comm 362 - price estimation study intro-controls

8/8/2019 Comm 362 - Price Estimation Study Intro-Controls

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Introduction

At times, shopping can be a matter of convenience and necessity. Retailers often take advantageof customers by implementing opportunistic pricing. With many customers in a rush, how awareare they of price differences? Specifically, given the level of price fluctuation between variousretail outlets, do students have a reasonable expectation of how household supplies should be

priced? This research study aims to understand how accurately students can price commonhousehold items given overpriced pricing anchors.

The objective of this research was to determine if time is a constraining factor in how accuratelyrespondents can price items that are artificially inflated. Test subjects were presented with aquestionnaire showing images, descriptions and an artificially inflated price for a product andthen asked to correctly price the item. This study is valuable in recognizing several principles in pricing strategies. The results can be used to help retailers establishing prices, and it revealsinformational biases given a product in isolation in a retail outlet. The goal of this study is todetermine if buyers under time and stress constraints will be less sensitive to paying higherprices than those who know about test products before hand and have unlimited time to make a

decision.

ConceptualDevelopmentandHypothesis

When setting product prices, it is important to consider the circumstances that will make a buyerprice-sensitive. These factors include the products price, how it is presented in context toenvironmental factors such as the amount of information that is available, the location it is beingsold from, the time the customer has to make the purchase decision, the amount of control theyhave in the buying decision, the amount of knowledge they have about a particular product andthe typical price they would pay for the product, amongst others. To test for these factors, thisresearch study focused on creating a stressful environment by the simple means of having aquestionnaire with a time limitation and an associated unlimited time questionnaire as a control.

This was chosen over a test or any precondition of stress as it would be too difficult to control ormeasure stress otherwise due to the limited amount of resources and sample size. Theparticipants knowledge was also considered and within the data the knowledge of the participantwould be gauged and split into a subset based on a predetermined threshold. Through these veryspecific criteria there were two factors that were to be investigated with the followinghypotheses.

Hypothesis 1: Price estimation accuracy adversely affected due to stress

This is the principle hypothesis of the study. Given a stressful environment, how likely areconsumers to make poor decisions about their purchases in context to how much they could be

paying for a product. For this hypothesis to be proven true the test group with the shortened timespan would have to have a high correlation with inaccurate pricing estimates.

Hypothesis 2: Product knowledge has an association with price accuracy

This secondary hypothesis is considered a moderating variable as it is difficult to control withoutpre-screening. By having respondents in both test groups answer a questionnaire prior to the testrespondents can be stratified based on their responses and thus it is assumed those who have a


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TheAffectofTimeStressonSensitivitytoPriceAnchoringCameron,Cappellacci,Liu,Llorente,Sommerfeld,You

JoAndreaHoegg,COMM363102

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higher product knowledge would have more accurate estimates of price.

Variables

Two independent variables and several dependant variables were controlled in order to maintainvalid responses.

Independent VariablesLevel of Stress from Time Limits

Factors: Not Timed (Group A), Timed (Group B) Only two factors were chosen to highlight the contrast between the perceived stressful

environment and one that is relatively stress free. More than two factors would make thedata significantly more difficult to measure due to the small test group size.

Product Knowledge/Purchasing Frequency

A pretest asked about purchasing frequency for each product without mentioning brandand gave an approximation of the shopping behaviours of test respondents.

Collective scores on product knowledge can then be aggregated then correlated todetermine variability.

Dependent VariablesVariability from Anchor Price

A key indicator of the test, the variability from anchor price will determine the validity ofthe first hypothesis by showing the respondents notions of a fair price.

Length of Time to Answer the Test

In test groups that are not timed this variable could be used as an indicator.Accuracy of Response

This will correlate with the amount of product knowledge and time.Mood Change from Beginning of Survey to End

An indicator to verify stress levels, though in the context of this study more quantitativethan qualitative.

Stimulus: Products with inaccurate prices and descriptions/photoso Chose brand named household goodso All overpriced by 25 percent

DevelopingtheTestProcedure

In order to determine how prices can be estimated accurately, a test with the defined stimuli wascreated. Each respondent was presented with a survey that featured a consistent series ofquestions featuring a brand named household product overpriced by 25 percent. After

performing a pre-test the final test was set between subjects and divided into two groups. GroupA was not given a time limit while Group B was given a 2 minute 30 second time limit thatreflected a significant shortfall in time as the average time completion in the unrestricted pre-testwas 3 minute 15 seconds. This decrease in available time created a higher sense of stress in thepre-test.


