Non monetary costs and consumers’ willingness to buy and to pay in
online purchase environment: an experiential approach
MSc Business Administration: Marketing
Anastasia RUTA 11669659
January 26th - Final version Supervisor: Frederik Situmeang
Statement of Originality
This documenti is written by Anastasia Ruta who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Abstract………4
Introduction ……….5
Willingness to buy and willingness to pay………10
Satisfaction, WTB & WTP………16
The experience economy: the importance of experience goods………19
The music industry……….25
Research gaps & Question(s)……….27
Conceptual Model………..28 Methodology………..29
-
Design………29-
Pre test………29-
Sample………31-
Hypotesis………33-
Variables and Measures………..33Results………36
Benefits and limitations of the design………39
Discussion………..41
Implications & Future research………..43
References………..45
ABSTRACT
Despite several researches about willingness to buy exist, willingness to pay’s definition and
antecedents are not yet fully understood; what willingness to pay represents and what are its most important determinants? Are they only monetary related factors or there’s more concerning
consumers’ willingness to pay formation? The study seeks to investigate whether non monetary
factors are involved somehow in the determination of consumers willingness to pay, impacting on
their satisfaction for the purchase experience; furthermore, willingness to pay is here analysed for a particular category of products, namely experience goods; determination of satisfaction, willingness
to buy and pay, consumers’ decision making process and evaluations are for this category of
products profoundly different than for search goods.
A strong relationship between willingness to pay have been found to be affirmed in previous literature, while this study expands the discussion, adding a new component to the potential
determinants of consumers’ satisfaction and willingness to pay: non monetary costs are identified
here as equally involved in consumers evaluations during the purchase decision making process and
in their internal formation of purchase intentions (WTB) and willingness to pay. Consistent results suggest that psychological costs (non monetary) are perceived as lower when purchasing an
experience good online if a high degree of relational interaction is present, as long as a bundle
option. Non monetary costs are believed to be important in the determination of customers’
satisfaction, which can be seen as composed by economic and social satisfaction. Non monetary factors affect both in different degree, eventually influencing purchase intentions and willingness to
Introduction
Studies on willingness to pay date back to almost 40 years ago. Many efforts have been put on
investigating the nature and functioning of willingness to pay; however a comprehensive and up to date definition is still unclear, just like its determinants. Previous studies have focused on finding
the correct methods to measure it, as different designs and experimental settings may affect the
measurement, through incentives that would misrepresent participants’ actual willingness to pay.
Furthermore, measuring actual behavioural responses rather than pure attitudinal ones appears to be difficult to perform. Some researches have paid more attention in determining a definition of
willingness to pay, to primarily serve pricing purposes of the marketing mix; pricing is, in fact,
widely considered to be the only revenue-making factors, while others concern more costs. This
may be the reason why the whole attention is on defining willingness to pay based on monetary factors; willingness to pay is defined as the sum of two monetary concept: maximum price and
reservation price, which are the internal determinants of purchase intentions and behaviours
(Christoph Breidert,2006). Willingness to pay is also considered as the reference price relative to a
reference product weighted with the differentiation value between reference and considered product. (Nagle and Holden, 2002.) It is however true that consumers’ struggle to convert their
perceived value from experiencing a good in monetary values(A.M. Ryan, C.L. Splash, 2011),
which suggests that different variables and evaluations, not only monetary ones, affect actual
behavioural responses in terms of willingness to pay of consumers relatively to offered goods. From an overview of the previous literature what emerges is that WTP has always been analysed for one
specific category of products, namely the search goods. Better methods to investigate consumers’
acquisition and processing of experience goods and their emotional responses is needed (Hirschman, M.B. Holbrook 1982), while considering the difference purchase situations, especially
online ones, raising over time; most of the previous researches lack on these considerations. The
experience economy, and the raising importance of experiences, which cannot be categorised as
product or services only, but have more complex considerations to be highlighted. Modern literature
has put huge efforts in analysing and exposing theories that could explain differences in search and experience goods; different motives and perceived values drive consumers in experience these kind
of products, for which summarising everything in monetary terms is too much reductive. A better
understanding of consumers’ purchase behaviour drivers, including what determines their
willingness to pay formation and value for different categories of products may be extremely important for different purposes such as pricing, but also product development. Proceeding in the
study, what appears to be still missed are some dissertations about how consumers’ willingness to
pay is formed for different categories of products; previous literature only focuses on a specific
category of goods, namely search goods. In the last decades a new category of goods has steadily affirmed its relevance, transforming decision making process and consumption methods, thus,
logics and strategies for companies; the raising importance of an experience economy has brought
to the attention of everyone experience goods, extremely complex products/services for which
objectivity in evaluations is never guaranteed; the product can not be reasonably evaluated prior to the experience itself, which implies different values, motives, extrinsic and intrinsic benefits and
costs perceived in the determination of consumers’ preferences and, logically, WTP. A definition of
the two categories of products is further discussed, presenting the substantial differences relevant
for companies in establishing consumers’ willingness to pay for their offerings. These products have been for long considered to belong to a single industry, the creative one; creative and artistic
products consumption and the decision making process related to this behaviour have brought a
deeper understanding of how different motives, rather than purely monetary or utilitarian ones, drive consumers’ attitudinal and behavioural responses to companies offerings. Industries such as
the music, the movie, the performing art ones and many more increased their centrality in
they want it. This may be the the reason why other industries are picking up practices and methods
from these industries, mainly to be more flexible and agile to meet consumers’ dynamic and
complex needs and motivations. It is clear how the “experience” side can be considered a core factor in determining actual purchase behaviours and evaluations on how we are willing to pay for
any offering coming from companies; for experience goods a trade off between monetary costs and
benefits is no longer enough to correctly represents consumers preferences and evaluations. One of
the best example to investigate on these dynamics is given from the music industry; the decline of recorded music sales, also due to the development of digital platform or music consumption and
download (legal and illegal ones) is combined with a strong increase of live performances
preferences by consumers, making these central in creating revenues for companies. But decide
whether to experience a live music event or not cannot be considered as the mere decision to buy or not the tickets based on a monetary cost- benefit evaluation; many variables are involved in the
formation of consumers’ perceived satisfaction prior and post experience. An interesting point of
view is given by Balderjah, who points out a first idea of relationship between WTP and the
purchase situation: the economic value perceived by consumers’ appears to be strongly affected by the circumstances under which is delivered. Although an interesting starting point for a further
analysis, the focus still remains on monetary definitions of WTP. Online purchase situations have
become the normality: most of people in developed countries make online purchases every day,
pushed by several motivations and reasons. Although this, academic research on what are the antecedents of online shopping has been fragmented. Reviews show that attitudes toward online
shopping and intention to shop online are not only affected by ease of use, usefulness, and
enjoyment, but also by exogenous factors like consumer traits, situational factors, product characteristics, previous online shopping experiences, and trust in online shopping (What drives
consumers’ to shop online? A literature review, T. Perea y Monsuwé, B.G.C. Dellaert, K. De Ruyter,
behaviours, broadening the concept adding that the degree of impact of these factors may vary
across different countries and product categories and affirming the website must be tailored
accordingly (The Global Internet Shopper: Evidence from Shopping Tasks in Twelve Countries P.D. Lynch, R.J. Kent, S.S. Srinivasan 2001).
