of how helpful positive or negative individual reviews are
for the purchase decision. Negative reviews can, for example, provide a hint
as to how risky the purchase of the product is. The authors argue that the
average rating of a product gives a first hint or impression about the prod-
uct. If you will, the average star rating is nothing more than a first hypoth-
esis for the purchase and the quality of the product (Yin et al., 2016). How
would you test the hypothesis? Which individual reviews of this product do
you read? Do these two questions sound familiar to you? Reading reviews is
nothing more than revealing cards. As in the above-mentioned experiment
by Wason (1960), you have to decide which reviews you reveal. After all,
you don’t want to read all the reviews. Do you only read the reviews that
confirm your hypothesis, or do you also read others?
Yin et al. (2016) hypothesize that the deviation of the rating of a single
review from the average rating of the product has a negative impact on the
perceived usefulness of the review. This would also predict the confirmation
32    
S. Oetzel and A. Luppold

bias. This should lead to only reviews being read that confirm the hypoth-
esis and at the same time the review is rated as helpful. At the same time,
the authors argue that the rating of the usefulness of a review depends on
how well the product is rated overall. Consider the following examples from
the authors. For a product with a high average rating (e.g., 4 stars), high
individual ratings (4 or 5 stars) deviate less than low individual ratings (1
or 2 stars). Therefore, for products with high average ratings, positive indi-
vidual ratings should also be considered more helpful. For products with a
low average rating (e.g., 2 stars), it is exactly the opposite. In this case, low
individual ratings (1 or 2 stars) deviate less than high individual ratings (4
or 5 stars). For these products with a low average rating, negative individual
ratings should be considered more helpful (Yin et al., 2016).
As part of the analysis, the authors draw on more than 100,000 reviews of
over 500 apps from the Apple App Store. For each review, the information
is available whether the review was “helpful” or “not helpful”. The results of
the data analysis can confirm the hypotheses set up. Individual reviews that
deviate from the average of the product reviews are perceived as less helpful.
Conversely, positive reviews are rated as helpful when the average product
rating is high. Conversely, negative reviews are perceived as helpful when the
average product rating is also low (Yin et al., 2016).

Summary and Recommendations

The purchase decision process is far from over with the purchase of the
product. After the purchase of a product, cognitive dissonances can occur
in the buyer, for example, if the attitudes do not match the experiences with
the product. Especially after the purchase of products that are associated
with an emotional purchase decision, such post-purchase dissonances can
occur. The buyer then perceives an unpleasant feeling that he wants to elim-
inate as quickly as possible. One way to eliminate this feeling is to return
the product. Of course, you want to avoid this. Therefore, it is important
to understand how people try to avoid cognitive dissonances. One strat-
egy for restoring cognitive balance is the confirmation bias. This refers to
the human tendency to seek information that confirms existing knowledge
about products, experiences, attitudes, and opinions. Help your customers
find the right information after the purchase that highlights the benefits of
the product. Or offer your customers a money-back guarantee. But even
before the purchase, you should consider how you can avoid cognitive dis-
sonances. Online retailers could consider how they can support their cus-
tomers in the purchase decision so that they are fully informed about the
 6 Do We Only Read What We Want to Read? Confirmation Bias    
33

advantages and disadvantages of the product and thus no dissonances arise

after the purchase.

References
Festinger, L. (1957). A theory of cognitive dissonance. Row & Peterson.
Nickerson, R. S. (1998). Confirmation bias: A ubiquitous phenomenon in many
guises. Review of General Psychology, 2(2), 175–220.
Wason, P. C. (1960). On the failure to eliminate hypotheses in a conceptual task.
Quarterly Journal of Experimental Psychology, 12(3), 129–140.
Yin, D., Mitra, S., & Zhang, H. (2016). Research note—when do consumers value
positive vs. negative reviews? An empirical investigation of confirmation bias in
online word of mouth. Information Systems Research, 27(1), 131–144.
 7
Are We Deceived by a Decoy? Decoy Effect

Why we are influenced by decoy products. And why an additional variant of a product
increases the sales of the standard product.

Imagine you are on vacation in a small town and want to go out for Italian
food in the evening. Your restaurant app shows you two nearby restaurants
that differ in two characteristics. Let’s assume the first characteristic is the
quality of the restaurant and the second is the price level. Apps often use
stars and euro symbols to summarize these two characteristics. The decision

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part 35
of Springer Nature 2024
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Quality
Q
*** Decoy
q
**
P
*
€€€ €€ € Price

Fig. 7.1 The decoy effect

situation is shown in Fig. 7.1. The price level of the restaurants is plotted on
the horizontal axis. The further to the right, the cheaper the restaurant. The
quality is plotted on the vertical axis. Three stars correspond to the highest
quality level.
Restaurant P is relatively cheap, but only offers pizza of average quality.
Restaurant Q, on the other hand, offers high-quality Italian cuisine, but is
also more expensive. Restaurant Q is therefore better than Restaurant P in
terms of quality and worse in terms of price. Where do you go for dinner?
This of course depends heavily on how you rate the quality dimension and
what your price sensitivity looks like. You will probably subjectively evalu-
ate the two available restaurants based on the two product characteristics of
price and quality. Depending on the preferences of the other guests, a cer-
tain market share results for both restaurants (example based on Oetzel &
Luppold, 2019).
Suppose you decide on the slightly cheaper Restaurant P. But what if your
app shows another Italian restaurant as an option? Restaurant q. Restaurant
q is dominated by the previous alternative Q on both dimensions. This
means that Restaurant q, with only two stars, is rated worse, i.e., it offers
lower quality and is even slightly more expensive. This should not influence
your decision to visit Restaurant P, should it?
If the consumer is completely rational, he will always choose the alterna-
tive with the highest utility in a decision, regardless of the utility of all other
 7 Are We Deceived by a Decoy? Decoy Effect    
37

alternatives. According to the “regularity hypothesis”, the addition of a third

alternative q can only decrease, but not increase, the choice probabilities of
the existing alternatives P and Q (Huber et al., 1982). At the same time,
the “similarity hypothesis” states that the introduction of another alterna-
tive mainly causes products with similar characteristics to the new product
to lose market share (Huber et al., 1982).
Numerous empirical studies, however, show that the introduction of an
alternative q increases the probability that Q will be chosen. Many custom-
ers in such a decision situation forego the cheaper Restaurant P and opt
for the more expensive Restaurant Q. This is often referred to as the decoy
effect. All products with the two combinations of characteristics that fall
into the gray box in the figure are referred to as decoys. These are all prod-
ucts that are dominated by Q in both characteristic dimensions.
Why does the alternative P now seem less attractive? Potential buyers tend
to assess the utility of a product or service in comparison to other offers.
They rarely decide based on an absolute scale, but often orient themselves
to the relative advantages of one offer over another and estimate the util-
ity accordingly (Ariely, 2010, p. 36). When choosing a restaurant, many
probably find it difficult to decide whether to choose the cheaper or the
slightly more expensive, but higher quality restaurant. This depends on the
preferences for the characteristics of quality and price. But it is obvious that
Restaurant Q with three stars offers a much better deal than Restaurant q
with only two stars. In addition, Restaurant q is even more expensive.
The decoy effect is a relatively well-known example of influencing the
purchasing decision of potential customers. In many practical cases, this
effect is deliberately used to guide the purchasing decision and ultimately
increase sales. Decoys are often used, for example, in subscriptions for news-
papers or telecommunications services. The most famous example of the
decoy effect is provided by The Economist magazine, which offered its mag-
azine as follows:

Offer A: Online subscription for 59 dollars per year.

Offer B: Print edition for 125 dollars per year.
Offer C: Online subscription and print edition for 125 dollars per year.

In this case too, the second offer only served as a decoy to draw attention to
the more expensive variant for 125 dollars (Ariely, 2010, pp. 38 f.).
Whenever a new product comes onto the market, there is also the risk of
falling prey to the decoy effect. This can lead to surprises, as the following
38    
S. Oetzel and A. Luppold

example of a line extension shows. The simplified example of introducing

another product variant comes from a market research study that we con-
ducted together with a beverage manufacturer as part of a controlled store
test (Oetzel & Luppold, 2019). The left side of Fig. 7.2 shows the previous
decision situation. In the category, there are two dominant brands that are
offered in a 1-liter bottle. The two alternatives differ in two dimensions.
Once in terms of quality, plotted on the vertical axis, and once in terms of
price per liter, plotted on the horizontal axis. It is simplistically assumed
that only these two attributes influence the purchase decision. Our bever-
age manufacturer (Brand Q) offers a higher quality, but the price per liter is
also significantly higher than the competitor’s product (Brand P). However,
the quality of the competitor’s product is considered to be worse. Brand Q
has a market share of 60%, Brand B has a market share of 40% (Oetzel &
Luppold, 2019).
The beverage manufacturer found in further market research that some of
its customers prefer a smaller bottle. An experiment with a grocery retailer
was conducted to investigate how the introduction of a smaller packaging
size (0.5 L) affects sales. Typically, the 0.5-liter variant has a higher price
per liter compared to the 1-liter variant. However, the beverage manufac-
turer feared that the introduction of the new product variant could lead to
a loss of sales for the existing product in the 1-liter bottle. In this case, some
buyers who have previously bought the product in the 1-liter bottle would
switch to the 0.5-liter bottle (Oetzel & Luppold, 2019). This corresponds
exactly to the “Regularity” and “Similarity” hypotheses described above.
The results of the study show that the market share of the new product
variant q is about 10%. Possibly the newly introduced 0.5-liter variant is
Quality

Quality

Q Q
q

P P

Price per liter Price per liter

Fig. 7.2 Introduction of another product variant. (Based on Oetzel & Luppold, 2019)
 7 Are We Deceived by a Decoy? Decoy Effect    
39

attractive to some buyers due to the absolute price and the smaller packag-
ing size. Or customers buy the product who have not previously bought in
the category. But what happened to the market share of the previous 1-liter
standard size? Instead of losing market shares as expected, the product was
even able to gain market shares. The market share has increased from 60%
to 65%. The right side of the figure shows what happens when the new
product variant in the 0.5-liter bottle is added to the decision situation. If
the price per liter is a decision criterion, then the test product q performs
significantly worse due to the significantly higher price per liter at the same
quality. Apparently, in this case, the introduction of the smaller 0.5-liter bot-
tle was also the “decoy option” and influenced the decision of the buyers in
favor of the 1-liter bottle (Oetzel & Luppold, 2019).

Summary and Recommendations

The decoy effect is also controversially discussed in scientific research. A
common criticism of scientific studies is that the decision situations in the
conducted laboratory experiments often appear very abstract. Often these
are hypothetical purchase decisions, where there is also no obligation to buy
the product at the end of the experiment. The experiment presented here
clearly shows that the real decision situation on the shelf has a strong influ-
ence on the purchase decision. The before-and-after experiment with test
and control group was conducted in real supermarkets and the customer
in the supermarket probably did not realize that he was participating in an
experiment. When you bring a new packaging size to the market again, you
should also think about the decoy effect.

References
Ariely, D. (2010). Denken hilft zwar, nützt aber nichts–Warum wir immer wieder
unvernünftige Entscheidungen treffen. Droemer.
Huber, J., Payne, J. H., & Puto, C. (1982). Adding asymmetrically dominated
alternatives: Violations of regularity and the similarity hypothesis. The Journal of
Consumer Research, 7(1), 90–98.
Oetzel, S., & Luppold, A. (2019). Köder für den Kunden. Portfoliooptimierung
unter Nutzung des Decoy-Effektes am Regal. planung&analyse, 4(19), 62-63.
 8
How Well Can We Compare Prices? Ease-of-
Computation Effect

Why simple calculations influence our price assessment. And why hard-to-calculate price
differences benefit the more expensive product.

The easier people can remember or imagine certain events, the higher they
estimate the probability of these events occurring. Tversky and Kahneman
(1973) describe this phenomenon in their essay as availability heuris-
tic. In the scientific marketing literature, it is often also referred to as flu-
ency, which denotes the ease with which our brain can process information
(Thomas & Morwitz, 2009). However, the application of such a heuristic
can also easily lead to wrong decisions, as the following two experiments
show.
In one of their numerous experiments, Tversky and Kahneman (1973)
showed their test subjects the following two structures A and B in Fig. 8.1.

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a b
X X X X X X X X X X
X X X X X X X X X X
X X X X X X X X X X
X X
X X
X X
X X
X X
X X

Fig. 8.1 Task to estimate the number of possible paths in the two structures A and B
(Tversky & Kahneman, 1973)

The task of the test subjects was to draw a path. A path is a line that con-
nects the x-symbols from the first to the last row. In which structure are
there more paths? In A or B? How many paths are there in total in the two
structures? Try to answer this question yourself first.
The median of the test subjects’ estimates was 40 paths for structure A
and 18 paths for structure B. Did you come to the same conclusion that
there are more paths in A? In fact, there are the same number of paths in
both structures that lead from the first to the last row, namely 512. The
authors argue that several factors lead us to imagine more paths in our cog-
nitive thinking in structure A. Structure A has eight columns, structure B
only two. In addition, the paths in structure A are shorter and therefore eas-
ier to imagine (Tversky & Kahneman, 1973).
In another experiment, Tversky and Kahneman (1973) asked 152
subjects whether the letter R appears more frequently at the first or third
position in a typical English text. What do you think? Most respondents
indicated that the letter R is more likely to appear at the first position than
at the third. Here too, it is easier to imagine words that start with R. For
example, the words rain, red, right come to mind relatively quickly. It is
much more difficult to imagine words where the R is in the third position.
Can you think of a word off the top of your head? In fact, there are more
words that have the R in the third position. However, these are not so easy
to imagine, so a large part of the respondents mistakenly believe the oppo-
site (Tversky & Kahneman, 1973).
Fluency also plays an important role in purchasing behavior, especially
when it comes to evaluating prices. In several empirical studies, the authors
 8 How Well Can We Compare Prices? Ease-of-Computation Effect    
43

Thomas and Morwitz (2009) examined the influence of price differences

on price assessment. Their hypothesis is that mathematically simple price
differences are rated larger than mathematically difficult price differences,
even if the differences are similar. They refer to this effect as the Ease-of-
Computation effect. To test this hypothesis, the test subjects were asked to
evaluate the perceived price differences of various products in supermarkets.
In addition, the time it took the test person to make the evaluation was
measured. The shorter the response time was, the easier it was for the test
person to assess the price difference. The price differences to be assessed by
the test persons were once relatively easy to calculate (e.g., 5.00 dollars vs.
4.00 dollars) and once somewhat more difficult (e.g., 4.97 dollars vs. 3.96
dollars). The price difference is similar in both cases. In the simple decision
situation, the difference is 1.00 dollar, in the more difficult one even a lit-
tle more, namely 1.01 dollars. Surprisingly, the subjects estimated the price
difference to be higher when the calculation of the price difference was rel-
atively simple. The price difference between 5.00 dollars and 4.00 dollars
was estimated to be larger than the price difference between 4.97 dollars and
3.96 dollars. In addition, the response time for the simpler price differences
was significantly shorter, indicating an easier decision (Thomas & Morwitz,
2009).
This naturally also has an influence on the selection of products on the
shelf. If the price difference between two products is somewhat difficult to
calculate, buyers should rather choose the more expensive and preferred
product, as the price difference is perceived as smaller. This is exactly what
Thomas and Morwitz (2009) tested in another experiment. For this, the
subjects were divided into two groups and had to make several product
choice decisions for memory sticks. In the first group, the price differences
were relatively difficult to calculate. The reference product always cost 34.99
dollars and was cheaper than the preferred brand. This cost, for example,
41.56 dollars or 43.16 dollars. In the second group, the price differences
were easier to calculate. The preferred brand cost, for example, 41 dollars or
43 dollars. Subsequently, the subjects had to choose between the products.
As expected, the preference for the more expensive product was greater when
the price difference was not so easy to calculate. In other words, when the
calculation of the price difference was relatively simple, the subjects were less
likely to choose the more expensive and preferred brand. This suggests that
the price differences in this situation were perceived as larger (Thomas &
Morwitz, 2009).
44    
S. Oetzel and A. Luppold

Summary and Recommendations

The results of the experiments show that not only the actual information
about the price difference is used for evaluation, but also the ease with which
the information can be mentally processed plays a role. Similar to the exper-
iments by Tversky and Kahneman (1973). This results in the following
implications. It is important to distinguish between price promotions and
a decision without a price promotion. For price promotions, the customer
should be able to easily calculate the price difference. For example: “Today
only 4 euros instead of 5 euros”. From the experiments, we know that price
differences that are easy to calculate are perceived as larger. This also makes
the discount appear larger. For the decision between two products without a
price promotion, the recommendation is as follows. If the retailer, for exam-
ple, wants to sell a more expensive product, then he should place a cheaper
product next to the more expensive one. However, the price difference
between the two products should be somewhat difficult to calculate, as the
perceived price difference is thereby smaller. The implications for the buyers
are also clear. Take a calculator.

References
Thomas, M., & Morwitz, V. G. (2009). The ease-of-computation effect: the inter-
play of metacognitive experiences and naive theories in judgments of price differ-
ences. Journal of Marketing Research, 46(1), 81–91.
Tversky, A., & Kahneman, D. (1973). Availability: A heuristic for judging fre-
quency and probability. Cognitive Psychology, 5(2), 207–232.
 9
How Do Hunger and Caffeine Influence Us?
Energetic Arousal

Why it’s not a good idea from a buyer’s perspective to shop when hungry, and why not
only more food is purchased then. How caffeine releases happiness hormones and makes
us shop more impulsively.

We probably all know the advice from nutritionists who keep telling us not
to go shopping when we’re hungry. But what does it actually mean to go
shopping when we’re hungry? Do we buy more products? Do we buy dif-
ferent products? For example, if you enter the search term “shopping when
hungry” into Google, you get a lot of well-intentioned advice on this topic.
However, it is surprising that many of the search results do not cite any
source at all or quote a study by Tal and Wansink (2013). In a laboratory
and supermarket experiment, the two authors found that shoppers, when
they are hungry, tend to put more calorie-rich products in their shopping
cart, but overall do not buy more food. However, the study was retracted
by the journal in 2018 because some inconsistencies were discovered in the
authors’ articles (van der Zee et al., 2017).

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But what do we actually know about the influence of hunger on our

shopping behavior? Let’s take a look at some findings. Nisbett and Kanouse
(1969) interviewed and observed shoppers in a supermarket as part of a sci-
entific investigation. They found that normal-weight individuals put more
food in their shopping cart the longer they had not eaten. This is mainly due
to increased impulse purchases. The greater the hunger, the more unplanned
purchases end up in the shopping cart. Those who had not eaten for a longer
period of time spent significantly more than planned. They also took longer
to complete their shopping. Overweight shoppers were less susceptible. The
authors suspect that overweight individuals are less susceptible to feelings
of hunger. Rather, external stimuli or environmental influences play a role,
which tempt to buy, such as the smell of food (Nisbett & Kanouse, 1969).
Hunger can also have an influence on how many products we consider
when grocery shopping. This question was investigated by Goukens et al.
(2007). The basis of the experiments is the Goal System Theory. Applied to
purchasing decisions, the theory states that buyers evaluate products based
on how important they are for satisfying a goal. If I am thirsty, water, cola or
a cool beer are possible alternatives to satisfy my goal of quenching my
thirst. A burger with fries is not. If a product is capable of achieving my
goal, then we assign a higher value to this product. So if I get hungry during
lunch break, the kebab around the corner or the Asian street food automat-
ically has a higher value for me. But also the salad, which I don’t really like
to eat during lunch break, can be an alternative for me if I want to eat some-
thing quickly between two meetings. Because salad can also satisfy my hun-
ger. So if I am hungry, I have several options to satisfy my hunger, and this
should increase our desire for variety when we are hungry (Goukens et al.,
2007).
To test this hypothesis, the authors had students in the lab select sand-
wiches for the coming week. Each was allowed to choose a total of five sand-
wiches, with a total of eight different alternatives available. The experiment
was conducted shortly before lunch break, so all subjects were hungry. To
form a non-hungry and a satiated group, half of the subjects were given a
large piece of cake before choosing the sandwiches. The results show that
hunger increases the desire for variety in food. The hungry subjects chose
on average more different sandwich alternatives than the satiated ones
(Goukens et al., 2007).
But you should also not buy shoes, clothes or electrical appliances when
you are hungry. This is shown by the study of the scientists Xu et al. (2015).
Their hypothesis is: Hunger motivates people to consume food. Buying
food is a prerequisite for this. Therefore, hunger probably activates general
 9 How Do Hunger and Caffeine Influence Us? Energetic Arousal    
47

concepts in the brain that are associated with buying products. And these
do not necessarily have to be food, but can also be non-food products such
as electrical items or products from the hardware store. In their first experi-
ment, the authors show that it is easier for hungry subjects to identify briefly
flashing words on the screen that are usually associated with buying prod-
ucts. In a second experiment, students in a café rated products and the like-
lihood that they would buy them. To control the hunger of the test persons,
part of the test persons were interviewed when entering the café, the other
part when leaving. The desire to buy both food and non-food items was
greater when respondents reported being hungry. The same result is shown
by the authors’ last investigation in a department store, where mainly non-
food items such as shoes, clothing and electrical items are offered. Here too,
the analysis of the receipts shows that hungry customers bought more non-
food products than less hungry ones. So hunger not only increases the desire
to buy something to eat, but also activates more general concepts in the
brain that are associated with buying products (Xu et al., 2015).
We have all come to understand that by now. Shopping when hungry
is not a good idea. It would be better to stop at a café for a bite to eat
and a coffee before going to the supermarket. Then the hunger is satisfied
and we can go shopping relaxed. Many supermarkets now have a café or
bakery integrated where you can comfortably enjoy a piece of cake and a
coffee.
But there is also bad news here for everyone who pays attention to their
wallet when shopping. Having a coffee before shopping is unfortunately also
not a good idea. A study by Biswas et al. (2023) published in the Journal
of Marketing shows that the consumption of a caffeinated beverage leads to
significantly more impulse purchases. The effect was demonstrated in three
field experiments in electronics stores in various countries and in two labora-
tory experiments. In the field experiments, an espresso station was set up in
the entrance area of the markets. Shoppers were offered a free cup of coffee
at the entrance, either regular coffee with about 75 to 100 mg of caffeine,
decaffeinated coffee, or a glass of water. In the first two field studies, the
subjects were informed about the contents of the cup. After the purchase,
the receipts of the test persons were evaluated. The statistical analyses show
that the test persons who drank a caffeinated coffee bought significantly
more items and also spent significantly more money than the test persons
who only drank a decaffeinated coffee. Customers who had drunk a caffein-
ated coffee before shopping spent almost 90% more money and bought over
40% more items than customers who had drunk a decaffeinated coffee or
water (Biswas et al., 2023).
48    
S. Oetzel and A. Luppold

The authors argue that the consumption of caffeine leads to the release
of dopamine in the brain and puts our body into a state of arousal. This
is referred to as energetic arousal. Dopamine is colloquially also referred to
as the happiness neurotransmitter and is responsible for feelings of happi-
ness. An increased state of arousal, in turn, leads us to apply simple heu-
ristics when making decisions, to be overall more impulsive, and to lose
self-control more easily. But the consumption of caffeine also influences
which products we buy. In the third field experiment, the retailer’s product
categories were divided into hedonistic and utilitarian products. Hedonistic
products in this case were, for example, candles and perfumes or bathroom
accessories. These products are more associated with pleasure, fun, or joy.
Utilitarian products serve a practical purpose. It was found that significantly
more hedonistic products were placed in the shopping cart in the caffeine
group (Biswas et al., 2023).

Summary and Recommendations

Looking at the scientific literature, there seems to be some truth to the popu-
lar saying “Don’t go shopping when you’re hungry”. But not only hunger can
influence our shopping behavior. The consumption of caffeine also affects
our buying behavior and the amount of our expenses. At first glance, one
would not suspect a connection between coffee consumption and shopping
behavior. Especially with impulse purchases, there seems to be an influence.
Think of buying ice cream or chocolate. These results of course have impor-
tant implications for grocery retailers. They could offer their customers a
free coffee at the entrance or at least the opportunity to buy one. But then it
should also be ensured that the shopping cart provides a place to put the cof-
fee cup. After all, one needs to have a hand free to reach into the shelf.

References
Biswas, D., Hartmann, P., Eisend, M., Szocs, C., Jochims, B., Apaolaza, V.,
Hermann, E., López, C. M., & Borges, A. (2023). Caffeine’s effects on con-
sumer spending. Journal of Marketing, 87(2), 149–167.
Goukens, C., Dewitte, S., Pandelaere, M., & Warlop, L. (2007). Wanting a bit
(e) of everything: Extending the valuation effect to variety seeking. Journal of
Consumer Research, 34(3), 386–394.
Nisbett, R. E., & Kanouse, D. E. (1969). Obesity, food deprivation, and super-
market shopping behavior. Journal of Personality and Social Psychology, 12(4),
289-294.
 9 How Do Hunger and Caffeine Influence Us? Energetic Arousal    
49

Tal, A., & Wansink, B. (2013). Fattening fasting: Hungry grocery shoppers buy
more calories, not more food. JAMA Internal Medicine, 173(12), 1146–1148.
van der Zee, T., Anaya, J., & Brown, N. J. (2017). Statistical heartburn: An attempt
to digest four pizza publications from the cornell food and brand lab. BMC
Nutrition, 3(1), 1–15.
Xu, A. J., Schwarz, N., & Wyer, R. S., Jr. (2015). Hunger promotes acquisition
of nonfood objects. Proceedings of the National Academy of Sciences, 112(9),
2688–2692.
 10
Why is There Champagne On Offer at New
Year’s Eve? Prisoner’s Dilemma

Why sparkling wine producers and retailers are prisoners of the promotional pricing
game.

Those who are looking for special offers in supermarkets shortly before
Christmas or New Year’s Eve will certainly also find advertisements for spar-
kling wine. Many families toast to the coming year with sparkling wine at
Christmas and New Year’s Eve and review the past year. So why not advertise
sparkling wine in the flyers, the retailers probably think. We also took a look
at the flyers shortly before Christmas. Let’s start with the flyer from Edeka.
According to the flyer, there are two great offers at Edeka this year. The first
offer is Rotkäppchen sparkling wine for 2.37 EUR. You save 39% compared
to the regular price, the advertisement says. The second offer is the slightly
more expensive sparkling wine Fürst von Metternich for 5.41 EUR. The

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of Springer Nature 2024
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percentage savings compared to the regular price is almost identical here.

You save 38% compared to the regular price. A great offer. For Christmas,
it can be something special, many probably think. Then we take the Rewe
flyer. On the page with the sparkling wine offers, we are quite surprised.
Here, Rotkäppchen sparkling wine is available for 2.33 EUR and Fürst von
Metternich for 5.41 EUR. Here too, you save 39% compared to the regular
price.
How is it that sparkling wine is on offer at Christmas? Didn’t we learn
in school or at university that supply and demand determine the price?
If demand is greater than supply, the price rises - and vice versa. Most of
us probably know this. But what about the demand for sparkling wine?
Shouldn’t the demand for sparkling wine be high at Christmas? After all,
many want to raise their glass on this special occasion? How do such offers
come about?
Let’s take a closer look at the situation of the two retailers Edeka and
Rewe using a payoff matrix in Table 10.1. This is what game theorists call
the representation of the possible outcomes of a game for the different deci-
sion options of two players. Game theory is a concept for analyzing strategic
decisions in competitive situations. Let’s take a closer look at the matrix. The
two players are Rewe and Edeka. Rewe is the so-called row player. The pos-
sible strategies of the player Rewe in the week before Christmas are shown
in the rows: “no price discount” and “price discount”. Edeka is the column
player. He has the same strategies available. These are shown in the columns.
Depending on which strategy both retailers choose, a strategy combination
results. For example, if both decide on “no price discount”, both receive a
profit of 5000 EUR. The first number in the cell always indicates the profit
of Rewe, the second number the profit of Edeka. The profits for all strategy
combinations are plotted in the payoff matrix. The game shown is a simul-
taneous decision, as both retailers decide on one of the two strategies at the
same time.
Which strategy is now the best for Rewe and which for Edeka? It is easy
to see that the highest profits are achieved if both do not carry out a price

Table 10.1 Prisoner’s dilemma in price actions

Edeka
no price discount price discount
Rewe no price discount (5000 EUR; 5000 EUR) (2500 EUR; 6500 EUR)
price disount (6500 EUR; 2500 EUR) (4000 EUR; 4000 EUR)
 10 Why is There Champagne On Offer at New Year’s Eve? ...    
53

promotion in the week before Christmas. In this case, both achieve a profit
of 5000 EUR. For simplicity’s sake, we have assumed here that both share
the demand for sparkling wine. However, this result is not a stable equi-
librium, as both Rewe and Edeka have an incentive to deviate from their
strategy and carry out a price promotion. Starting from the fields “no price
discount” at Rewe and “no price discount” at Edeka, Rewe could, for exam-
ple, increase its profit from 5000 EUR to 6500 EUR if Rewe chooses the
strategy “price discount” and advertises the sparkling wine with a discount
in its flyers. The discount would reduce Rewe’s margin for the sparkling
wine somewhat, but it is likely that some Edeka customers would see the
price promotion in the Rewe flyer and buy the sparkling wine at Rewe for
a change. In addition, the price promotion could encourage other custom-
ers to buy who actually did not want to buy sparkling wine. Edeka, on the
other hand, would then only have a profit of 2500 EUR, as the demand for
sparkling wine decreases. Edeka could also consider the same thing.
The only equilibrium in this game is the combination when both choose
the “price discount” strategy. In this case, both receive a profit of 4000 EUR.
Here too, it is assumed that both share the demand again. But since the
margin for the sparkling wine decreases due to the discount, the retailer’s
profit also decreases. Game theorists call this equilibrium a Nash equilib-
rium. In a Nash equilibrium, none of the players have an incentive to devi-
ate from their strategy. Let’s consider the field when both choose the “price
discount” strategy. If one of the two players were to choose the “no price
discount” strategy instead of the “price discount” strategy, his profit would
drop to 2500 EUR. This game is well known. This is called the prisoner’s
dilemma, as the profit of 4000 EUR is lower than if both had refrained from
the price promotion in the week before Christmas. In this case, both would
have made a higher profit of 5000 EUR.
From a customer’s perspective, such a market outcome is ideal, as we ben-
efit from the cheap sparkling wine prices at Christmas. Most of us would
probably buy the sparkling wine even without the discount. Of course,
this is just a constructed numerical example. In many situations, especially
when two companies compete with each other, such a prisoner’s dilemma
can occur. This affects decisions about advertising expenses, locations, the
introduction of new products, expenditures for research and development,
the expansion of production capacities, and much more.
For the players in such a game, however, the question arises as to how
they can escape this dilemma. A price agreement would be legally prohib-
ited. A strategy that has proven to be particularly successful in repeated
games in experiments is the so-called Tit-for-Tat strategy (Axelrod, 1980).
54    
S. Oetzel and A. Luppold

Tit-for-Tat means nothing more than “an eye for an eye” and consists of two
simple rules:

1. Start the game cooperatively

2. Respond cooperatively if your opponent is cooperative and respond with
retaliation to uncooperative behavior.

Axelrod (1980) held a tournament with repeated two-person prisoner’s

dilemma games and asked scientists to submit various strategies in the form
of computer programs. The result was clear. The Tit-for-Tat strategy was the
most successful (Axelrod, 1980). Theoretically, for our two retailers, this
would mean that they start cooperatively and do not offer a price discount
for sparkling wine in the week before Christmas. If one retailer deviates
from the strategy in one year and carries out a price promotion, the other
retailer should respond the following year with perhaps an even larger price
discount.