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Procedure

1. Participants were asked a series of screening demographic questions.o Shopping habits (frequency & stores frequently visited)o Current moodo The participant was the only one in the room Parts I & II

2. Participants were asked a series of questions on product knowledge.o Question Set 1 Purchasing frequency for each of the 24 productso Question Set 2 Product knowledge for each of the 24 products

3. Participants were given an explanatory paragraph to read. Once complete, they notifiedthe test supervisor. Supervisors made sure participants clearly understood test instructions(pretest had revealed that there were several possible misunderstandings).

o Group A was told: Take as much time as necessary after which the supervisorwould leave the room

o Group B was told: You have 2.5 minutes to complete the pricing. You will becrunched for time so you will need to go as fast as possible. The supervisor waspresent and had a timer counting down 2.5 minutes for the participant to complete

the pricing section (if participant did not finish, they were cut off and sent to thefinal component)

o The 24 products were shown in a separate booklet with descriptions, prices, andphotos.

o The same supervisor was used on all participants4. Concluding questions: Participants were asked open and qualitative questions concerning

their affective state and how the perceived the test to determine changes in affect.

ExperimentalControls

Hypothesis guessing each participant received the exact same instructions and it was abetween subjects design for the timing

Peer influence the participants were in the room alone. In Group B a supervisor was inthe room for the product pricing section. Monitoring the subject was to increase theamount of stress. The test supervisor would first clarify the experiment and stay silentduring the actual experiment. They also ensured that participants could easily see theamount of time they had left on a large timer. Participants were also unable to see or hearanyone else outside of the room.

Test procedure consistency participants were given the exact same instructions at thebeginning (their test letter, A or B, and that they were not to touch the booklet until told).The same two supervisors were used on all participants. This ensured consistentinstructions and minimal variation in experimenter interaction.

AvoidingCarry-over effects the product knowledge section occurred before theproducts were priced so that participants would not skew the results by adjusting theirproduct knowledge responses after doing the pricing exercise. This may occur due toconsistency bias or social desirability issues as they may feel less knowledgeable orunsure of their knowledge after performing the test.


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ResultsAnalysis

The results were analyzed to understand what caused respondents to be more or less accurate inpricing the products. Because of the small sample size and the large range of answers, mediansand standard deviations were compared rather than averages. This helped to eliminate the largeoutliers.

The medians and standard deviations are written down as percents. The percents represent howfar away respondents priced products from the accurate prices. For example, if a respondentpriced a product at $0.85 and the accurate price was $1, their response was 15% away from theaccurate price. Thus, the lower the percentage, the more accurate the respondents response.

Hypothesis 1 Confirmed: Price estimation accuracy adversely affected due to stress

Group A, which had an unlimited amount of time, was slightly more accurate in pricing theproducts. The median response for group A was only 14.54% away from the accurate price,while the median response for group B was 16.68% away from the accurate price.

It is interesting to note that Group Bs standard deviation was lower than Group As. This maybe due to the fact that under time constrained scenarios people use shortcuts and heuristics. Such

heuristics may then produce more consistent.

14.54%

16.68%

16.73%

15.18%

13.00% 13.50% 14.00% 14.50% 15.00% 15.50% 16.00% 16.50% 17.00%

A

B

standarddeviaon

median


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The median values of those who had no knowledge as compared with those who hadconsiderable knowledge were 16.64% and 12.60%, respectively. Thus those with considerableknowledge were on average about 4% more accurate. Further, because those who hadconsiderable knowledge had a lower standard deviation, they were also consistently moreaccurate. This trend did not hold up for those that identified themselves as having little or someknowledge about specific products. This result is surprising yet there are several factors that canaccount for this. Given the small sample size it may be difficult to determine any significancebetween the two groups. Also, product knowledge does not only represent knowledge about

product price, but it may represent a number of different facts and associations a consumer mayhave with a product.

Because product knowledge may not accurately represent a consumers ability to price a product,purchase frequency was also used as an independent variable. The chart below compares themedians and standard deviations of respondents based on how often they purchased a product.

