Consumption and

Satisfaction
(Post-purchase Phase)
Dr. Kelly Haws

Key Questions
How can we increase customer satisfaction?
And decrease regret?
What is the role of comparisons?
What is the endowment effect and how does
it impact our view of our possessions?
How can we increase consumption? And what
is the role of pricing in doing so?

Readings Slide #1
Hart, Christopher W. (2007), Beating the Market with
Customer Satisfaction, Harvard Business Review
Straightforward look at why customer satisfaction is
important

Paradox of Choice, Chapter 7, If Only: The Problem

of Regret, pp. 147-165.
Understanding and managing consumer regret

Predictably Irrational, Chapter 7, The High Price of

Ownership, pp. 127-138. (Book)
Endowment effect: Prospect theory at work once we are
owners of products

Readings Slide #2
Paradox of Choice, Chapter 9, Why Everything
Suffers from Comparison, pp. 181-200. (Book)
What do we compare our outcomes to in order to
understanding our own satisfaction
Hedonic Treadmill

Gourville, John, and Dilip Soman (2002), Pricing

and the Psychology of Consumption, Harvard
Business Review, September, pp. 91-96. (Library)
The importance of increasing consumption and how
pricing mechanisms can help

Consumption and Satisfaction

Consumption Behavior

When & Where?

How?
How Much?
Consumer Reactions to Consumption

Customer Satisfaction
Consequences of (Dis)Satisfaction
Influences on Satisfaction
Comparisons that we make

Our choices and our satisfaction are

driven by the comparisons we make
1. The endowment effect
Ownership creates satisfaction

2. Loss aversion
People are more motivated by avoiding a loss than
acquiring a similar gain
Kahneman and Tverskys Prospect Theory describes how people
evaluate gains and losses; it includes concepts such as status quo bias,
loss aversion, and the endowment effect

How to Increase Consumption

Convert Nonusers of product category to
Users
Make Users switch brands
Retain consumers (e.g., with loyalty
programs)
Have Current Users Consume More
Per usage occasion
Heavy, moderate, and light users
Wine: 16% Americans 88% consumption
Fast Food: 20% customers 60% visits

At different times
In different situations

How to Increase Consumption

Convert Nonusers To Users

Make users switch brands
Retain consumers
Have Current Users Consume More
Per usage occasion
Heavy, moderate, and light users
Wine: 16% Americans 88% consumption
Fast Food: 20% customers 60% visits

At different times
In different situations

How Is The Product Consumed?

Make sure consumers use it correctly
Uncover new benefits / uses for product

Customer Satisfaction
What Is Satisfaction?
Satisfaction = positive evaluation of decision, associated
with positive affect
Dissatisfaction = negative evaluation of decision,
associated with negative affect
Evaluation of product after consumption
1/3 of marketing research expenditures go to customer
satisfaction studies
Why?
One Reason: Satisfaction Customer Retention

Customer Retention Benefits

It costs 7 to 9 times more for a company to attract a new
customer than to retain one.
A sustained 5% improvement in a companys retention rate
can double profits in 5 years.
Reducing customer defections by as little as 2% per year is
equivalent to cutting costs by over 10%.
Referred customers have a 25% higher retention rate within
the first 3 years than customers who come from any other
source.
However, you need to retain the right (profitable)
customers!!!

Consequences of Customer
(Dis)Satisfaction
Satisfaction
Repeat purchase
intention
Increase positive
WOM
Positive emotional
connection to the
brand

Dissatisfaction
Voice Response
Complain to Firm
Product returns

Private Response
Complain to friends,
boycott firm

Third-Party Response
File official complaint,
take legal action

Hart, Christopher W. (2007), Beating

the Market with Customer Satisfaction,
Harvard Business Review, 85(3), 30-2.
Why is good customer service so important?