Summary and Recommendations

Of course, we cannot answer whether the Tit-for-Tat strategy works in our
sparkling wine example. The game presented of the two retailers is naturally
based on many assumptions. However, what can be observed in many prod-
uct categories - especially in grocery retailing - is that the number of price
promotions is steadily increasing. This is probably not due to an increasing
efficiency of the promotions. A possible cause for the increase in price diso-
cunts could be the prisoner’s dilemma. Companies in competition always
have an incentive to carry out another price promotion to attract buyers to
the markets and achieve short-term profits. However, if price discounts are
used very frequently, customers get used to the lower discount prices and
often only buy when the product is offered at a reduced price. Additional
purchases or an increase in consumption quantity no longer occur. One way
to avoid the prisoner’s dilemma is to behave cooperatively. This is particu-
larly true when the game is repeated.

Reference
Axelrod, R. (1980). More effective choice in the prisoner’s dilemma. Journal of
Conflict Resolution, 24(3), 379–403.
 11
What Influences Our Appreciation
of Products? Handmade Effect

Why we value products more when we own them. And why “Handmade” increases the
value and willingness to pay.

When moving into their first own apartment, most people probably resort
to a Swedish furniture store for basic furnishings. The selection is large and
you can get beautiful furniture that is also reasonably affordable. This is
also true for students or trainees. However, the purchased furniture still
needs to be assembled at home. But with the included tools, assembly is
not a problem and after a few minutes, the wardrobe can be filled or the
new sofa can be used. Probably one associates a beautiful memory with
one or the other piece of furniture from this time. But at some point,
the beautiful time as a student or trainee with all its freedoms is over and

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of Springer Nature 2024
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[Link]
56    
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one moves into a larger apartment or into a new, beautiful house. Now it
should be a more valuable piece of furniture. But what to do with all the
other furniture? Fortunately, there are various online portals where you can
resell the good old pieces. Of course, you don’t want to give them away.
Often there is only one problem: Nobody wants to buy the old things for
the price.
The reason you can’t get rid of your furniture through classified ad por-
tals could be due to the endowment effect. The endowment effect states that
people value an object more when they own it (Beck, 2014, p. 170). Some
scientists describe the endowment effect as the difference between a buyer’s
willingness to pay, and a seller’s willingness to accept (Plott & Zeiler, 2005).
This could explain why one often can’t find a buyer for one’s beloved IKEA
shelf. Owning the shelf increases the appreciation for the product and the
selling price may be set too high. In classical economics, on the other hand,
it would be assumed that the appreciation and thus the willingness to pay
for a product is independent of ownership. However, the endowment effect
is well researched and has been demonstrated in numerous experiments
(Beck, 2014, pp. 170–172).
A well-known experiment on this topic was conducted by Knetsch (1989).
He conducted his experiment with students at the University of Victoria. The
students in the control group of the experiment could choose between a cof-
fee mug and a chocolate bar. The coffee mug and the chocolate bar were of
approximately the same value. 56% of the students chose the coffee mug and
44% the chocolate bar. With this simple query, Knetsch (1989) was able to
determine the preferences of the subjects for the two objects. The students
thus had a slightly higher preference for the coffee mug. But what if the stu-
dents already own one of the two products? Then, according to the assump-
tions of classical economics, the preferences should not shift.
But they do. The first experimental group was given a coffee mug. The
second group received a chocolate bar. Afterwards, the subjects had the
opportunity to exchange the coffee mug or the chocolate bar. Those who
owned the coffee mug could exchange it for a chocolate bar and those who
had received a chocolate bar could exchange it for a coffee mug. In both
experimental groups, almost 90% of the students decided to keep the cof-
fee mug or the chocolate bar. In other words. When the students can freely
choose between the two products, 56% choose the coffee mug. On the other
hand, only 10% of the students choose the coffee mug if they already own
a chocolate bar. Even though they could have had the coffee mug in both
situations. The respondents thus value both products more when they own
them (Knetsch, 1989).
 11 What Influences Our Appreciation of Products? Handmade Effect    
57

The appreciation of products can be further increased if the product has

also been assembled by oneself. Norton et al. (2012) refer to this phenom-
enon as the IKEA effect, in reference to the Swedish furniture store. Those
who buy cabinets or a dresser there have to assemble them themselves. To
demonstrate the IKEA effect, the scientists had test subjects assemble IKEA
boxes themselves in their experiments. A control group only received the fin-
ished box. Afterwards, both groups were asked to state their willingness to
pay for the box. The group that had assembled the box themselves showed a
significantly higher willingness to pay than the control group (Norton et al.,
2012). So, if customers assemble a product themselves, the appreciation for
this product increases, and so does the willingness to pay. No wonder it’s
hard to sell IKEA furniture via online portals.
The two effects presented—the endowment and IKEA effects—naturally
have numerous implications for marketing practice and have prompted mar-
keting scientists to conduct further research. For example, scientists Nunes
and Dreze (2006) studied the endowment effect in connection with a loy-
alty program and the associated collection of bonus points. In a field experi-
ment, customers of a car wash received a card with which they could collect
points. For each car wash, there was one point. If you collected eight points,
the next car wash was free. A total of 300 bonus cards were issued. Half of
the cards had eight circles as shown in Fig. 11.1 on the left. For each car
wash, there was a stamp in the circle. The other 150 cards had ten circles (see
Fig. 11.1 on the right). However, two circles were already filled. The card-
holders were thus already in possession of two collected points. But eight
stamps also had to be collected to receive another free car wash. In theory,
the different presentation of the collection campaign should not have any
influence on the redemption rate. After all, in both cases, you have to buy a
car wash eight times to get another one for free. However, the results show

Collect 8 stamps and get a free car wash Collect 10 stamps and get a free car wash

We'll give you the first two stamps for free!

Fig. 11.1 The endowment effect in a loyalty program. (Based on Nunes & Dreze,
2006)
58    
S. Oetzel and A. Luppold

that the redemption rate was significantly higher when two out of ten car
washes were already stamped. In this case, the redemption rate was 39%.
With the other card, the redemption rate was only 19% (Nunes & Dreze,
2006).
Another example of the likely occurrence of the endowment effect is
expected with money-back guarantees. According to American economist
Richard Thaler, who first studied the endowment effect, two decision sit-
uations arise with a money-back guarantee. In the first decision situation,
the buyer compares the costs of shipping and return with the benefit of the
two-week trial period when making the purchase. If the benefit is greater
than the cost, the product is purchased. In the second decision situation two
weeks later, the endowment effect comes into play. Mere possession of the
product increases its appreciation (Thaler, 1980). The same considerations
can be applied to the trial months of streaming services, gyms, or software
packages and may explain why we do not cancel after the trial period.
There are also numerous other studies on the IKEA effect. For example,
Fuchs et al. (2015) examined the influence of the attribute “handmade”
on the perceived attractiveness of products. The authors refer to this as the
Handmade Effect. In contrast to the IKEA effect, the difference here is that
the product was not created by one’s own work, but was handcrafted by
another person with a lot of love. In their experiment, the scientists divided
the subjects into three groups. The groups were shown pictures of prod-
ucts such as greeting cards, jewelry, a scarf, or a knife. The only difference
between the groups was the information on how the products were made.
The first group was informed that the products were handmade, the second
group was informed that the products were machine-made, and the third
group received no information about the production. The subjects were then
asked to rate the attractiveness of the products. The subjects rated the attrac-
tiveness of the products significantly higher if the products were handmade.
There is no significant difference in the rating of product attractiveness
between the machine-made products and the products without information
about the production (Fuchs et al., 2015).
In another experiment, the authors examined the influence of the attrib-
ute “handmade” on willingness to pay. Here too, a significant correlation is
shown. The subjects were willing to pay 17% more for a product—in this
case, a soap—if the product was handmade. Furthermore, it is shown that
the perceived construct “love” or “made with love” can be an important fac-
tor in connection with the product attribute “handmade” and explains part
of the higher willingness to pay. When asked about their associations with
handmade products, the term love is often mentioned (Fuchs et al., 2015).
 11 What Influences Our Appreciation of Products? Handmade Effect    
59

Summary and Recommendations

These results have important implications for marketing managers. They can
show in their advertising that their products are “made with love”. And that’s
what brand manufacturers do. If you search for advertising slogans that con-
tain the term love, you will quickly find them. A retailer loves his food, a
fast-food chain just loves it, or a television station loves television. Love is on
everyone’s lips. However, the results of another experiment by the authors
show that the additional note “made with love” has no influence on the
perceived product attractiveness for machine-made products (Fuchs et al.,
2015). Rather, it must be credibly demonstrated how much love is involved
in the production.

References
Beck, H. (2014). Die Prospect Theory und ihre Konsequenzen. Behavioral
Economics: Eine Einführung (pp. 101–195). Springer Gabler.
Fuchs, C., Schreier, M., & Van Osselaer, S. M. (2015). The handmade effect:
What’s love got to do with it? Journal of Marketing, 79(2), 98–110.
Knetsch, J. L. (1989). The endowment effect and evidence of nonreversible indiffer-
ence curves. The American Economic Review, 79(5), 1277–1284.
Norton, M. I., Mochon, D., & Ariely, D. (2012). The IKEA effect: When labor
leads to love. Journal of Consumer Psychology, 22(3), 453–460.
Nunes, J. C., & Dreze, X. (2006). The endowed progress effect: How artificial
advancement increases effort. Journal of Consumer Research, 32(4), 504–512.
Plott, C. R., & Zeiler, K. (2005). The willingness to pay–willingness to accept gap,
the “endowment effect”, subject misconceptions, and experimental procedures
for eliciting valuations. American Economic Review, 95(3), 530–545.
Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic
Behavior & Organization, 1(1), 39–60.
 12
When Do We Buy Spontaneously? Impulse
Buying

Why unplanned purchases often occur in product categories that are rarely bought
and where enjoyment and pleasure are paramount. And why optimizing secondary
placements has great potential.

Do you also get annoyed when you realize after shopping at the supermar-
ket that the bag of chips or the bar of chocolate ended up in your shop-
ping basket, even though you didn’t want to buy these products at all? At
conferences of the consumer goods industry and grocery retailing, one often
hears the statement “70% of all purchase decisions are made at the POS”.
This quote comes from a study by the market research company GfK from
2011. The market researchers found that buyers in the supermarket can still

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62    
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be influenced by marketing activities. Through targeted activities, they can

be persuaded to buy a different brand or products that they didn’t actually
want to buy. However, it is surprising that the study is hard to find on the
internet. Yet anyone in the consumer goods industry can recite the quote in
their sleep. We have always wondered why no scientific study is cited at this
point. Scientific studies have the advantage that they undergo a review pro-
cess. You can read the design of the empirical study and see whether other
studies refer to the results and close further research gaps.
What does scientific research say on this topic? An important study on
purchasing behavior in supermarkets comes from Inman et al. (2009)
and was published in the Journal of Marketing. In their study, the scien-
tists further break down the probability of unplanned purchases to ana-
lyze the underlying factors. They base this on a survey of 2300 customers
in 28 supermarkets in the USA. The participating subjects were interviewed
twice. Once at the beginning of the shopping trip, where they were asked
about their purchase intentions. That is, which products are on the shop-
ping list and thus planned. The second interview took place directly after
the purchase. Here, the receipt was analyzed and additional questions, e.g.
about demographics, were asked. For each product on the receipt, the scien-
tists knew whether it was bought planned or unplanned. In addition, some
activities of the customer in the store were recorded. For example, how long
they shopped and how many departments they visited in the supermarket
(Inman et al., 2009).
The results of the survey show that the so-called base probability of an
unplanned purchase is about 46%. However, situational factors can increase
the probability to up to 93%. What are these factors that tempt us to buy
and what can supermarket customers do to prevent the bag of chips or the
bar of chocolate from ending up in the shopping basket again? The results
of the study show: Unplanned purchases occur more frequently in prod-
uct categories that are rarely bought or where pleasure and enjoyment are
in the foreground, such as chips and chocolate. In science, these products
are referred to as hedonistic products. Women are more prone to unplanned
purchases. But the behavior of the buyers in the store also has an influ-
ence on the probability of an unplanned purchase. Thus, subjects who go
through all the aisles of the store and spend a lot of time in the store have a
higher probability of putting unplanned products in the shopping cart. The
more stimuli and offers they are exposed to, the higher the probability of an
unplanned purchase (Inman et al., 2009). To not further increase the prob-
ability of unplanned purchases, Inman et al. (2009) recommend the follow-
ing measures to customers based on their results: Use a shopping list and go
 12 When Do We Buy Spontaneously? Impulse Buying    
63

shopping more often. This way, you can focus on the products you really
need. Always pay in cash. When you take out and open your wallet, you
realize very clearly that you are spending money. If you pay with a debit or
credit card, you only notice it at the end of the month.
And what can retailers do? Which marketing activities have the greatest
influence on unplanned purchases? The greatest influence on the probability
of an unplanned purchase is additional placements of products in the store,
so-called secondary placements. For example, when you enter a supermar-
ket, you often encounter such secondary placements. Some supermarkets
even reserve entire areas for these sales-promotions. Secondary placements
can increase the probability of an unplanned purchase by almost 40% and
are therefore the most important driver for spontaneous purchase decisions
(Inman et al., 2009).
In numerous market research projects, we have examined the effect of
secondary placements in the context of controlled experiments. Typically,
in such studies, different variants of secondary placements are tested in real
supermarkets and their influence on sales is analyzed. Retailers have several
options when planning a secondary placement action. For example, they can
place secondary placements at different locations in the store, vary the size
of the secondary placement, or place the secondary placement together with
various other products. Often, the product is placed at the entrance in some
stores and at the checkout in other stores. The sales of the product before
the test period are then compared with the sales during the secondary place-
ment phase in both groups. The percentage increase in sales is referred to as
uplift.
For a joint presentation, we examined 230 such uplifts from 40 com-
pleted market research projects (Oetzel & Luppold, 2017). The data comes
from eight different categories. In the experiments, for example, the timing
and duration of the secondary placement, the placement in the store, the
size or the type of communication of the secondary placement were varied.
On average, such a secondary placement led to an uplift of almost 70%. If
you sell, for example, 100 bars of chocolate, you can sell 170 bars with a
secondary placement. With an additional price promotion, sales increase
to 607 bars. These results do not surprise anyone at first. It becomes inter-
esting when you compare the uplift of the worst and best secondary place-
ment within an experiment. This applies to experiments in which at least
two different secondary placements were tested. With a price promotion, the
average uplift of the worst secondary placement was 420%, that of the best
variant was 668%. This corresponds to a potential of 59%. Without a price
promotion, the result is even more pronounced. With the worst variant, the
64    
S. Oetzel and A. Luppold

average uplift is 39%, with the best variant 115%. This corresponds to a
potential of 196% (Oetzel & Luppold, 2017).
And on which side of the supermarket aisle should the secondary place-
ments stand? Left or right? Here too, there is a practiced retail practice.
Strong sales areas are always on the right side, it is often heard: “the right
side is the right side” (Chen et al., 2021). A common argument is that the
vast majority of people are right-handed. Chen et al. (2021) sent nearly 200
test subjects with eye-tracking glasses through an American supermarket.
The results actually show that customers are more than 20% more likely to
pay attention to products on the right side of the aisle as they walk through
the supermarket. However, the result is independent of whether the buyer is
right-handed or left-handed (Chen et al., 2021).

Summary and Recommendations

Do 70% of all purchase decisions fall at the point of sale, as the consumer
goods industry like to quote? The value that GfK determined in 2011
is probably quite good. But it is also worth taking a look at the scientific
research that analyzes the drivers of such unplanned purchases. Secondary
placements seem to have the greatest influence on unplanned purchases of
all marketing activities in the supermarket. But trying it out is also worth-
while. This is shown by the analyzed secondary placement experiments.
Simply by varying the charcteristics of the secondary placement—e.g. loca-
tion or timing—very different uplifts can be achieved. This result is quite
surprising from our point of view, considering that in such experiments usu-
ally only variants are tested that are particularly promising from the point of
view of the marketing managers. This illustrates the potential of secondary
placements.

References
Chen, M., Burke, R. R., Hui, S. K., & Leykin, A. (2021). Understanding lateral
and vertical biases in consumer attention: An in-store ambulatory eye-tracking
study. Journal of Marketing Research, 58(6), 1120–1141.
Inman, J. J., Winer, R. S. & Ferraro, R. (2009). The interplay among category char-
acteristics, customer characteristics, and customer activities on in-store decision
making. Journal of Marketing, 73, 19–29.
Oetzel, S. & Luppold, A. (2017). Potenziale richtig ausschöpfen: Die Optimierung
von Zweitplatzierungen am POS kann den Absatz steigern. planung&analyse,
6(17), 36–38.
 13
How Adapted Do We Buy? Conformity

Why individuality can lead to more dissatisfaction. Why men should not shop together
and why sellers should be the same age as the buyers.

In Fig. 13.1, a line is shown on the left. This line is referred to as the ref-
erence line. On the right, three more lines A, B, and C are drawn. Which
of these three lines is identical to the reference line? The answer C is, of
course, correct. Not difficult, you might say. But what happens if you have
to answer the question not alone, in a quiet room or well hidden behind a
book, but openly in a group? It probably still works quite well. And what if

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part 65
of Springer Nature 2024
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[Link]
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Reference line A B C

Fig. 13.1 The conformity experiment by Asch (1951)

seven others before you have given the obviously wrong answer and said line
B? Would you have changed your answer?
This question was investigated by Asch (1951) in a famous experiment
about human behavior in groups. In the experiment, test subjects had to
answer such questions in 18 rounds. The test groups consisted of eight peo-
ple. Seven people knew the experimental setup and deliberately gave wrong
answers in twelve of the 18 rounds. In almost 37% of these rounds, the test
subjects conformed to the majority, even though the answer was obviously
wrong (Asch, 1951). This behavior is referred to as conformity in the scien-
tific literature (Hoffmann & Akbar, 2019, p. 148). In certain situations, we
adapt our behavior, our attitudes, or our opinion to the group.
And what about purchasing decisions? Many scientific studies focus on
the individual buyer. However, purchasing decisions are often not made
alone, but in a social context. When you order your dinner at a restaurant
in the evening, you may be sitting across from a friend or a business partner.
When you buy a new dress for the wedding you are invited to, you take your
friend with you. Or have you ever asked your Facebook friends for a pur-
chase recommendation for the next bicycle? Do we also conform here and
adapt our purchase decision to the group? Would we have made the pur-
chase decision differently if we were alone?
Let’s first consider the restaurant visit. Imagine you go out for dinner with
your best friend in the evening. While studying the menu, two dishes are
shortlisted. Either meat or fish. When the waiter comes to take the order,
your friend orders the fish, which you also considered. What would you do?
On the one hand, you don’t want to regret your order if you decide for the
meat dish. Maybe the fish is a taste sensation. On the other hand, you don’t
 13 How Adapted Do We Buy? Conformity    
67

want to present yourself to your friend as if you have no food preferences of

your own. What would you choose?
Ariely and Levav (2000) pursued exactly this question. Does the majority
rather choose the same and conform, or do they prefer to choose something
different to present their own personality and individuality? The authors cre-
ated a sophisticated experimental setup to answer this question. They chose
a bar and divided the tables being served into two groups. The bar guests
could try one of four different types of beer for free. 50 tables formed the
control group. In this group, the bar visitors could choose between the four
types of beer. One after the other. As we are used to when we order in a bar
or restaurant. At the other 50 tables, the beer was ordered secretly, without
the table neighbor seeing anything. Everyone wrote on a small piece of paper
what they wanted to order and handed it to the waiter covered. The ordered
beer was then brought to the tables, and the test persons were asked to fill
out a short questionnaire after consuming the beer to rate their satisfaction
with the beer (Ariely & Levav, 2000).
Why should the way we order our beer have an impact on our satisfac-
tion with the beer? Let’s first take a look at the results. When the beers are
ordered normally, i.e., one after the other orders a beer and everyone hears
the decision, more different types of beer are ordered per table. If your fel-
low student orders an ale, you are more likely to order a lager. The variance
of beer types per table was therefore greater with the open order. However,
this behavior led to the test persons of this group being less satisfied with
their order overall. In other words: The test persons of the group who placed
their order secretly were more satisfied with their beer in the end. Why is
that? The pub visitors who ordered secretly probably chose the type of beer
they preferred most and were quite satisfied with their choice. The other
group, who ordered the beers openly, were influenced by the orders of the
others. With the exception of the first person. The person who had ordered
first was about as satisfied with the beer as the people of the group who had
ordered secretly. However, the later one ordered, the less satisfied one was.
The authors argue that the individual always tries to emphasize his person-
ality and individuality, even with such simple things as ordering beer. This
can lead to being influenced by others and no longer choosing the beer that
probably tastes best (Ariely & Levav, 2000).
A group can not only influence which products we choose, but also how
much we spend. Kurt et al. (2011) analyzed the spending of 1230 supermar-
ket customers based on their receipts and a short questionnaire. According
to this, male customers spend 56% more when they go shopping with a
friend than when they shop alone. This is not the case with women. The
68    
S. Oetzel and A. Luppold

authors argue that men are more likely to behave in public situations in a
way that conforms to existing stereotypes. Ambitious and assertive. This
behavior is often referred to as impression management. This refers to strat-
egies that people use to make a good impression on their counterpart. For
men, this seems to be more pronounced when shopping (Kurt et al., 2011).
Zhang et al. (2014) also examined the social influence on buyer behav-
ior using video tracking data in a clothing store. The results can be summa-
rized as follows. Customers buy less when the store is crowded. We probably
feel uncomfortable when we come into contact with many unknown peo-
ple. Customers probably fear that the waiting time at the checkout will be
extended or that they will not find a salesperson to help them with their
selection. However, the likelihood of buying something increases when
accompanied by a family member or a friend. The shopping companion
helps with advice and can make suggestions, and the likelihood of a wrong
purchase decreases, according to the authors’ argument. The same applies to
interaction with the salesperson. The sales staff is more likely to understand
the needs and desires of the customers and can accordingly make alterna-
tive suggestions. If the salesperson is similar in age to the customer, this also
increases the likelihood of purchase (Zhang et al., 2014).

Summary and Recommendations

As a customer or pub visitor, we can increase our satisfaction and save
money at the same time through simple actions. For example, it is advisa-
ble to order first when eating with friends or drinking beer. In this way, we
can choose the dish or drink that we like the most, unaffected by the orders
of our table neighbors. For price-conscious male supermarket customers,
it may be sensible to shop alone. However, when we need new clothes or
shoes, a second opinion can be helpful. On the other hand, there are also
many implications for marketing managers. Retailers could, for example,
think of measures to ensure that men do not shop alone, but bring a friend.
They could, for example, carry out price promotions only for men. “Bring a
friend and you get 10% off your purchase” (Kurt et al., 2011).

References
Ariely, D., & Levav, J. (2000). Sequential choice in group settings: Taking the road
less traveled and less enjoyed. Journal of Consumer Research, 27(3), 279–290.
Asch, S. E. (1951). Effects of group pressure upon the modification distortion of
judgments. In H. Guetzkow (Ed.), Groups, leadership and men (pp. 177–190).
Carnegie Press.
 13 How Adapted Do We Buy? Conformity    
69

Hoffmann, S., & Akbar, P. (2019). Konsumentenverhalten, Konsumenten verste-

hen – Marketingmaßnahmen gestalten. Springer Gabler.
Kurt, D., Inman, J. J., & Argo, J. J. (2011). The influence of friends on consumer
spending: The role of agency–communion orientation and self-monitoring.
Journal of Marketing Research, 48(4), 741–754.
Zhang, X., Li, S., Burke, R. R., & Leykin, A. (2014). An examination of social
influence on shopper behavior using video tracking data. Journal of Marketing,
78(5), 24–41.
 14
How Do We Orient Ourselves on the Shelf?
Congruence

Why the shelf should be structured as the buyer imagines it. And why more subcategories
can help.

Do you often buy too much wine and are not how to arrange it on the
shelves in your wine cellar? Often, due to lack of time, the wine is simply
placed on the shelf without any proper structure. Wherever there is space,
the wine bottles are placed. However, this often leads to the good wine,
which you have chosen from your trusted wine merchant, being forgotten
among all the varieties and you can’t find it later. But there are also many
wine lovers who sort their wines. For example, the shelf is first sorted by the

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of Springer Nature 2024
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[Link]
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color of the wine—red or white -, then by the region of origin, and finally
by price. But another sorting is also conceivable. You could first sort the
wine bottles by price, then by grape variety, and finally by taste, i.e. dry or
semi-dry. Of course, you are not alone in the problem of sorting the wines
on the shelf. Retailers also face the same problem: How do I arrange the
products on the shelf?
To answer this question, market researchers and category managers often
resort to sorting games and have test subjects arrange products in virtual
shelves or group them into product groups as part of surveys. The goal is
always to summarize the results and derive the so-called purchase decision
tree. The purchase decision tree is intended to represent the process that a
customer goes through in his purchase decision. What are the characteris-
tics that the potential customer relies on when deciding what to buy on the
shelf? The order of the properties is also crucial. Does the customer first pay
attention to the color of the wine or the grape variety? The more important
a property is, the earlier it should appear in the representation of the pur-
chase hierarchy. The purchase decision tree then serves as the basis for the
shelf design and the arrangement of the products on the shelf. The idea is
quite simple. If I know how customers structure the category according to
properties, I place the products accordingly on the shelf. I want to make it as
easy as possible for the customer and facilitate his purchase decision.
The purchase decision tree could then look something like in Fig. 14.1.
In this case, you would first divide the shelf into two areas. One area for red
wines and one area for white wines. You would then sort the white wines
by country and place the wines of the same grape variety next to each other
within the countries.
The approach to shelf design has been common practice in category man-
agement for several years and is understandable and easy to comprehend.