Summing up, it can be argued that a clear definition of WTP and its determinants declined for
different categories of products and purchase situations is missed; it appears to be of core
importance for companies to effectively assess consumers’ behavioural responses to their offers and to tailor a great combination of the marketing mix, including not only pricing but also product
development and promotion, based on consumers’ WTP evaluation that seem to be affected by
additional variables, rather than pure monetary ones. Although WTP has been found to have a
significant correlation with consumers’ perceived satisfaction, this is not enough to explain WTP responses for experience goods, for which evaluations of satisfaction are only possible to make after
the actual “consumption” of the good.
In the first chapter, an overview of the previous academic literature on WTB and WTP is presented;
the difference between willingness to buy and willingness to pay is briefly explained and the major opinions on the relationship between WTP and satisfaction are exposed.
The second and third chapters deal with a deep explanation of the importance and functioning of
experience goods, core concepts to understand for companies to sustain their competitive advantage
in today experience economy. The relationship between experience goods and relative satisfaction is explained, highlighting the importance of intrinsic motivations and values, just as material and
immaterial costs involved.
The fourth part refers to the music industry and how this is a very good example of experience good to be taken into account while investigating on WTP; the decision to take the music industry as an
example for all the other industries dealing with experience goods is mainly due to its importance in
in its portfolio, that can be categorised differently; live music event, that best represents the
category of experience goods, it’s growing fast, while connected search products’ sales are
declining, suggesting that consumers’ are looking for something more than a good trade off between monetary costs and benefits.
The fifth chapter focuses on highlighting the literature gaps detected for the concepts mentioned
above and on the presentation of the central research question and the relative conceptual model.
The methodology used to conduct the research is presented and explained in depth following; a pre test and an experiment have been used for this study’s data collection. Hypotesis are presented and
statistical procedures used to test them are exposed and thoroughly explained.
The seventh chapter contains the results obtained from the statistical analysis of the data:
additionally benefits and limitations of the research design are listed for a potential future improvement.
The discussion of the results of both pre test and experiment are contained in the last part of the
paper, as well ass theoretical and managerial implications discussions, limitations and ideas for
Willingness to buy and willingness to pay
Consumers’ responses, attitudes and preference, intentions and actual behaviour can be deeply
studied and understood by companies to implement strategies able to sustain their competitive advantage. Consumers ‘ willingness to pay is considered one of the most important concept for
companies to deeply understand to adjust their offerings to what expected by the market; although
considerable research efforts, previous literature on willingness to pay appears to be a bit weak,
lacking in providing with relevant and clear information about its definition and determinants.
Willingness to pay and its methods were initially approached to be designed for pure public goods
or services(Davenport, 1902). A correct estimation of consumers’ willingness to pay appears to be
important also today for an improvement in the quality of information about companies customers
for specific products/services provided; moreover, if individual willingness to pay can be estimated, a proper evaluation of the variance of these preferences among individuals in different social groups
can be performed, leading to better and more responsive individual and group strategies (P. Bohm,
1979). Willingness to pay must not be confused with a total different concept, namely willingness to
buy: this last is defined as the consumer behavioural intention to purchase a specific product or service offered. There are increasing evidence supporting the idea that WTB is actually influenced
by three main factors: product quality, price sensitivity and promotion, while brand name’s role is
still unclear (N. Jahangir, N. Parvez, D. Bhattacharjee, 2009). It is an imperative for firms to
effectively understand these variables to plan and implement marketing strategies able to maximise their profit via increasing their consumers’ WTB; moreover, a sound strategy in these terms would
ensure sustainability to their core competitive advantage (Hampton, 1993).
It is a common belief that the best way to effectively make use of a good estimation of consumers’ WTP is through adjusting pricing strategies accordingly; pricing, in fact, is consider to be among
the components of the marketing mix the only activity able to create revenues, while other
(Monroe and Cox, 2001). Pricing contributes to sales volumes, margins and product positioning and
is therefore of core importance to assess consumers’ perception of it. To indicate the number of
individual who are willing to pay a given price for a given product price elasticity and the demand curve have traditionally been used (Lambin, 1998; Dietsch, Bayle-Tourtoulou and Krémer, 2000)
Investigating WTP is interesting because it allows to the determine the quantity purchased at a
specific sale price, by cumulating the buyers who accept to pay that price, and being eventually able
to maximise profits and turnover, thus marketshare (M. Le Gall-Ely, 2009). To have a complete overview on willingness to pay, the modern concept of willingness to participate must be discussed;
social media global raising is the main responsible of the decline of push-based marketing activities
performed by companies. Users are looking for higher level of relational interactions with other
users, instead of cold and impersonal standardised conversation with corporate representatives. These consuemers/users look for greater engagement and involvement with their favourite brands
and companies (Parent, Plangger & Bal, 2011).