16.64%

14.89%

18.90%

12.60%

0.00% 5.00% 10.00% 15.00% 20.00%

Noknowledge

LiPleknowledge

Someknowledge

Considerableknowledge

StandardDeviaon

Median

16.81%

16.56%

14.39%

15.11%

11.07%

0.00%2.00%4.00%6.00%8.00%10.00%12.00%14.00%16.00%18.00%

Never

OnceaYear

Every6months

Every23months

Everymonthorless

standarddeviaon

median


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This chart further emphasizes the trend proposed by the chart based on product knowledge. Thehypothesis only holds up when you compare those who frequently purchased the product andthose who never purchased the product. Those who purchased the product the most were moreaccurate in pricing it than those who never purchased it.

InteractionAffectsThe results were analyzed to see if there were any interaction affects between the differentindependent variables tested. Hypothesis 1 tested the effect that stress and time constraints haveon pricing accuracy while Hypothesis 2 tested the effect that product knowledge has on pricingaccuracy. The table below attempts to analyze the interaction affects.

The respondents were broken up into four groups based on their product knowledge. They werethen further separated into two groups, Group A, which had unlimited time, and Group B, whichwas under time constraints. In some cases Group A was more accurate than Group B, and inother cases Group B was more accurate in than Group A. Thus, the data shows that there is littleinteraction between the two variables.

Conclusions

While very interesting to conduct this study is telling of how the average consumer pricediscriminates. The fact that the first hypothesis was confirmed shows that a stressful situation

does indeed impact consumers and that while in a state of distraction or agitation mostconsumers will not be aware that their sensitivity to prices has been decreased. This is counterindicative of the principle that people who are happy are more care free and those who are notare more cautious, yet the shortfall of time is important to remember as a factor that influencesthe situation in an unexpected manner. The fact that the second hypothesis was accepted is alsotelling in its own right. However, product knowledge was only a good predictor of pricingaccuracy when comparing someone who has knowledge about the product with someone whohas absolutely zero knowledge of the product. This has implications on the just noticeable

0.00% 5.00% 10.00% 15.00% 20.00% 25.00%

noknowledge

liPleknowledge

someknowledge

considerableknowledge

b

a

control


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difference in that small price increases are far less likely to be caught by customers. Overall thestudy produced results that could be further investigated and strengthened with a larger testgroup as preliminarily the results are fairly limited.

Limitations

Inability ErrorDuring pre-testing, some participants failed to provide an accurate price in the survey that wasbelow the inaccurate price given. This was likely due to a misunderstanding with the instructionsas all the product prices given were overpriced. It may also be attributed to a lack of motivationor that participants could not remember the circumstances to which the question refers. Afterchanging the test procedure to ensure that the participant understood the instructions, there werestill a few participants who put higher prices for one or two products. In future studies, removingthe limitation that prices must be below the accurate price will likely reduce this error.

Attention Span of Participants

The complexity of the task with 24 products to price was intentionally stressful as to produce thedesired results. However, the high number of products may have reduced the ability ofparticipants to generate accurate results towards the end of the survey. With a small sample size,these effects are only exacerbated. In future, providing a higher motivation to complete the studyis likely necessary.

Production of Stress and Consistency BiasIt is unlikely that the time limit in this study effectively produced the desired level of stress.Participants dealt with the stress differently, with some not even reporting any significant moodchange or that they did not enjoy the study. There may have also been a consistency bias with themood questions asked at the beginning and end of the survey. In order to produce the more

accurate and conclusive results, a future study is needed that will produce a more stressfulenvironment for participants in Group B.


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Appendices

Appendix 1

Screening demographic, shopping habit and mood questions


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Appendix 2

Product Knowledge Questions

Note: to conserve paper, only 2 of the 24 products are shown in the second

question, but their order is the exact same as the first question.


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Appendix 3

Explanatory paragraph, product booklet, and survey questions

Note: to conserve paper, a table with the products, prices and descriptions is shown instead of the

whole product booklet. Only the first page of the booklet and survey is shown to depict the format.

Product Name Price Description


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Ziploc Sandwich Bags,

100s$3.11 Ziploc Sandwich Bags are ideal for packing favourite lunch sandwiches

and snacks, or storing small amounts of leftovers in the fridge.