Color Country Grape

Riesling
Germany

white Char-
France donnay
All
wines
Italy
red

Fig. 14.1 Example of a purchase decision tree

 14 How Do We Orient Ourselves on the Shelf? Congruence    
73

However, it is interesting that there have so far been hardly any scientific
studies on the influence of the sorting of products on the purchase decision.
The first scientific study on this topic comes from Rooderkerk and Lehmann
(2021) and was published in the renowned Journal of Marketing. In a field
experiment, the authors conducted a card sorting game with 120 custom-
ers of a supermarket. The test subjects had to divide 36 products from the
biscuits category into groups. The sorting should correspond to the internal
categorization of the products in the minds of the customers. Afterwards,
the test subjects had to make purchase decisions. They were shown three dif-
ferent shelves. The 36 products were again on the shelves. Each of the three
shelves was sorted differently. The authors refer to this as external categoriza-
tion of the products. Finally, the test persons had to fill out a questionnaire
(Rooderkerk & Lehmann, 2021).
In the analysis, the degree of agreement between internal and external cate-
gorization was calculated. The authors refer to this as congruence. The results
of the internal categorization show a great heterogeneity. This means that
each test subject has structured the biscuits shelf internally somewhat differ-
ently. Afterwards, the influence on the purchase intention was examined. The
results of the study show that congruence has a significant positive influence
on the purchase intention. The greater the similarity between the internal and
external categorization of the products, the higher the purchase intention.
However, the effect depends on the customer’s familiarity with the category.
The greater the familiarity with the category, the stronger the influence on the
purchase intention. In other words: If the structure of the shelf corresponds to
the internal structuring of the category from the customer’s point of view, the
purchase decision is easier (Rooderkerk & Lehmann, 2021).
The estimated model then served as the basis for optimizing the shelf lay-
out, i.e. which products should be placed together on the shelf. The results
of the shelf optimization show that the shelf layout based on the congru-
ence metric leads to a significantly higher purchase intention than the tradi-
tional method based on the purchase decision tree. What is the reason? The
authors show in their studies that the internal categorization of the products
based on the sorting game correlates only very slightly with the properties
of the category. The purchase decision tree used in this example reduces the
internal categorization too much to the properties of the products of the
category. This results in only a few subcategories. The optimal shelf should
therefore come as close as possible to the internal categorization of the prod-
ucts of the test persons. At the same time, based on the optimization for the
biscuits category, the authors recommend a significantly higher number of
subcategories (Rooderkerk & Lehmann, 2021).
74    
S. Oetzel and A. Luppold

Another important question that a retailer must ask when optimizing

shelf space is: Where on the shelf do I place the products with the highest
margin? Here too, there is a common practice in retail. A product should be
placed at eye level to maximise sales, as this is the area that customers look
at first look at and the products are usually within reach: “Eye level is buy
level”. (Chen et al., 2021). Is this really the case? To answer this question,
Chen et al. (2021) sent nearly 200 test subjects with eye-tracking glasses
through an American supermarket and recorded which products the cus-
tomers focused on the shelf and at which shelf level the product was located.
From this, the average height of the products on the shelf could be calcu-
lated. The results of the statistical analysis show that the ideal placement of
products on the shelf to be noticed by the customer is not at eye level, but at
chest level. Assuming an average eye level of 156 cm, the optimal placement
is about 37 cm below at 119 cm. For a shelf with five shelves, this corre-
sponds to the third shelf. Compared to the lowest and highest shelf, place-
ment on the third shelf generates 14 to 15% higher attention, compared
to the two shelves below and above it generates 7 to 8% higher attention,
according to the authors (Chen et al., 2021).

Summary and Recommendations

And our wine shelf? The topic of wine and the associated sorting is probably
a very emotional topic. Whether a purchase decision tree reduces the cate-
gory to too few characteristics cannot of course be answered at this point.
However, the results of the study show that traditional analyses such as the
decision tree do not always lead to the optimal result. Here too, the rule is:
experiment. The same applies to the height at which the products are placed
on the shelves. To optimize the wine shelf in the cellar, we suggest a sorting
game based on the study by Rooderkerk and Lehmann (2021). Take 36 bot-
tles of wine from your cellar. The bottles should differ significantly in many
characteristics such as color, country of origin, grape variety, price, dry or
semi-dry. Play a sorting game and sort the bottles into as many groups as
you like. Similar products should be sorted into one group. In the next step,
names are given to the product groups that describe the individual clusters
well. “The noble wine for the special occasion” or “Red for every day”. In
the last step, arrange your wines in your wine shelf. Use the same product
groups that you formed in the sorting game. Place your favorite wine at
chest level on the shelf.
 14 How Do We Orient Ourselves on the Shelf? Congruence    
75

References
Chen, M., Burke, R. R., Hui, S. K., & Leykin, A. (2021). Understanding lateral
and vertical biases in consumer attention: An in-store ambulatory eye-tracking
study. Journal of Marketing Research, 58(6), 1120–1141.
Rooderkerk, R. P., & Lehmann, D. R. (2021). Incorporating consumer product
categorizations into shelf layout design’. Journal of Marketing Research, 58(1),
50–73.
 15
What is a Click Worth? Correlation
or Causality

Why field experiments help us measure causality instead of correlation. And why we
should only allocate the budget after measuring the effect.

Imagine you want to buy a smart watch and have already decided that it
should be a sports watch from the Garmin brand. If you now search for
“Garmin sports watch” on Google or another search engine, you will not
only receive organic search results, but also advertisements through which
you can buy the sports watch. The sale of ad spaces is done by search engine
providers through an auction. In this process, companies that want to place
an ad bid for certain keywords. The bid determines the position where the
ad is placed and the cost per click that the company has to pay when a
potential customer clicks on the ad. The actual cost per click is additionally

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of Springer Nature 2024
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[Link]
78    
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determined by the quality of the ad and the bids of the competition and is
usually lower than the bid. You click on the link and buy a watch. But what
did the ad bring to the watch manufacturer?
There are numerous guides on the internet on how to calculate the return
on investment of such an online campaign. It’s quite simple. You divide the
revenue achieved by the associated costs. But is it really that simple? Quite
the contrary. Because in this example, it cannot be said with certainty
whether the Google ad was actually responsible for the purchase of the
watch. After all, the ad was only shown because you were previously inter-
ested in the product and made the search query. So there is a correlation
between search behavior and purchase intention, but it is unclear whether
the product would have been bought without the ad. The causal relation-
ship could also look like this: You buy the watch because you were already
interested in the product before the search. And not because you saw the ad.
There are numerous examples of misinterpretations of causal relationships in
the online sector. Offline retailers who distribute coupons to their customers
also face this problem and must ask themselves whether the customer would
have bought the product without the coupon. If so, the coupon only leads
to a reduction in margins.
Such questions can often only be answered through controlled field
experiments. Let’s consider such an experiment conducted by the scientists
Blake et al. (2015) as part of search engine marketing for eBay, which has
received great attention in the scientific community. In the first experiment
of the study, the researchers examined the success of search engine mar-
keting for so-called “brand keywords”. These are all search terms that con-
tain the brand name. For example, if you want to buy shoes on eBay, you
often enter terms like “eBay shoes” into the search field of Google, Bing,
or Yahoo. However, if the search engine is only used as a navigation aid,
paid advertising on the search engine page should have no influence on
purchasing behavior and the number of clicks, as the purchase intention
already exists.
To verify this, eBay stopped search engine advertising with Microsoft as
part of an experiment, while advertising with Google continued as usual
and served as a control group. The control group, for example, was able to
measure seasonal fluctuations in the data. The results of the statistical analy-
sis show that almost the entire number of clicks on eBay remained when the
search engine advertising was turned off. Even without paid search engine
advertising, customers find the desired page on the eBay sales platform. If
a potential customer enters the term “eBay shoes” into the search bar and
 15 What is a Click Worth? Correlation or Causality    
79

clicks on the paid link, this implies that the company could have saved the
money for the advertising (Blake et al., 2015).
In the second experiment, the authors examined the effect of search
engine marketing on Google for search terms that do not contain the eBay
brand name, e.g. when potential customers only search for “shoes”. The
question was whether customers would find eBay even if no paid links were
displayed. To answer this question, 210 regions in the USA were used. In 68
of these regions, spending on search engine advertising was stopped for 60
days, the remaining regions served as a control group. This time, the effect
on sales was measured. Here too, there was no overall significantly posi-
tive effect of search engine advertising on eBay’s sales. Only a small group
showed a positive influence of search engine advertising on sales, namely
customers who had never bought from eBay before. For the majority of reg-
ular eBay buyers, the effect was not significant. The researchers then ana-
lyzed the return on investment of search engine advertising. They used
publicly available data on sales and advertising expenses in the individual
regions. For eBay, the analysis resulted in a negative return on investment.
This means that eBay lost an additional 60 cents for every dollar invested. As
a result, eBay cut its marketing budget for search engine advertising by 100
million US dollars per year (Blake et al., 2015).
These results do not mean that you should not run search engine adver-
tising for your company. However, you should be aware that it can be diffi-
cult to prove causal relationships. In addition, many marketing managers are
reluctant to completely cut spending on search engine advertising in certain
regions. In such cases, one often can only focus on the correlation between
the number of clicks and sales. If search engine advertising, as in the case of
eBay, increases the number of clicks, a positive correlation could mistakenly
be interpreted as a causal relationship.
It becomes even more difficult on social media platforms like Facebook
or Instagram. Here too, companies spend a lot of money to gain even more
followers and likes. The justification for the high investments is similar here.
Those who follow the brand also spend more money on the brand. A nice
example is found by Lambrecht and Tucker (2016) on Twitter’s page. It
states that Twitter users who engage with a promoted tweet are significantly
more likely to buy the product.. Here too, the question of causality arises.
Isn’t it rather the case that Twitter users engage with the promoted tweet
because they already had a higher purchase interest beforehand (Lambrecht
& Tucker, 2016)? The same argument applies to the followers of a brand.
Because they like the brand, they follow it on social media and also spend
80    
S. Oetzel and A. Luppold

more money on the brand. We do not know what the causal relationship is.
Here too, only the experiment can help.
In a study by John et al. (2017), the authors investigated whether the
behavior of the participants changes if they follow a brand on Facebook and
have pressed the “Like” button. Are they then more willing to buy the prod-
uct just because they pressed the button? What is the value of the Like but-
ton to a company? In one of their experiments, the participants were asked
to log in on the company’s Facebook page, after which they were divided
into two groups. The experimental group had the opportunity to follow the
Coca-Cola brand on Facebook by pressing the “Like” button. As soon as
the button was pressed, this was immediately published on the participant’s
Facebook profile. The control group only had to indicate whether they liked
the Coca-Cola brand or not. Afterwards, the popularity of the brand was
queried. Interestingly, the results showed that the preferences for the Coca-
Cola brand were identical in both groups and that “liking” a page had no
positive effect on the behavior of the participants (John et al., 2017).
A similar result was achieved by the scientists Mochon et al. (2017) in
their Facebook experiment. The authors conducted a field experiment in
collaboration with a health insurance company, where the ompany’s cus-
tomers could earn points for healthy behavior. These points could then be
exchanged for gifts, similar to a retailer’s loyalty program. For the experi-
ment, over 3200 new customers who had not yet “liked” the Facebook
page were invited to click the button. In comparison, the control group,
which consisted of more than 800 new customers, received no invitation.
Did clicking the “Like” button influence the behavior of the participants
and lead to a healthier lifestyle? In the first four months of the experi-
ment, no significant difference in the number of points collected between
the two groups could be determined. Pressing the “Like” button therefore
had no influence on the behavior of the test subjects. But what happens if
the company also places advertisements on the Facebook page? The authors
also investigated this. In the following two months, they placed their own
posts in the news feed of the new customers, a kind of boosting of their own
posts, for which one can simply pay on Facebook. Now a significant differ-
ence shows up: Among the customers who had clicked the “Like” button,
the points collected increased by an average of eight percent compared to
the control group. A Facebook Like is therefore only worth something in
this case if the company also places additional advertising (Mochon et al.,
2017).
 15 What is a Click Worth? Correlation or Causality    
81

Summary and Recommendations

What do these results mean for marketing managers? First of all, they should
not make the mistake of assuming that search engine marketing does not
work just because no significant effects were found in the eBay study we
presented. Nor does this mean that it is not worthwhile for companies to
generate followers and likes. However, marketing managers should carefully
examine the impact of their online advertising to decide whether it is worth-
while for them or not. Field experiments are a suitable means to uncover
causal effects. The question should always be asked: What would happen
if no advertising was shown? Only when you know whether the advertis-
ing works can you distribute the budget accordingly. It is also important to
note that not everything is as simple as companies often suggest. Facebook
likes are very easy to generate, but they do not necessarily lead to a change
in behavior. The study by Mochon et al. (2017) shows, for example, that
gained likes only have value if additional advertising measures are carried
out. Marketing managers should therefore carefully analyze the data to
obtain such results.

References
Blake, T., Nosko, C., & Tadelis, S. (2015). Consumer heterogeneity and paid
search effectiveness: A large-scale field experiment. Econometrica, 83(1),
155–174.
Lambrecht, A., & Tucker, C. E. (2016). On storks and babies: Correlation, causal-
ity and field experiments. GfK MarketingIntelligence Review, 8(2), 24–29.
John, L. K., Emrich, O., Gupta, S., & Norton, M. I. (2017). Does “liking” lead to
loving? The impact of joining a brand’s social network on marketing outcomes.
Journal of Marketing Research, 54(1), 144–155.
Mochon, D., Johnson, K., Schwartz, J., & Ariely, D. (2017). What are likes
worth? A Facebook page field experiment. Journal of Marketing Research, 54(2),
306–317.
 16
Do We Spend More Money When We are
Satisfied? Customer Satisfaction

Why companies should measure their customers’ satisfaction. And why customer
satisfaction increases willingness to pay.

You have dinner at your favourite Italian restaurant. As soon as you leave
the restaurant, your phone vibrates and asks you to rate your visit. The next
morning, you open your email inbox. Yet again, at least three emails asking
for your opinion or satisfaction about the last product you purchased. Even
when shopping in the city center, you are not safe from annoying questions.
Upon leaving the store, four faces appear on a terminal: two green and two
red smileys, each showing different satisfied and dissatisfied faces. By press-
ing one of the four smileys, you can give feedback on whether you leave the
store laughing or crying.
We are constantly asked by companies how satisfied we were with the
product or service. The evaluation of satisfaction is no longer used only in
retail. Recently, one also has to rate satisfaction at the airport security check
or the cleanliness of toilets with a smiley. We always wonder: Do such smiley
ratings really capture all dimensions of my satisfaction? What actually hap-
pens when I press red? Is the responsible person then dismissed? Whether

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of Springer Nature 2024
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84    
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rating the toilet visit with a laughing or crying smiley always seems sensi-
ble and revolutionizes the measurement of customer satisfaction is indeed
another matter. But let’s leave it at that.
Customer satisfaction is one of the most important constructs in
both marketing practice and marketing research. A study by the Leipzig
Graduate School of Management from 2020, for example, shows that 75%
of 325 surveyed companies systematically record customer satisfaction
(Maier, 2020). Marketing research has been dealing with the influence of
customer satisfaction on firm performance for many years. Gruca and Rego
(2005), for example, found that an increase in customer satisfaction by one
point leads to an increase in the net operating cash flow in the following
year by 55 million US dollars. At the same time, increasing customer satis-
faction leads to a reduction in the variance of future cash flows in their sta-
tistical models (Gruca & Rego, 2005).
The scientists Anderson et al. (2004) use a similar dataset and find that
a change in customer satisfaction by one percent leads to an increase in
shareholder value by 1.016%. In addition, the results of the analysis show
that the relationship between customer satisfaction and shareholder value
is strongest in department stores and supermarkets (Anderson et al., 2004).
However, the results of both studies refer to the average company in their
sample, which are without exception very large companies.
Since the influence of customer satisfaction on firm performance natu-
rally depends on many factors, the authors Otto et al. (2020) conducted
a meta-analysis and summarized 25 years of research on this topic. The
authors analyzed 251 correlations from 96 studies, which were published
between 1991 and 2017 and measured in various industries. The results
of their statistical meta-analysis show that the average correlation between
customer satisfaction and firm performance is somewhat more moderate at
around 0.101. However, it is present, statistically significant and – unsur-
prisingly – higher in the service sector. It also shows that companies with
higher advertising expenditures simultaneously have more satisfied custom-
ers (Otto et al., 2020).
While these correlations are of great relevance to science, they are prob-
ably already well known to many companies. Or at least they assume that
satisfaction has an influence on firm performance. Otherwise, there would
be no need to measure customer satisfaction. Many companies have already
internalized that the customer is king and there is only one boss – the cus-
tomer. So I invest in the customer and do what he likes. But are satisfied
customers also willing to accept a higher price? The price is a component of
the profit function and thus influences firm performance. This question was
 16 Do We Spend More Money When We are Satisfied? ...    
85

pursued by the authors Homburg et al. (2005) in two experiments. In the

first experiment, they asked subjects to rate their satisfaction with a fictitious
restaurant visit. The restaurant visit was described based on three character-
istics: quality of the food, atmosphere, and service. Each characteristic had
two variations. A positive and a negative one. For example, the quality of the
food was described as excellent, with many fresh ingredients, or as too spicy.
The interior was elegant or the volume was a bit too high. The service was
friendly or the time between two courses was significantly too long. Each
subject therefore had one of eight imaginary experiences with the restaurant.
Subjects were then asked how much they would be willing to pay to visit the
restaurant. The results of the statistical evaluation show a strong correlation
between customer satisfaction and willingness to pay. The higher the rated
satisfaction, the higher the willingness to pay for the visit to the Italian res-
taurant (Homburg et al., 2005).
However, the authors were not satisfied with this. They also investigated
the functional relationship between customer satisfaction and willingness to
pay. They found that the relationship resembles a curve that is flat in the
middle and steeply rises or falls at the edges. What does this mean for the
restaurant visit? This can be explained with the disappointment theory. The
test person had a certain expectation of the restaurant visit. This was fixed
by the description of the experiment and the initial scenario. Through the
described scenarios, the subjects had an experience with the restaurant. If the
experience was only slightly better or worse than expected, this had no influ-
ence on the willingness to pay. However, if the expectations were not met,
this led to disappointment. The ingredients were not fresh, the volume too
loud, the service poor. Conversely, if the expectations were exceeded, this
caused joy. The greater the difference between expectation and experience,
the stronger the perceived positive or negative emotions. This implies that
the relationship between customer satisfaction and willingness to pay is not
linear. In other words: the more satisfied customers are, the higher their will-
ingness to pay (Homburg et al., 2005).
Satisfied customers spend more money and thus contribute to the success
of the company. However, customer satisfaction only refers to a customer’s
satisfaction with a product or service. It is an evaluation of the fulfillment
of customer expectations. But are satisfied customers also happy? After all,
happiness goes beyond mere satisfaction and includes emotions such as joy
or happiness and is something like a subjective evaluation of current life cir-
cumstances. Here too, a positive influence of customer satisfaction on cus-
tomer happiness can be empirically determined (Gong & Yi, 2018).
86    
S. Oetzel and A. Luppold

From the customer’s point of view, the question now arises: Can this hap-
piness be bought? Yes, say the scientists Dunn et al. (2011) in their article
published in the Journal of Consumer Psychology. Although the relationship
between money and happiness is weak, one can try to increase one’s happi-
ness by spending it correctly. The authors derive eight principles of spending
money from the literature that make us happier and which we summarize
here:

1. Buy “experiences” like travel, concerts, and sporting events. We get used
to material things very quickly. We remember experiences better. Also,
experiences can be shared better on Instagram, TikTok, and Co.
2. Spend your money on others, for example for charitable purposes, rather
than on yourself. People who spend more money on charitable purposes
are happier, even when their income is taken into account. Social rela-
tionships are an important factor for happiness.
3. Indulge in small pleasures more often. The small pleasures of everyday life
are an important source of happiness. So, it’s better to go to your favorite
Italian restaurant three times than once to a three-star restaurant.
4. Don’t spend money on overpriced warranties and insurance. When we
own something, we tend to protect ourselves from loss. However, research
shows that the loss is less dramatic than one might think.
5. Pay now and consume later instead of consuming now and paying later.
Because anticipation is the greatest joy. And it’s even greater when you
consume a product later. If you’re going to the bakery soon, you should
wait a bit before eating the cake.
6. Think carefully about the consequences of a purchase, especially the neg-
ative ones. Imagine you have the choice between a large and a small gar-
den. Who wouldn’t immediately choose the large garden and think of
balmy summer evenings? But often it’s the hard-to-imagine characteristics
that make us happy or unhappy. For example, the large garden needs to
be mowed more often or the weeds need to be weeded.
7. Don’t compare too many offers. Those who compare too many offers may
buy the variant with the best price-performance ratio, but may lose sight
of the characteristics that are important for their happiness.
8. Read the opinions of other customers before buying and buy what many
others like. Research shows that we can best predict how we will enjoy an
experience if we see how others have enjoyed it.
 16 Do We Spend More Money When We are Satisfied? ...    
87

Summary and Recommendations

For many businesses and marketing departments, measuring customer
satisfaction and its drivers is part of their daily tasks. Once the drivers of
customer satisfaction are known, they can be improved, thereby increas-
ing customer satisfaction. However, this is only meaningful if the relation-
ship between customer satisfaction and firm performance is known. Only
then does it make sense to invest budgets in improving customer satisfac-
tion. However, the relationship between customer satisfaction and firm per-
formance may not be obvious to many in relation to their own company.
For businesses, the results of customer satisfaction research have important
implications. The studies show that there is a significant correlation on aver-
age among the companies considered. At the same time, however, the stud-
ies also prove that the correlation strongly depends on the industry. While
the correlation is strongest for department stores and supermarkets, it is
even negative for discounters (Anderson et al., 2004). Assuming a significant
correlation, they can implement a high-price strategy with satisfied custom-
ers. Retailers could identify locations with higher customer satisfaction and
demand higher prices there. However, investments in improving customer
satisfaction also seem to be associated with costs. Because a slight increase in
customer satisfaction only has a minor influence on the willingness to pay.

References
Anderson, E. W., Fornell, C., & Mazvancheryl, S. K. (2004). Customer satisfaction
and shareholder value. Journal of Marketing, 68(4), 172–185.
Dunn, E. W., Gilbert, D. T., & Wilson, T. D. (2011). If money doesn’t make you
happy, then you probably aren’t spending it right. Journal of Consumer Psychology,
21(2), 115–125.
Gong, T., & Yi, Y. (2018). The effect of service quality on customer satisfaction,
loyalty, and happiness in five Asian countries. Psychology & Marketing, 35(6),
427–442.
Gruca, T. S., & Rego, L. L. (2005). Customer satisfaction, cash flow, and share-
holder value. Journal of Marketing, 69(3), 115–130.
Homburg, C., Koschate, N., & Hoyer, W. D. (2005). Do satisfied customers really
pay more? A study of the relationship between customer satisfaction and willing-
ness to pay. Journal of Marketing, 69(2), 84–96.
88    
S. Oetzel and A. Luppold

Maier, E. (2020). Kundenzufriedenheitsmessung in Unternehmen, HHL Leipzig

Graduate School of Management.
Otto, A. S., Szymanski, D. M., & Varadarajan, R. (2020). Customer satisfac-
tion and firm performance: Insights from over a quarter century of empirical
research. Journal of the Academy of Marketing Science, 48, 543–564.
 17
Which Numbers Influence Us? Left-Digit
Effect

Why purchasing decisions are often not made rationally. And why we allow so-called
anchors to lead us to systematic wrong decisions when assessing prices.

Classical economics postulates that buyers act completely rationally in their

purchasing decisions and apply all rules of logic and probability calculation
to ultimately choose between different products according to their indi-
vidual preferences. Emotions, it is assumed, do not play a role. However,
it turns out that purchasing decisions are often not made purely ration-
ally. One possible explanation for why people do not act rationally is based
on two modes of thinking of the human brain: System 1 and System 2
(Kahneman, 2012, p. 32 f.). If buyers were to act rationally in their purchas-
ing decision, System 2 would be responsible for it. In System 2, the slow
thinking system, decisions are based on reflection and mental concentration

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of Springer Nature 2024
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[Link]
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to make the best possible purchasing decision. In System 1, the fast think-
ing system, decisions are made intuitively or based on learned routines
(Kahneman, 2012, p. 32 f.).
Imagine you want to buy a chocolate bar after sports. If you were to
act completely rationally and rely on System 2 for your purchasing deci-
sion, you would have to compare all the prices of the products on the shelf,
count the calories of each product, read the ingredients, check Fair Trade
labels, recall all knowledge from memory, and so on and so forth. Probably
you wouldn’t do that, but would spontaneously decide on a chocolate bar.
Maybe you apply a simple rule to make your purchasing decision. You want
a chocolate bar with a biscuit. So you take a Duplo. Thinking slowly is diffi-
cult for many people. System 2 is associated with concentration, effort and
physical strain, so System 2 quickly becomes sluggish, overwhelmed and
exhausted and automatically switches to the fast thinking of System 1. The
human brain tries to avoid the strenuous slow thinking. Fast thinking in
System 1 is easier for many people and is less strenuous (Kahneman, 2012,
p. 32 f.). As with our chocolate bar.
To understand how the two systems work and are related, consider the
following task from Kahneman’s book (2012, p. 61) and try to solve the
problem. But you only have ten seconds. So go:

A bat and a ball together cost 1.10 EUR. The bat costs one euro more than the
ball. How much does the ball cost?

If your answer is 0.10 EUR, it is unfortunately wrong. If the ball costs

0.10 EUR, then the bat costs 1.10 EUR. Together that’s 1.20 EUR. You
probably used System 1, as 0.10 EUR is intuitively plausible. If you had used
System 2, your answer would probably have been 0.05 EUR. That is the cor-
rect answer. So the bat costs 1.05 EUR and the ball 0.05 EUR. Both together
1.10 EUR. But calculating that with System 2 takes a lot of effort and energy.
Our brain doesn’t like that and prefers to switch to System 1 (Kahneman,
2012, p. 61).
The two psychologists Daniel Kahneman and Amos Tversky have ques-
tioned the approach of complete rationality in solving complex decision sit-
uations and have demonstrated in numerous experiments that people take
mental shortcuts. These are referred to as heuristics. The basic assumption
of the two psychologists is that people do not calculate probabilities to make
decisions, but apply simplifying rules to estimate them. A heuristic is a kind
of rule of thumb. People use such heuristics to efficiently solve difficult
decisions. So it’s not necessarily about finding the best possible alternative.
 17 Which Numbers Influence Us? Left-Digit Effect    
91

However, when applying such heuristics to solve the decision problem, sys-
tematic misdecisions can occur. These are called biases (Beck, 2014, p. 25 f.).
The most well-known and easiest to prove heuristic is the anchoring
effect. In general, Tversky and Kahneman (1974) speak of anchoring when
people orientate themselves on another, previously mentioned number
when estimating a number. An anchor, therefore, is any number by which
you can orientate yourself. The fascinating thing about the anchoring effect
is that any number can serve as an anchor, even if it has nothing to do with
the actual decision. In their study, Tversky and Kahneman (1974) asked
the participants to estimate the proportion of African nations in the UN.
Before the participants had to give their answer, a wheel of fortune was
spun. However, the wheel of fortune was manipulated and either stopped
at 10 or 65. The students who saw a 10 on the wheel of fortune estimated
the proportion of African nations in the UN at 25%. In the other group,
where the anchor was at 65, the estimate was on average 45%. So signif-
icantly higher, even though the result of the wheel of fortune has noth-
ing to do with the proportion of African nations in the UN (Tversky &
Kahneman, 1974).
The anchoring effect can also be very easily demonstrated. In our lectures
at the university, we often use the following experiment to demonstrate the
anchoring effect. The students are asked to imagine that they are invited to
a birthday party. The host likes dark chocolate and you want to give him a
bar as a gift. Then we show the students a high-quality type of chocolate
that they probably do not know. A dark chocolate with intense berry notes,
roasted notes of nuts and wood, creamy character with lemon notes is writ-
ten on the package. How much are you willing to pay for this bar of choco-
late at most? Before the students enter their willingness to pay online, they
are asked to enter the last digit of their matriculation number in a text field.
Here too, the last digit serves as an anchor. Obviously, the last digit of the
matriculation number has nothing to do with the willingness to pay for the
chocolate. Nevertheless, the students seem to be influenced by the last digit.
The result is clear. If the last digit of the matriculation number is less than
or equal to 5, the average willingness to pay is 3.70 EUR. Students with a
digit greater than 5 indicated an average willingness to pay of 8.90 EUR.
This always works.
Buyers are particularly susceptible to the anchoring effect when making
price decisions. If you look at the flyers of grocery retailers, you will notice
that many prices have the number 9 in the end. The coffee from Melitta
costs 3.29 EUR, the Kinder bar from Ferrero 1.49 EUR, the jar of Nutella
1.79 EUR, Coca-Cola 1.49 EUR and the oven-fresh pizza from Dr. Oetker
92    
S. Oetzel and A. Luppold

2.99 EUR. Such prices, which are just below a round amount, are called
“just below-prices”. But why don’t the retailers use the corresponding round
prices? Instead of offering the coffee for 3.29 EUR, the Rewes and Edekas
of this world could also ask for 3.30 EUR. Or offer the pizza for 3.00 EUR
instead of 2.99 EUR. Perhaps, one could argue, the price ending 9 signals
that the product is particularly cheap. On the other hand, the difference of
1 cent can make a lot of sales. For example, if a grocery retailer with a net
margin of 10% lowers the price of a pizza from 3.00 EUR to 2.99 EUR, his
margin decreases by more than 3%. What does science say? Does it make a
difference whether I sell the product for 2.99 EUR or for 3.00 EUR? What
about the difference between 3.29 EUR and 3.30 EUR?
To answer this question, Thomas and Morwitz (2005) conducted an
exciting experiment. They divided the test subjects into two groups. Each
group had to evaluate the prices of pens in two decision situations. The
decision situations are shown in Table 17.1. In each group and in each deci-
sion situation, there was also a comparison product at a price of 4.00 EUR.
The students in the first group were shown products with just-below prices.
In the first decision situation, the pen cost 2.99 EUR and in the second
3.59 EUR. In the second group, the subjects were presented with round
prices. In the first decision situation, the pen cost 3.00 EUR and in the sec-
ond 3.60 EUR. What is interesting now are the comparisons between the
groups, i.e. the comparison between the price evaluations of 2.99 EUR and
3.00 EUR as well as the comparison between 3.59 EUR and 3.60 EUR. In
both cases, just-below and round prices are compared and the difference is
only one cent. However, there is a crucial difference. In the first compari-
son (2.99 EUR vs. 3.00 EUR), the first digit of the just-below price with
2 is lower than that of the round price with 3. In this case, the price of
2.99 EUR is perceived as significantly cheaper than the price of 3.00 EUR.
When comparing the jusr-below price of 3.59 EUR with the round price of
3.60 EUR, no difference in price perception could be detected. Both prices
were rated similarly (Thomas & Morwitz, 2005).
How does the result come about? Does the price ending 9 have no influ-
ence on price perception? It seems that the price ending 9 plays a lesser role

Table 17.1 Decision situation with round and broken prices (Thomas & Morwitz,
2005)
Group 1 Group 2
Decision situation 1 2.99 EUR vs. 4.00 EUR 3.00 EUR vs. 4.00 EUR
Decision situation 2 3.59 EUR vs. 4.00 EUR 3.60 EUR vs. 4.00 EUR
 17 Which Numbers Influence Us? Left-Digit Effect    
93

in price perception than the first digit on the far left. The first position on
the far left serves the buyer as an anchor. The authors refer to this as the
Left-Digit-Effect. The two authors argue that when buyers are confronted
with prices, they map the numerical values of the prices onto an internal
analog magnitude scale. In this process, the numerical values are processed
from left to right. When the numerical values are viewed very quickly, some
buyers only evaluate the first digit on the left side. The first digit then serves
the buyer as an anchor. It is not the difference of 1 cent that plays a role
in price perception, but the change of the first digit (Thomas & Morwitz,
2005).
The Left-Digit-Effect is particularly pronounced when the buyer is shown
prices and reference prices and he can compare the prices. This is relevant,
for example, in the case of price promotions. In an experiment from 2020,
researchers Sokolova et al. (2020) asked subjects to rate the price of jam.
The jam was on sale. Half of the subjects were shown a price of 2.99 EUR,
the other half a price of 3.00 EUR. In addition to the offer price, half of
the subjects saw the regular price of 4.00 EUR as a reference point. The
other half did not see the regular price. These are the same price combina-
tions as in the first experiment described above to demonstrate the Left-
Digit Effect. The subjects rated the price of 2.99 EUR significantly lower
than the smooth price of 3.00 EUR. However, this only applies if the regu-
lar price of 4.00 EUR is also displayed as a reference point next to the offer
price of 2.99 EUR. If the regular price is not displayed, no difference can be
detected. The left digit only serves as an anchor if both prices are indicated
on the price tag (Sokolova et al., 2020).