Recent studies have sustained a pure monetary definition of willingness to pay, based on consumers’
costs vs benefits trade off; WTP appears to be related to two distinct but still so close concepts , namely maximum price and reservation price. Consumers’ purchase intentions and actual
behaviours trends depend on which of the two concepts they apply internally in their decision
making process (Christoph Breidert,2006 ). A product’s maximum price (pmax) is the perceived
reference price of an anchor product plus the differentiation value between this product and the product offered alternatively; this latter value can also be intended as exchange or economic value,
determined by the two alternatives available for the consumer (Nagle and Holden, 2002). The
evaluation of the two alternatives appear to be mainly monetary ones. Reservation price is often defined by economists as consumers’ maximum inclination to pay for a given product or service;
this, in contrast to the maximum price, does not depend on a reference product and is considered as
of the given good. The two concepts presented above seem to be central in the determination of
what price consumers’ are eager to pay for a given good; the distinction of the two concepts is
however weakly explained, which is why they are commonly replaced with the general term of willingness to pay (Dowdeswell, 1995). Upon examination of existing literature, it does not appear
to be any dissertation or discussion about the differentiation between reservation and maximum
price and, in general, how this mechanisms are incorporated in consumers WTP estimation and
evaluation (Christoph Breidert. 2006). What appears to be a common direction is that WTP represents the result of monetary evaluations made by consumers’ while deciding whether to buy or
not a given good, and is considered as the maximum price consumers’ would pay. In other words
willingness to pay may also be defined as the maximum monetary sacrifice consumers accept to
make for the benefits received or that they will receive (M. Le Gall-Ely, 2009).
However, consumers’ WTP responses may also be affected by several other factors such as income,
economic purchase motives, perceived control, norms and different ethical motives. Furthermore,
previous research findings are consistent in demonstrating the difficulty of consumers in converting
their intrinsic values into monetary ones (Ryan & Splash, 2011). The presence of various motives increases the need to seriously consider plural values and determinants, not only monetary ones in
the evaluation of consumers’ WTP. Mark Sagoff’s paper seeks to establish a general definition of
what WTP truly measures: the paper concludes that the proposition “WTP measures economic
value” creates a logical equivalence but does not imply or support a testable fact. Economic value and its synonyms are logically equivalent to preference, satisfaction, value, thus it is not considered
possible to base WTP on anything but itself. What are relevant drivers for WTP and how these
interact with each other and the environment is till an open question.
Other studies have affirmed that WTP can be increased only if brand managers and stores are able
to manipulate some specific variables, in the specific product features, price policy and the purchase
marketing mix; the quantity (real or perceived) and the desirability of product served actively
affects WTP (Sevdalis and Harvey, 2006); it appears logic how a product which can be personalised
and customised attracts higher consumers’ willingness to pay levels (Merle, 2007), just like bundles and service packages (Goldberg, Green and Wind, 1984; Stremersch and Tellis, 2002; Jedidi, Jagpal
and Manchada, 2003). The price policy mainly relates to means of payment and type of pricing;
what’s more interesting is that previous studies show increasing levels of WTP to disconnect
consumption from payment, to be less unsure about price fluctuations; a good example is given by the choice of all included packages for services like TV and internet. (Nunes, 2000). The influence
of environmental factor on consumers’ WTP is clearly important, but very few studies have dealt
with it; they mainly focus on promotions, on the presence of extremely expensive priced items and
online auction. How different purchase situations, online and offline to start, have different impact on consumers’ purchase intention and WTP is still not clear. (M. Le Gall-Ely, 2009).
It is also true that a product/service’s economic value strongly depends on the circumstances under
which it is delivered (Balderjahn, 2003, p. 389); for instance, customer satisfaction and loyalty may
differ in online and offline situations and can be caused by different variables. (Shankar et al. 2003). The purchase situation, in fact, seems to be affecting consumers’ purchase behaviour, especially in
the modern era, where e-commerce platforms are pushing themselves on top of consumers’
shopping channels. The importance of an online consumers behaviour framework resides in
understanding what better drives consumers’ during their decision-making process while shopping online to adjust offerings accordingly. Online shopping is growing very fast and has been adopted
by a rapidly increasing numbers of consumers; consumer online behaviour is likely influenced by
three main variables, namely attitude towards online shopping (Kim & Park, 2005; Shim et al, 2001), motivations such as price, monetary convenience and hedonic motivations (Fenech &
O’Cass, 2001; Bhatnagar et al. 2000) and online information search (Rowley, 2000; Wright &
(Rowley, 2000). Getting access to most of the information about prices is considered to be an
important factor influencing consumers’ online shopping behaviour; customers appear to be
empowered as they search online for the best prices or offers.(Wright and Jayawardhena, 2001). Major determinant of e-shopping appears to be the combination of price information and time
savings (Watchravesringkan and Shim, 2003). Bakos (1997) noted that more extensive and higher
quality information available online also leads to higher levels of consumer satisfaction.
Previous research appears to have a second focus regarding WTP, set up with researches concerning the possibility to implement a research design to correctly estimate true consumers’ WTP,
overcoming factors such as hypothetical bias and so on. The hypothetical bias appears to be the
more relevant because it is truly difficult to analyse actual behaviours of people in non
experimental settings - people not aware they are tested; thus, an hypothetical approach is often used in WTP estimation studies. A correct measurement of consumers’ WTP is only possible if
economic incentives are avoided, because they potentially create understated/overstated responses
(P. Bohm, 1979). Methods to make inferences on WTP have been categorised by Breidert into three
main relevant classes: analysis of market data, representing a real purchase behaviour (reliable - external validity) but that have the limitation to not be useful for many marketing purposes (new
product release - no data in the market). The second method is the experiment, based on actual
purchase behaviour, but time consuming and costly to implement; moreover a non-experimental
setting (in which people are not aware to being tested, deleting hypothetical bias for good) is extremely difficult to undertake. Surveys, the third class, are considered cheaper and easier to
implement, but lack in representing actual purchase behaviour and only allows for attitudinal
observations, the most influenced by biases.
