Stephen J. Hoch

Time-inconsistent Preferences and Consumer Self-Control

Why do consumers sometimes act against their own better judgment, engaging in behavior that is often regretted after the fact and that would have been rejected with adequate forethought? More generally, how do consumers attempt to maintain self-control in the face of time-inconsistent preferences? This article addresses consumer impatience by developing a decision-theoretic model based on reference points. The model explains how and why consumers experience sudden increases in desire for a product, increases that can result in the temporary overriding of long-term preferences. Tactics that consumers use to control their own behavior are also discussed. Consumer self-control is framed as a struggle between two psychological forces, desire and willpower. Finally, two general classes of self-control strategies are described: those that directly reduce desire, and those that overcome desire through willpower. Copyright 1991 by the University of Chicago.

Consumer Learning: Advertising and the Ambiguity of Product Experience

This paper examines the influence of advertising on how and what consumers learn from product experience. A hypothesis-testing framework is adopted where consumers treat advertisements as tentative hypotheses that can be tested through product experience. Two experiments were conducted using product categories that provided either ambiguous or unambiguous evidence about product quality. The first experiment showed that when consumers have access to unambiguous evidence, judgments of product quality are dependent only on the objective physical evidence and unaffected by advertising. However, advertising had dramatic effects on perceptions of quality when consumers saw ambiguous evidence; judgments and product inspection behavior protocols showed that advertising induced consumers to engage in confirmatory hypothesis testing and search. The second experiment showed that advertising influenced quality judgments by affecting the encoding of the physical evidence; retrieval of ad-consistent evidence also appeared to occur, though to a lesser degree.

Shelf management and space elasticity

Abstract Shelf management is a difficult task in which rules of thumb rather than good theory and hard evidence tend to guide practice. Through a series of field experiments, we measured the effectiveness of two shelf management techniques: “space-to-movement,” where we customized shelf sets based on store-specific movement patterns; and “product reorganization” where we manipulated product placement to facilitate cross-category merchandising or ease of shopping. We found modest gains (4%) in sales and profits from increased customization of shelf sets and 5–6% changes due to shelf reorganization. Using the field experiment data, we modeled the impact of shelf positioning and facing allocations on sales of individual items. We found that location had a large impact on sales, whereas changes in the number of facings allocated to a brand had much less impact as long as a minimum threshold (to avoid out-of-stocks) was maintained.

Effective category management depends on the role of the category

Abstract Assessing a retailer’s performance in a category is important to both manufacturers and retailers. Based on data from 19 food categories sold in 106 major supermarket chains operating in the largest 50 retail markets in the U.S., the work reported in this article uses an analysis of variations in category performance across retailers to infer the key drivers of effective category management and how those drivers depend on the role the category plays in the overall retail portfolio. Not surprisingly, the best performing retailers: (a) offer broader assortments, (b) have strong private label programs, (c) charge significantly lower everyday prices, and (d) use feature advertising to drive store traffic and display to increase in-store purchases. More interestingly, we find systematic differences in the impact of the price, promotion and assortment variables that depend importantly on the role (staple, variety enhancers, niche, or fill-in) that the particular category plays in the store’s overall portfolio.

Product Experience Is Seductive

Product experience seduces consumers into believing that they learn more than is actually so. There are several reasons for this. First, experience is more engaging than most attempts at education, both more vivid and intentional, and consequently more memorable. Second, experience is viewed as nonpartisan, devoid of the didacticism of formal education and the self-serving interests of advertisers. Third, much of experience is ambiguous, but not recognized as such. Experience supports a pseudodiagnosticity that draws the consumer in as a willing partner in the seduction. Finally, the endogeneity of tastes allows consumers to accommodate to chosen alternatives and results in infrequent regrets about being seduced. Copyright 2002 by the University of Chicago.

An Anchoring and Adjustment Model of Spousal Predictions

How do we predict the preferences of other people? This article proposes an anchoring and adjustment process where we anchor on our own preferences and attempt to adjust for ways in which we are likely to differ from others. In five experiments, 220 husbands and wives predicted the preferences of their spouses for 20 new product concepts. Both husbands and wives anchored heavily on their own preferences. Moreover, they consistently adjusted for beliefs about the relative influence that their spouses would wield on the purchase decision for each of the concepts. On average, people were not very accurate in predicting spousal preferences. Almost half of the people would have been more accurate by simply reporting their own preferences. Most of the subjects had difficulty isolating systematic adjustment factors that were more diagnostic of spousal preferences than their own preferences.

Spending Time versus Spending Money

We find systematic differences in the way that people spend time versus money. Ex post, people are able to more easily accommodate negative outcomes by adjusting the value of their temporal inputs. Ex ante, people are willing to spend more time for higher risk, higher return options whereas when spending money the pattern is reversed and the more standard pattern of increasing risk aversion is observed. Although accurate assessment of the opportunity costs of time is key to making good decisions, ambiguity in the value of time promotes accommodation and rationalization.

Ambiguity, Processing Strategy, and Advertising-Evidence Interactions

Although advertising persuades through overt appeals to reason or emotion, we focus on the indirect process by which advertising influences the interpretation of objective product evidence. We investigate how two factors moderate advertising-evidence interactions: the ambiguity of the evidence and consumer information processing strategies. We provide a theoretical account of ambiguity, identifying structural characteristics that render evidence about product quality open to either one or multiple interpretations. In our first experiment, the ambiguity of a decision environment played a key role in determining the effect of advertising on product quality perception. In our second experiment, different information processing strategies influence advertisings effects on interpretation of the evidence. Copyright 1989 by the University of Chicago.

Exploiting the installed base using cross-merchandising and category destination programs

Abstract We investigate two ways to increase sales and customer loyalty by taking advantage of a stores installed base of current customers. We propose a classification of products into two types. Products of Type 1 are products for which consumers have a loyalty to a specific retailer and, as far as possible, always shop at that retailer for these products. The other products (Type 2) are not associated with any retailer and are bought at whichever retailer consumers happen to shop when they plan or remember to buy the product. With this in mind, we test the potential of two marketing tools to help retailers increase their share of sales of the Type 2 segment. Using a category destination program we show that one can successfully transform Type 2 into Type 1 products. Using cross-merchandising promotions, we show that one can increase the sales of Type 2 products thereby gaining a larger share of discretionary purchases than what one would receive from a straight random allocation. Both series of tests yielded significant increases in sales and profits and were deemed successful by the retailers who implemented them.

Who Do We Know: Predicting the Interests and Opinions of the American Consumer

Marketing experts and novices made predictions about the activities, interests, and opinions of the American consumer. Predictive accuracy was low overall, and experts were no more accurate than everyday consumers in predicting consumer opinions. This occurred because (1) everyday consumers were much more similar to the target population than were the marketing experts and (2) the experts had difficulty consistently identifying other information beyond their own attitudes relevant to the target population. For this task, the experts could not overcome the “information deficit” that accompanies being dissimilar to the typical American consumer.