Summary and Recommendations

If you are a retailer or seller, you can of course make very good use of the
anchoring effect. If you want to increase the sales of your standard prod-
uct, for example, show your customers a more expensive product first. When
you then show them the standard product, they will probably perceive it as
cheaper. The price of the more expensive product probably serves the cus-
tomer as an anchor—whether they want it to or not. The applications are
diverse. However, the experiments on the Left-Digit-Effect show that it is
not always clear which anchors the buyer uses for price assessment. They
show that buyers tend to use the first rather than the last two digits of a
displayed price. So if a retailer is faced with the decision to set the price at
2.79 EUR or 2.99 EUR, they should rather set the price at 2.99 EUR and
not give away the 0.20 EUR. But if you look at the brochures of food retail-
ers, you will find that the prices of many items do not end at 99, but often
94    
S. Oetzel and A. Luppold

at 29, 59 or 79. Is retail giving away money here? We do not know. Possibly,
other anchors play a role in price assessment in many product groups. For
example, the prices of competing products or the prices in the past. Only
experiments can answer this question.

References
Beck, H. (2014). Behavioural Economics – Eine Einführung. Springer Gabler.
Kahneman, D. (2012). Schnelles Denken, langsames Denken. Siedler.
Sokolova, T., Seenivasan, S., & Thomas, M. (2020). The left-digit bias: When and
why are consumers penny wise and pound foolish? Journal of Marketing Research,
57(4), 771–788.
Thomas, M., & Morwitz, V. (2005). Penny wise and pound foolish: The left-digit
effect in price cognition. Journal of Consumer Research, 32(June), 54–64.
Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and
biases. Science, 185(4157), 1124–1131.
 18
Do We Plan Spontaneous Purchases? Mental
Accounting

Why it is common to plan unplanned purchases. Why impulsive buyers should not go
through all the aisles in the supermarket. And why price promotions at the end of the
market can lead to an increase in spending.

A new trend on the video portal TikTok, which is mainly used by teenag-
ers, is the so-called “Cash Stuffing”. The videos show young people stuffing
cash into various envelopes, each marked with a specific category such as
weekly shopping, vacation, or gifts. This shows a remarkable degree of finan-
cial prudence and rationality, especially considering that one would rather
expect a new dance challenge on TikTok. With the envelopes, the TikTokers

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of Springer Nature 2024
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[Link]
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plan exactly how much money they have available each month for certain
expenses. Similar to accounting. For example, if a businessman buys a new
car for 100,000 EUR, this transaction must be documented in the account-
ing. In this case, accounts such as “fleet”, “input tax” and “bank” are likely
to be affected, where deposits and withdrawals are noted. Many people still
cringe when they think of the accounting they learned at school or univer-
sity. They are probably glad to be rid of it.
But probably there is a small accountant in each of us. Behavioral
economists call this “mental accounting”. The theory goes back to the
work of Nobel Prize winner in economics Richard Thaler (Thaler,
1985). It states that people categorize transactions into mental accounts.
Different transactions are categorized and evaluated differently on differ-
ent mental accounts. Thus, the price of a transaction can be perceived
and evaluated differently depending on the mental account. For example,
we have mental accounts for buying groceries, for hobbies, or for buying
a car. So some people are very price sensitive when shopping for daily
groceries and pay attention to every cent, while they choose every addi-
tional equipment package when buying a car without paying attention
to the price. Mental accounting helps people keep track of their income
and expenses—basically nothing more than the “Cash Stuffing” of our
TikTokers.
That people have different mental accounts and this does not always lead
to rational decisions is shown by the experiment of Kahneman and Tversky
(1984). As part of the experiment, some of the subjects were presented with
the following situation:

Imagine you have decided on a play and have already paid the price of 10 dol-
lars per ticket. When you enter the theater, you realize that you have lost the
ticket. Would you pay 10 dollars for another ticket?

The second group was presented with the following situation:

Imagine you want to see a play where the price is 10 dollars per ticket. You still
have to buy the ticket. When you enter the theater, you realize that you have lost
a 10 dollar bill. Would you still pay 10 dollars for the play?

In the first situation, a total of 46% of respondents were willing to buy an

additional ticket. In the second situation, surprisingly, 88% were willing to
buy a theater ticket. In both situations, it is actually the same problem. In
both cases, you are 10 US dollars poorer if you buy the theater ticket. But
 18 Do We Plan Spontaneous Purchases? Mental Accounting    
97

why do the subjects decide differently if they have lost the theater ticket
worth 10 dollars? Kahneman and Tversky (1984) suspect that the subjects
use different mental accounts in the two situations to evaluate the possible
purchase. In the first situation, the purchase of the ticket was already booked
with 10 dollars on a “culture” account. Another purchase would burden the
account with another 10 dollars, so a total of 20 dollars. In the second situ-
ation, one could argue that the subjects open a new mental account “money
loss” and book the lost 10 dollars there. The “culture” account would then
only be charged with 10 dollars.
The use of mental accounts is not only evident in laboratory experiments,
but also in everyday activities such as weekly shopping at the supermarket.
When shopping, we use mental accounts like “weekly shopping” to con-
trol ourselves and ensure that our household budget is not exhausted at
the end of the month. A study by Stilley et al. (2010a), published in the
Journal of Consumer Research, shows that buyers have a mental budget for
grocery shopping, but leave room for unplanned purchases in the market.
This means that buyers spend part of their budget on planned purchases
and reserve the other part for spontaneous purchase decisions in the store.
In other words, it is common to plan unplanned purchases. The authors of
the study refer to this mental budget for unplanned purchases as “in-store-
slack”. In a first study, the authors analyzed the data from a survey of super-
market customers. The respondents were asked to indicate before shopping
which products they wanted to buy and how much money they wanted to
spend on them. Then they could shop as usual. After shopping, the actu-
ally purchased products and the receipt were evaluated. It turned out that
the planned mental budgets for shopping matched well with the actual
expenses. On average, the buyers had planned a mental budget of 45.99 dol-
lars for shopping. The average receipt was 49.82 dollars, only 3.83 dollars
above the mental budget. The surprising result. About 50% of the purchased
products were bought unplanned. The authors interpreted this result as a
first indication of the existence of “in-store-slack”, i.e. a mental budget for
unplanned purchases (Stilley et al., 2010a).
In the second part of the study, the authors conducted a field study to
investigate the influence of “in-store slack” on the over- or underestimation
of the mental budget compared to the actual receipt. To do this, customers
were again interviewed before entering the supermarket and their receipts
were analyzed after shopping in the supermarket. The respondents were
asked to estimate how much money they would spend on their shopping
and which products they intended to buy. The “in-store slack” was deter-
mined from the difference between the expected total expenditure and the
98    
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expected expenditure for the planned products. The average mental budget
was 58.46 dollars, while the expected expenditure for the planned prod-
ucts was 41.11 dollars. Thus, a mental budget of 17.35 dollars remains for
unplanned purchases (Stilley et al., 2010a).
What makes actual spending higher than the mental budget customers
set for shopping? What tips can be given to TikTokers? The authors pursue
exactly this question in the field study and observe the behavior of custom-
ers in the supermarket. First the good news. The planned expenses of the
subjects in the study came quite close to the actual expenses. On average,
the subjects had planned a mental budget for shopping of 58.46 dollars. The
actual expenses amounted to 58.93 dollars. That’s only a 0.47 dollar differ-
ence. The mental budget thus seems to work well as self-control. If you only
walk through the aisles in the supermarket where you wanted to buy some-
thing, you still have money on your mental account after shopping, which
was actually intended for unplanned purchases. But this can also mean that
they have forgotten to buy products. Conversely, it does not mean that
walking through all the aisles in the supermarket automatically leads to an
overshoot of the mental budget. Only impulsive customers run the risk of
exceeding their mental budget and thus spending more than planned if
they visit all the aisles of the supermarket. For them, the higher the mental
budget for unplanned purchases, the greater the likelihood that the entire
mental budget will be exceeded. Impulsive customers are thus more suscep-
tible to external influences and can easily lose self-control. In addition, the
duration of the shopping and the amount of income were recorded in the
study. However, both factors have no influence on the over- or undershoot-
ing of the mental budget (Stilley et al., 2010a).
What do these results mean for manufacturers and retailers who want
to generate unplanned purchases in the supermarket and get a piece of the
“in-store slack” cake? Retailers like to use price promotions for this. To
assess the success of such price promotions, manufacturers and retailers like
to look at the so-called promotion uplift of the advertised products. This is
nothing more than the percentage increase in sales or turnover of the prod-
uct during the price promotion compared to the sales level of the product
at the normal price. It often turns out that price promotions in the entrance
area are particularly effective and have a high promotion uplift. The sales of
the advertised products often increase significantly and more strongly here
than in other places in the market. Because everyone passes by the entrance.
Although this may be advantageous for the manufacturer, it does not auto-
matically mean that it is also advantageous for the retailer. Retailers should
 18 Do We Plan Spontaneous Purchases? Mental Accounting    
99

rather look at the influence of the price promotion on the shopping bas-
ket than the promotion uplift of the individual product. It may be that cus-
tomers buy the promotional chocolate, but spend less on other products, so
that the total value of the shopping basket remains the same. If you also take
into account the finding that customers have a mental budget for unplanned
purchases, you come to a more differentiated result.
In this context, the authors Stilley et al. (2010b) conducted another study,
which was also published in 2010. In their study, the authors examined the
influence of price promotions in the store on expenditures for planned and
unplanned products during shopping. They distinguish whether the buyers
still have a mental budget for unplanned purchases during shopping, i.e.,
“in-store slack”, or whether the budget is already exhausted. The study was
similar to the first study. The participating customers of American supermar-
kets had to indicate before shopping which products they plan to buy, how
much money they will spend on it and what their total budget for shop-
ping was. In addition, the subjects were given handheld scanners to docu-
ment their purchases. This way, it could later be calculated exactly when the
mental budget for unplanned purchases was exhausted. After shopping, the
receipts were analyzed again (Stilley et al., 2010b).
The results show the following picture for unplanned purchases. If the
buyer has a mental budget for unplanned purchases during his shopping,
price promotions that he sees in the store have no influence on his total
expenditures for unplanned impulse purchases. That is, the value of his
shopping basket is not increased in this case by the price promotion. Why
is this the case? The authors argue that customers have planned the men-
tal budget for such unplanned purchases in advance. For example, because
needs are aroused in the customer during shopping that he does not yet
have in mind. The Sunday roast or the next barbecue party, which one has
not yet thought of. However, the result changes when the mental budget
for unplanned purchases is exhausted during shopping. The mental budget
serves the buyer for self-control, so that he does not overdraw his account
excessively. Unless he has good arguments for the overdraft. For example,
the savings from a price promotion is a good reason to buy a product any-
way, even though the mental budget for unplanned purchases is already
exhausted. The results of the analysis show that both price promotions
for planned and unplanned products—when the mental budget is already
exhausted—lead to an increase in expenditures for unplanned purchases and
thus increase the value of the shopping basket of the buyer (Stilley et al.,
2010b).
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Summary and Recommendations

The results of the two studies have important implications for retailers who
want to increase a buyer’s shopping basket through price promotions. Where
in the store should retailers advertise products that are typically purchased
unplanned? For example, potato chips. If the products with the price pro-
motion are placed at the entrance, this will likely lead to higher sales of the
product, but not necessarily to a higher shopping basket of the customer.
Customers still have a mental budget for unplanned purchases at the
entrance and use it precisely for that. If retailers want customers to exceed
their mental budget, then price promotions for unplanned products should
appear as late as possible in the store. That is, when the shopping is almost
complete and the mental budget for unplanned purchases is likely empty.
However, there should then be a reason for the overdraft, e.g., a reduced
price.

References
Kahneman, D., & Tversky, A. (1984). Choices, values, and frames. American
Psychologist, 39(4), 341.
Stilley, K. M., Inman, J. J., & Wakefield, K. L. (2010a). Planning to make
unplanned purchases? The role of in-store slack in budget deviation. Journal of
Consumer Research, 37(2), 264–278.
Stilley, K. M., Inman, J. J., & Wakefield, K. L. (2010b). Spending on the fly:
Mental budgets, promotions, and spending behavior. Journal of Marketing,
74(3), 34–47.
Thaler, R. (1985). Mental accounting and consumer choice. Marketing Science,
4(3), 199–214.
 19
Do We Get the Lowest Price With a Price
Guarantee? Low Price Guarantees

Why price guarantees can lead to higher prices for buyers. And why they can
simultaneously improve the retailer’s price image.

Booking a holiday over the internet is easier today than ever before. Those
who search the internet for the latest trip for their summer vacation often
come across such advertising promises:
• With our price guarantee, we want to save you a long search for the best travel
price.

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We liked the following promise even better:

• If you find a lower price for the same service on another travel site on the day
of your booking, we will refund the difference.

Don’t price guarantees sound good? The provider guarantees me to pay the
price of his competitor if he offers a lower price. One might think that the
market for tourism must be fiercely competitive and the prices correspond-
ingly low. But the opposite could be the case.
Let’s look at the it with the toolbox of game theory. Imagine you want to
cross the Alps by bike. When searching the internet, you come across two
tour operators offering such a trip. Both offer the bike tour from Munich
to Lake Garda on their websites. The tour operators compete over the price.
The question for them is what price they should charge for the bike tour.
First, let’s look at the profits without price guarantees of the two tour
operators. For this, a certain demand behavior was assumed and the prof-
its of both tour operators were maximized. The two possible strategies of
the two providers and the resulting profits are shown in Table 19.1. Both
tour operators can either charge a low price of 400 EUR or a high price of
600 EUR for the bike tour. The two strategy alternatives of tour operator
1 are listed in the rows and the two strategy alternatives of tour operator 2
in the columns. The profits resulting from the different strategies are listed
within the table, with the first number representing the profit of tour opera-
tor 1 and the second number the profit of tour operator 2. In price compe-
tition, when both set a price of 400 EUR, both make a profit of 320 EUR
(in thousand). From the tour operators’ point of view, it would be good if
they could somehow avoid the price competition, if they could cooperate
and charge a higher price. If both charge a price of 600 EUR, both now
make a profit of 360 EUR. The profits are of course higher in this case at the
bottom right than in the competition case, in which both charge a price of
400 EUR.
But is this situation stable? No, because one of the two tour operators
always has an incentive to undercut his competitor and attract a large part of
the demand. If tour operator 1 lowers his price from 600 EUR to 400 EUR,

Table 19.1 Profits of the providers without price guarantee

Tour operator 2
Price 400 EUR Price 600 EUR
Tour operator 1 Price 400 EUR (320 EUR; 320 EUR) (400 EUR; 240 EUR)
Price 600 EUR (240 EUR; 400 EUR) (360 EUR; 360 EUR)
 19 Do We Get the Lowest Price With a Price Guarantee? …    
103

his profit rises to 400 EUR. Tour operator 2 would only make a profit of
240 EUR. The same consideration could also be made by tour operator 2.
The only equilibrium is when both are in price competition and offer the
bike tour for 400 EUR.
But what happens to the profits now if both tour operators offer a price
guarantee? Do the providers still have an incentive to deviate from cooper-
ative behavior, i.e., to offer the bike tour for 600 EUR? No, they no longer
have an incentive. The situation is shown in Table 19.2. If, for example,
tour operator 1 were to deviate and only charge a price of 400 EUR, tour
operator 2’s price would automatically also drop to 400 EUR due to its
price guarantee. The customer can simply have the difference paid out by
tour operator 2. The top right and bottom left cells of the profit matrix are
now identical to the case of price competition. So if both companies offer a
price guarantee, no provider can benefit from a price reduction and increase
its profit. In addition, the price guarantee ensures that both providers are
always informed about the competitor’s prices (Arnold et al., 2012).
The price guarantee ensures in our mini-example that both tour oper-
ators have an incentive to cooperate and charge a high price for the bike
tour from Munich to Lake Garda. Namely 600 EUR. However, such price
guarantees can also be used to enforce higher prices in the market (Arnold
et al., 2012). Let’s look again at Table 19.1 with the profits without a price
guarantee and assume that both tour operators offer the trip for 400 EUR.
What happens now if tour operator 1 increases his price from 400 EUR to
600 EUR? Without an additional price guarantee, provider 1 loses a large
part of his demand and his profit drops from 320 EUR to 240 EUR. The
profit of tour operator 2, on the other hand, rises to 400 EUR. Tour oper-
ator 1 therefore has no incentive to raise his prices, as this would reduce his
profit. But if he also gives a price guarantee, the situation looks different.
Due to the price guarantee, tour operator 1 does not lose any demand if he
raises his prices from 400 EUR to 600 EUR. After all, customers can still
benefit from the low price of 400 EUR due to the price guarantee. If his
competitor, tour operator 2, gets wind of the price increase, he again has
an incentive to also raise his prices. Why? Because tour operator 2 can no
longer benefit from his low price of 400 EUR. He can no longer increase his

Table 19.2 Profits of providers with price guarantee

Tour operator 2
Price 400 EUR Price 600 EUR
Tour Price 400 EUR (320 EUR; 320 EUR) (320 EUR; 320 EUR)
operator 1 Price 600 EUR (320 EUR; 320 EUR) (360 EUR; 360 EUR)
104    
S. Oetzel and A. Luppold

demand for the Lake Garda trip due to the competitor’s price guarantee. So
what should he do? Right, he can also raise his price, to 600 EUR. Thanks
to the price guarantee, both can charge a higher price and thus increase their
profit from 320 EUR to 360 EUR (Arnold et al., 2012).
So much for the theory. What does empirical research say about price
guarantees? Mamadehussene (2021) examined the pricing behavior of
tire dealers in the greater Chicago area. He fed his theoretical model with
the price data collected from the tire dealers. This allows him to calculate
what-if scenarios. In his case: What price does the tire dealer set if there
is no price guarantee? For a cheaper Michelin tire, the prices with a price
guarantee were on average 2.6% above the prices without a price guaran-
tee. For the more expensive Michelin tire, it was even an average of 5.9%
(Mamadehussene, 2021).
The use of such price guarantees naturally also has an influence on price
perception and ultimately on a retailer’s price image. Lurie and Srivastava
(2005) investigated the influence of a price guarantee on various price eval-
uation variables. In their experiment, the test subjects were supposed to
imagine buying an electronic product from a retailer. For this purpose, the
test subjects were divided into two groups. Part of the subjects could buy
the item from a retailer with a price guarantee, the other part of the subjects
from a retailer without a price guarantee. If the retailer offered a price guar-
antee, this particularly led to the subjects perceiving this retailer as cheaper
compared to retailers without a price guarantee, especially for more expen-
sive items. The price-performance ratio of the electronic item was also rated
better at retailers with a price guarantee. Price guarantees are thus perceived
by buyers as an indicator of a good price image and ultimately low prices
(Lurie & Srivastava, 2005).

Summary and Recommendations

The scientific study presented here shows that a price guarantee is not just
a pure advertising measure, but has important implications. Price guaran-
tees suggest intense competition at first glance. However, price guarantees
can lead to prices that are above the prices in a fully competitive market. In
our mini-example, none of the providers had an incentive to deviate from
the higher prices if a price guarantee existed. Nevertheless, price guaran-
tees are not without problems from a competitive point of view. However,
price guarantees also seem to have a positive influence on the price image.
Especially in times when the low price is becoming more prominent, retail-
ers could benefit from price guarantees.
 19 Do We Get the Lowest Price With a Price Guarantee? …    
105

References
Arnold, T., Baake, P., & Schwalbe, U. (2012). Preisgarantien im Einzelhandel:
Nicht verbraucherfreundlich, sondern ein Instrument zur Durchsetzung hoher
Preise. DIW Wochenbericht, 79(16), 12–16.
Lurie, N. H., & Srivastava, J. (2005). Price-matching guarantees and con-
sumer evaluations of price information. Journal of Consumer Psychology, 15(2),
149–158.
Mamadehussene, S. (2021). Measuring the competition effects of price-matching
guarantees. Quantitative Marketing and Economics, 19(3), 261–287.
 20
How Could We Eat Healthier? Nudging

Why nudging can lead to healthier eating. And why behavior-oriented nudging is more
effective than cognitive nudging, such as nutritional labeling, for example.

Do you also make a resolution every year to finally eat healthier? More vege-
tables instead of meat. Less sugar and chocolate, but more fruit. Tea instead
of coffee. And instead of red wine in the evening, prefer a glass of apple juice
spritzer. But as soon as the first weeks of the year are over, we often fall back
into old patterns and opt for burger in the canteen instead of a healthy salad.
One possible explanation: Unhealthy food simply tastes better. This
is the “unhealthy = tasty” intuition, which was investigated by scientists
Raghunathan et al. (2006) in several experiments. In an implicit association
test, the authors found that it was much easier for the subjects to associ-
ate pictures of unhealthy foods like pizza or burgers with words like “tasty”
on the computer. The association of healthy foods with words like tasty was

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somewhat harder for the subjects and they took a little longer for the task.
In a second experiment, the subjects were asked to choose between cheese
crackers that a snack manufacturer allegedly wanted to bring to market. The
cheese crackers differed in their content of unsaturated fats. Here too, the
“unhealthy = tasty” intuition was evident. The subjects rated the unhealthy
cheese crackers with the highest proportion of unsaturated fats as the crack-
ers that probably tasted the best. The results of the experiments show that
the subjects implicitly associate unhealthy foods with tasty (Raghunathan
et al., 2006).
If we can’t make healthy choices ourselves, how can companies, restau-
rants, canteens or retailers help us make healthier choices?   The world’s
supermarkets have a powerful tool – behavioral economics – to help shop-
pers make healthily choices. Nudging. The term was introduced in 2009
by economist Richard Thaler and lawyer Cass Sunstein (Thaler & Sunstein,
2009). They see nudging as any action that decision architects can take
to change people’s behavior in a predictable way (Thaler & Sunstein, 2009,
p. 6). Thaler and Sunstein (2003) have launched a new movement they call
libertarian paternalism. What does this mean for supermarkets that want to
help their customers eat healthily? Paternalism would mean that the deci-
sion architect, i.e. the supermarket, patronizes us and removes all unhealthy
foods from the range. That is not the goal. The libertarian component means
that all decision or purchase options should be available to the buyer. Only
the presentation of the decision situation should nudge the buyer in a cer-
tain direction, which drives him more towards salad than pizza or burger.
But if he still wants to take the greasy burger, then he should do that. The
freedom of choice remains with the buyer (Thaler & Sunstein, 2003).
Not only since the awarding of the Alfred Nobel Memorial Prize for
Economic Sciences 2017 to Richard Thaler has research on the topic of
nudging and healthy nutrition been very dynamic and more and more stud-
ies are appearing. To keep an overview, meta-analyses are useful, which sum-
marize the research on this topic. One of them is by Cadario and Chandon
(2020), who statistically investigated the effect of nudges on healthy eating
in field experiments. The meta-analysis is based on almost 300 effects from
90 scientific articles and almost 100 conducted experiments.
Cadario and Chandon (2020) identify seven different nudges in the stud-
ies, which they divide into three categories. The first category is cognitive
nudges, which give customers additional information about the ingredients
of products. These include, for example, nutritional labels on the back of
packaging, color symbols or smileys on the packaging, and better visibil-
ity of the products in the supermarket, e.g. at the checkout. The second
 20 How Could We Eat Healthier? Nudging    
109

category is affective nudges. These nudges aim to influence the emotions of

the buyers in favor of the healthy alternative. Examples of this are health-re-
lated statements, so-called health claims, which are supposed to directly
encourage healthy eating: “Eat healthy”. Or healthier foods are presented
more visually appealing on supermarket shelves. The third and last cate-
gory of nudges is behavior-oriented and is intended to directly influence the
behavior of the buyers. Healthier alternatives are placed in such a way that
they are easier and more convenient to buy. An example of this would be
the placement of the salad at the beginning of the queue in the canteen.
Another alternative is portion sizes for healthier food. For example, super-
markets can reduce the package size of unhealthy foods and at the same time
increase the portion size of healthy foods (Cadario & Chandon, 2020).
The results of the meta-analysis show that nudges work and actually influ-
ence our behavior. However, the greatest influence on the consumption of
healthy foods is behavior-oriented nudges, i.e. nudges that directly influence
our behavior. Among these, increasing the portion size of healthy foods has
the greatest effect. The least influence is exerted by cognitive nudges. These
include nutritional labeling and color symbols on the packaging.
But how many calories can be saved by the right nudge at the right time?
This is exactly what the authors calculate based on their results. They assume
an average daily calorie intake of 1727 kcal and an average deviation from
this value of 537 kcal. Based on the effects estimated in their analysis, an
average of 124 kcal per day can be saved through nudging. This corresponds
to a reduction in daily calorie intake by 7.2%. Instead of 1727 kcal, one
therefore only consumes 1603 kcal. Through the nutritional labeling on the
back of the packaging, you can save 54 kcal. The most calories can be saved
by increasing the portion size of healthy foods: 317 kcal in total (Cadario &
Chandon, 2020).

Summary and Recommendations

The changed nutritional awareness of many supermarket customers are forc-
ing retailers to rethink what they offer. With nudging, the retailer has new
opportunities to support its customers in their desire for healthy nutri-
tion. But the desire for sustainable consumption can also be supported by
nudging. Previous study results show that nudges can be used to promote
health-conscious nutrition. In the public discussion, however, cognitive
nudges are mainly discussed, which provide the customer with additional
information about ingredients. For example, in the form of nutritional labe-
ling or color symbols on product packaging. However, cognitive nudges are
only a quarter as effective as behavior-oriented nudges, where, for example,
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S. Oetzel and A. Luppold

the portion size of healthy foods is increased. Nudges work very well in res-
taurants and canteens. In the supermarket, the effect of nudges is somewhat
lower. In the restaurant, it is often just about making a purchase decision.
Usually just for oneself. In the supermarket, this is more difficult. Customers
have to make purchase decisions in many categories, for different occasions
and perhaps not just for themselves, but for the whole family. But they still
work. The field of research on nudging is still relatively young. Become a
researcher yourself and experiment with different nudges.