What emerges from an overall analysis of the previous literature about WTP is that these studies fail
to distinguish this concept and how it works for different categories of products, as they most refer
framework relating to the 2 different type of products - search goods VS experience goods - and
how they relate with WTP is still missed. It appears, however, imperative to distinguish between the
two categories mentioned above because they carry on completely different consumers’ decision-making and consumption processes, motives and values. In 1982 already Hirschman & Holbrook
identify the need for better methods to measure consumers’ acquisition and processing of multi
sensory products, a better understanding of the emotional responses and arousal during the
consumption. (Hedonic consumption: emerging concepts, methods and propositions. E.C. Hirschman, M.B. Holbrook 1982). They lack, however, in considering the purchase process, as
many of the later researchers. One of the most intuitive difference between search goods and
experience goods relates a search product can be somehow evaluate by the consumers prior to the
purchase (in terms of physical characteristics and functions) while an experience can only be evaluated post consumption. This leads to consequences such as the subjectivity of the parameters
used to evaluate an experience good, the reputation of the actors involved - drawing a link with the
importance of the brand name presented previously (N. Jahangir, N. Parvez, D. Bhattacharjee,
2009) - , and last but not least, the need for consumers to have time available to dedicate to the experience consumption. Moreover, experience goods consumption it’s driven by different motives
rather than search goods consumption, which raises the doubt that WTP may be determined by
something else than maximum price consumers accept to pay (in monetary terms) for the benefits
perceived as gained from a product/service; non utilitarian consumption and aesthetic are only two of the important drivers for experience goods consumption, highlighting the importance of an
effective estimation of WTP for this category. Experience goods industry, in particular creative
industries, are becoming more and more relevant in today’s marketplace, also due to the need for consumers to engage in more personal relationship with product they buy, preferring experience
performances lately became central in creating revenues for the music industry, while recorded
music is decreasing. (IFPI Global Music Report 2016.)
Satisfaction, WTB & WTP
Satisfaction is considered the result of post consumption or post usage evaluations and considerations, carrying cognitive and emotional components. (Oliver, 1997; Plichon, 1998; Vanhamme, 2002). Satisfaction has for long been recognised to be a primary managerial criterion for success (Bultena and Klessig 1969; La Page, 1963). Higher quality of performance and levels of satisfaction appear to result in higher loyalty and future purchase, greater tolerance of price increases and an enhanced perceived reputation. (Baker & Crompton, 2000)
Following the paradigm expectations-disconfirmation, consumers formulate judgements by comparing previous expectations the perceived performance of the product or service used. (M. Le Gall-Ely, 2009). It has been demonstrated that satisfaction have a strong and positive impact on consumers’ willingness to pay for products or services offered. The positive relationship between the two constructs seems to be dynamic; researches have shown that the longer consumers have demonstrated satisfaction for a given brand or product, the more they will be willing to pay. An example is given from airlines that improved their abilities in identifying their best satisfied customers to charge them accordingly. It appears clear that the higher willingness to pay may be due to exclusive treatment and personalised communications and services. In order to charge extremely satisfied customers, investments are needed to meet a sustainable high level of satisfaction, which is only possible by implementing a differentiation strategy; it is however true that this is an increasingly difficult task to perform; a good idea is, anyway, to effectively combine branding with a unique product or bundle. (K. Shermach, 2015). Other variables exert their influence on this relationship, especially risk aversion, involvement and age; these letters seem to have a positive effect on the relation between satisfaction and WTP, while variety seeking and level of education have a negative effect; there are, instead, variables that have no significant effect on such
relationship, namely perceived fairness, awareness of price, social desirability, gender and income. An research hypothesis is that perceived performance quality may have a stronger total effect on behavioural intentions than satisfaction (M. Le Gall-Ely, 2009).
A logical question raises from the discussion: is satisfaction purely derived from utilitarian comparisons of expected costs and benefits VS actual costs and benefits, expressed in monetary terms?
The reasoning leading to the hypothesis of the study move from the assumption that the act of purchase is a mix of planned and irrational decisions, driven by various extrinsic and intrinsic purposes. Monetary evaluations may the basis of costs-benefits trade offs, one of the most important step of the purchase decision making process; however, non monetary evaluations are believed to be equally present during this process. An example may simplify this affirmation; in different purchase situations, consumers find themselves in a position of information asymmetry, unable to make effective evaluation of products prior to the consumption or usage. Monetary evaluations are possible, instead, just by comparing the need of consumers for that specific good and the price by which is offered. It can be argued that consumers may still experience some sort of cognitive dissonance related to imperfection of the information they possess; at this point, techniques to get rid of the dissonance will internally apply and their behavioural intention to purchase and willingness to pay may be distorted. It is my belief that this can be reconnected to the satisfaction and performance quality concepts; it is demonstrated that higher performance quality leads to higher satisfaction leads both to higher WTB and WTP, but when performance quality is impossible to test or to effectively evaluate, satisfaction becomes the only relevant variable involved in the process. Satisfaction has been described broadly in previous literature, and can be decomposed in economic satisfaction, social satisfaction, transaction-specific satisfaction and overall satisfaction. (Huang & Davison, 2011). The most important concepts here appears to be the social satisfaction and economic satisfaction: economic satisfaction is considered as the evaluation of the economic outputs coming from the relationship with a partner (Geyskens and Steenkamp 2000, p13). Social
satisfaction is, instead defined as the evaluation of psychological factors of a relationship, in which "interactions with the exchange partner are fulfilling, gratifying and facile” (Geyskens and Steenkamp 2000). What the study times at demonstrating is that intrinsic satisfaction does actively contribute to the internal formation of consumers’ willingness to buy and their willingness to pay for the product or the service offered; what may be added here to previous literature is the link to a different category of costs rather than pure monetary ones, that are considered to be involved in consumers’ perceived social and economic satisfaction. This would be significant for the analysis of a second thought, namely the fact that higher level of both social and economic satisfactions lead to higher positive purchase intentions (WTB) and higher WTP.
