The Effect of Economic Inequality on Consumer Behavior:

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The Effect of Economic Inequality on Consumer Behavior:

How Economic Inequality leads to Likelihood of Purchasing

Control Restoring Goods

Master Thesis

M.Sc. Marketing Management

Faculty of Economics and Business, University of Groningen

January 14

th

₂₀₁₉

Nicoleta Filipov

Student Number: s3503186

First Supervisor: Dr. Sumaya AlBalooshi

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Abstract

This paper investigates the effects of economic inequality on the consumer behaviour. Specifically, the conceptual model posits that people exposed to high vs low economic inequality are more likely to purchase control restoring goods. The underlying assumption is that high economic inequality feelings result in negative social consequences, among which is a reduced sense of control. The theoretical background provides evidence about how perceptions of economic inequality lead to aversive feelings which people try to reduce, by engaging in compensatory strategies. In this paper, I specifically talk about the role of products in helping consumers restore back their sense of control.

The main relationship between economic inequality and purchase likelihood of control restoring high effort goods was found not significant. In addition, the second hypothesis which investigates the mediating role of the sense of control between economic inequality and purchase likelihood of control restoring high effort goods was neither supported. In what follows, I discuss several possible explanations for these results, among which are the statistical underpower of the study and the salience of the Nike brand used in the product manipulation, which could have accounted for the variance in the outcome variable.

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1 Introduction

In the global economy, inequality of wealth has become a central issue which has been widely addressed by scholars and practitioners. Just within the US in 2012 the richest 0.1% (approx. 160000 households) owned 22% of the total national wealth (Buttrick et al., 2017). The contrasting effect of wealth inequality is striking and carries further wider societal implications. Higher economic inequality is associated among others with higher mortality and crime rates (Werfhorst & Salverda, 2012), decreases in governmental stability and lower educational performance (Buttrick et al., 2017), reduced trust and low social mobility (Wilkinson & Pickett, 2017), increased risk taking (Mishra, Son Hing & Lalumiere, 2015).

Rising social inequality has been also found to cause economic distress and economic threat among people who fear falling down the social ladder or who fear to possess too few economic resources (e.g. money) (Fritsche & Jugert, 2017). As a result, people who are resistant against personal economic descent develop adverse feelings that directly affect their self - esteem and their feelings of personal control (Fritsche & Jugert, 2017). Explicitly, feelings of economic threat reduce people’s personal control which represents a human basic need (Fritsche & Jugert, 2017). In this case, the threat undermines people’s ability to cope effectively with actual or anticipated environment’s demands (Blasovich & Tomaka, 1996; Fritsche, Jonas & Kessler, 2011), such as economic downturns. Moreover, under these circumstances, people’s view of a predictable and an orderly world is shaken which causes further psychological discomfort (Kay and Gaucher, Napie, Callan & Laurin, 2008). For this reason, people are motivated to restore back their personal control that also serves as self-defense against feelings of randomness and chaos in their environment (Kay et al., 2008; Lerner, 1980).

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It has been claimed that when people experience feelings of reduced control they either reach to their own resources (through own agency) to boost their personal control or reach out to external sources that help them achieve personally relevant outcomes (Landau, Kay and Whitson, 2015). In this research, I look at one of the possible ways through which low control consumers replenish low levels of control while relying on external resources, such as products. Prior research linked products with the symbolic meaning that their owners attach to them and can signal about their self-identities (Belk, Bahn, and Mayer, 1982; Rucker and Galinsky, 2008; Shavitt, 1990). As such, in this paper I investigate the role of consumption and products in offsetting feelings of reduced personal control. This study, thus, adds on the fast-growing literature on the role of consumption in reducing psychological deficits (e.g. Cutright & Samper, 2014; Inesi, Botti & Dubios, Rucker & Galinsky, 2011; Mead et al., 2011; Rucker & Galinsky, 2008; 2009; Sivanathan & Pettit, 2010; White & Argo, 2009), such as the lack of control. However, with this paper I aim to highlight the role of economic inequality in the consumption context and people’s desire to purchase control restoring goods. As such, I address the void in the literature which links economic inequality with the consumer behavior. Specifically, I investigate how exposure to high vs low economic inequality leads to reduced feelings of control for which people compensate by purchasing control restoring high effort goods.

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easy task (Cutright & Samper, 2014; Schunk, 1983). Usually, low effort is more valued by people, however high effort has been proven to be more important to people who pursue important goals (Kim & Labroo, 2011). In this case, effort is a means through which people increase the desirability and attainability of an outcome (Kim & Labroo, 2011; Kivetz & Simonson, 2003) which in turn convey a sense of control over their outcomes. In addition, motivated people expect that by putting a higher effort, their chances to attain certain outcomes become also higher (Kim & Labroo, 2011; Taylor & Brown, 1988). In our case, people’s motivations are driven by their desire to increase their personal control. Consumption of high effort products thus, should convey people a sense of control and make them feel “as if they are capable to drive their own outcomes” (Cutright & Samper, 2014).