References
Cadario, R., & Chandon, P. (2020). Which healthy eating nudges work best? A
meta-analysis of field experiments. Marketing Science, 39(3), 465–486.
Raghunathan, R., Naylor, R. W., & Hoyer, W. D. (2006). The unhealthy= tasty
intuition and its effects on taste inferences, enjoyment, and choice of food prod-
ucts. Journal of Marketing, 70(4), 170–184.
Thaler, R. H., & Sunstein, C. R. (2003). Libertarian paternalism. American
Economic Review, 93(2), 175–179.
Thaler, R. H., & Sunstein, C. R. (2009). Nudge: Improving decisions about health,
wealth, and happiness. Penguin.
 21
Would We Buy One and Pay for Two?
Numeracy

Parking fee
0,05€/second

Why mathematical skills help in choosing a tariff. And why we usually pay too much in
the parking garage.

Imagine you are buying cheese at the supermarket and have chosen a nice
large piece weighing 900 g at the cheese counter. However, at the checkout,
you are charged for 1000 g. The the employee in the supermarket smiles at
you and says, “We round up to the nearest kilogram”. Due to this rounding,
you would now have to pay 11.11% more than indicated at the counter.
What nonsense, you think. Why should you pay for 100 g of cheese that
you didn’t even order?
Such a pricing model is rather unusual for supermarkets. However, this
tariff model has been used in the telecommunications industry for years. In

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this billing model, the actual duration of the call is not billed, but the num-
ber of billing increments. The number of billing increments is determined
by the duration of the call or usage. For example, 60/1 means that the first
minute is fully charged and then billed in second increments. Consider a
simple example from Skiera and Oetzel (2010): With a minute price of
0.60 EUR, a 5-second call with 60/1 increments costs exactly 0.60 EUR.
The five seconds are simply rounded up to 60 seconds. If, on the other hand,
it is billed to the exact second, the call only costs 0.05 EUR. The increments
thus leads to an increase in the costs for this 5-second call by 1100% (Skiera
& Oetzel, 2010).
In the study by Skiera and Oetzel (2010), the authors examined the influ-
ence of increments on the invoice amount and the costs of individual calls.
For their empirical analysis, the authors relied on over 700 mobile phone
bills from almost 300 customers with around 38,000 calls. The results of the
calculations show that the costs of a call with 60/60 increments are almost
40% higher than with a second-accurate billing. Compared to second-accu-
rate billing, the average invoice amount with 60/60 increments increases by
over 23% to over 46 EUR. The increments have a significant influence on
the costs per call and the invoice amount (Skiera & Oetzel, 2010).
Certainly, one could argue that in the telecommunications industry,
phone calls are mostly billed with a flat rate these days. However, there are
still prepaid mobile phone tariffs where billing is done by the minute. The
same often applies to phone calls when you are on vacation or on a business
trip outside the EU. With some mobile phone providers, you can choose
between tariffs with different data volumes. If, for example, you have cho-
sen the 12 GB data package and only used 7.2 GB, some providers will
only charge you for the 8 GB data volume at the end of the month. Mobile
phone operators advertise this as a fair billing model. But is it really fair?
After all, technically it is no problem to calculate the used 7.2 GB data vol-
ume exactly. This type of billing was necessary in the past for phone calls,
as only discrete pulses and no continuous call lengths could be transmitted.
Such restrictions no longer exist today (Skiera & Oetzel, 2010).
This type of billing is also used in many other industries and sectors.
Think, for example, of the tariffs in parking garages. If you drive into the
city and just want to pick something up quickly, you often have no choice
but to use the parking garage. In the parking garage, you usually pay per
started hour. If you leave the parking garage after 30 minutes, having done
everything, the billed usage time is twice as long as the actual usage time.
So, figuratively speaking, you have to “buy one, pay for two”. The electrician
who is installing the new lamp is quick today and only needs 20 minutes,
 21 Would We Buy One and Pay for Two? Numeracy    
113

then he is gone. The consultation with the lawyer fortunately only lasts 45
minutes. You go to the swimming pool and buy a three-hour ticket. After
an hour you are cold and you go home. In all these examples, there are times
that are not used by the customers but are later billed by the companies or
service providers. Craftsmen and lawyers around the world often bill by the
hour. There are probably countless other services that work with such a bill-
ing model. Interestingly, scientific price research rarely deals with this tariff
element, although it has a major influence on the amount of the invoice. If
you look at the standard works of price literature, increments are not men-
tioned at all.
The use of such a tariff element makes the calculation of the invoice
amount more complex for the customer. The question arises whether we as
customers are able to understand the effects of such roundings, or whether
this type of pricing can be misleading. Skiera et al. (2020) therefore inves-
tigated whether customers make errors when choosing tariffs with different
increments. The authors again relied on mobile phone bills from almost 300
customers with around 38,000 calls. In the mobile phone bills analyzed, it
was possible to switch from 60/10 to 10/10 increments for a 3 EUR higher
fixed fee. The switch from 10/10 back to 60/10 increments was associated
with a 3 EUR lower monthly basic price.
The results show that erros are often made when choosing a tariff with
different increments. Of the invoices billed with 10/10 increments, 58%
reached the lowest invoice amount. 42% of the invoices would have been
cheaper if a tariff with longer increments (60/10) had been chosen. For the
invoices that were billed with 60/10 increments, 58% also reached the low-
est invoice amount. However, for 42% of the invoices, choosing a tariff with
10/10 increments would have led to a lower invoice amount. The average
overcharge is 2.35 EUR, and by avoiding such errors, these customers could
save an average of around five percent of the invoice amount (Skiera et al.,
2020).
But why is it that so many consumers do not choose the most cost-ef-
fective tariff for them? The authors also investigate this question in a sec-
ond study, this time, however, with survey data (Skiera et al., 2020). For this
purpose, the respondents were presented with hypothetical tariff choice deci-
sions in which they were to identify the cheapest tariff. The results show that
only about half of the tariff choice questions were answered correctly. To
explain the tariff choice errors, various influencing factors were subsequently
queried in the context of the survey. The strongest influencing factor on the
tariff choice errors are the mathematical abilities of the respondents. The
authors refer to this construct as “Numeracy”. This construct actually comes
114    
S. Oetzel and A. Luppold

from finance and is referred to there as “Financial Literacy” and is associ-

ated with retirement provision. Regardless of the name of the construct, the
subjects had to answer simple tasks on percentage or compound interest cal-
culation as part of the survey. The better the mathematical abilities of the
subjects were, the fewer tariff choice errors they made in the tariff choice
decisions with different increments (Skiera et al., 2020).
Why not test yourself to see if you can correctly answer the tariff choice
decisions of Skiera et al. (2020). You can find the solution at the end of the
chapter.

1. Imagine you make 10 calls per month, all of exactly 120 seconds duration.
Which contract would you choose?
– Tariff 1: Price per minute: 0.40 EUR; Increments: 60/60 or
– Tariff 2: Price per minute: 0.20 EUR; Increments: 1/1
– (i) Tariff 1, (ii) Tariff 2, (iii) doesn’t matter
2. Imagine you make 10 calls per month, all of exactly 45 seconds duration.
Which contract would you choose?

– Tariff 1: Price per minute: 0.10 EUR; Increments: 60/60 or

– Tariff 2: Price per minute: 0.10 EUR; Increments: 1/1
– (i) Tariff 1, (ii) Tariff 2, (iii) doesn’t matter

If you have chosen the correct tariffs in both tariff choice decisions, you are
probably a real tariff expert. You probably mostly choose the tariff that leads
to the lowest invoice amount. If you have made at least one mistake, try
again with the following questions and test your mathematical skills.

1. If the probability of getting sick is 10%, how many out of 1000 people are
likely to get sick?
2. If 5 people all have the winning number in the lottery and the prize is 2 mil-
lion EUR, how much does each of them get?
3. Suppose you have 100 EUR in a savings account. The account earns 10%
interest per year. How much would you have in the account after two years?

If you have difficulty solving the tasks, you may also have difficulty find-
ing the tariffs that lead to the lowest invoice amount. If you need to make
a tariff decision in the near future, it is best to calculate everything calmly
before you decide, and perhaps also have a friend take another look at your
invoices.
 21 Would We Buy One and Pay for Two? Numeracy    
115

Summary and Recommendations

For many service providers, such increments are another important element
in designing their tariffs. Just think of the “Product-as-a-Service” business
models, where the customer does not buy the product, but pays for the use
of the product. Today, you can rent everything: cars, solar systems, or even
washing machines. With all these services, the use of the product is billed
in the end. Tariffs are therefore another way to differentiate their offer and
increase their profits (Oetzel et al., 2021). However, providers of such tariffs
should assume that potential customers are able to understand the impact
of this tariff component on the invoice amount. In light of the results of the
studies presented, this seems at least questionable. However, it would already
be helpful if the indication of the increments would not appear as a small
footnote in the tariff description.

• Solutions Tariff Decisions: 1. Tariff 2; 2. Tariff 2

• Solutions to the questions on mathematical competence: 1. 100; 2. 400,000;
3. 121

References
Oetzel, S., Schlereth, C., & Skiera, B. (2021). Taktungen als zentraler Bestandteil
der Preismetrik bei digitalen Diensten. Schmalenbach IMPULSE, 1(1), 1–13.
Skiera, B., & Oetzel, S. (2010). Taktung von Tarifen für Dienstleistungen. ZFBF:
Schmalenbachs Zeitschrift für Betriebswirtschaftliche Forschung, 62, 860.
Skiera, B., Schlereth, C., & Oetzel, S. (2020). Pricing metrics and the importance
of minimum and billing increments. Journal of Service Research, 23(3), 321–336.
 22
How are We Influenced by Scents? Olfactory
Stimuli

Why scents can enhance perceived quality. And how scents can increase sales.

You have had a tiring meeting and now you want to take the train home.
Before you can finally enjoy your well-deserved evening off, you have two
hours of travel ahead of you. You want to write a few emails and maybe
treat yourself to a beer. Anticipating this, you reserved a window seat. Once
on the train, your seatmate is already in his place and you start a nice con-
versation. After a while, however, your seatmate unpacks his lunchbox.
An unpleasant smell spreads throughout the train compartment. There is

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nothing fundamentally wrong with bringing your own food. After all, the
prices in the onboard restaurant are not affordable for everyone. But does it
really have to smell so strong?
What can companies do to ensure that the train ride or shopping in the
supermarket or department store is not impaired by disturbing smells and
is as pleasant as possible? The answer is scent marketing. This is exactly the
question Girard et al. (2019) investigated in a field experiment. In a four-
month field study, the authors scented trains of a German railway company.
The experiment included a total of nine surveys. The first and last surveys
did not include scenting the trains. The first wave served as the initial sit-
uation, i.e., a normal train ride without any influence. In each wave, the
same 35 commuters were asked about their satisfaction with the train ride,
the service quality, and the price-performance ratio. The results show that
the commuters found the train ride more pleasant as soon as the trains were
scented. The perceived service quality, the perceived experience of the train
ride, and the perceived price-performance ratio were significantly better
rated than a train ride without scenting. The better rating remained stable
over time and across subsequent waves of the survey, with no habituation
effect. Even when the scenting of the trains was abolished in the ninth
wave, no significant decrease in satisfaction could be detected. The astonish-
ing thing about the study is that the participating commuters did not con-
sciously perceive the scent in the trains (Girard et al., 2019).
The smell itself is nothing more than a chemical stimulus and consists
of small molecules in the air that, when inhaled through the nose, hit our
olfactory organ, the so-called olfactory epithelium. This is located at the very
top of the main nasal cavity. In response to the incoming stimulus, the scent
molecules are converted into electrical signals that are then transmitted to
the brain. In the brain, the olfactory bulb is another switching station for
olfactory stimuli. From there, the olfactory stimuli reach the so-called amyg-
dala and the hippocampus. Both parts of the brain play a central role in feel-
ings, emotions, and memories (Rolls, 2015; Girard et al., 2019).
Our sense of smell is thus the only sensory organ that is directly con-
nected to the emotion center of our brain. Scent, emotions, and memories
are therefore closely linked, and a scent can create a pleasant atmosphere
that we rate positively. We always associate certain scents with a certain
experience. So it can happen that we associate a smell that is considered
unpleasant with positive memories. If you often visited a farm in Bavaria
as a child and had beautiful experiences there, the smell of cow dung might
trigger a positive feeling in you.
Scents not only affect satisfaction with the train ride, but also play an
important role in relation to buying behavior. Scientific research often
 22 How are We Influenced by Scents? Olfactory Stimuli    
119

distinguishes between warm and cold scents. Madzharov et al. (2015) show
in their experiments that buyers are more likely to buy premium brands
when they make decisions in environments with warm scents. But what is
a warm scent? In scientific studies and experiments, vanilla or cedar scents
are often used as warm scents and mint or eucalyptus as cold scents. Such
a classification is usually based on preliminary studies in which subjects are
asked to describe associations with the respective scents. The underlying the-
ory of Madzharov et al. (2015), why warm scents lead to a higher preference
for premium brands, is roughly as follows. A warm scent can lead to a per-
ceived social proximity. This makes us feel disturbed in our intimacy. This
can lead to us finding this social proximity unpleasant and wanting to leave
the situation. Psychologists call this cognitive dissonance. We want to bring
this perceived unpleasant state back into balance and regain control over our
social environment. One way to restore this state is through our own buying
behavior. When buying, we can decide for ourselves which products we like
and which we do not (Madzharov et al., 2015).
To prove their theory that a warm scent leads to higher sales of high-qual-
ity products, the authors conducted an experiment at an optician’s shop,
among other things. On eleven days, the salesroom was scented with a warm
cinnamon scent and on another eleven days with a cold peppermint scent.
The 51 brands offered in the store were divided into premium and low-end
products by the owner. There was a significant difference in buying behav-
ior. Customers exposed to a warm ambient scent bought significantly more
premium products than low-end category products. In addition, customers
exposed to a warm ambient scent bought significantly more products than
customers exposed to a cold ambient scent (Madzharov et al., 2015).
Lichters et al. (2020) pursued a similar question and investigated the
influence of warm and cold scents on the preference for a significantly
cheaper product, take-away coffee. For this, they divided the test sub-
jects into two groups. One group was in a room with the warm scent of
vanilla. The second group was exposed to the cold scent of peppermint.
After some questions about attitudes and coffee consumption, the sub-
jects had to choose between a Tchibo coffee and a Starbucks coffee. In this
case, the Starbucks coffee was perceived as the premium brand. Also in this
experiment, a warm scent led to the premium brand being preferred by a
large part of the subjects. However, the authors use a slightly different the-
ory based on temperature perception. Premium brands are often perceived
as cold (Park, J., & Hadi, R., 2020). If customers are now exposed to a
warm scent, they try to balance the increased temperature perception. For
120    
S. Oetzel and A. Luppold

example, by purchasing a symbolically cold brand. In this case, the premium

brand (Lichters et al., 2020).
And what does the scientific literature say about the impact of scents
in supermarkets? After all, customers are greeted by a wonderful scent of
baked goods, often placed in the entrance area, when they enter the store.
A scientific study on this comes from Leenders et al. (2019). As part of an
experiment, the scientists scented a supermarket with a melon scent. In a
pre-test, the scent was rated as fresh and was also the preferred scent of the
retailer. They varied the intensity of the scent. The results of the evaluation
show: Only with an intense scenting of the salesroom can a positive effect
be detected. The respondents rated the store overall better and also stated
to have bought more than planned. This is also reflected in a 14% higher
turnover. With normal scenting, no significant effect could be detected.
At the same time, the time spent in the store was significantly higher with
intense scenting than without scenting. In addition, the time was perceived
as shorter than it actually was (Leenders et al., 2019).

Summary and Recommendations

As diverse as the scents are, so is the research on the effect of scents. Not
all research directions can be presented here. However, a meta-analysis by
Roschk and Hosseinpour (2020) shows that scent marketing works. In their
analysis, the authors use over 671 estimated effects from 64 articles. Overall,
the authors were able to detect a positive effect of the scent on various var-
iables such as satisfaction or purchase intention. Overall, the authors find
that the purchase intention is on average 3% higher when a scent is used.
However, if the retailer chooses the right parameters, the willingness to buy
can even increase by 23%. What parameters should the seller pay attention
to? According to the meta-analysis, the scent should be familiar and congru-
ent to the customer, i.e., match the environment and the products. It should
also be one-dimensional. It is better to use only one scent than several. Also,
scents work better on women (Roschk & Hosseinpour, 2020). But what
does congruent with the environment and the products mean? That is the
challenge. In our view, only one thing helps here. Experiment for yourself.

References
Girard, A., Lichters, M., Sarstedt, M., & Biswas, D. (2019). Short-and long-term
effects of nonconsciously processed ambient scents in a servicescape: Findings
from two field experiments. Journal of Service Research, 22(4), 440–455.
 22 How are We Influenced by Scents? Olfactory Stimuli    
121

Madzharov, A. V., Block, L. G., & Morrin, M. (2015). The cool scent of power:
Effects of ambient scent on consumer preferences and choice behavior. Journal of
Marketing, 79(1), 83–96.
Leenders, M. A., Smidts, A., & El Haji, A. (2019). Ambient scent as a mood
inducer in supermarkets: The role of scent intensity and time-pressure of shop-
pers. Journal of Retailing and Consumer Services, 48, 270–280.
Lichters, M., Adler, S., & Sarstedt, M. (2020). Warm ambient scents nudge con-
sumers to favour premium brands and right-wing parties. Marketing ZFP, 42(4),
22–34.
Park, J., & Hadi, R. (2020). Shivering for status: When cold temperatures increase
product evaluation. Journal of Consumer Psychology, 30(2), 314–328.
Rolls, E. T. (2015). Taste, olfactory, and food reward value processing in the brain.
Progress in Neurobiology, 127, 64–90.
Roschk, H., & Hosseinpour, M. (2020). Pleasant ambient scents: A metaanalysis
of customer responses and situational contingencies. Journal of Marketing, 84(1),
125–145. [Link]
 23
How Well Can We Assess Ourselves?
Overconfidence

Why particularly incompetent people have a problem accurately assessing their cognitive
abilities. And why we overestimate future usage when making purchase decisions with
different tariffs, and underestimate usage less often.

People tend to overestimate their abilities and competencies. Are you famil-
iar with the following statement that statisticians like to present? “80 per-
cent of German drivers believe they can drive better than the average.” The
same result can probably be expected if you ask about qualities as a lover.
Many people think they are better than average. But this is a phenomenon
of distorted self-perception and self-overestimation. Statistically speaking,
this is of course impossible, as you have surely recognized immediately. If

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you were to rate the objective ability to drive a car on a scale from 0 to 100
and arrange all values in ascending order, then logically there must always be
as many people above the average as there are below it. The median is used
as the average value. The median is the value that lies exactly in the middle
of a sorted data series, and by definition, 50 percent of the observations are
above and 50 percent of the observations are below this value.
In particular, incompetent people seem to have a problem assessing their
own abilities correctly. This is the so-called Dunning-Kruger effect, which
scientists Kruger and Dunning (1999) have demonstrated in four studies.
In their studies, the scientists had the subjects, who were mostly students,
among other things, work on tasks related to logical thinking and gram-
mar. The 20 questions of the logic test came from a standardized admis-
sion test for lawyers, which is widely used in the USA. The grammar tasks
came from a preparation course for teachers. Afterwards, the students were
asked to indicate how well they thought they had done in the test compared
to their fellow students and how well they assessed themselves. The results
were robust across all studies. The results show that paradoxically, people
with lower cognitive abilities tend to overestimate themselves, while people
with high test abilities tend to underestimate their own abilities (Kruger &
Dunning, 1999). An interesting effect. If you find yourself in a discussion
with someone who is very confident in their opinions, this could also be due
to the Dunning-Kruger effect.
People also seem to have difficulty assessing themselves when mak-
ing purchasing decisions. For example, when choosing between flat rates
and usage-based tariffs, we have to make an estimate of our future use of
the service. A well-known example of such a tariff structure is the offer of
Deutsche Bahn. Here, very simply put, you can choose between three pos-
sible tariffs. The first option is to pay for each trip individually. If you want
to travel from Frankfurt to Munich again, you simply go to the Deutsche
Bahn website and book the trip. The second option is the Bahncard 50. If
you buy the Bahncard 50 for over 200 EUR in second class, you get a 50
percent discount on the trip from Frankfurt to Munich. Economists refer
to this as a two-part tariff, as the tariff consists of a usage-independent and
a usage-dependent component. The usage-independent price component
is the purchase of the Bahncard 50. The usage-dependent price compo-
nent is, for example, the trip from Frankfurt to Munich. The third option
is a flat rate—the Bahncard 100. This costs over 4000 EUR in second class.
For this, you can travel as much as you want throughout Germany for a
year. A flat rate is just another two-part tariff. Only with the flat rate, the
 23 How Well Can We Assess Ourselves? Overconfidence    
125

usage-dependent price component is zero euros. For this, the usage-inde-

pendent price component, i.e. the basic fee, is somewhat higher.
A study on customer choice behavior for such tariffs comes from Della
Vigna and Malmendier (2006), which was published in the American
Economic Review. The authors analyzed a dataset of nearly 8000 gym vis-
itors over a period of three years. The data set includes the choice of tariff
and the frequency of gym visits. The options were a flat rate, where members
can use the gym either for the whole month or the whole year, and a Pay
Per Visit tariff, where you pay per visit. The standard assumption of eco-
nomic models assumes that customers have rational expectations about their
future consumption frequency and choose the utility-maximizing contract.
Utility-maximizing in this case means that the gym visitors choose the tariff
that leads to the lowest bill at the end of the year. If the visit frequency is
known, the two tariffs—flat rate or Pay Per Visit—can be compared well in
retrospect. This means that for each gym visitor, it can be calculated which
tariff would have led to the lowest bill. However, the results of the analysis
show a different picture than the model of the rational consumer postulates.
Customers who opted for a flat rate and thus for a monthly membership
of more than 70 US dollars paid on average 70 percent more for the same
number of visits than with the Pay Per Visit tariff. 80 percent of the flat rate
members would therefore have been better off if they had paid per visit. On
average, flat rate users paid 17 dollars per visit. They would have had to pay
10 dollars per visit if they had chosen the Pay Per Visit tariff. In total, they
could have saved 600 dollars (DellaVigna & Malmendier, 2006).
This is referred to in the scientific literature as flat-rate bias (Lambrecht &
Skiera, 2006). Customers prefer a flat rate, even though a pay-per-visit rate
would have resulted in a lower bill. Why didn’t they just pay per visit? The
hypothesis of Della Vigna and Malmendier (2006) for this phenomenon is
overestimation. Flat-rate users overestimate how often they actually go to
the gym. To this end, the authors surveyed members of fitness studios. These
indicated that they train on average 9.5 times a month. This is about twice
as often as the average visit frequency observed in the data (DellaVigna &
Malmendier, 2006). In scientific research, this form of overestimation is also
referred to as overconfidence bias. The difficult part from the perspective of
gym visitors is estimating future use of the gym. We all know this. At the
beginning of the year, we are still fully motivated and want to finally eat
healthily in the new year and also go to the gym more often. At least three
times a week, the trainer said during the introduction. Nothing easier than
that, we think, as we sign the contract for the gym. However, many of us
surely know how it really turns out. Stress at work or overtime again and then
126    
S. Oetzel and A. Luppold

the day ends again on the couch with a bag of chips or a bar of chocolate. In
the summer, you then enjoy the beautiful weather and meet with friends in
the beer garden.
A study by Lambrecht and Skiera (2006), published in the Journal of
Marketing Research, deals with the possible causes of this overestimation.
The authors refer to tariff choice decisions for internet access. In their first
analysis, they examined the existence of a tariff choice error based on trans-
action data. In this case, customers again had the option to choose between
different tariffs. There are two possible errors. Customers who have chosen a
flat rate could receive a lower bill with a usage-dependent tariff due to their
data usage. This would be the flat-rate bias. However, the reverse case is also
possible. Customers who have chosen a usage-dependent tariff could have
a lower bill if they had chosen the flat rate. The authors refer to this as pay-
per-use bias. Similar to the tariffs for gyms, it turns out that the flat-rate bias
is the most common bias in tariff choice. A pay-per-use bias is also present,
but less common. More than half of the customers with flat-rate bias have
paid at least 100% more than in the cheapest pay-per-use tariff (Lambrecht
& Skiera, 2006).
Lambrecht and Skiera (2006) then investigated the possible causes of
the flat-rate bias through an additional survey of users, which they linked
with the transaction data. What do they find out? Overestimation plays a
role here too. Customers who overestimate their future use are more likely to
have a flat-rate bias. They choose the flat rate, even though a usage-depend-
ent tariff would have been better. However, part of the distortion seems to
be due to other motives that cannot be associated with irrational customer
behavior. Customers with a flat-rate bias are particularly sensitive to poten-
tial losses. They choose a flat rate to protect themselves against fluctuations
in the monthly bill. The authors refer to this as an insurance effect. It could
be that you use the service more frequently in the future and want to ensure
that you can pay the bill. The joy of consumption also plays a role. The sci-
entists refer to this as the taximeter effect. This effect can also be observed
in a similar way during a taxi ride. Does it also make you nervous when
you are in a taxi and the bill amount on the taximeter keeps getting higher?
If you had agreed on a fixed price with the driver, i.e. a flat rate, you could
enjoy the ride and discover the new city. Customers with a higher taximeter
effect and the associated joy of consumption are more likely to have a flat-
rate bias. The flat rate thus generates a certain benefit for some customers
and leads to a higher willingness to pay (Lambrecht & Skiera, 2006).
Such tariffs are not only encountered in the gym or when choosing inter-
net tariffs. They can also be found, for example, in the so-called sharing
 23 How Well Can We Assess Ourselves? Overconfidence    
127

economy. This business model allows customers to rent a product or service.

An example is car sharing. Car sharing can often also be paid for via a flat
rate or a pay-per-use model. Do customers also have a flat-rate bias here?
Dowling et al. (2021) examined the purchasing and usage behavior of over
65,000 rides by customers of a car-sharing provider in a European metrop-
olis. In this case, the customers could locate the cars via an app and park
them again in the city area after use. A usage-dependent pay-per-use tariff
and two flat rates were again available for selection. For example, a 30-day
flat rate with a contingent of free minutes was offered. To make the data
comparable, the usage behavior and the associated costs were aggregated on
a monthly basis (Dowling et al., 2021).
Subsequently, it was calculated whether customers could have reduced
their monthly bill by switching from a pay-per-use tariff to a 30-day flat
rate. 90% of the trips were billed with a pay-per-use tariff and only 10%
with a flat rate. Even with car sharing offers, customers seem to make mis-
takes in tariff choices. However, in sharing, the pay-per-use bias seems to
be the prevailing error. Pay-per-use bias in this context means that custom-
ers would reduce their monthly bill by choosing a flat rate. This seems to
be the case here. In about 25% of the months, consumers made a mistake
and would have had a lower bill by choosing a flat rate. Again, the question
arises as to what causes play a role in the error. Again, it is the overconfi-
dence bias and the associated overestimation. Only with the pay-per-use bias
do customers underestimate their future use. “There won’t be so many trips
that a flat rate is worthwhile.” The results show that the variance in the num-
ber of trips in months with pay-per-use bias is significantly higher than in
months without pay-per-use bias. The authors see this as an indicator that
customers are not able to correctly estimate their future use (Dowling et al.,
2021).

Summary and Recommendations

So, if you have to choose between a pay-per-use tariff and a flat rate in the
future, think carefully about what your future usage will look like. You
should also be aware that you are probably overestimating yourself. To coun-
teract this, contract terms should be as short as possible at the beginning.
Check every month whether it would not have been better to choose the
pay-per-use tariff instead of the flat rate, or vice versa. From a company’s
perspective, it makes sense to offer such tariffs. Not because companies make
more money when their customers overestimate or underestimate future use
of the service and choose the wrong tariff, but because offering such tariffs
is a method of price differentiation. The economic idea behind this is that
128    
S. Oetzel and A. Luppold

there are customer groups with different willingness to pay for the service.
By offering different tariffs, customers can choose the tariff that best matches
their willingness to pay. This can lead to profit increases for the provider, as a
larger part of the consumer surplus can be skimmed off. However, the stud-
ies presented here show that choosing the right tariff is often difficult from a
customer’s perspective. Be fair and help your customers find the right tariff.
For example, offer your customers the opportunity to switch to a different
tariff after a trial month. Or show your customers on the monthly bill which
tariff would have been cheapest for them and allow a switch.

