Stanford University marketing professor Itamar Simonson has studied consumer behavior for years and, until recently, considered most consumers “irrational,†making “inconsistent or incoherent†decisions, which were often “unambiguously the inferior choice.â€
Now, Simonson — co-author of the new book Absolute Value: What Really Influences Customers in the Age of (Nearly) Perfect Information — has changed his mind and has advice for you as a result.
The reason for his turnaround: the Internet. Thanks to its myriad of websites with consumer and expert reviews, the Internet has enabled consumers to become much more informed decisionmakers when buying products.
But, Simonson says, although we now have more information to make better choices, “many consumers do not take advantage of that information.†Older consumers, in particular, are still not comfortable seeking reviews and expert opinions online, he says. And many of us remain susceptible as ever to influence by marketers.
Before you see my interview with Simonson below, let me give you two examples of why he used to call consumers “irrational.â€
In a University of Iowa study, people rated beef presented to them as “90% lean†as better tasting than beef containing “10% fat†even though it was the same beef. Another example, from a Simonson study published in 1992: When people were asked to choose between two Minolta cameras, one for $169 and one for $239, they selected the less expensive model. But when they were presented with a third camera costing $469, many opted for the now, middle-priced $239 model that they had once rejected. Simonson says there’s no rational reason why the once-scorned camera suddenly became a better choice.
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So, now on to my questions and Simonson’s answers:
Next Avenue: Why do you believe consumers are more rational today?
Simonson: Consumers are much better informed about the actual, absolute values of products. When I started my career in the 1980s and for the following 20 years, my research showed that consumers often behaved irrationally. That was demonstrated by what I called the “compromise effect†in the camera test [mentioned above].
Recently a doctoral student here at Stanford, Taly Reich, and I tried to replicate this effect, but we found something interesting: For participants who first saw what consumers usually see when they shop for a camera online — lots of options, reviews written by other consumers, feature-comparison charts — the compromise effect was gone. They were no longer biased in favor of the middle option. Once consumers are better informed about the absolute values of products, they are not dependent on things like brand name or a small set of options in front of them.
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And what has been the effect of the Internet?
Consumers are becoming less susceptible to marketers’ influence. They are better able to evaluate products for what they are, rather than just how the products are described or how they compare with other options they happen to see.
This means that, contrary to what we frequently hear, consumers will — on average — make better choices and act more rationally. But there’s a catch: All this will happen only if consumers take advantage of the new information that is available out there, things like reviews from other users and expert opinions.
Does this mean consumers are now less loyal to brands than before?
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