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2 Theoretical Background

2.1 Economic Inequality and the Desire for Control

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2004; Cote et al., 2015). Cote et al. (2015) found that these feelings of entitlement of higher income people lead them to be less generous, especially in the context of high economic inequality. This happens as a result of higher income people thinking that their resources belong rightfully to them and therefore they are less willingly to share it with others, while being concerned of losing their privileged situation (Cote et al., 2015).

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Rising economic inequality intensifies perceptions of economic threat that has further negative consequences on people’s subjective well-being (Fritsche & Jugert, 2017; Wilkinson & Pickett, 2017). Economic threat affects people either on an individual level (e.g. fear to possess too few economic resources) or on a collective level (e.g. when people perceive their country to be in times of economic downturn) (Fritsche & Jugert, 2017). Also, during times of economic uncertainty people fear future socioeconomic descent (Fritsche et al., 2017). For instance, they may feel uncertain about their future and fear possible unemployment (Fritsche et al., 2011). Coupled with that, people perceive an economic threat when their economic resources are scarce which hinders their goal pursuit (Fritsche et al., 2017). In other words, economic resources are considered a primary means through which people can autonomously achieve their goals (Fritsche & Jugert, 2017; Johnson & Krueger, 2006). In this sense, people faced with resource scarcity feel that they cannot cope effectively with current or future demands and that their self-determined choices are restricted (Blascovisch & Tomaka, 1996; Fritsche et al., 2011; Gurin & Brim 1984; Lachman 1986; Lachman and Weaver 1998).

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2.2 Compensatory Consumption

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others, individuals are more prone to consume products that signal social belonginess or membership to a social group (Baumeister & Leary, 2017; Duclos, Wen Wan & Jiang, 2012; Mandel et al., 2016; Wan, Xu & Ding, 2013). In regard to this, Mead et al., (2010) found that socially excluded people spend and consume in the service of social affiliation because similarity and conformity sustain the goal of affiliation.

2.2.1 Compensatory Consumption and the Sense of Control

As noted above individuals are motivated to maintain stable levels of psychological assets, including a stable sense of control. Past research work (Chen, Lee & Yap, 2016) highlighted that a perceived lack of control leads individuals to prefer utilitarian over hedonic goods. This happens as a result of the utilitarian products possibility to engage in problem solving, what makes consumers feel more in control over the situations in their lives (Chen et al., 2016). The perceptions of being able to achieve desirable outcomes while preventing undesirable ones were also found to increase the sense of control (Chen et al.,2016; Landau et al., 2015).

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brand extensions with a poor “fit” (Cutright, Bettman & Fitzsimons, 2013). Cutright (2012) found that low control consumers prefer products with well - defined aesthetic boundaries that give them an impression that things are in place and under structure. In addition to physical boundaries, consumers create cognitive boundaries of products (Cutright, 2012; Cutright et al., 2013). Low control consumers are more likely to adhere to a familiar set of attributes and associations of products that they have created mentally and which dictate where a brand belongs, prior to evaluating new product options (Cutright et al., 2013). This grants consumers feelings of “everything is in its place” (Cutright et al., 2013). Henceforth, when brand extensions stretch beyond these boundaries (e.g. beyond the existent attributes and benefits of a brand), low control consumers perceive them as having a “poor fit” and therefore are less willing to purchase them (Cutright et al., 2013).

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effort is a means through which they make goal achievement more attainable. Provided that, low control consumers who contribute with their own effort at an effortful task will feel as if they have driven their own outcomes. This should convey them a sense of control over their own outcomes. Suggestive to past research of Cutright and Samper (2014) where the authors asked low control consumers “How hard do you want to have to work to make the product

deliver its benefits?”- I investigate in this study to what extent do low control consumers

consider buying a high effort product that acts as a tool which increases the feasibility of restoring back their control. Regarding this, it is important to note that products do not merely signal about threatened self - traits (Gao et al., 2008) but offer the opportunity to consumers to show that they possess a certain trait (Cutright & Samper, 2014).

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H1: Consumers exposed to high economic inequality vs low economic inequality will have a higher purchase likelihood of control restoring - high effort goods.

H2: Given the exposure to high economic inequality, consumers’ purchase likelihood of control restoring high effort goods is mediated by their reduced sense of control.

(b) (a) Economic Inequality Reduced Sense of

Control Purchase Likelihood

of Control Restoring High Effort Goods

(c) (c’)

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3 Methodology

In what follows, I aim to demonstrate that consumers exposed to high vs low economic inequality will prefer to buy control restoring goods. Moreover, I expect that those people exposed to high economic inequality prefer to buy high effort goods, as a result of a reduced sense of control. In what follows, I test the hypotheses by using a 2 x 2 between-subjects experiment. In total 143 participants were recruited through Amazon Mechanical Turk. After cleaning the data, 34 participants who did not successfully fulfilled the comprehension and the attention checks were excluded from the analysis. As a result, 109 participants were considered in the main analysis and were randomly assigned to one of following conditions: 2 (economic inequality: high vs low) x 2 (product ad appeal, in terms of effort: high vs low).