References
DellaVigna, S., & Malmendier, U. (2006). Paying not to go to the gym. American
Economic Review, 96(3), 694–719.
Dowling, K., Manchanda, P., & Spann, M. (2021). The existence and persistence
of the pay-per-use bias in car sharing services. International Journal of Research in
Marketing, 38(2), 329–342.
Kruger, J., & Dunning, D. (1999). Unskilled and unaware of it: How difficulties in
recognizing one’s own incompetence lead to inflated self-assessments. Journal of
Personality and Social Psychology, 77(6), 1121.
Lambrecht, A., & Skiera, B. (2006). Paying too much and being happy about it:
Existence, causes, and consequences of tariff-choice biases. Journal of Marketing
Research, 43(2), 212–223.
 24
Do Frequent Price Promotions Lower
the Price Assessment? Reference Price Effect

Why prices are not evaluated absolutely by potential buyers, but in comparison to a
reference price. And why knowledge of prices helps in planning price promotions.

Do you also browse through the retailer’s flyers on Saturdays? Then you
encounter terms like: top price, hot offer, best deal or prices dropped. In
addition, you see everywhere red underlined and crossed-out prices and
huge percentage signs that show you how much you save if you buy the
product. The same applies to the large fashion stores in the city centers.
Everywhere there are red signs with the inscription “Sale: up to 70%
reduced”. To further increase sales, marketing managers are increasingly rely-
ing on such price promotions. But does this always make sense?

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Marketing research has shown that buyers often do not consider the
absolute price on the shelf when making their purchase decision. Rather,
the price is compared with a reference price. Reference prices can be dis-
tinguished between external and internal reference prices. External reference
prices are all prices that the buyer can observe in the purchase situation. For
example, the price of a competitor’s product or the regular price of the prod-
uct during price promotions, which is often still next to it. The internal ref-
erence price, on the other hand, is the price that the customer has stored
in his mind for the product. This internal reference price is formed from
prices that the buyer has seen or paid in the past (for example Kalyanaram
& Winer, 1995).
What is the role of reference prices in supermarkets where products are
often on special offer? Let’s look at this graphically and using an example
for the internal reference price (Fig. 24.1). To keep the example as simple
as possible, let’s assume that a retailer sells a product at a regular price of
5 EUR for 25 weeks and carries out two price promotions. The first price
promotion takes place in week 8, the second in week 16. In the first seven
weeks, the price and the internal reference price are still identical. In the first
week of the price promotion, the price drops from 5 EUR to 4 EUR. Since
the internal reference price only refers to past prices, it remains at 5 EUR
during the week of the price promotion. When evaluating the price, the
buyer now compares the shelf price with the internal reference price. Since
the price is below the internal reference price, the buyer is pleased about
the offer and perceives the difference as a gain. In the weeks after the price

5.50 €

5.00 €

4.50 €

4.00 €

3.50 €
1 3 5 7 9 11 13 15 17 19 21 23 25
week
Price Reference price

Fig. 24.1 Price and reference price in price promotions

 24 Do Frequent Price Promotions Lower the Price Assessment? …    
131

promotion, the price is again 5 EUR. However, in this example, the inter-
nal reference price drops to 4.75 EUR in the ninth week. In the weeks after
the price promotion, the price in our minds is therefore influenced by the
price during the price promotion and only slowly approaches the regular
price of 5 EUR again. So if buyers go to the market in the weeks after the
price promotion to buy the product again, the price is higher than the price
they have in mind—the internal reference price. This can be perceived as a
loss by potential buyers and the probability of purchase decreases. As nice as
the increase in sales during the price promotion may be for some market-
ing managers, in the long term price promotions can have a strong negative
effect on sales.
What can a retailer do to prevent the internal reference price from fall-
ing even further due to frequent price promotions? An experiment by Kan
et al. (2014) shows, for example, that the internal reference price suffers
less if an external reference price is also advertised. In their experiment, the
authors divided the students into two groups. The first group saw an adver-
tisement for a pair of jeans with the price tag “Store X, selling price 39.99
dollars”. The second group, on the other hand, saw the following price tag:
“Normal 119.99 dollars, Store X, selling price 39.99 dollars”. The price of
199.99 dollars served as the advertised external reference price in this group.
Afterwards, the participants were asked what price they would expect for the
same pair of jeans in 15 other stores. This question was used to query the
internal reference price. The group that had additionally seen the advertised
external reference price (39.99 dollars instead of 119.99 dollars) indicated a
significantly higher internal reference price and rated the price promotion
significantly better (Kan et al., 2014).
The effect was also greater when both the advertised external reference
price and the offer price were presented in categories where the test sub-
jects associate both prices with similar things. An example of this is exactly
the jeans. It is likely that both the jeans for 39.99 dollars and the jeans for
119.99 dollars are worn on similar occasions. Both can be comfortable or
fashionable. The authors call this association overlap. With an electronic
item, it is probably different. Probably an electronic item for 39.99 dollars
offers fewer functions than for 119.99 dollars. In such product categories,
the association overlap with the two prices is lower. In both cases, however,
the advertised external reference price helps when carrying out price promo-
tions, as it increases the internal reference price that buyers have in mind
(Kan et al., 2014).
132    
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But the interplay between external and internal reference prices can also
influence the evaluation of a price promotions. Consider the following
example from Saini et al. (2010). Which price promotion do you think is
better?

Price promotion 1: Regular price 20 EUR, sale price 10 EUR.

Price promotion 2: Regular price 60 EUR, sale price 50 EUR.

In both cases, you receive a discount of 10 EUR. Previous research shows

that most buyers rate the first price promotion significantly better than the
second, as the relative advantage of the first price promotion is much greater
than that of the second (Azar, 2007). This is referred to in the scientific lit-
erature as “relative thinking”. The regular price in this example is nothing
more than an external reference price.
So what happens in the example from Saini et al. (2010) when customers
have a price expectation—an internal reference price? Let’s assume the inter-
nal reference price is 40 EUR. When a customer with an internal reference
price of 40 EUR sees a price of 20 EUR on the shelf, this results in a per-
ceived gain of 20 EUR. He expected a price of 40 EUR, but only has to pay
20 EUR. The customer is therefore satisfied. And during the price promo-
tion? If the product only costs 10 EUR during the price action with a dis-
count of 10 EUR, the perceived gain increases by 10 EUR to 30 EUR. And
what about the high price of 60 EUR? Now, with an internal reference price
of 40 EUR, the customer perceives a loss of 20 EUR. In this case, he pays
more than expected. Namely 60 EUR instead of 40 EUR. Due to the price
promotion, where the product only costs 50 EUR instead of 60 EUR, the
perceived loss decreases by 10 EUR to 10 EUR. The authors call this type of
evaluation reference thinking or in English “reference thinking” (Saini et al.,
2010).
With a low price (20 EUR), the internal reference price in combination
with the price promotion leads to an increase in perceived gain. With a
high price (60 EUR), the internal reference price in combination with the
price promotion, on the other hand, leads to a reduction in perceived loss.
Since, according to prospect theory, changes in the loss area are evaluated
more strongly than changes in the gain area, the evaluationof the two price
promotions should now reverse. Now the second price promotion (“Regular
price 60 EUR, sale price 50 EUR”) should be rated better than the first
price promotion (“Regular price 20 EUR, sale price 10 EUR”). This exact
result of the numerical example is shown by the authors Saini et al. (2010)
in their experiments.
 24 Do Frequent Price Promotions Lower the Price Assessment? …    
133

Summary and Recommendations

Reference prices play an important role in planning price promotions, as
prices are not evaluated by potential buyers in absolute terms, but in rela-
tion to a reference price. Our mini-example shows that price promotions
can influence the internal reference price—the price we have stored in our
minds and which we would expect in a purchase situation. Frequent price
promotions lower this internal price, so that buyers perceive the price on
the shelf as a loss in the weeks after the price promotion. This reduces the
likelihood of purchase. One way to prevent the internal reference price from
falling is to use external reference prices. These work particularly well when
buyers associate similar characteristics with both prices—regular price and
offer price. This is likely to be the case for most everyday goods. In addi-
tion, the level of the internal reference price and the distance between the
internal reference price and the actual price seem to be crucial. The results of
the study by Saini et al. (2010) show that relative thinking dominates when
the internal reference price is close to the actual price. In this case, the rela-
tive advantage of a price promotion is evaluated by the buyers, and retailers
should rather carry out price promotions for cheaper products. If the inter-
nal reference price is lower than the actual price, reference thinking domi-
nates. In this case, price promotions should be carried out for products that
are more expensive than expected. The relevance of the internal reference
price can be determined, for example, by measuring price knowledge. This
gives an approximate impression of the customers’ price perception.

References
Azar, O. H. (2007). Relative thinking theory. The Journal of Socio-Economics, 36(1),
1–14.
Kalyanaram, G., & Winer, R. S. (1995). Empirical generalizations from reference
price research. Marketing Science, 14(3_supplement), G161–G169.
Kan, C., Lichtenstein, D. R., Grant, S. J., & Janiszewski, C. (2014). Strengthening
the influence of advertised reference prices through information priming. The
Journal of Consumer Research, 40, 1078–1096.
Saini, R., Rao, R. S., & Monga, A. (2010). Is that deal worth my time? The inter-
active effect of relative and referent thinking on willingness to seek a bargain.
Journal of Marketing, 74(1), 34–48.
 25
Is Advertising Overrated? Return
on Marketing Investment

Advertising

Why no one wants to read studies that measure no effect. And why marketing and
especially advertising effectiveness measurement is not simple.

Do your friends often end up talking about each other's jobs? After all,
everyone wants to know what the other person does all day and how they
earn their daily bread and butter. Experience shows that there is always
someone who proudly announces that they work in marketing. Marketing is
cool after all. That’s where the creative minds work, the ones who come up
with the hip campaigns for the great brands. At least that’s often the impres-
sion you get from the proud faces of marketing employees. On the other
hand, you often see many question marks on the faces of those who do not
work in a marketing department. What do they actually do all day? There
are many prejudices about marketing. The prejudice that anyone can do
marketing is particularly persistent. After all, marketing is just about design-
ing nice flyers or organizing the next trade fair. Posting a few pretty pictures

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on LinkedIn or Instagram, even the intern can do that, so a common preju-

dice. Another prejudice is that marketing is equated with advertising. If it’s
true that anyone can do marketing and that marketing can also be equated
with advertising, then let’s take a look at what scientific research has found
out about advertising.
Scientific research has been intensively dealing with the topic of advertis-
ing effectiveness, especially television advertising, for many years. However,
it is not so easy to measure the impact of advertising on a company’s sales
or market share. This is mainly due to the fact that advertising usually has
not only an immediate effect, but also a medium and long-term effect. For
example, if someone sees a commercial for Coca-Cola today, they prob-
ably won’t immediately run to the nearest supermarket and buy a bottle
of cola. The same probably applies to a television advertisement for a car.
Econometricians who deal with measuring the effectiveness of adver-
tising use the so-called advertising stock for this purpose. If advertising is
placed today, the advertising stock increases because the product’s awareness
increases. The product’s awareness in turn influences the product’s sales. If
no advertising is placed tomorrow, the advertising stock decreases and depre-
ciates. However, the advertising still has an influence on sales. Only the
influence is less in the following periods. This advertising stock is then used
in complex statistical models and with the help of sales data and information
about advertising expenditures, the short and long-term effect of advertising
can be estimated. The result is advertising elasticities, which indicate how
sales change when advertising expenditures change.
Scientific studies dealing with the estimation of advertising elasticities are
usually based on a few products from selected product categories. Therefore,
generalizable statements about the effectiveness of advertising are hardly pos-
sible. The advertising effect for coffee is probably different than for deter-
gent or cola. Therefore, marketing researchers often resort to meta-analyses.
Meta-analyses are just a statistical summary of these individual studies. An
important meta-analysis for marketing science on advertising effectiveness
comes from Sethuraman et al. (2011). The analysis is based on 56 individ-
ual studies on advertising effectiveness conducted between 1960 and 2008.
The authors identify a total of 751 short-term and 402 long-term advertis-
ing elasticities. The average short-term advertising elasticity is 0.12, the long-
term advertising elasticity is 0.24 (Sethuraman et al., 2011).
The short-term advertising elasticity measures the effect of advertising in
the current period. For example, the effect of advertising in the week it is
broadcast. The more interesting long-term advertising elasticity describes
the effect of advertising on sales in the current period and in all future
 25 Is Advertising Overrated? Return on Marketing Investment    
137

periods. Interestingly, this is already the second meta-analysis on advertis-

ing elasticity. The first comes from Assmus et al. (1984) and is based on
16 studies conducted between 1962 and 1981. The average short-term
advertising elasticity determined there is 0.24, the long-term one is 0.41
(Assmus et al., 1984). The advertising effect seems to decrease over the
years. This is not surprising. After all, we are bombarded with advertis-
ing every day. But what exactly does a long-term advertising elasticity of
0.24 mean? The interpretation is as follows: If you increase your advertis-
ing expenditures by 100%, i.e., double them, then sales increase by 24%.
Actually a good result.
As is usual in science, there are also problems with meta-analyses. Meta-
analyses can suffer from the so-called publication bias. If you are a scientist,
you cannot simply publish your studies in scientific journals just because
you may already have a certain reputation in your field. If you have con-
ducted a study on the effect of advertising and written an article about it,
you must submit your study to a journal for review. Independent reviewers
from the same field must then check whether the study is suitable for pub-
lication in this journal and contributes to scientific research. This serves to
ensure quality in science. This procedure is known as peer review. Usually,
neither the author nor the reviewer know each other’s name. So where is the
problem? The bias arises from the fact that studies that, for example, can-
not demonstrate a significant advertising effect are not even submitted to
a journal for review and end up in the scientist’s drawer. Or the reviewers
reject the publication of such studies. After all, who wants to read studies
that show no effect. The problem is that the published studies are not neces-
sarily representative of all studies and thus the effect is overestimated. Such
a problem could also occur with meta-analyses on advertising effectiveness if
in the past only studies were published that found a positive and significant
advertising effect in the data.
In 2021, a study was published in the prestigious journal Econometrica
that does not suffer from the described publication bias and may not be well
received by many marketing managers. The scientists Shapiro et al. (2021)
also examined the effect of television advertising. However, the authors did
not only analyze a few individual products or categories, but relied on a sin-
gle dataset. The dataset comes from the USA and contains sales data from
288 brands in over 12,000 stores. The brands include well-known brands
such as Coca-Cola, Pepsi, Pampers, Bud Light, or Bounty, for which infor-
mation on the companies’ advertising expenditures is also available. The
advertising expenditures in the dataset are considerable. On average, a brand
spent 18.6 million dollars per year. Subsequently, the sales data were linked
138    
S. Oetzel and A. Luppold

with the advertising expenditures and the long-term advertising elasticity for
each brand was estimated using econometric methods (Shapiro et al., 2021).
Remember? The average long-term advertising elasticity in the meta-anal-
ysis was 0.24. However, this value is based only on studies published in
scientific journals. Shapiro et al. (2021) estimate the long-term advertising
elasticity at 0.01. The same interpretation applies here: if companies increase
their advertising expenditures by 100%, i.e., double them, then sales
increase by 1%. This no longer sounds like a significant advertising effect.
In addition, about two-thirds of the advertising elasticities are not statisti-
cally significant, meaning that advertising expenditures have no influence on
sales. Not good news for marketing managers if a large part of the advertis-
ing does not work. But the authors go one step further in their analysis and
calculate the return on investment of the campaigns for different assumed
margins. Over 80% of the brands have a negative return on investment on
their advertising expenditures (Shapiro et al., 2021).
The results do not mean that advertising should be completely aban-
doned. The dataset used consists predominantly of established brands and
products. For new brands and products, significantly better advertising
results are likely to be expected (Henningsen et al., 2011). The authors
argue that a possible explanation for why a large part of the advertising in
the study by Shapiro et al. (2021) does not work could be that the market-
ing managers responsible for the advertising have wrong incentives. Do you
want to tell your boss that the advertising for which you have spent a lot
of money has no influence on the brand’s sales? Probably not. It would of
course be interesting to know why 20% of the advertising campaigns were
successful. The study says nothing about the success factors of the advertis-
ing campaigns that had a positive return on investment. Perhaps the success-
ful advertising campaigns were more creative or better tailored to the target
group and their needs. A different timing of the advertising times could also
lead to the success of advertising campaigns. In addition, a study by Rajavi
et al. (2023) shows that advertising is a good way to increase brand value,
especially in economically difficult times.

Summary and Recommendations

What can you as a company do? It is important that you know and under-
stand the needs of potential customers exactly. This requires strong market-
ing departments that are capable of identifying and recognizing needs and
desires using appropriate market research methods. Only in this way is it
possible to design advertising that is appropriate for the target group. Many
companies spend a large part of their budget on advertising. At the same
 25 Is Advertising Overrated? Return on Marketing Investment    
139

time, the results of Shapiro et al. (2021) show that the high expenditures
do not seem justified, as many campaigns even show a negative return on
investment on advertising expenditures. In our view, it is becoming increas-
ingly important to calculate the return on marketing investment for all mar-
keting activities in order to optimally distribute the marketing budget. The
choice of method for measuring the success of advertising is of great impor-
tance and anything but trivial. Let’s take the example of an ice cream man-
ufacturer who wants to measure the effect of advertising on sales. Probably,
the sales of ice cream are particularly high in the summer months. This often
leads manufacturers to increase their advertising during these months. If you
now conduct a statistical analysis, you will probably find a positive effect of
advertising on sales. But is this due to the advertising? You cannot answer
this question, because at the same time the temperature also rises in these
months. You are then only measuring a correlation, not a causal effect. To
answer such questions, you should ideally conduct experiments in which
you, for example, refrain from advertising the ice cream in certain regions.
For this, you need well-trained marketing people who are capable of setting
up experiments and analyzing the results. Another option is to commis-
sion an independent data science team capable of estimating the advertising
effect. Perhaps marketing is not just advertising after all—and not so simple.

References
Assmus, G., Farley, J. U., & Lehmann, D. R. (1984). How advertising affects
sales: Meta-analysis of econometric results. Journal of Marketing Research, 21(1),
65–74.
Henningsen, S., Heuke, R., & Clement, M. (2011). Determinants of advertising
effectiveness: The development of an international advertising elasticity database
and a meta-analysis. Business Research, 4, 193–239.
Rajavi, K., Kushwaha, T., & Steenkamp, J. B. E. (2023). Brand equity in good and
bad times: What distinguishes winners from losers in consumer packaged goods
industries? Journal of Marketing, 87(3), 472–489.
Sethuraman, R., Tellis, G. J., & Briesch, R. A. (2011). How well does advertis-
ing work? Generalizations from meta-analysis of brand advertising elasticities.
Journal of Marketing Research, 48(3), 457–471.
Shapiro, B. T., Hitsch, G. J., & Tuchman, A. E. (2021). TV advertising effective-
ness and profitability: Generalizable results from 288 brands. Econometrica,
89(4), 1855–1879.
 26
Can We be Activated Unconsciously?
Reverse Priming

Why we are unconsciously influenced by stimuli before we make a purchase decision.

And why some stimuli tempt us to do exactly the opposite.

Try to answer the following questions as quickly as possible.

What color is snow?

What color is a wedding dress?
What color are clouds?
What color is a swan?
What color is sugar?
What does a cow drink?

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If you also fell for the trick and answered the last question with milk, then
you are like many others. The correct answer is of course not milk, but
water. But why do so many people answer the last question of this little
game with milk? A moment’s thought would probably have given you the
correct answer. The reason for this is the so-called priming. This psycholog-
ical effect states that an earlier stimulus influences the perception of a later
stimulus (Hoffmann & Akbar, 2019, p. 120 f.). In this small question exam-
ple, the answers to the first five questions are always “white”. The answer
white is in this case the first stimulus, which seems to influence the answer
to the last question.
In psychology and consumer behavior research, it is assumed that infor-
mation that we have stored in our memory is organized in networks and that
this information is related to each other. Some information is closer together
in this network, others further apart. If a node in this network in our brain
is activated, this has an influence on other nodes that are connected to each
other in this network. This activation spreads in our network and activates
further nodes (Kroeber-Riel & Gröppel-Klein, 2019, p. 320 f.). The color
white is probably associated with milk in many people’s memory. By fre-
quently mentioning the color white, the node milk was simultaneously acti-
vated. Try it out for yourself. What comes to mind when you think of the
Milka brand? Probably—as we would predict—terms like “purple”, “choco-
late”, “Alpine milk” or perhaps“ the most tender temptation since chocolate
exists” come to mind. All this information is linked in our brain.
Marketing science has also dealt with the influence of stimuli on brand
preferences and purchase decisions in numerous empirical studies. In a sci-
entific study by Chartrand et al. (2008), the authors examined the purchase
of sports socks. The starting point of their considerations is the purchase of
sports socks in a shopping mall. On the way to the sock store, buyers could
pass numerous luxury stores. In this case, they would probably collect many
impressions that have to do with the construct of prestige. Luxury, noble,
premium, extravagant could be such impressions. On the other hand, they
could also pass many stores that offer their products at the lowest possible
prices. In this case, they would probably collect many impressions that relate
to the construct of thrift, such as cheap, discount or special offer. Does this
have an influence on the choice of their socks? The question the authors ask
is whether the random contact with impressions of prestige brands activates
an unconscious prestige goal in the buyers and they buy the more expensive
socks. Or conversely: Do they rather buy the cheaper socks if they have pre-
viously seen impressions associated with thrift (Chartrand et al., 2008)?
 26 Can We be Activated Unconsciously? Reverse Priming    
143

Chartrand et al. (2008) tried to recreate the scenario presented in

their experiments with students. In a laboratory experiment, the test sub-
jects were divided into two groups and placed in front of a computer. The
test subjects were supposed to focus on the center of the screen and saw
flashes of light. What the subjects did not know was that the flashes of light
showed various terms for 60 milliseconds. The subjects therefore only per-
ceived the terms unconsciously. Half of the subjects were shown American
brand names that stand for prestige. For example, Tiffany, Neiman Marcus
or Nordstrom. The other group was shown brands that stand for thrift.
Wall-Mart, Kmart or Dollar Store. This was the priming. Afterwards, the
subjects were supposed to indicate their preferences for two brands in a
choice situation. The choice was between Nike socks for $5.25 for a pair
and Hanes socks for $6.00 for two pairs. The test subjects of the prestige
group rated the Nike socks significantly higher than the test subjects of
the thrift group. Conversely, the test subjects in the thrift group rated the
Hanes socks significantly higher. The results of the experiment show that
the unconscious confrontation with brand names can activate consumption
goals associated with the respective brand, without the consumers being
aware of this (Chartrand et al., 2008).
Fitzsimmons et al. (2008) used a similar experimental setup, investigating
the influence of brands on the creativity of the subjects. For this purpose,
the test subjects were divided into two groups. In the first group, the Apple
logo appeared on the screen, in the second group the IBM logo, so that
the subjects were exposed to the logo of a brand a total of 48 times. Here
too, the logos were displayed for such a short time that they were only per-
ceived unconsciously. Again, this was priming. A pilot test had shown that
the Apple brand was perceived as more creative than the IBM brand. In the
second part of the experiment, the subjects were to solve a creativity task.
They were to develop as many unusual ideas or uses for a brick as possible.
The number of ideas generated was used to measure creativity. In addition,
an independent person evaluated the creativity of the ideas. Here too, the
result was surprising. The participants of the experiment who were primed
on Apple generated significantly more ideas than the participants who were
primed on IBM. The creativity of the ideas generated was also rated higher
in the Apple group. Here too, the results show that priming activates a tar-
geted process and the participants behave unconsciously according to the
brand characteristics (Fitzsimmons et al., 2008).
We have learned a lot about how to control the buying behavior or cre-
ativity of buyers through priming. If you work in marketing, you can now
144    
S. Oetzel and A. Luppold

use this knowledge to persuade your customers to buy your products. You
have an almost infinite number of marketing tactics at your disposal. For
example, if you sell high-quality products, you can positively charge your
brand by using words in advertising that are associated with prestige. What
do you think of the following advertising slogans?

Quality decides
More luxury
Your premium provider

Do these advertising slogans always lead to the desired priming effect?

Slogans can have the exact opposite effect. Laran et al. (2011) call this the
reverse priming effect. In their experiment, the subjects were primed with
different stimuli. One group was shown brand logos, as in the experiments
described above. The well-known brand logos differed in whether the brands
stood for “saving money” or “spending money”. The other group was con-
fronted with slogans. Slogans related to “saving money” were: “It is a matter
of price” or “Saving keeps you going”. Slogans related to “spending money”
were: “It is a matter of quality” or “Luxury, you deserve it” (Laran et al.,
2011).
In the second part of the experiment, the test subjects were to imagine
that they were going shopping and consider how much money they would
spend on their purchase. When the subjects were primed with brand logos,
the priming effect described above was evident. When the subjects were
confronted with brand logos that stood for thrift and “saving money”, they
were willing to spend less money. When the brand logos were associated
with “spending money”, the subjects were willing to spend more money on
shopping. Through brand priming, the test subjects behave unconsciously
according to the characteristics of the brand (Laran et al., 2011).
However, a different result was shown for the subjects who were primed
with the slogans. Thus, people who were confronted with slogans that called
for “saving money” were willing to spend more money. Conversely, people
who were confronted with slogans that encouraged “spending money” were
willing to spend less money. The authors call this the reverse priming effect.
Why is this? The researchers hypothesize that when buyers see such slogans,
they perceive the marketing strategy as a manipulation tactic of the compa-
nies. This is much easier to recognize with slogans than with brand logos.
Of course, the test subjects do not want to be influenced by the companies.
Therefore, they behave exactly the opposite. In other words: If the company
 26 Can We be Activated Unconsciously? Reverse Priming    
145

obviously wants me to spend a lot of money in the store, then I do exactly

the opposite (Laran et al., 2011).

Summary and Recommendations

There are now countless studies dealing with the priming effect. It should
have become clear that we are primed countless times every day and that this
has an influence on our behavior. Take the example of the weekly shopping
trip to the supermarket. When you enter the supermarket, you are exposed
to countless stimuli. The music that is played, the smell in the bakery
department, the direction in which you go through the store. All these stim-
uli probably have an influence. The studies presented here show two impor-
tant implications for marketing managers. On the one hand, especially the
third study shows that the priming effect is not as easy to use as assumed.
Rather, the priming effect depends on the respective marketing instrument
or marketing tactic. On the other hand, the studies show that companies
that sell high-quality products should invest more in building brands than in
developing slogans.

References
Chartrand, T. L., Huber, J., Shiv, B., & Tanner, R. J. (2008). Nonconscious goals
and consumer choice. Journal of Consumer Research, 35(2), 189–201.
Fitzsimons, G. M., Chartrand, T. L., & Fitzsimons, G. J. (2008). Automatic effects
of brand exposure on motivated behavior: How apple makes you “think differ-
ent”. Journal of Consumer Research, 35(1), 21–35.
Hoffmann, S., & Akbar, P. (2019). Konsumentenverhalten, Konsumenten verste-
hen – Marketingmaßnahmen gestalten. Springer Gabler.
Kroeber-Riel, W., & Gröppel-Klein, A. (2019). Konsumentenverhalten. Vahlen.
Laran, J., Dalton, A. N., & Andrade, E. B. (2011). The curious case of behavio-
ral backlash: Why brands produce priming effects and slogans produce reverse
priming effects. Journal of Consumer Research, 37(6), 999–1014.
 27
Why Don’t We Get Anything for Free?
Reciprocity

Why “0 €” is better than “Free”. And why the chance of getting something for free works
better than a guaranteed discount.