Black & Decker

Dustbuster$37.49 Handheld vacuum cleaner, Powerful for quick and easy cleanup,

Lightweight and compact

Vaseline Jar, 375g $5.86 Helps prevent diaper rash, soothing and protecting skin

Garnier Fructis Clean &Fresh Shampoo, 384ml $6.23 Garnier Fructis Clean & Fresh Shampoo makes hair soft to touch;smooth, shiny and easy to style

Crest Cavity ProtectionToothpaste Regular -

170ml

$3.74 Get cavity protection for your teeth to the roots. With regular brushing,Crest Cavity Protection toothpaste will help fight cavities and leave your

breath feeling refreshed

Jergens Naturals SkinRenewing Daily

Moisturizer, 480ml

$7.49 Your skin will be reinvigorated with a blend of potent antioxidants andmoisturizers that smooth and rejuvenate, returning it to a state of pure,

healthy-looking softness.

Black & Decker 2 SliceToaster

$37.47 Extra-wide slots with self-centering guides, Electronic toast control ,Bagel setting , Frozen setting, High lift, Cool touch exterior

Listerine, 500ml $6.86 Listerine kills the germs that cause gingivitis, plaque, and bad breath.

Enlighten Pillar Candle $4.98 Ginger Root scented pillar candle. Great for a fresh scent in your home

Softworks Can Opener $19.99 Easy-turn handle, compact for easy storage, cuts cans quickly and easily,durable metal construction

Sunlight Dishwashing

Liquid, 950ml$3.61 A lemon fresh, grease fighting, liquid dishwashing detergent that cuts

through grease to leave dishes sparkling clean while being gentle on your

hands.

Duracell AAA Batteries, 8

pack$16.24 CopperTop batteries have been engineered to deliver just the right level

of power for most of your household need, plus, they're guaranteed fresh

for 7 years.

Tide 2X Ultra LiquidLaundry Detergent, 32

uses

$9.98 2X Ultra Tide is 2X concentrated to give you twice the stain-fightingpower in every drop. So you get the same number of loads in a smaller,

more convenient bottle.

Windex Multi Task

Trigger, 765ml$4.36 Specially formulated to clean almost any hard surface to a sparkling

Windex shine, perfect cleaner for kitchen and bathroom surfaces andmore.

AirWick Aerosol Air

Freshener$2.99 Air Wick Aerosol Spray is the perfect way to fight unwanted odours and

bring a burst of freshness to any room in your home.

Bounty Towels, 6s $11.24 When you choose Bounty for your home you know you have the mostabsorbent and durable paper towel available. Remain cool, calm and

collected - Bounty is here to help.

Dove Deep Moisture

Body Wash, 55ml$2.48 Dove Deep Moisture Body Wash with NutriumMoisture gives your skin

complete nourishment.

George Foreman Grill $99.99 With the trademark lean-friendly sloped design, movable pads, 72 inchIndoor grill has room for 4 burgers, Hassle-free cleaning, The removable

grill plates are dishwasher safe

Colgate 350 Manual

Toothbrush$6.24 Medium hardness, unique cheek and tongue cleaner, ultra-soft cleaning

bristles, raised cleaning tip

Sunbeam Professional

Iron$49.98 Includes: Spray mist, drip-free system, self-cleaning function, soft touch

grip, microglide ceramic soleplate

Bounce Fabric Softener

Sheets, 80s$8.74 In the dryer, try regular Bounce sheets for a soft freshness that makes

clothes worth wearing.

3M Lint Roller, 30 sheets $5.74 Easily roll over fabrics to pick up lint, pet hair, or other fibers.

Lysol Disinfecting Wipes,35s

$3.49 These pre-moistened, disposable wipes are a convenient way to disinfecthousehold surfaces. Kills more than 99.9% of household germs, bacteria,

viruses, fungi, and mold.

Oral-B Floss $2.49 Clear out your teeth and gums to prevent cavities and gum disease withOral-B Floss..54


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1.

$3.11

ZiplockSandwichBagsareidealforpacking

favouritelunchsandwichesandsnacks,or

storingsmallamountsofleftoversinthe

fridge.

ZiplockSandwichBags,100s

2.

Black&DeckerDustbuster

Handheldvacuumcleaner

owerfulforquickandeasycleanup

Lightweightandcompact

$37.49

3.

$5.86

VaselineJar,375g

Helpspreventdiaperrash,soothingand

protectingskin


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(Survey format was the same for all other products in the pricing section 8 pages total)

Appendix 4

Concluding questions from the survey

comm 362 - price estimation study intro-controls

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