Paradox of Choice, Chapter 7, If

Only: The Problem of Regret
How might anticipated regret be even worse
than post-decision regret?*
What is counterfactual thinking and how does
it contribute to regret?*

Paradox of Choice, Chapter 7, If

Only: The Problem of Regret
Do you believe that regret is a consequence of many
decisions or that it is a cause of many decisions?
Explain.*
P. 164: he quotes Janet Landmans book: Regret may
threaten decisions with multiple attractive alternatives
more than decisions offering only one or a more
limited set of alternativesIronically, then, the greater
the number of appealing choices, the greater the
opportunity for regret.
Explain.
Do you agree or disagree?*

An experiment with two digital video

player versions
Before use, which had higher rating of How
satisfied would you be if you subscribed to
the digital player?
a) Few features (7)
b) Many features (21)
c) No difference

An Experiment with Digital Video Players

5.5
5
Low Features
High Features

4.5

4
3.5
3
Expected satisfaction
D. Thompson (U. Maryland), R. Hamilton (U. Maryland), R. Rust (U. Maryland), 2005, Feature fatigue: When
product capabilities become too much of a good thing. Journal of Marketing Research, 42, 432-442.

An experiment with two digital video

player versions
After use, which had higher rating of How
satisfied were you with the digital player
you used?
a) Few features (7)
b) Many features (21)
c) No difference

An Experiment with Digital Video Players

6
5.5

5
Low Features
High Features

4.5
4

3.5
3
Expected satisfaction

Actual satisfaction

D. Thompson (U. Maryland), R. Hamilton (U. Maryland), R. Rust (U. Maryland), 2005, Feature fatigue: When
product capabilities become too much of a good thing. Journal of Marketing Research, 42, 432-442.

Choice paradox and satisfaction

No choice
can be
bad.
Excessive
choice can
be bad.

Limited
choice
may be
best.

S
a
t
i
s
f
a
c
t
i
o
n

Choice availability

Although increased choice is perceived as

desirable, in some circumstances, the
provision of choice either inhibits decision
makers likelihood to make a choice or
detrimentally affects their experienced wellbeing after the choice is made.

S. Botti (Cornell) & S. Iyengar (Columbia), 2006, The dark side of choice: When choice impairs
social welfare. Journal of Public Policy and Marketing, 25(1), 24-38.

Reading 10.4: Predictably Irrational, Chapter 7,

The High Price of Ownership, pp. 127-138. (Book)

What is the endowment effect and why does

it exist? What is virtual ownership?***

Loss aversion and endowment effect

Once I own something, not having it
becomes more painful, because it is a
loss.
If I dont yet own it, then acquiring it
is less important, because it is a gain.

The endowment effect

People value a thing more once it becomes
theirs
Ownership increases utility
Term originated by Richard Thaler (U. of
Chicago)

Thaler, R. (University of Chicago), 1980, Toward a positive theory of consumer choice. Journal of
Economic Behavior and Organization, March, 39-60.

Endowment Effect and the

Reversibility of Decisions
What happens when our choices are
reversible vs. non-reversible?
As we discuss some examples, think about the
lessons for marketers

Students in a non-credit photography class at Harvard

picked two photos to develop then chose one to keep.
Group 1
pick your
favorite, you
wont be able to
change your
mind.

Group 2
If you change your
mind within four
days, you can swap
it. Ill call at the
end to doublecheck.

Gilbert, D. (Harvard) & Ebert, J. (MIT), 2002, Decisions and revisions: The affective forecasting of
changeable outcomes. Journal of Personality and Social Psychology, 82, 503-514

Students ranked 6 art posters. Next, allowed to take

home either 3rd or 4th ranked poster. 15 minutes later,
they rated their chosen poster again.

Group A: if any time

in the next month, you
can just let me know
and we will exchange it
for you.

Group B: Final choice, no

exchanges.