A friend says to you, after helping you move into your new apartment:
“You’re welcome, I was happy to do it.” Perhaps you think she is a really
good friend, someone you can rely on. But you might also feel like you owe
her something and want to give something back. Maybe you invite her to
dinner or take her to the next concert. This phenomenon is called reciproc-
ity and describes our need to return a favor. There are many everyday situ-
ations that present us with similar dilemmas. For example, if we are invited

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to a party, we often feel obliged to invite the host to our own birthday
party. Or if we are invited to a wedding, we wonder how much we should
spend on an appropriate gift for the couple we are friends with. Perhaps we
research what the gift we received cost, and then buy an equivalent gift.
We all know situations where reciprocity is used as a means of influence.
For example, the fruit and vegetable vendor lets us taste his delicious grapes,
the butcher gives our child a slice of sausage, or when buying a perfume we
receive a free fragrance sample and in the restaurant the host might serve
us a grappa on the house. In all these cases, the sellers are trying to increase
our spending through small gifts or to persuade us to give a higher tip or to
come back. Small gifts maintain friendship.
But what about in the world of big business? Here too, the principle of
reciprocity should work. Give your customers small gifts and they will spend
more and come back more often, or so it says on many marketing blogs. Is it
really that simple? Difficulties can already arise in the formulation. An inter-
esting use case arises in connection with promotions in retail. Often in stores,
you find the advertising statement “Buy One, Get One Free”. But the adver-
tising statement could also be formulated differently, e.g. “Buy One, Get One
for 0 Euro”. “0 Euro” also means nothing other than free. So it should not
matter which formulation you choose. Or does it make a difference after all?
This question was investigated by Koo and Suk (2020). The ten experi-
ments conducted show that promotions presented with “0 Euro” instead of
“free” are perceived as significantly more attractive. The authors also provide
an explanation for this observation. When the additional product is pre-
sented as “free”, customers tend to see it as a gain. However, if the additional
product is presented as “0 Euro”, it is perceived by the customer more as
a cost advantage, according to the authors. Instead of 4 EUR, the product
costs only 0 EUR. The buyer thus saves the entire cost of the free product
that he would otherwise have had to pay. This is consistent with the pros-
pect theory of Kahneman and Tversky, which states that losses have a greater
impact on value perception than gains. Therefore, the presentation with “0
Euro” should work better—and it does (Koo & Suk, 2020).
Manufacturers of everyday products also constantly come up with new
ideas to convince customers to buy their products or to bring new prod-
ucts to market. Often, when buying everyday products, it involves habitual-
ized purchase decisions where the buyer does not have to think much. You
reach into the shelf without thinking and buy the shampoo you have always
bought. What could be more obvious than packing a small free gift into
 27 Why Don’t We Get Anything for Free? Reciprocity    
149

the packaging so that you reach for the same brand again the next time you
buy. The new conditioner is simply glued onto the shampoo as a trial pack.
Other companies also bundle their products. Fast food chains bundle ham-
burgers, fries, and drinks. During a promotion, a new children’s drink from
a partner company is given away free with the purchase of a menu. Here, the
small free products or gifts should have the desired effect and boost the sales
of the main article. And what about the free item? Let’s look at studies for
this.
Raghubir (2004) examined the willingness of pay of test subjects for such
free products. She divided 74 students at a university in Hong Kong into
four groups, two of which received an advertisement for a cheap gin and
the other two an advertisement for an expensive whiskey. Both drinks were
the main items, and in all ads a free item was depicted that you received
free of charge when buying a bottle. The free item was either a high-quality
ballpoint pen from a well-known brand or a simple keychain. The partici-
pants were then asked to indicate their willingness to pay for the ballpoint
pen if they could buy it separately. The results show that the willingness to
pay was significantly higher when the ballpoint pen was advertised with the
more expensive whiskey. The participants were willing to spend almost 29
dollars for the ballpoint pen when it was advertised with the more expensive
whiskey, compared to just under 22 dollars when it was advertised with the
cheaper gin. Raghubir (2004) argues that customers generally know that the
manufacturers still make a profit from the promotion, even if the price of
the products in a promotion drops or a free item is added. If this were not
the case, the manufacturer would not carry out the promotion. However, in
the case of a cheaper brand like the gin, the scope for free promotional gifts
is limited, which means that the ballpoint pen cannot be so expensive. In
the case of the more expensive whiskey, the manufacturer probably has more
room for free gifts, as the margin is higher (Raghubir, 2004).
Another study by Raghubir (2005) examined how different representa-
tions of free samples influence customers’ willingness to pay. The par-
ticipants were divided into two groups. The first group saw the following
advertisement for a pearl necklace.

“Buy a pearl necklace for 66 dollars and get pearl earrings for free”

In the second group, the pearl necklace and the pearl earrings were adver-
tised together for 66 dollars.
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S. Oetzel and A. Luppold

“Buy a pearl necklace and pearl earrings for 66 dollars”

In both cases, one has to put 66 dollars on the table in the end. This should
actually make no difference. But it does. Although the same price had to
be paid in both cases, the participants of the first group had a lower will-
ingness to pay for the pearl earrings if they had to buy them separately.
This result suggests that customers value products they receive for free less
and are therefore less willing to pay for them when they are sold separately
(Raghubir, 2005).
Liu and Chou (2015) come to similar results in their study. They asked
the participants to evaluate prices in different scenarios—similar to the
study with pearl necklaces and pearl earrings, but this time with the prod-
ucts shampoo and facial cleanser. Here too, they found that the participants
attributed a lower value to the free product. In addition, they observed that
the participants associated stronger price increases with the free product
after the promotion, when the product was sold again at the regular price.
These higher perceived price increases led to a lower repurchase rate (Liu &
Chou, 2015).
Finally, we would like to introduce a form of advertising that seems very
promising in connection with free products. However, in this case, the cus-
tomer only has a certain chance of receiving the product for free. Perhaps
you still remember the Media Markt campaign from 2010. Maybe you also
participated in it. Instead of the usual temporary price reduction, there was a
10% chance of a refund of the purchase price. Every evening, a number was
drawn from a lottery drum at the Media Markt headquarters. If the number
matched a number on the receipt, the purchase was free and you got your
money back. If, for example, you had bought a television for 1000 EUR
and the number on the receipt matched the winning number, you got 1000
EUR back. But what is better? A normal price promotion, where you get ten
percent discount on the television, or a promotion, where you have a ten
percent chance of getting the television for free?
Mazar et al. (2017) investigated this under controlled conditions. In one
of their experiments, the researchers set up a candy machine. All candies like
Snickers, M&M’s, Twix, 3 Musketeers and Starbust could be drawn from
the machine for 0.75 dollars. Three periods were examined. In the first and
third period, there was no price promotion, and people who passed by the
machine could buy the candies normally from the machine. In the middle
period, the price promotion took place. People could choose to receive a 33
% discount for sure or a 33% chance of getting the candy for free. In the
sure price promotion, the candy cost 0.50 dollars. Both promotions had the
 27 Why Don’t We Get Anything for Free? Reciprocity    
151

same expected value for the discount, namely 0.25 dollars. Sales increased
from the first to the second period from 83 sold candies to 204. Of these,
59% were sold with the uncertain price promotion and only 41% with the
sure price promotion. The uncertain price promotion was therefore quite
successful compared to the standard variant (Mazar et al., 2017).

Summary and Recommendations

The use of the principle of reciprocity seems to be a good way to increase
product sales in the context of promotions. However, the studies presented
here show that the design of the promotion must be very carefully consid-
ered. For example, the type of presentation seems to be relevant. “0 dollars”
instead of “free” increases the evaluation of the promotion additionally. As
a marketer, however, one should carefully consider whether to give away
one’s product as a bundle with another product, as a promotion as a gift
reduces the perceived value of the free item. This in turn affects the price
perception after the promotion. For the free item, a strong price increase is
likely to be perceived, as the product was available for free during the pro-
motion. For the main product, such free promotions can be advantageous in
the long term. During the promotion, participants associate a higher value
with the product compared to the bundle presentation (Liu & Chou, 2015).
Therefore, the perceived price increase for the main product after the pro-
motion should be moderate. So, there is no such thing as a free lunch. Not
even our recommendation, because you should test the right advertising
measures for your free promotion beforehand.

References
Koo, J., & Suk, K. (2020). Is $0 better than free? Consumer response to “$0” ver-
sus “free” framing of a free promotion. Journal of Retailing, 96(3), 383–396.
Liu, H. H., & Chou, H. Y. (2015). The effects of promotional frames of sales pack-
ages on perceived price increases and repurchase intentions. International Journal
of Research in Marketing, 32(1), 23–33.
Mazar, N., Shampanier, K., & Ariely, D. (2017). When retailing and Las Vegas
meet: Probabilistic free price promotions. Management Science, 63(1), 250–266.
Raghubir, P. (2004). Free gift with purchase: Promoting or discounting the brand?
Journal of Consumer Psychology, 14(1–2), 181–186.
Raghubir, P. (2005). Framing a price bundle: The case of “buy/get” offers. Journal of
Product & Brand Management, 14(2), 123–128.
 28
How Well Does Marketing Know Us?
Rosy View Bias

Why the marketing department and the CMO have a significant influence on firm
performance. And why marketing managers tend to systematically overestimate customer
satisfaction and loyalty.

If you work in a marketing department, you may have heard the following
questions: “Could you please print new flyers for our next trade show”, “Oh
yes, our trade show booth also urgently needs to be spruced up” or “Our
website urgently needs a revision”. Unfortunately, marketing is still often
seen only as a cost factor and not as an investment. But what does a mar-
keting department actually contribute to the success of a company? What
topics are particularly relevant for a marketing department? Couldn’t we save
it and invest the budgets in other departments? After all, the tasks described
above can also be done very well by trainees.

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These and similar questions are also discussed in the scientific marketing
literature. In a study by Homburg et al. (2015), 178 marketing directors
and CEOs of German companies were surveyed on this topic. The respond-
ents were asked to rate the influence of the departments of marketing, sales,
research and development, operations, and finance on certain company deci-
sions and to distribute 100 points among the individual departments. The
decisions included, for example, pricing decisions, the development of new
products, strategic orientation, and distribution strategy. A comparison of
the results from 1999 and 2015 shows that the influence of the marketing
department on the company decisions queried has significantly decreased.
Even for the core question of marketing, the pricing decision, the market-
ing department had on average the same influence as the company’s finance
department. Only in the area of advertising was the marketing department
able to increase its influence on decisions, although advertising decisions
were rated as least important by the participants (Homburg et al., 2015).
The present study thus shows that the marketing department seems to be
losing influence on important company decisions. If you work in marketing,
you may now understand why you are no longer invited to many meetings
where important decisions are made.
Now one could argue that companies also act very rationally and have
recognized early on the low importance of a marketing department for com-
pany success and therefore exclude it from important decisions. But is it
really the case that marketing departments have no influence on company
success? The authors also pursued this question. To measure company suc-
cess, the company decision-makers had to indicate how their business area
has developed in the last three years compared to competitors in terms of
certain success indicators. In addition, control variables such as innovation
power or company size were collected. Subsequently, the influence of the
departments on firm performance was examined using statistical methods.
Now the good news for all marketing managers: The results of the analysis
show that only the influence of the marketing department has a significantly
positive influence on firm performance. All other departments, on the other
hand, had no significant influence on firm performance (Homburg et al.,
2015).
Feng et al. (2015) come to a similar result. The authors, however, rely on
already existing data and analyzed 612 US companies over a period of 16
years. They measure the strength of the marketing department within the
company using various indicators, such as the proportion of marketing posi-
tions in top management. The results show that the strength of the marketing
 28 How Well Does Marketing Know Us? Rosy View Bias    
155

department has a significantly positive influence on short- and long-term firm

performance. Short-term firm performance is the return on assets. The return
on assets is an important indicator for private investors and refers to a com-
pany’s profit divided by its balance sheet assets. Long-term firm performance
is the return on equity. In a further analysis, the authors examined the influ-
ence of the strength of the marketing department on the marketing ability
of the companies to build so-called long-term market-based assets. These are
intangible assets such as the development of brands, distribution channels, or
customer relationships. The results of the analysis also show that strong and
influential marketing departments are more likely to be able to build these
market-based assets. Marketing capabilities also have a positive influence on
long-term firm performance. Companies that successfully build market-based
assets in the long term benefit from a higher stock return. However, long-
term marketing capabilities have a negative impact on short-term firm perfor-
mance. This is probably due to the fact that investments in brand values are
very cost-intensive in the short term (Feng et al., 2015).
So the marketing department does have a positive influence on firm per-
formance. But the head of the marketing department, the Chief Marketing
Officer, or CMO for short, has nothing to do with it, right? They get an
inflated salary for distributing the work in the morning and meeting other
important people for lunch. You could do that much better yourself. But
are they really that bad or is it just bad talk about them? This question is
also discussed in marketing science. Are companies with a CMO more suc-
cessful than those without? The scientists Germann et al. (2015) examined
a total of 155 companies over a period of twelve years. As a measure of firm
performance, they used Tobin’s Q, named after James Tobin, the recipient of
the Alfred Nobel Memorial Prize in Economic Sciences in 1981. Tobin’s Q
is defined as the quotient of a company’s market value and the replacement
costs of all assets. If this quotient is greater than 1, the company is traded on
the stock exchange at a higher value than the sum of its assets. In this case,
the market is willing to pay a higher price than the replacement costs of all
assets. In their study, the authors find that companies with a CMO have a
15% higher Tobin’s Q than companies without this position. The CMO acts
as a kind of voice of the customers in strategy development, according to the
authors’ interpretation (Germann et al., 2015).
OK, got it. So, the CMO has a positive influence on the firm’s perfor-
mance. But what exactly makes a good marketing department? An impor-
tant task of the marketing department is to determine the positioning of the
156    
S. Oetzel and A. Luppold

brand compared to the competition. Through clever positioning, a com-

pany can deliberately stand out from its competitors and become relevant
to its target group. The marketing department has various strategic tools
at its disposal for this purpose, such as price positioning. The department
must decide whether to position the brand as a cheap or rather as a pre-
mium product with unique product benefits and high quality. Advertising
expenditures also need to be determined: Should they be high or low? How
many variants within a product line should be offered? What about distribu-
tion? Should the product be available in all channels? Should a single brand
strategy like Ferrero with the individual brands Nutella or Kinder or a family
brand strategy like Heinz with ketchup and beans under one brand name
be pursued? What market position should be aimed for? Should one be an
innovation leader or rather follow the competition? Answers to these ques-
tions are particularly important when the economy is uncertain and brands
need to be steered through the fluctuations of economic cycles. In economic
downturns, customers and consumers are generally more price-sensitive,
less brand-loyal, and more likely to turn to store brands. In upturns, house-
holds have more money available and are more likely to choose their favorite
brand, even if it is slightly more expensive. But how do you best guide a
brand through crises like the climate crisis, the coronavirus pandemic, infla-
tion, and phases of rising energy prices? Which strategic positioning is the
right one?
This question was posed by the scientists Rajavi et al. (2023) in their
study, which was published in the Journal of Marketing. They examined the
influence of the strategic marketing decisions described above on the brand
value of 325 everyday goods from 35 product categories over a period of 17
years in England. What are the main findings? Distribution and the length
of the product line are crucial strategic factors that need to be considered.
Both in economically good and difficult times, the distribution of brands
and the associated availability of products is the biggest influencing factor
on brand value. Extensive distribution means that the products are availa-
ble in many markets, which gives customers the opportunity to purchase
the products at a cheaper price during a recession—so one hypothesis of the
authors. High distribution also signals that the brand is strong. Likewise, the
number of varieties is an important strategic decision. In economically good
phases, a large number of varieties is an important driver of brand value, as
this better satisfies the different needs of customers. In a recession, however,
the number of varieties plays no role. The results of the analysis further show
that a premium pricing strategy and market leadership positively influence
 28 How Well Does Marketing Know Us? Rosy View Bias    
157

brand value in the upturn phase, while higher advertising expenditures and
a umbrella brand strategy and market leadership contribute to brand value
in downturn phases. However, these are significantly less relevant for brand
value than distribution and the number of varieties (Rajavi et al., 2023).
If you work in marketing, you have the opportunity to go to your boss
tomorrow and tell him about your latest findings. The marketing depart-
ment contributes significantly to the success of the entire company, and as
a boss in this area, you play an important role. The next steps could be to
expand the distribution channels and develop new products. Companies
with a strong marketing department and an experienced marketing manager
are generally more successful because they integrate the needs and desires of
their customers into their strategies. In summary: Everything is going great,
right?
What do marketing managers actually know about the desires and
needs of their customers? Hult et al. (2017) investigated exactly this ques-
tion. For this purpose, they used two data sets: The first comes from the
American Customer Satisfaction Index, which measures the satisfaction
of consumers in the USA. In the questionnaire, participants must answer
various questions about products they have recently consumed. The con-
structs “Perceived Quality”, “Perceived Value”, “Customer Expectation”,
“Customer Satisfaction”, “Customer Complaints” and “Customer Loyalty”
are recorded. The second data set is based on a survey of marketing man-
agers of various brands. They were asked to estimate to what extent their
customers agree with the statements on the constructs mentioned above. A
total of 1068 marketing managers from 122 companies participated in the
survey. The comparison of the results of both data sets shows on the one
hand that marketing managers tend to systematically overestimate customer
satisfaction and loyalty. The authors refer to this as “rosy view bias”. On the
other hand, the results show that marketing managers often do not correctly
assess the drivers of the individual constructs. For example, perceived quality
as a driver to increase customer satisfaction is often underestimated. This can
lead to marketing managers investing too little in improving product qual-
ity if they assume that their customers are already satisfied with the quality.
If marketing managers do not know the desires and needs of their custom-
ers exactly, they cannot distribute their budget optimally to the individual
measures (Hult et al., 2017).

Summary and Recommendations

In summary, it can be stated that from a company’s perspective, a strong
marketing department and a marketing manager at C-level are important
158    
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for considering the interests of customers in strategic decisions in the com-

pany. In this context, the distribution and variety of a product line play a
central role as the most important strategic marketing decisions. However,
marketing managers should not see the world through rose-colored glasses.
Classic market research methods such as customer satisfaction studies are
still important for understanding customer needs.

References
Feng, H., Morgan, N. A., & Rego, L. L. (2015). Marketing department power and
firm performance. Journal of Marketing, 79(5), 1–20.
Germann, F., Ebbes, P., & Grewal, R. (2015). The chief marketing officer matters!
Journal of Marketing, 79(3), 1–22.
Homburg, C., Vomberg, A., Enke, M., & Grimm, P. H. (2015). The loss of the
marketing department’s influence: Is it really happening? And why worry?
Journal of the Academy of Marketing Science, 43(1), 1–13.
Hult, G. T. M., Morgeson, F. V., Morgan, N. A., Mithas, S., & Fornell, C. (2017).
Do managers know what their customers think and why? Journal of the Academy
of Marketing Science, 45(1), 37–54.
Rajavi, K., Kushwaha, T., & Steenkamp, J. B. E. (2023). Brand equity in good and
bad times: What distinguishes winners from losers in consumer packaged goods
industries? Journal of Marketing, 87(3), 472–489.
 29
Are We Influenced by Scarcity?
Scarcity Effect

LY F OR A
ON T IME
RT
SHO

Why scarcity is attractive and why it can have different effects on offline and online
purchases.

Do you know the story of the grandson who desperately wanted to know his
grandmother’s potato salad recipe? The grandson asked, “Grandma, what’s
the secret of your potato salad? What is the special ingredient?” The grand-
mother replied, “I always deliberately made too little potato salad.” This
situation is referred to as scarcity in economic literature. Generally, it refers
to a situation where the demand for a product exceeds the supply. If the
potato salad runs out at the family celebration, it can make the product even
more attractive to the guests and further increase demand. But it’s not just
Grandma who knows that products that are scarce are particularly attractive.
Many companies have also recognized this.

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Scientific literature distinguishes between different types of scarcity. On the

one hand, products or offers are available for a limited time. For example, the
cruise that can only be booked with flights for a short time, or the favorite
praline in gingerbread style, which is only available for a limited time in
stores. Retailers often use such temporal scarcities for advertising campaigns.
For example, you can save up to 50 EUR if you buy the latest coffee machine
this week. So, if a salesman offers you a discount on your next visit to the
furniture store that is only valid today, thereby creating a certain purchase
pressure, you should be cautious. The offer is probably still valid next week.
On the other hand, the quantity offered can also be scarce. For example, a
grocery retailer offers a van for rent for three days for just under 50 EUR. A
real bargain. The retailer promises up to 80% savings in his flyer. But only
while stocks last. Even when buying clothes online, you are exposed to the
scarcity effect. When browsing through jackets, trousers or sports clothes, you
can quickly lose track. It’s good that there is the “like” button and you can
easily save your favorite pieces. However, you must then also expect that the
retailer will repeatedly point out via email that only four items are in stock
and you should act quickly. An increased demand can also trigger the scarcity
effect and make the offer even more attractive. Think, for example, of your
last flight or hotel booking. Probably four other people were also interested in
the flight or the hotel. So be careful with hints like “only for a short time” or
“only while stocks last”. They probably want to make the offer more appeal-
ing to you by limiting the time or quantity, or draw attention to the high
demand and thus increase your likelihood of purchase.
There are various theories in the scientific literature that can explain the
scarcity effect. Two popular theories will be briefly introduced here. The
Commodity Theory is probably the most frequently used theory. Put simply,
the scarcer a product, the higher it is valued. This theory is closely related to
the construct “Need for Uniqueness”, which describes the human need for
uniqueness and motivates him to stand out from others (Brock, 1968). After
all, we don’t want to stay in the same hotel as our neighbors or friends. Our
vacation is an expression of freedom, exclusive experiences, and cosmopol-
itanism. If there are only a few places left in a hotel, it gives us a feeling of
uniqueness. In contrast, there is the Conformity Theory. It tries to explain
how people adapt their attitudes, beliefs, and behaviors to group norms
(Bernheim, 1994). Conformity is something like the need to feel part of a
group. People with a high need for conformity therefore rate a product or an
offer depending on the number of people who buy it. If there are only a few
places left in a hotel, I also want to vacation there. Now decide which of the
two theories applies to you.
 29 Are We Influenced by Scarcity? Scarcity Effect    
161

The positive influence of the scarcity effect on the likelihood of purchase

is proven by numerous scientific experiments. Worchel et al. (1975) had stu-
dents rate cookies in an experiment. For this, a group was presented with 10
cookies in a jam jar and another group with a jam jar with only two cookies.
The group that was presented with only two cookies rated the cookies signif-
icantly better than the other group. The effect of scarcity on the evaluation
of the cookies was even greater when the number of cookies on the table was
reduced from ten to two during the experiment (Worchel et al., 1975).
Jang et al. (2015) examined the difference between limited time scar-
city (e.g., “only for a short time”) and limited quantity scarcity (e.g., “only
while stocks last”) for various product categories. In an online experiment,
the researchers had the purchase intention of products evaluated. The prod-
ucts were previously divided into conspicuous and inconspicuous products.
A conspicuous product is, for example, an expensive watch, as it is visible
when worn and can signal high status, uniqueness, and affiliation with an
exclusive social group. This is less the case with a yogurt or a shampoo. The
test subjects were divided into different groups, to which different scenarios
were presented. In the case of limited quantity scarcity, it was said that the
number of products offered is limited. In the case of limited time scarcity, it
was said that one could buy as many products as one wanted. However, only
for a certain period of time. The results of their experiments show that both
the limited quantity and the limited time scarcity of products have a posi-
tive influence on the purchase intention. A limited quantity scarcity works
particularly well with products that signal status, uniqueness, and affiliation
with an exclusive social group, such as watches. The purchase intention, the
perceived value of the product, and the attitude towards the brand are signif-
icantly higher for these products when the quantity is limited. This effect is
further enhanced when the subjects have a need for uniqueness. In this case,
the limited quantity scarcity also signals the uniqueness of the product. The
limited time scarcity, on the other hand, worked better with a simple yogurt
(Jang et al., 2015).
The positive sales effect of the limited time scarcity of products in the
context of advertising campaigns in retail is also well documented in the sci-
entific literature. Then these results can be easily transferred to online retail-
ing. Or maybe not? Only to a limited extent, say Hmurovic et al. (2023)
in their study, which was published in the Journal of Marketing Research.
Although many online retailers use time-limited promotions, there are sur-
prisingly few scientific studies that examine their effect. The authors iden-
tify four scientific studies that have investigated the effect in the context of
162    
S. Oetzel and A. Luppold

experiments. None of the cited studies can demonstrate a significant effect

of time-limited promotions (Hmurovic et al., 2023). But why can’t the
robust results from the offline world simply be transferred to the online
world? Why do time-limited promotions in the experiments have no influ-
ence on the purchase intention?
The authors explain this as follows. Consumers have learned in the offline
world that the scarcity of a product is a signal for a higher value of the prod-
uct. A higher perceived value in turn has a positive effect on the purchase
intention. And in the online world? In the online world, on the other hand,
a time-limited promotion could activate something in potential customers
that is referred to in the scientific literature as “Persuasion Knowledge”. The
potential customer anticipates that he is being influenced by the marketing
measure and is being persuaded to buy the product. Therefore, the poten-
tial customer becomes skeptical when he sees such time-limited promotions
online and may refrain from buying the product. This is exactly what the
authors show in their online experiments (Hmurovic et al. (2023).
The participants of the first experiment received a coupon for an online
order from a pizza delivery service. Both the test and the control group
received a coupon with a 30% discount for their next order. The only dif-
ference was that the coupon expired at the end of the day for the test group.
The results of the subsequent analysis confirm that the subjects become
rather skeptical when the promotion is time-limited. In an open question
in the questionnaire, the test persons increasingly gave reasons why the
pizza service offers such a time-limited promotion (e.g., “All just a market-
ing trick”). The time-limited promotion thus leads to a higher activation of
the “Persuasion Knowledge” and overall to a lower purchase intention com-
pared to the normal promotion with a simple discount of 30%. But how
can online retailers prevent the potential customer from believing that the
marketing measure is just trying to persuade him to buy the product? The
authors also have an answer to this, which they investigated in their exper-
iments. Namely, when the online retailer gives a reason why there is this
time-limited promotion. In the experiment with the pizza delivery service,
there is another group that also receives a coupon with a 30% discount for
the next order. This promotion is also time-limited. However, this time there
is a reason for the time-limited promotion: “It’s your birthday”. This type
of presentation of the time-limited promotion leads to the promotion not
being perceived as influencing. However, it has the same effect as the normal
promotion with a simple discount of 30% (Hmurovic et al., 2023).
 29 Are We Influenced by Scarcity? Scarcity Effect    
163

Summary and Recommendations

The scarcity effect and the associated artificial scarcity are likely a good
means to increase the demand for products. This is well documented in the
scientific literature. At the same time, scientific studies show that the com-
munication of the scarcity effect is crucial for the success of the effect and
depends on the respective product. This is also shown by a meta-analysis
by Barton et al. (2022), which summarizes over 400 effects from 131 stud-
ies. The greatest effect on purchase intention is the limited quantity scar-
city (e.g., “only while supplies last”), followed by the limited time scarcity
(e.g., “only for a short time”). The demand-based scarcity (e.g., “only 2 left”)
overall has the least influence on purchase intention. Demand-based scarcity
is particularly effective for utilitarian products, which have a practical use,
such as a washing machine. Limited quantity scarcity is particularly effec-
tive for hedonistic products. These are products that bring joy and stand for
pleasure. Limited time scarcity, on the other hand, works well with high-in-
volvement products. These are products that the customer engages with
intensively (Barton et al., 2022). But caution. The results from the offline
world cannot be easily transferred to the online world. Here, other effects
may play a role.

References
Barton, B., Zlatevska, N., & Oppewal, H. (2022). Scarcity tactics in marketing:
A meta-analysis of product scarcity effects on consumer purchase intentions.
Journal of Retailing, 98(4), 741–758.
Bernheim, B. D. (1994). A theory of conformity. Journal of Political Economy,
102(5), 841–877.
Brock, T. C. (1968). Implications of commodity theory for value change. In A. G.
Greenwald, T. C. Brock, & T. M. Ostrom (Eds.), Psychological foundations of
attitudes (pp. 243–275). Academic Press.
Worchel, S., Lee, J., & Adewole, A. (1975). Effects of supply and demand on rat-
ings of object value. Journal of Personality and Social Psychology, 32(5), 906.
Jang, W. E., Ko, Y. J., Morris, J. D., & Chang, Y. (2015). Scarcity message effects
on consumption behavior: Limited edition product considerations. Psychology &
Marketing, 32(10), 989–1001.
Hmurovic, J., Lamberton, C., & Goldsmith, K. (2023). Examining the Efficacy
of Time Scarcity Marketing Promotions in Online Retail. Journal of Marketing
Research, 60(2), 299–328.
 30
How Do We React to Hidden Price Increases?
Shrinkflation

Why shrinkflation is better than a price increase and why there are even better
alternatives.