Non monetary costs are here assimilated to all those costs than cannot be paid through money; to clarify, time required to complete a purchase, either online or offline, is believed to be a factor affecting consumers’ satisfaction with the purchase and eventually with the product itself. Same process may be described for psychological efforts needed to successfully complete a purchase, either online or offline. The availability of relevant and comprehensive information about the product object of the decision during the purchase may be a critical factor in the decision making; the situation of information asymmetry described above and the psychological discomfort experienced with cognitive dissonance, may negatively affect consumers’ WTP. These costs are assumed to be relevant in the formation of consumers’ judgement, influencing the whole decision making. It has to be highlighted how, in a culture of higher and higher lifestyle quality standards, the purchase situation requires to have some characteristics to make sure consumers feel pleasure and comfort, lowering the amount of psychological efforts, discomfort and dissonance they may experience. This may be the key for a superior competitive advantage based on monetary benefits, enhanced by non monetary ones, thanks to a better purchase experience.
To sum up, previous literature has shown how consumers satisfaction and WTP are strictly connected and how higher level of satisfaction ion may lead to higher consumers’ WTP responses; satisfaction is also recognised to be created by several sub components, among which economic and
social satisfaction are considered relevant for the purpose of the study. The study supports the idea that both economic and social satisfaction may be affected by non monetary costs, related to relational interaction among consumers, psychological efforts involved in the purchase process, information availability. An effective manipulation of such non monetary variables may be the key to succeed in enhancing both economic and social satisfaction, eventually enhancing WTP even more of how it would if only monetary costs would be considered.
The experience economy: the importance of experience goods
The continuous evolution of the economies around the world gives a clear idea of how consumers’ lifestyles first of all and, consequently their needs and desires, and purchase attitudes and behaviours, are constantly in movement, increasing the need for companies to better be dynamically up-to-date and flexible to meet these diversities over time. This evolution is what has brought to today, where the service economy have given space to a new concept, the experience economy. Experiences have often been simply considered as the same as services, while should be considered as a distinct economic offering, given the steeply increasing importance and request consumers are making of experiences. The transition from commodity economies to experience ones is shown in Figure 1 above.
Figure 1: The progression of Economic value, HBR 1998. Pine & Gilmore
“An experience is not an amorphous construct; it is as real an offering as any service, good, or commodity.” (Pine & Gilmore, 1998). Economic distinctions are becoming more and more weak when it comes to distinguish between experience and other offerings, suggesting that it’s becoming
increasingly important for companies to make their consumers’ engaging in pleasurable and
enjoyable experience, even behind the usual entertainment and arts industries where is expected to
be important. Companies achieve a relevant goal in creating an experience for their customers whenever they create a personal and memorable engagement with them.
The excellent design of an experience, as well as the marketing implemented and the delivery of the
experience itself are crucial to achieve superior level of customers’ satisfaction; experiences
distinct qualities have to be carefully taken into account while doing these tasks. One dimension to be considered about experiences is customer participation, which can be seen as a continuum from a
state of passive participation, where consumers’ don’t affect the performance at all; on the other
hand there will be the state of active participation, where consumers have a key role. The second
important dimension that has to be mentioned is the deep connection, also intended as environmental relationship, between consumers and the experience itself. Experiences can this way
be categorised into four different kind; these categories as shown in Figure 2:
In general, findings are consistent with the belief that the best experiences embrace aspects of all four realms, forming a sweet spot around the area where they meet (Pine & Gilmore, 1998).
All the facts mentioned above make clear how a deep understanding of how experience goods work and to what extent they are different from other categories of goods is strongly needed.
To effectively and comprehensively explain the nature of experience goods taking an example might be helpful, the complexity of the concept is not indifferent; the creative industries may serve as the best example. Creative industries can be considered as a good representative of the purpose of the study also because of their raising economic relevance in the global economy; international commercial trades represent the 11,38% of the medium per year in the period 2002-2010 (UNICTAD 2010).
The highly experimental creative value of creative offerings delineate special characteristics belonging to these groups of goods on both sides supply and demand (companies and consumers): for what concern supply, this value serves as core information for production and distribution process, giving specificity to competitive dynamics. Other than price (we are not considering monetary factor for the purpose of the study) experience goods are characterised by the fact that consumers don’t form their preferences based on objectively measurable parameters; these preferences are based, instead on subjective and intrinsic factors, making them highly heterogeneous. Preferences strongly depend on a mix of past experiences, sensations and personal inclinations, like taste.
A common distinction in academic literature is the one between experience goods and search goods: a search good is defined as a good for which consumers are able to make quality evaluations prior to the consumption, simply based on information available. This is possible because these goods’ qualities are objectively measurable. Experience goods’ attribute are, however, much different: these cannot be associated with any objective quality cue prior to the direct experience of the same.
Experience goods’ consumption, differently than pure search goods’ one, is primarily based on the hedonic, experiential and symbolic content belonging to it: hedonic consumption is not undertaken to achieve a functional goal, but produces intrinsic pleasure and satisfaction. The experiential nature of these goods resiles in the fact that the value for the consumer is not a given product or service, but the whole consumption experience.
An important concept contributing in explaining the relevancy of experience goods is the aesthetization of the normal daily life (Featherstone, 1991). Furthermore, the digital revolution has profoundly impacted on experience goods, just like all other categories of products.
Four areas of benefits are recognised to be related to experience goods consumption based on the concretisation of two dimensions, namely how the value is created by the experience good itself or by the objective of undertaken the experience, and on who is affected by the effects of the consumption of experience goods, can be individual or group. On the other hand, sacrifices perceived involved in the consumption of experience goods are considered: these sacrifices don’t only refers to monetary costs, but primarily refers to the sum of all efforts needed by the consumer. Sacrifices can also be considered, for the purpose of the study, based on the experience phase they relate to. (Figure 3)
Important for the purpose of the study is mostly the purchase experience, which is often weakly or not considered at all in evaluation of experience goods and consumers behavioural responses.
Resources employed by consumers in this phase, especially when online, are, next to monetary ones, temporal, cognitive and emotional ones, in concrete time and amount of psychological efforts to successfully complete the purchase. (G. Troilo, 2015). Satisfaction for an experience good can only be evaluated post consumption, while satisfaction for the purchase experience is readily available in the first phases. By lowering the costs of gathering and sharing information and offering new ways to learn about products before purchase it may result easier to create higher satisfaction for the purchase experience perceived by consumers; this would, eventually affect the total satisfaction from the experience good.
