Customization ups satisfaction

If you find yourself agonizing over how to select a new laptop computer or devouring a chocolate bar right after dinner, do not despair. Ravi Dhar can assure you that you are neither abnormal nor alone.

Dhar, the George Rogers Clark Professor of Management and Marketing and director of the Center for Customer Insights at the Yale School of Management, recently studied the effects of self-customization of everyday products — such as computers, mobile phone plans or insurance policies — on consumer satisfaction. In a paper recently published in the Journal of Marketing Research, Dhar’s lab revealed that when a product is customized one attribute at a time, such as choosing just a computer monitor and then just the keyboard, consumers will be both more satisfied with the final product and more likely to purchase it.

The research, it seems, pushes marketers one step closer to keying in on the elusive “buy button” in the brain.

SATISFACTION GUARANTEED

Decision-making, Dhar explained during a Tuesday interview in his office at the School of Management, is by no means black and white. It has become a controversial topic of discussion among economists and psychologists alike, he said.

“The traditional view in economics,” Dhar said, “is that people generally have well-defined preferences that are revealed in the process of choice.”

But psychology presents an alternative and more liberal approach to decision-making: Consumers do not necessarily know what is best for them; rather, they view all the alternatives and make choices based on previous experience, current affective states or future expectations. Dhar explained that the tradeoffs between price and quality are less dependent on the market and more dependent on the mind — a school of thought slowly emerging out of kitsch psychology and into hard science.

“You have to make tradeoffs,” Dhar said. “This is what makes choices interesting.”

How can companies maximize the happiness consumers get from such tradeoffs? “Contingent Consumer Response to Self-Customization Procedures,” the recent paper coauthored by Dhar, Ana Valenzuela of the Zicklin School of Business at Baruch College and Florian Zettelmeyer of the Haas School of Business at the University of California, Berkeley, discusses how consumers respond to the two most common self-customization methods used by companies: by-attribute and by-alternative.

The study concludes that consumers find it easier to make choices by-attribute — personally selecting individual features of a product one at a time — than when the consumer is presented with a set of finished products among which to choose. As a result of having chosen each feature himself, the consumer will display higher satisfaction and willingness to purchase the product.

“Companies believe that customization makes people happier,” Dhar said, “but the method you use to customize is important in defining customer satisfaction.”

Possible hitches in the findings, though, do remain, as the authors admit in the paper’s final pages. In real world situations, consumers often prefer the status quo, opting for a default or pre-selected option over a self-chosen one. Alternatively, self-customization options may confound decisions by tacking on an overwhelming number of choices, a view asserted by Swarthmore psychologist Barry Schwartz.

EUREKA MOMENTS

Dhar defines himself as “an empirical philosopher,” whose research is inspired by personal observations. A typical eureka moment, he reminisced, hit one afternoon when he observed his secretary eating a chocolate bar at her desk. Dhar said he asked her why she appeared to be so overjoyed. Her explanation was simple: being on Weight Watchers, she had said, made the small indulgence particularly gratifying.

The epiphany spurred what would materialize into another of Dhar’s recent studies: a look at the role of guilt in purchasing decisions.

“No one has a monopoly over knowledge,” Dhar said, adding that observation and creative thinking cannot be taken for granted in marketing research.

The recent and unpublished work suggests a link between guilt and pleasure, explaining why people enjoy reading tabloid magazines, indulging themselves in chocolate bars and gambling in Las Vegas. Dhar’s research shows that priming guilt can induce pleasure.

“This poses an important question for advertising,” Dhar said. “Should you advertise a trip to Vegas as something that would make you feel guilty, or as something that is fun?”

Kelly Goldsmith SOM ’09, a graduate student working in Dhar’s laboratory and the co-author of the guilt study, emphasized the significance of their findings.

“We see a tendency for no-guilt marketing, such as no-guilt yogurt, no-guilt vacation, because of health and overspending concerns,” Goldsmith said. “But the downside is that this can be inhibiting the consumer’s ability to experience pleasure from consumption.”

The implications of Dhar’s work are not limited to marketing. (“As a researcher, I am very agnostic as who uses it,” Dhar said of his findings.) Though some people have expressed fears that marketing research toes the line of consumer deception, Dhar maintained that policy makers can benefit, too, which can help people save for retirement or eat healthy. Small dinner plates, for example, could be one way of inducing people to eat less.

LOOKING TO THE FUTURE

Founded by Dhar in 2005, the Yale Center of Customer Insights functions as a forum for scholars and managers to exchange ideas about consumer decisions. Research from the lab has been appropriated by both the SOM faculty and private companies, including PepsiCo, Proctor & Gamble, and Hewlett Packard.

The lab was the first to build a model to measure the individual “impressions” garnered by paid advertising on Internet search engines, for example. Another study, completed by Dhar and professor Nathan Novemsky in September, implied that mentioning terms such as “five-year warranty” on products such as the iPhone may dampen consumer interest as they anticipate a long-term commitment to a single device.

Eunice Kim SOM ’10, another graduate student in Dhar’s laboratory, described him as being very dedicated to his field and always engaged in new ideas and projects. And as neuroscience, a field that is less than 10 years old, and functional magnetic resonance imaging (fMRI) studies rise in popularity, the bonds between economics and psychology have earned more credibility, Dhar said. Kim mentioned that Dhar’s lab is likely to retry the guilt study using fMRI evidence once proper funding comes through.

“Economists often dismiss psychology studies because they are skeptical about the intentions and honesty of the research subjects,” Dhar said. “Neuroscience can help resolve such conflicts by showing what is really happening in the brain.”

Dhar said he has faith in what economics and psychology can accomplish together.

“When I came to the SOM 17 years ago, I was the only one in the senior faculty who knew what loss aversion was,” Dhar said, referring to a now-ubiquitous tenet of prospect theory. “Now consumer studies have become a strength of the School of Management, and I am excited to see what is going to happen next.”

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