If you’re wondering why the bag of potato chips is already empty before
halftime while watching football, it could also be because the contents of the
chip bag have been reduced. Instead of 175 g of chips for 1.79 EUR, there
are now only 150 g—at the same price. This corresponds to a price increase
per 100 g of almost 17%. Some customers don’t find this funny at all. And
when one company starts, others often follow. These hidden price increases
are a popular strategy among manufacturers, especially in times of inflation
and the associated cost increases for energy, raw materials, packaging, or
logistics, to offset the increased costs. In 2022, the inflation rate in Germany

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was almost 8%. When manufacturers simultaneously reduce the content of

packaging, this is referred to as shrinkflation. Shrinkflation is a combination
of the word “shrink” and “inflation”. The so-called “packaging downsizing”
does not only occur in times of inflation. Different variants were used in
the past as well. For example, certain types of chocolate bars are available
in a 90-gram bar instead of the 100-gram package. Margarine is available
with 400 g instead of 500 g. This corresponds to a hidden price increase of
25% per 100 g. Cream cheese is available in a 175 g package instead of the
200 g package. Chocolate bars are now only available in a 4-pack instead of
a 5-pack. Of course, at the same price.
But what influence do these measures have on customer behavior? When
it comes to the reaction of customers to changes in the marketing mix, econ-
omists and marketing scientists often resort to so-called elasticities. This is
a measure of customer reaction, defined as the percentage change in sales
divided by the percentage change in the marketing instrument. Let’s take
the manufacturer of potato chips as an example. Due to increased costs, he
does not reduce the content of the package, but increases the price from
1.79 EUR to 1.99 EUR. This corresponds to a percentage price change of
11.2%. His sales then decrease by 20%. The price elasticity is then −1.79.
Economists also distinguish how strongly sales react to price changes. If the
price elasticity is less than −1, for example −2 or −3, then the customer’s
reaction is elastic. Customers react very strongly to price changes. If the
price elasticity is between 0 and −1, economists speak of inelastic demand.
In this case, price increases only lead to comparatively small sales losses. As
a simple rule of thumb: If the sales of a product change more in percentage
terms than the price, the product is considered elastic. Elasticities have the
advantage that they can be directly compared with each other. Marketing
science has dealt intensively with the measurement of price elasticities.
There are now also several meta-analyses that summarize the results. The
first meta-analysis comes from Tellis (1988). He summarizes over 367 price
elasticities and finds an average price elasticity of −1.76. Newer studies,
based on newer data, estimate a significantly higher absolute value of −2.62
(Bijmolt et al., 2005).
And how high is the elasticity and thus the reaction of customers to hid-
den price increases, i.e. changes in the content of the package? Surprisingly,
there is relatively little research on this, although marketing practice often
uses this strategy. The first study we look at on this topic comes from Çakır
and Balagtas (2014). The authors examined household panel data from the
USA and the purchase of ice cream in supermarkets. Using the data, they
estimate a demand model to determine the consumer’s reaction to changes
 30 How Do We React to Hidden Price Increases? Shrinkflation    
167

in price and package size. The data shows that the market leader reduced
the package size twice. First from 64 ounces to 56 ounces and seven years
later from 56 ounces to 48 ounces. Most other manufacturers followed suit.
However, the new package sizes were not always introduced at the same
time, as some retailers probably still had the larger package in stock and had
to sell it off first. The price also varied. While the package price of the mar-
ket leader fell, the price per ounce increased at the same time. The data thus
suggests that the marketing managers reduced the package sizes to covertly
increase the price. This variation in package sizes and prices allows the scien-
tists to estimate the reaction of the customers, i.e. the respective elasticities.
The results of the demand model show that customers react about four times
more strongly to the price than to changes in the package size. Thus, the
average price elasticity is −0.51. The elasticity of the package size is about
0.12 (Çakır & Balagtas, 2014).
From an economic perspective, the implications are clear. Since customers
react less strongly to changes in package size than to price changes, the hid-
den price increase seems to be an effective means of passing on cost increases
to customers and thus maintaining or even increasing profits. The potential
shitstorm and associated bad press would only have to be endured briefly.
But isn’t a parameter being overlooked here? “Yes,” say scientists Yonezawa
and Richards (2016). Specifically, the strategic parameter, i.e., the reaction of
competitors to the change in package size. Production or distribution costs
can also increase due to a change in package size. Therefore, when analyzing
the data, one should not only consider the reaction of customers, but also the
cost parameters and the reaction of competitors. In their scientific study, the
authors examined the market for breakfast cereals in the USA and analyzed
the sales data of 35 items from three competitors over a period of three years.
Changes in package sizes can also be observed here. The authors not only
observed the sales and prices of the products in supermarkets, but also the
wholesale prices of the manufacturers (Yonezawa & Richards, 2016).
The authors use very complex supply and demand models for their anal-
ysis, which also take into account the strategic reactions of competitors and
retailers. So-called structural supply and demand models. As an example,
they take the breakfast cereals of the market leader. Here, the manufacturer
has reduced the package size from 15 ounces to 12.2 ounces. What can be
observed in the data is that the manufacturer often simultaneously increases
the wholesale prices. So, he sells his product even more expensive to the
retailer. The retailer then also increases the price. How does the competi-
tion react now? The main competitor then lowers his wholesale price. The
package reduction has thus triggered a reaction from the competition, which
168    
S. Oetzel and A. Luppold

overall increases the price competition between the two. When a manufac-
turer reduces its package size, competitors in this case tend to lower their
wholesale prices (Yonezawa & Richards, 2016).
In marketing practice, one often only sees one change. Either only the
price is increased and the package size remains constant. Or there is a hid-
den price increase. In this case, the price remains constant and the package
size decreases. But what happens when you change the price and package
size at the same time? This is exactly what Yao et al. (2020) investigated in
several experiments.
Let’s first consider what it would mean for our potato chip manufacturer
if he were to change both the price and the package size at the same time.
The first tactic in Table 30.1 would be a simultaneous increase in package
size and price. To increase the price per 100 g with this tactic, however, the
percentage price increase must be greater than the percentage increase in
package size. For example, you could increase the package size from 175 g to
200 g, i.e., by about 14%. Then the price would also have to be increased,
e.g., from 1.79 EUR to 2.39 EUR. As a result of these changes, the price per
100 g increases by just under 17%. A similar magnitude as with the strategy
of the hidden price increase, where only the package size is reduced from
175 g to 150 g.
The second tactic in Table 30.2 would be the simultaneous reduction of
the package size with a price reduction. In this case, to increase the price
per 100 g, the percentage price reduction must, however, be less than the
percentage reduction in package size. For example, the chip manufacturer
could reduce the quantity to 135 g and at the same time lower the price to
1.59 EUR. This increases the price per 100 g by almost 15%.

Table 30.1 Simultaneous increase in package size and price

Package size Price Price/100 g
Old 175 g 1.79 EUR 1.02 EUR
New 200 g 2.39 EUR 1.20 EUR
Percent Change 14% 34% 17%

Table 30.2 Simultaneous reduction of package size with a price reduction

Package size Price Price/100 g
Old 175 g 1.79 EUR 1.02 EUR
New 135 g 1.59 EUR 1.18 EUR
Percent Change −23% −11% 15%
 30 How Do We React to Hidden Price Increases? Shrinkflation    
169

A similar design was implemented by Yao et al. (2020) in an Australian

supermarket. For their experiment, they chose six products: rice crackers,
coconut rolls, sweets, biscuits, soy milk, and coconut water. Over several
weeks, the various strategies for increasing the price per 100 g were tested
in several supermarkets. The price and quantity changes were visibly placed
on the shelf for the customer. The analysis of the sales data shows that the
simultaneous change in price and package size has a greater turnover and
sales effect than the pure price increase or the hidden price increase, where
only the package size is reduced. The simultaneous reduction of price and
package size was overall the best strategy (Yao et al., 2020).
The scientists also provide a theoretical explanation for why the simulta-
neous reduction of price and package size works best. Responsible for this
is the so-called Silver-Lining Principle. It states that a large loss should be
separated from a small gain to increase the value for the customer. In this
case, the loss is the lesser quantity in the potato chip bag. The gain from the
customer’s perspective is the lower price. From the customer’s perspective,
this tactic has one piece of bad news and one piece of good news at the same
time. This is not the case with the hidden price increase. If the potential cus-
tomer notices the hidden price increase, he only perceives a loss and no gain.
In this case, there is only one piece of bad news (Yao et al., 2020).

Summary and Recommendations

What the best strategy for our potato chip manufacturer is, of course, diffi-
cult to answer from the outside. But it is clear that there are other ways to
pass on the higher costs to the customer than a hidden price increase. One
possibility is certainly the simultaneous reduction of the package content
and the price presented here. There is certainly still a need for research here.
But we could also imagine another strategy to cushion the increased costs.
How about if the manufacturers were open and honest about price increases
or changes in package size? That would be fair. Numerous scientific studies
show that perceived price fairness influences buying behavior. Give it a try.

References
Bijmolt, T. H., Van Heerde, H. J., & Pieters, R. G. (2005). New empirical gener-
alizations on the determinants of price elasticity. Journal of Marketing Research,
42(2), 141–156.
Çakır, M., & Balagtas, J. V. (2014). Consumer response to package downsizing:
Evidence from the Chicago ice cream market. Journal of Retailing, 90(1), 1–12.
170    
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Tellis, G. J. (1988). The price elasticity of selective demand: A meta-analysis of

econometric models of sales. Journal of Marketing Research, 25(4), 331–341.
Yao, J., Oppewal, H., & Wang, D. (2020). Cheaper and smaller or more expensive
and larger: How consumers respond to unit price increase tactics that simultane-
ously change product price and package size. Journal of the Academy of Marketing
Science, 48(6), 1075–1094.
Yonezawa, K., & Richards, T. J. (2016). Competitive package size decisions. Journal
of Retailing, 92(4), 445–469.
 31
What Influence Do Good and Bad News Have
on Us? Silver-Lining Principle

Technology package
4.900€

Why we should separate good and bad news for buyers. And why equipment packages for
cars make sense.

Consider the following thought experiment by Tversky and Kahneman

(1981) and imagine that you are faced with two decision situations and
must choose an option in each case. How would you decide in the first deci-
sion situation?

A. A certain gain of 240 Euros

B. A chance to win 1000 Euros with a probability of 25% and a chance to win
0 Euros with a probability of 75%

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And what about the second decision situation?

A. A certain loss of 750 Euros

B. A chance to lose 1000 Euros with a probability of 75% and a chance to lose
0 Euros with a probability of 25%.

The experiment was part of the development of Prospect Theory, for which
Kahneman received the Nobel Prize in Economic Sciences in 2002 as the
first psychologist. How did you decide? In the first decision situation, 84%
of the subjects chose option A (Tversky, A. & Kahneman, T., 1981). When
it comes to gains, the subjects seem to prefer a certain gain of 240 Euros to
an uncertain gain. In fact, the expected value of the risky alternative B with
0.25 * 1000 = 250 Euros is even slightly higher. In the second decision sit-
uation, 87% of the subjects chose option B (Tversky, A. & Kahneman, T.,
1981). In the case of losses, there seems to be a tendency for the subjects
to opt for the risky expected value. The risky expected value in this deci-
sion situation with 0.75 * 1000 = 750 Euros is identical to the certain loss
(Tversky & Kahneman, 1981).
Prospect Theory is a descriptive theory that attempts to describe human
behavior. In the past, economists often only knew the utility maximizer
in their models, who can rationally evaluate all information and maximize
the utility of his decisions. However, the results of such experiments show
that people evaluate gains and losses differently and make the result of their
purchase decision not absolutely, but always relative to a reference point. A
deviation downwards is then interpreted as a loss, a deviation upwards as a
gain. In the sense of Prospect Theory, buyers thus reduce the complexity of
the decision situation (Hoffmann & Akbar, 2019).
The Prospect Theory can be well illustrated using grades in an examina-
tion. Imagine you have written an exam in math and German. You have only
prepared moderately for the exams and preferred to go out for ice cream with
your friends. The two exams were only mediocre. You couldn’t answer all the
teacher’s questions in math. The German essay was also difficult. You assume
that you have achieved a grade 3 in both exams and would be quite satisfied
with that. In the German school system, grades range from 1 to 6. The lower
the grade, the better. The grade 3 is your reference point in this case. After
a week you get the exams back. In the math test you have a 2. Since you
expected a 3, the joy is of course great. You perceive the grade as a gain. In
the German test, unfortunately, it only amounts to a 4. Too many spelling
mistakes. You perceive the grade 4 as a loss, as you expected the grade 3 as a
reference point (based on Hoffmann & Akbar, 2019, pp. 113–114).
 31 What Influence Do Good and Bad News Have on Us? … 173

Two more important features are added in Prospect Theory. Gains and
losses are not evaluated linearly. Behavioral economists say that the value
function is concave in the gain area and convex in the loss area (based on
Hoffmann & Akbar, 2019, p. 114). What does this mean for our maths and
German exam? In the maths exam we were happy about the grade 2. We
only expected a grade 3, but if we had gotten a grade 1, the additional joy
would not have been quite as great. The same applies to the German exam.
Here we are disappointed about the grade 4. The additional disappointment
if we had gotten a 5 for the essay would not have been so great. Whether
a 4 or a 5 doesn’t matter much now. In addition, the value function in the
loss area runs significantly steeper than in the gain area. The joy about the
grade 2 in the maths exam would not have been as great as the disappoint-
ment about the grade 4 in the German exam (based on Hoffmann & Akbar,
2019, pp. 113–114).
What do these properties have to do with purchasing behavior and mar-
keting measures? The Prospect Theory has numerous implications for the
presentation of prices. For example, in the context of price promotions. Let’s
take a look at the Silver-Lining Principle by Thaler (1985), who received
the Nobel Prize in Economic Sciences in 2017, albeit on a slightly differ-
ent topic. Formally, the Silver-Lining Principle states that the separation of
a small gain from a larger loss leads to a higher psychological value than the
integration into a smaller loss (Thaler, 1985).
This initially sounds complicated. Let’s take a small example to under-
stand the Silver-Lining Principle (Fig. 31.1). The Prosecco you always buy
costs 5 EUR. If you buy the product at the regular price, you make a loss
of 5 EUR. 5 EUR hurts. The loss is plotted on the left side of the horizon-
tal axis in the figure. Economists assign this loss a subjective utility V. To
one person, the 5 EUR hurts more than to another. This subjective utility is
plotted on the vertical axis. In our example, the subjective utility is also neg-
ative with V(−5) = −5. Now let’s assume that the Prosecco is on sale and
only costs 4 EUR instead of 5 EUR. The discount is therefore 1 EUR. If the
buyer now only considers the sale price of 4 EUR, in our case a subjective
utility of V(−4) = −4.5 results. The fact that the subjective utility is not
also −4 is due to the curvature of the value function. Let’s remember our
grade example. What happens now if the buyer evaluates the two prices, the
regular price and the discount, separately? The buyer now perceives the dis-
count of 1 EUR as a gain. The gain is plotted on the right side of the hori-
zontal axis in the figure and leads in our numerical example to a subjective
utility of V(1) = 1. The regular price again leads to a loss and to a negative
subjective utility of V(−5) = −5. However, the separate consideration of
174    
S. Oetzel and A. Luppold

Utility V

V(1) = 1
-5 -4 -3 -2 -1

Losses 1 2 3 4 5 Gains
Reference point

V(-5) + V(1) ) = -4
V(-4) = -4,5
V(-5) = -5

Fig. 31.1 The Silver-Lining Principle

the two prices results in a higher subjective utility overall. In our example,
this leads to a subjective utility of V(−5) + V(1) = −4. This value is higher
than the subjective utility of V(−4) = −4.5, if the buyer only evaluates the
4 EUR.

Summary and Recommendations

The following implication arises for marketing practice: If there is good news
and bad news, they should always be presented separately. This applies, for
example, to retailers who carry out the above-described price promotions. In
price promotions, retailers should therefore present the regular price and the
discount separately. This makes the price promotion much better evaluated
by the buyer and can lead to a higher probability of purchase. However, this
only applies if the loss significantly exceeds the gain. On the other hand,
losses should always be aggregated. This is because the value function in
the lower left quadrant is initially very steep for small losses. As the losses
increase, the function becomes flatter. Car manufacturers have understood
this principle well when they combine several special features into one
equipment line. A single loss of 1000 EUR appears less severe than 10 losses
of 100 EUR each. So if you want to change your prices in the future, take
the graph of the value function at hand and consider how the individual
price components could affect.
 31 What Influence Do Good and Bad News Have on Us? … 175

References
Hoffmann, S., & Akbar, P. (2019). Konsumentenverhalten, Konsumenten verste-
hen – Marketingmaßnahmen gestalten. Springer Gabler.
Thaler, R. (1985). Mental accounting and consumer choice. Marketing Science,
4(3), 199–214.
Tversky, A., & Kahneman, T. (1981). The framing of decisions and the psychology
of choice. Science, 211, 453–458.
 32
How are We Influenced by Social Norms?
Social Norms

Why the use of social norms can be an effective method to promote environmentally
friendly behavior. But why we should avoid sanctions or rewards in the process.

For many, the bicycle seems to be an environmentally friendly alternative

for commuting to work. However, those who are still tired in the morning
and have to choose between a car and a bicycle often opt for the heated car,
especially in winter. How can one manage to prefer the bike to the car in the
morning? In such questions, the social group around us and the associated
social norms play a crucial role. Social norms have a significant influence on
our behavior. And, believe it or not, marketing science also provides impor-
tant insights into this, as we will see later.
Social norms are rules that are understood and accepted by the members
of a group and influence our social behavior (Cialdini & Trost, 1998). Social

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norms coordinate our social life and provide us with a framework for how
we should behave. This is often driven by a desire for social recognition.
However, social norms can also restrict our freedom and provoke something
like reactance. Reactance is a psychological phenomenon where people react
to restrictions or prohibitions with negative feelings such as anger or frustra-
tion and feel the need to restore their freedom and independence (Kroeber-
Riel and Gröppel-Klein, 2019, p. 292). The following two studies show that
social norms can trigger different behaviors.
The first study by Goldstein et al. (2008) investigates whether social
norms lead to more sustainable behavior by hotel guests. If you spend sev-
eral days in a hotel, you may find yourself deciding in the morning whether
to use a fresh towel or to reuse yesterday’s towel for the sake of the environ-
ment. Each wash cycle consumes water and electricity, and over the year, this
adds up. However, the fresh towel is still wonderfully fluffy, while the used
towel is still a bit damp. To draw our attention to this, you often find a sign
on the bathroom door in hotel bathrooms with the following note:

Help protect the environment by reusing your towels during your stay!

Does this convince you? Probably not everyone. How can more hotel guests
be encouraged to reuse their towels? Goldstein et al. (2008) suspect that
social norms could be the key to success. In an experiment, they placed a
slightly different note in the bathrooms of some of the hotel rooms. This
time with a reference to a social norm:

Join your fellow guests in helping to protect the environment. Almost 75% of
guests who are asked to participate in our new resource savings program do help
by using their towels more than once.

The note is a descriptive norm. A descriptive norm is a social norm that

describes how most people act or behave in a certain situation: “That’s what
everyone does”. The results of the experiment show that this social norm sig-
nificantly increases the towel reuse rate. While about 35% of hotel guests
with the standard sign reuse their towel, in the group with the reference to
the social norm it is about 44% (Goldstein et al., 2008). Can the reuse rate
be increased even further?
In a second experiment, Goldstein et al. (2008) further varied the text of
the notice. The highest reuse rate for towels was achieved with the following
note:
 32 How are We Influenced by Social Norms? Social Norms    
179

Join your fellow guests in helping to protect the environment. Almost 75% of
guests from this room participate in our new resource savings program by reusing
their towels more than once.

In this case, the towel reuse rate was almost 50%. The authors conclude that
the use of social norms can be an effective method to promote environmen-
tally friendly behavior. The authors argue that social norms are most effec-
tive when the target group can identify with the group to which the norm
refers (Goldstein et al., 2008).
In the second study presented here by Schultz et al. (2007), the influence
of a descriptive norm on the energy consumption behavior of households
was investigated 2007. The participating households received feedback on
their energy consumption over the past few weeks. As a descriptive norm,
they were informed of the average consumption of the neighborhood. The
message was distributed via a door sign. In this experiment, households
could be both above and below the average consumption of other house-
holds. If households had an above-average high energy consumption, the
descriptive social norm led them to reduce their consumption in the fol-
lowing week, similar to the above hotel experiment. So, the desired result.
However, if households were below the norm, they increased their energy
consumption. So exactly the opposite of what one actually wants to achieve.
Households should reduce their energy consumption. The authors call this
the boomerang effect. Schultz et al. (2007) argue that a descriptive social
norm can be seen as a reference point for one’s own behavior and that we
adjust our behavior to this reference point. So, social norms can lead us to
behave differently than we actually want.
But how can the boomerang effect be avoided and prevent households
that are below average from increasing their own consumption? Here too,
Schultz et al. (2007) propose a solution. In some households, in addition
to the descriptive norm, an emoji was printed on the door sign. If one
was above the average consumption, a crying smiley was printed, if one
was below the average consumption, a laughing one. The smiley repre-
sents another social norm, the so-called injunctive norm. Injunctive norms
describe whether a behavior is accepted or rejected by the social group. And
it worked. When the laughing smiley was added to the descriptive norm, the
households maintained their low consumption (Schultz et al., 2007).
The fields of application for the use of social norms for sustainable behav-
ior are diverse. And so there are now numerous empirical studies in this
area that have investigated the influence of social norms on behavior. There
are also numerous studies in the marketing context. As it is when there are
180    
S. Oetzel and A. Luppold

numerous studies on a topic in science, there can also be different results

that can contradict each other at first glance. This is probably due to differ-
ent background variables being responsible for the different results. In such
cases, meta-analyses are useful, which summarize the results and identify
the most important influencing factors. A meta-analysis on the influence of
social norms on consumer behavior comes from Melnyk et al. (2022) and
was published in the Journal of Marketing. 137 articles between 1978 and
2019 were included in the results and more than 10% of the studies are
assigned to the marketing area. Summarizing all the results of the meta-anal-
ysis would go too far at this point. Let’s return to our initial question
instead. How do we manage to finally prefer to ride our bike to work in the
morning instead of driving? Let’s develop a communication strategy for a
door sign together from the results of the meta-analysis, so that in the morn-
ing you have no choice but to take the bike.
The first conclusion from Melnyk et al. (2022) is: Use descriptive norms
instead of injunctive norms (Melnyk et al., 2022, p. 115). To remind you.
Descriptive norms describe typical behaviors of a relevant group and signal
which behaviors are most popular; injunctive norms, on the other hand,
describe whether a behavior is recognized or rejected by a social group.
Melnyk et al. (2022) argue that injunctive norms are more likely to lead to
reactance because they can be perceived as very demanding and give the feel-
ing that they restrict one’s own freedom. The first draft could read as follows:

Join your fellow human beings and help protect the environment by riding a
bike. Almost 75% ride their bike to work.

Avoid sanctions and rewards in connection with social norms (Melnyk et al.,
2022, p. 115). Sanctions and rewards can also provoke reactance, as they
make the intention of influence more visible, according to the authors of the
study. Highlight the benefits for others and emphasize the freedom of choice
(Melnyk et al., 2022, p. 115). Of course, you can only enjoy this freedom if
the behavior does not negatively affect anyone. What do you think?

Join your fellow human beings and help protect the environment by riding a
bike. Almost 75% ride their bike to work. For a little more clean air in your
city! It’s your decision.
 32 How are We Influenced by Social Norms? Social Norms    
181

Name people with whom you are in a relationship (Melnyk et al., 2022, p.
102). Family members, friends or colleagues. The closer the relationship, the
lower the reactance, the less you feel restricted in your personal external or
internal freedom and the less you feel anger or frustration. This is what your
new door sign could look like.

Join your fellow human beings and help protect the environment by riding a
bike. Almost 75% ride their bike to work. For a little more clean air in your
city! It’s your decision! Your colleague also rides every morning.

Summary and Recommendations

You may now be wondering what all this has to do with marketing. The
authors White et al. (2019) argue in their article as follows: Marketing man-
agers should first be aware that today’s consumer behavior often has neg-
ative effects on the environment. Just think of the high return rates for
online retailers or the packaging waste in the food retail. However, compa-
nies should also have an interest in promoting sustainable behavior among
their customers. Companies that strive for sustainable behavior often enjoy
a higher reputation among their customers and in the public. This can lead
to a larger customer base and increase company success in the long term. In
addition, a sustainable corporate strategy can lead to the constantly chang-
ing customer needs being recognized more quickly and thus innovative
products or services can be developed more quickly (White et al., 2019).
Social norms are among the most influential factors in moving consumers
towards more sustainable behavior.

References
Cialdini, R. B., & Trost, M. R. (1998). Social infuence: Social norms, conformity
and compliance. In D. T. Gilbert, S. T. Fiske, & G. Lindzey (Eds.), The hand-
book of social psychology (pp. 151–192). McGraw-Hill.
Goldstein, N. J., Cialdini, R. B., & Griskevicius, V. (2008). A room with a view-
point: Using social norms to motivate environmental conservation in hotels.
Journal of consumer Research, 35(3), 472–482.
Kroeber-Riel, W., & Gröppel-Klein, A. (2019). Konsumentenverhalten. Vahlen.
Melnyk, V., Carrillat, F. A., & Melnyk, V. (2022). The influence of social norms on
consumer behavior: A meta-analysis. Journal of Marketing, 86(3), 98–120.
182    
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Schultz, P. W., Nolan, J. M., Cialdini, R. B., Goldstein, N. J., & Griskevicius, V.
(2007). The constructive, destructive, and reconstructive power of social norms.
Psychological Science, 18(5), 429–434.
White, K., Habib, R., & Hardisty, D. J. (2019). How to SHIFT consumer behav-
iors to be more sustainable: A literature review and guiding framework. Journal
of Marketing, 83(3), 22–49.
 33
How are We Influenced by Ad Blockers?
Ad Blockers

No advertising

Why advertising bans reduce our expenses and at the same time prevent product
diversity.

If you surf the internet daily, you will be confronted with a flood of adver-
tising, especially display advertising, i.e., advertising banners in text or video
form on websites. For example, if you visit a news portal, you will be bom-
barded with these advertising banners at various points—above the article,
next to the article, and even between the paragraphs. Perhaps you have once
bought a product after clicking on such a banner and later regretted that you
let the advertising influence you. If you are annoyed by advertising, there
is a simple solution: You can install an ad blocker and thus prevent the dis-
play of these advertising banners. Finally, you will no longer be bothered

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by unwanted windows on your favorite pages. What are you waiting for?
Install the ad blocker and ban advertising. Or is an advertising ban perhaps
not such a good idea? Let’s take a look at two studies that were published
in renowned marketing journals in 2022 and deal with the influence of ad
blockers.
The first study comes from Yan et al. (2022) and was published in the
Journal of Marketing Research. The researchers examined the influence
of ad blockers on the usage behavior of a German news website. For their
investigation, they evaluated over 3 million internet sessions from almost
80,000 users. As part of the analysis, they compared the user behavior on
the news site with an ad blocker with the user behavior without the small
software. Do the users of the news site read more articles when they are not
disturbed by advertising? Reading the articles on the news website is free.
However, a problem with evaluating such data is that the users themselves
decide whether to install an ad blocker or not. As a result, the two groups—
users with and without ad blockers—can differ significantly. For example,
ad blocker users may be significantly younger. This so-called self-selection
effect means that the effect of installing ad blockers on usage behavior can
no longer be measured causally. It could be that the behavior of the users
is influenced not by the ad blocker, but by their age. The two effects—the
effect of the ad blocker and the effect of age—can thus no longer be sepa-
rated from each other (Yan et al., 2022).
For the analysis, Yan et al. (2022) use a statistical trick to circumvent this
problem. Using a so-called matching procedure, a control group is formed.
For each user in the test group with an ad blocker, a similar user without
an ad blocker is sought. In this way, the test and control group should
be almost identical and only differ in the installation of the ad blocker.
Subsequently, it can be examined how the usage behavior changes after
the installation of the ad blocker. The results of the analysis show that the
installation of an ad blocker leads to a significant increase in article views
by more than 20%. The diversity of topics, measured by the number of cat-
egories read, also increases by more than 10%. The time spent on the news
site increases significantly by over 45% in the group with an ad blocker.
The number of visits to the website also increased significantly due to the
use of the ad blocker (Yan et al., 2022). Perhaps the users liked the ad-free
experience so much that they like to return to the site again and again. That
sounds good. Without annoying advertising, you can finally concentrate on
the essentials again—namely reading the news.
And what influence do ad blockers have on purchasing behavior? This
question is pursued by Todri (2022) in her study, which is based on an
 33 How are We Influenced by Ad Blockers? Ad Blockers    
185

extensive database of over 90,000 consumers and more than 300 million vis-
its to various e-commerce sites over a period of three years. For each visit to
an e-commerce site, relevant information such as the shopping basket value
or the number of products in the shopping basket as well as the installation
of an ad blocker was recorded (Todri, 2022). The data were carefully ana-
lyzed and the procedure is similar to the study described above by Yan et al.
(2022).
Todri (2022) examines the effects of installing an ad blocker on the
behavior of internet users as part of a statistical analysis. The results of
the statistical analysis show that the installation of an ad blocker leads to
a reduction in online spending by customers of about 1.45%. Assuming
615 million internet users worldwide who have installed an ad blocker, this
means a loss of sales of around $14.2 billion per year, the scientist calcu-
lates. In addition to the influence on customer spending, ad blockers also
affected preferred brands. It was found that customers increasingly turned
to already known brands after installation and less often put new brands in
the shopping basket. While online spending by customers for known brands
increased by 3.45%, spending for unknown brands decreased by 4.95%.
The use of ad blockers led to users searching less for product information.
Both the number of visits to search engines and online retailers decreased
significantly (Todri, 2022).

Summary and Recommendations

Is it advisable for a customer to install an ad blocker? The results of the two
studies presented show that customers can read more newspaper articles
and simultaneously reduce their online expenses by using an ad blocker. At
first glance, this speaks in favor of installing such software from a custom-
er’s perspective. However, there are also negative effects, both for the cus-
tomers and for the affected companies. The study by Todri (2022) shows
that the self-imposed advertising ban additionally influences purchasing
and searching behavior. Customers who use an ad blocker are more likely to
buy brands they have previously purchased. For customers who like to try
a new variant or a new product, it can become difficult to become aware of
the new product. Advertising thus loses its informational function and can
no longer inform about new products or new product features. Brands that
have already built a large customer base would rather benefit from an adver-
tising ban. As a result, markets could develop into oligopolies in which only
a few providers satisfy demand. It will then become increasingly difficult for
smaller providers to hold their own in tough competition.
186    
S. Oetzel and A. Luppold

References
Todri, V. (2022). Frontiers: The impact of ad-blockers on online consumer behav-
ior. Marketing Science, 41(1), 7–18.
Yan, S., Miller, K. M., & Skiera, B. (2022). How does the adoption of ad blockers
affect news consumption? Journal of Marketing Research, 59(5), 1002–1018.