The present research assumes that in the specific case of experience goods, different motives, primarily intrinsic, hedonic, experimental and symbolic ones, are involved, which cannot simply be converted in monetary terms. It is clear how effective evaluations, determination of satisfaction, purchase intentions and willingness to pay can only be made after the actual consumption of the experience good happens. But it also seems correct to say that the whole satisfaction derived from the experience good, and the relative willingness to pay, may also be affected by the satisfaction perceived from the purchase experience, which might be considerably higher if the amount of psychological cost (non monetary) is kept to the lowest. For an online purchase situation in the specific, experience goods relate to greater depth (time per page) and lower breadth (total number of pages) of search than search goods; the presence of reviews from other consumers and enabling consumers to interact with products and other consumers before purchase has a greater effect on
consumer search and purchase behaviour for experience than for search goods. Search goods are easy to predict in terms of value and quality, becoming easier to sell through online channels; but
experience goods’ importance, also on the internet (see all the major sales of live music concert or
performing art tickets, as well as travelling tickets are today sold through the internet) (Koutris & Nikolaos, 2009). It is the present belief that willingness to pay for search good and experience
goods may be determined by several different factors; whereas for search goods costs-benefits evaluations happen on the basis of monetary factors and objective quality cues (information about product performances and utility are readily available prior to purchase and the consumption), experience goods carry on different evaluations, partly regarding monetary terms (income and price sensitivity must not be forgotten), but the utility of the experience is substantially different. The challenge here appears clear: overcoming psychological barriers perceived by consumers during the pre purchase prediction and the purchase experience to decrease their perceived risk and uncertainty, while reinforcing trust and satisfaction simplifying the decision making process (Koutris & Nikolaos, 2009).
To conclude, consumers’ willingness to pay for an experience goods purchased in on online
shopping environment is here believed to be strongly influenced by the satisfaction perceived from such purchase experience, being the satisfaction for the experience good itself inextricably
connected with the consumption, thus impossible to evaluate prior to that. The amount of
psychological efforts required to successfully complete the purchase of an experience good may be
significant in determining consumers’ economic and social satisfaction prior to the consumption; this may also be affecting the total satisfaction perceived after the experience is undertaken, in a
The Music Industry
The choice to use the music industry as a representative of other experience goods’ industries is due
to both personal positive attitude toward it and higher knowledge in respect of others, and to the fact that music can be recognised as one of the significant motive that moves consumers; music is
present constantly in everyone’s life and 9 out of 10 people would respond in an absolute
affirmative term that they consume music every day. Music is, in my opinion stronger than any
other cultural barrier, it’s an aggregative goods, leads to feelings of individual and social self esteem and actualisation (G. Troilo, 2015). Music had been present over time in various aspects of people
lives, demonstrating its core intrinsic importance and its concrete relevance for markets. A steeply
increasing number of consumers listen to music more and in more ways than ever.
After more than a decade of significant decline, the music industry is now experience a quite good growth, thanks to its ability in the past years to go from a situation of adaptation to the digital age to
a situation in which it is driving it. The transformation has been related to the consumption of
music, which became mainly digital and not physical anymore, ownership left the place to access as
well as downloads to streaming. In 2016, the growth rate measured for the music market is 5.9%, the fastest growth rate since 1997. (IFPI Global Report, 2017). The live music business appear to be
the sector within the music industry as a total, which stronger contributes, together with the
streaming sector, to the overall revenue growth of the industry; it is estimated that the worldwide
worth of the sector is € 25 billions per year. (IFPI Global Report, 2017). The sector has become increasingly important to the livelihood of artists and musicians in recent years because of the
global decline in sales of recorded music; consumers appear to be more interested in deeper
experiences, where they can feel a link or a more close relationship with artists and recording labels. Participate to a concert or a festival is today considered way better than simply listening to music
through headphones and that’s what consumers are willing to spend their money for. Those
for the mainstay of their income. The value chain in the live music industry starts with the artist and
the music product itself, intrinsically creative and complex; many other actor are , however,
involved in the step of the value creation – such as the artist manager, agent and promoters, as well as venue operators, ticketing companies and a large amount of suppliers and contractors. These
considerations suggest that the experience of a live music event contains several factor that must be
taken into account while thinking of consumers’ evaluations, satisfaction and behavioural
responses. Participating to a live music events doesn’t only include the need to purchase a ticket giving the access to the venue of the experience, but it’s flanked by several other implications such
as information needed to fully enjoy the experience (artists line-up, date, location, time),
information needed to successfully complete all the steps leading to the experience (transportation,
accommodation, etc).
To conclude, live music events appear to be good representative of experience goods for the
purpose of the study because they may carry on the psychological costs mentioned in the reasoning
of the research, making consumers satisfaction and willingness to buy and willingness to pay
Research gaps
The main gaps recognised to be present in previous literature about consumers’ willingness to pay
are mostly related to fact that a clear and comprehensive definition of the concept and what are the determinants involved in its formation are still unclear, in general. Furthermore, WTP have only
been considered for pricing purposes, while it may be potentially useful for other strategies, such as
product development; it is important to remember that for experience goods the total satisfaction
can not be reduced in monetary benefits perceived, but embrace a broader and more complex mix of extrinsic and intrinsic motives and values. An effective development of such experience goods
according to these thoughts may have strong positive effects on product development strategies of
company, impacting on their revenues, turnover, consumers’ loyalty and reputation. To continue,
psychological and time costs involved in the purchase process (mainly online) have not been deeply studied to ensure their potential influence on consumers’ willingness to buy and pay.
Previous literature about WTP have lacked in considering the differences between categories of
products, for example search goods and experience goods; search goods are mostly the one under
analysis, but experience goods are increasing in fame and importance, carrying the need to better understand how WTP would work in this case.
Research Question(s)
How do non monetary costs influence consumers’ willingness to buy and willingness to pay for an experience goods, in the specific live music events tickets, in an online purchase situation?