Gilbert, D. (Harvard) & Ebert, J. (MIT), 2002, Decisions and revisions: The affective forecasting of
changeable outcomes. Journal of Personality and Social Psychology, 82, 503-514

Gilbert, D. (Harvard) & Ebert, J. (MIT), 2002, Decisions and revisions: The affective forecasting of
changeable outcomes. Journal of Personality and Social Psychology, 82, 503-514

The High Price of Ownership

What are the three quirks Ariely suggests keep
us from making rational decisions about
ownership?***
What is the Ikea effect? Think of some of
your own examples that illustrate this
principle.***

Paradox of Choice, Chapter 9, Why Everything

Suffers from Comparison, pp. 181-200. (Book)

According to the author, Comparisons are the

only meaningful benchmark. What
implications does this have on marketing
actions? What are the key comparisons that
consumers make when they evaluate an
experience?***

Paradox of Choice,
Why Everything Suffers from Comparison

According to the author, Comparisons are the

only meaningful benchmark. What
implications does this have on marketing
actions? What are the key comparisons that
consumers make when they evaluate an
experience?***

Paradox of Choice,
Why Everything Suffers from Comparison

What is the curse of discernment and how

does it impact our interactions with
products?***

Hedonic adaptation
Changes in income or
experiences temporarily affect
happiness, but as people
become accustomed to the new
situation, the impact diminishes

Hedonic adaptation in wealth

Happiness level of lottery winners interviewed
a few months after winning was not
significantly different from non-winners

Brickman, P., Coates, D., & Janoff-Bulman, R. (1978). Lottery winners and accident victims: Is
happiness relative? Journal of Personality and Social Psychology, 36(8), 917927.

Greater past consumption leads to higher norms

causing satisfaction to return to previous levels.

The
hedonic
treadmill

Adaptation and relative standing may

prevent overall increases in income from
creating overall increases in satisfaction
Your Previous
Income
Your Happiness
at Income X

Your Comparison
Group Income

Economic research show*s+ that

happiness is indeed negatively related to
others incomes and to own past income.
A. Clark (Paris School of Economics), P. Frijters (Queensland U.), & M. Shields (U. of Melbourne),
2008, Relative income, happiness, and utility: An explanation for the Easterlin paradox and other
puzzles. Journal of Economic Literature, 46, 95144

Hedonic Adaptation and Prospect Theory

Sensitivity to the perception of gains or
losses, rather than the absolute level of
outcomes, reflects the importance of
ones current state in valuing outcomes.

Paradox of Choice,
Why Everything Suffers from Comparison

How can marketers successfully function in an

environment where expectations are so
high?***

Paradox of Choice,
Why Everything Suffers from Comparison

What are upward and downward social

comparisons and how do they work? ***
How are these tapped into by marketers?***

Paradox of Choice,
Why Everything Suffers from Comparison

What is the link between social comparison

and status?
Whats your POND?
Agree or disagree: The way to be happythe way to
succeed in the quest for statusis to find the right
pond and stay in it.

Standard economics
More money means
greater consumption
and therefore greater
utility and satisfaction

Relative standing
My level of satisfaction
depends upon my
relative consumption v.
those in my comparison
group

Some goods are more positional

Goods where relative
level is key
Cars
Houses
Fashion
Professional attire
Income

Goods where absolute

level is key
Health
Safety
Relationships
Vacation time

S. J. Solnick (U. Vermont) & D. Hemenway (Harvard), 2005. Are positional concerns stronger in
some domains than in others? American Economic Review, 95, 147-151

Conspicuous Consumption
Thorstein Veblen
Theory of the Leisure
Class (1899)
Conspicuous
Consumption when
people prefer a good
because it is more
expensive. The display
of the item projects
relative standing.

WAE: Paradox of Choice,

Why Everything Suffers from Comparison

Find two examples of ads that use social

comparison. How is it being used in each? Is it
upward or downward? Do you think this is
effective? Why or why not?

Pricing and the Psychology of

Consumption, Harvard Business Review
Why is consumption important to marketers
and to pricing strategies specifically?***
(Reiterates our previous discussion about
increasing consumption)

Why is the timing of payments important?***

How do you think the often automatic
nature of todays payment systems impact the
issues raised in this article?***

Revisit Key Questions

How can we increase customer satisfaction? And decrease
regret?
Focus on consumer, clearly
Manage expectations
Increase consumption

What is the role of comparisons?

Benchmarks for gauging our satisfaction

What is the endowment effect and how does it impact our

view of our possessions?
Ownership itself is key

How can we increase consumption? And what is the role of

pricing in doing so?
Various methods, including pricing mechanisms

We must care about the

consumer AFTER the sale!!!