The belief that the situation of online purchase of experience goods must be critically observed by companies to implement the best of it for consumers to impact on their overall satisfaction and willingness to pay lead to the thinking that consumers in this situation fulfil the most pleasurable purchase experience looking at the most pleasurable consumption of the experience goods their planning to buy; taking as an example a live music event (representing the broader category of experience goods), factors involved in the decision making process are, next to monetary and
pricing evaluations, the quantity and relevance of information readily available for consumers, who will be translated in less psychological efforts to decide and, eventually, less psychological efforts during the consumption; the amount of relational interaction carried by the purchase experience, contributing to consumers’ social satisfaction; the possibility to purchase a bundle which includes all the relevant access to the parts of the experience as a whole, also this impacting on the amount of psychological efforts/costs perceived in the purchase experience and in the experience itself. Taking into account these logics, it is easy to imagine how keeping to the lowest the amount of psychological non monetary costs during an online purchase experience of experience goods may actually lead to higher degree of both economic and social satisfaction, impacting on consumers’ purchase intention (WTB) and consumers’ WTP.
METHODOLOGY DESIGN
An online survey-based experiment with a between-subject 2x2 design was performed to analyse whether a linear causal relationship exists between the variables considered in the model; the experimental nature of the study enables the examination of such causal relationship, rather than a simple correlation. A pre test was run prior to the experiment. The core goal of the study is to investigate behavioural responses rather than attitudinal ones only, even if participants were aware of the experimental nature of the study.
Pretest
A pretest was run prior to the experimental survey distribution to test for a basic relevant relationship, without which the entire experimental structure would have no reason to exist. (primarly Facebook): 30 respondents participated and completed the whole survey (100% completion rate). The core goal was to investigate whether a relationship between the online experience satisfaction perceived from visiting the platform and psychological costs involved with the organisation of the experience exists; furthermore, it analyses whether the presence of relational interactivity and bundle option actually affects psychological costs required to organise the experience, lowering them.
Two different platforms were created to be used in the pre test:
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Platform 1 is a very simple and basic 1 page platform, showing some events every month; by clicking on each even the user is redirected to a sub-page with few information (date, location, tickets’ price range). To complete the purchase the user is redirected to the event’s main webpage or the ticketing page used by the organisers.-
Platform 2 is an interactive platform that gives the user the chance to eventually purchase a bundle including the event’s ticket, travel tickets and an accommodation.Participants were evenly and randomly shown one of the two different platform prototype considered and asked to go through it just like they should organise their attendance to a live music event. They were firstly asked to go and spend on the platform as much time as they though it was worthwhile to spend to organise that kind of experience; after this, they were asked to rate some of the characteristics of the platform they were assigned to and to rate their overall satisfaction with the online experience. The aim of the questions was to investigate the relations between some specific variables
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Psychological costs involved with the online purchase experience was measured by the rating of the navigation ease; it is assumed that an easy platform involves lower psychological efforts/costs while experiencing it.The hypothesis that was tested in the specific relates to two main beliefs: a platform where users have the possibility to tailor their experience based on the best options available and to eventually purchase, on the website itself, a bundle including the chosen event ticket, travel ticket and accommodation access, may contribute in lowering the amount of psychological costs required to plan the entire experience; the bundle option makes the research quicker and easier, requiring a lower amount of time and effort. Secondly, the presence of relational interaction between users’ allows a higher information sharing, lowering the amount of effort users need to put I gathering all the information required to undertake such an experience. Total psychological costs required for the entire online purchase process should, thus, be much lower than in the case of no presence of relational interactivity and bundle options.
Hpt1: The presence of interactivity and bundle option lowers the amount of psychological effort/ costs involved when considering to buy a ticket for a live music event online.
A simple regression was performed to investigate whether the presence of interactivity and bundle option actually predicts levels of psychological costs involved in the planning process of the experience. The model results to be statistically significant F(1,28)= 17.7; p-value= 0 < 0.05 and explains 38.8% of the total variance of psychological costs perceived.
In conclusion, users’ perception of the psychological costs perceived from using an online platform increases by .623 if a bundle option and relational interaction are available.
To sum up, the pretest results show how the presence of relational interaction and a bundle option affects the amount of psychological costs required to organise an experience like the attendance to a live music event; interactivity and bundle option together appear to have a significant lowering effect on the amount of psychological costs required to plan the experience.
Experimental study
SAMPLE
Data collection was performed through an online survey using Qualtrics tool; social media (primarly Facebook), email, private text have been the main communication tools to reach participants. An additional incentive was given to participants, namely the possibility to participate to an extraction to win an AmazonGiftCard valued 15€.
The survey was written in english, enabling participants from all over the world to complete it; the sample needed for the study does not have any limitations in terms of nationality but refers to all the people who potentially are participants of live music events. A total of 203 people participated to the online survey, while 195 achieved its total completion.
Respondents were evenly and randomly assigned to one of the 4 experimental conditions created for the study; they were asked to first visit a prototype platform, created to purchase tickets for live music events with the specific goal of choosing and an event to attend. Participants were asked to put themselves in the condition of a real potential purchase situation. They were then asked to complete a survey.
It follows a brief summary of the 4 experimental conditions’ characteristics:
Category 1: Participants in category 1 were provided with the link of a very basic platform prototype (Appendix 2). The platform is composed by one main page, showing the six most important events chosen in one specific month (tickets out, event of the year, etc); by clicking one of the events displayed a sub-page is opened and the user is provided with a few generic information about the event (date, location, average ticket price). To complete the purchase, the user will be redirected to the event’s main website or the Ticketing website which deals with the ticket sale. (TicketMaster, Ticketone etc). To sum up, the platform prototype in this category has no interactivity at all; furthermore, it didn’t present any bundle option, as the only product that can be purchased is the ticket(s) for the event.
Category 2: Participants randomly assigned to category 2 were provided with the link of the same basic platform used in category 1, with one main important difference: the platform prototype in this case had a characteristic of interactivity; a community exists where people can share their experience and tips; a live chat is additionally present, where users can receive instant information about the interested event from people who already attended it / member of the community. The platform is composed by one main page where all the relevant events of the month are displayed; by clicking on one of the events shown a sub-page is opened which provides the user with a few
generic information (date, location, average price ticket). To complete the purchase the user will be redirected to the event main website or to the ticketing website used by the organisers for their ticket sale (TicketMaster, Ticketone etc). The platform prototype used in category 2 is, thus, an interactive platform with no bundle option, as the only product that can be purchased is the event’s ticket(s).
Category 3: Participants that were assigned to experimental condition 3 were provided with the link of a different platform prototype from the first 2 categories. The platform is composed by the main page where 4 most important are shown each month and 3 different main pages (Events - Travel - Accommodation). The user has the chance to buy from the website itself a bundle including the event chosen ticket (different tickets based on what are the tickets’ types provided by the organisers), travel tickets (based on the transportation chosen by the user on the platform itself), accommodation (the user can choose the preferred accommodation type on the platform itself). The website doesn’t require any redirect to complete the purchase, after which the user will receive the complete travel planning in a PDF document via email. Each event, transportation and accommodation sub-page gives a good amount of relevant information for travellers (line up, exact price, dates, location, transportation/accommodation options, travel time, travel tips etc). The “Plan your travel” page is the page where the user can set up the preferences for events, transportation and accommodation, to do a quick search. To complete the purchase the website provides a direct link to the registration form and payment tool.
Category 4: Participants assigned to experimental condition 4 were provided with a very interactive website prototype (Appendix 3). The platform structure is exactly the same as the one explained in category 3 - the website prototype gives the user the opportunity to eventually purchase a bundle including an event’s ticket/package, travel tickets and accommodation. The website prototype in this case includes a community and a blog, where users/travellers can share experiences and tips; furthermore, the platform provides a live chat giving the user the chance to receive instant information about an event or everything concerned with the experience. The website doesn’t require any redirect to complete the purchase, after which the user will receive the complete travel planning in a PDF document via email. The “Plan your travel” page is the page where the user can set up the preferences for events, transportation and accommodation, to do a quick search while instantly receiving relevant information from other users belonging to the community. To complete the purchase the website provides a direct link to the registration form and payment tool.
Participants were asked to answer 7 questions to investigate their satisfaction related to their overall online experience with the platform, their likelihood of purchase through the platform, their willingness to pay for the live music event ticket, bought through the platform.
Finally, respondents were asked to answer a set of demographic question; it was chosen to put these questions at the end of the survey as they might be considered as sensitive.
The experimental study was conducted according to the code of ethics of the Amsterdam Business School. No names or personal data were collected or used in the report.
Hypotesis
H1: The presence of relational interactions and a bundle option have positive effects on consumers’ social satisfaction.
H2: The presence of a bundle option leads to higher economic satisfaction from the experience on the online platform.
H3: Higher level of social satisfaction and economic satisfaction have a strong positive impact on consumers purchase intentions (WTB).
H4: Higher level of economic and social satisfaction perceived from using the online platform to organise an experience, like the attendance to a live music event, lead to higher WTP.
Variables and measures
Social satisfaction
Social satisfaction has been defined as the psychological evaluation of the relationship happening during purchase, in which interaction are fulfilling and gratifying. The definition perfectly represents what in the study is intended. For experience satisfaction, which has been operationalised by measuring the stated perceived satisfaction of participants. The variable is measured using a simple Likert-scale (1=high dissatisfaction, 5=high satisfaction).
Economic satisfaction
Economic satisfaction is recognised to be the more monetary part of the evaluation, even though the present study aimes at demonstrating that it is affected by non monetary factors too. The variable has been operationalised by asking participants to rate their satisfaction with the price proposed for the product offered; the measure is a simple Likert-scale (1=high dissatisfaction, 5=high satisfaction).
Purchase intention (WTB)
In order to investigate behavioural responses rather than attitudinal ones only, the actual purchase intentions of participants was tested, by asking them if they would buy the option proposed. The variable was measured using a simple Likert-scale (1=definitely yes, 5=definitely no). This may be representing consumers willingness to buy.
Willingness to pay
Willingness to pay is the most important variable of the study, being the core topic of the research question. Measuring the actual behavioural response for this variable was not possible, as it required a completely functioning platform, provided with safe and correct payment methods; this would have required huge investment and commercial deals with third parties, which were beyond the possible efforts for this study; participants attitudinal responses where investigated, instead, by asking participants to state the amount of money they would be willing to pay for the option proposed.
Two dummy variables were created during the first statistical analysis steps to differentiate the 4 experimental conditions employed in the study: to distinguish the cases based on the presence or not of Relational Interactivity and/or Bundle option, the variables Interaction and Bundle options were created with respective values of 0=no interactivity 1=yes interactivity, 0=no bundle option 1=yes bundle option. Dummy variable have been, in the end, standardised and multiplied. (ZIntZBundle). The four categories are summarised in the table 1 above.
Variables measurement used are the same for each of the 4 categories.
The variables investigated have been checked for missing values, showing a fairly low amount of it. In order to incorporate missing values in the analysis, these have been recoded with the same value as the means of the values already in the dataset for the specific variable.
Platform 1
Relational Interaction is not present No bundle option is available
Platoform 1.1
Relational Interaction is present No bundle option is available Platform 2
Relational Interaction is not present Bundle option is available
Platform 2.1
Relational Interaction is present Bundle option is available
The dataset showed some variables measured with a reverse rate in respect of what the study aimed at investigate (in the specific experience satisfaction, price satisfaction and purchase intention); these variables where recoded accordingly. In the specific, online experience satisfaction and price satisfaction values went from 1 to 5, namely 1= high satisfaction 5=low satisfaction; for the purpose of the study these scales where reversed to become 1= high dissatisfaction 5=high satisfaction. Three control variables were included, namely age, gender and relational interaction importance perceived. It has been mentioned that age positively affects the relationship between satisfaction and WTB, while gender has the opposite effect (M. Le Gall-Ely, 2009); the importance of relational interaction perceived by participants has been included to control for differences deriving from different degrees of importance given to the main component of social satisfaction (Huang & Davison, 2011), which also in this case allows for lower psychological costs during information searching.
The conceptual model presented in this study has been tested using the statistical package AMOS. (Amos graphic in the Figure 4 above)