3.1 Economic Inequality Manipulation

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Bureau’s 2018 Economic Census. Similar to Cote et al., (2015) I chose to manipulate participants’ perceptions of economic inequality in their home state rather on a national level. The reason behind is that participants should be less informed about the specific economic distribution in their states, rather than on a country level which is more widely discussed in the media (Cote et al., 2015). To check if the economic inequality manipulation was successful, the respondents were asked whether they understood well the information presented in the charts. Also, the participants had to assess how (un)equally they perceive the wealth in their home state to be distributed (0 = extremely unequal, 10 = extremely equal); the extent to which they believe their state is economically suffering (0 = far too little, 10 = far too much) and how satisfied they are with the current level of wealth distribution (0 = extremely dissatisfied, 10 = extremely satisfied). I expect the participants who estimated the chart depicting higher inequality to also find the wealth distribution in their home state as unequally distributed compared to the participants who were presented the chart depicting low economic inequality. Other than that, the participants should not differ on any another aspect.

3.2 Sense of Control Measure

The sense of control measurement was adapted from past research by Lachman and Weaver (1998). The developed scale is called MIDI Sense of Control and is a self-report measure of the sense of control on two dimensions: personal mastery and perceived constraints.

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Among these statements are found: “I can do just about anything I really set my mind to do”; “When I really want to do something, I usually find a way to succeed at it”; “Whether or not I am able to get what I want is in my own hands”; “What happens to me in the future mostly depends on me”. The four items measuring personal mastery aggregate into a control index (⍺ = 0.70) (Lachman and Weaver 1998).

3.3 Product Effort Manipulation

The product effort manipulation was adapted from past research by Cutright and Samper (2014). The participants were presented with two identical versions of a Nike shoe advertisement except of their emphasis on personal effort (Appendix 3). The ads messages were framed in such a way, that the low effort ad emphasizes low effort required when using the shoe, with the tagline “The shoe does it all for you”. Meanwhile, the high effort ad emphasizes that high consumer effort is required to obtain the desired results, with the tagline “The shoe

does it all with you”. In order to control for the participants’ liking attitudes towards the product,

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4. Analysis Results

4.1 Manipulation Check

In order to see if the inequality manipulation was successful I subjected the three measures encompassing economic inequality perceptions (the (un)equal distribution of wealth, the extent of economic suffer of the state and the satisfaction with the current economic situation) to a one-way ANOVA. The results revealed that people exposed to high economic inequality condition perceived the wealth in their state to be less equally distributed (M=1.96, SD=2.38) than people exposed to the low economic inequality condition (M=4.38, SD=2.64), F (1, 107) =25.12, p < .00. Furthermore, economic inequality condition did not significantly influence the extent to which participants think their state is economically suffering, with people exposed to high economic inequality condition (M=6.35, SD=2.76) vs people exposed to the low inequality condition (M=5.49, SD=2.49), F (1,107) =2.92, p = .09. Finally, people from the high economic inequality condition were less satisfied with the wealth distribution in their sate (M=3.09,

SD=2.47) than people from low inequality condition (M=4.50, SD=2.88), F (1,107) =7.55, p < .05. As it can be seen, not all of the measures point to a successful manipulation of economic

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4.2 Main Analysis

A 2 (Inequality: High vs Low) x 2 (Ad Appeal: High effort vs Low effort) experimental design was assessed using a factorial ANOVA. I subjected the participants to the two-way between - subjects ANOVA in order to test the first hypothesis, that people exposed to high vs low inequality will be more likely to purchase control restoring high effort goods. The results show that there is no significant interaction between the ad appeal and the economic inequality on the outcome variable. In fact, there is a highly insignificant interaction effect F (1,105) =0.037,

p = .847 (Figure 2). The economic inequality impact on the people’s purchase likelihood of

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Figure 2. The interaction of economic inequality and ad appeal frame on product purchase likelihood.

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Following, I address the second hypothesis that looks at the sense of control as a mediator between the economic inequality perceptions and people’s likelihood to buy control restoring high effort goods. In this sense, Hayes (2009) claims that even in the absence of a main total effect (path c) between the IV and the DV, there might be an indirect effect present (path c’). To check for this, I performed a mediation analysis using Process by Hayes in SPSS. The results of this analysis confirm the absence of any direct effect of economic inequality on the product purchase likelihood. Following, by looking at the indirect effects and specifically at the 95% CI [- .25, .43] there is a zero crossing the confidence interval, suggesting that there is no indirect effect of economic inequality on the product purchase likelihood. In absence of a mediating effect, the second hypothesis is not supported.

4.2.2 Covariates

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Mood.

In order to aggregate all of the items which measured the affective state of the participants, a reliability test was performed showing high reliability among all the items (α = .92). Next, I translated the mood items into an average score of mood which will be further used in the analyses. Firstly, in order to find out if inequality perceptions had an impact on the people’s mood, I subjected the average score of mood to a one-way ANOVA with the independent categorical variable - economic inequality (high vs low). The results suggest that economic inequality perceptions had an insignificant effect on mood F (1,107) =1.38, p = .24. Participants assigned to any of the economic inequality conditions reported similar mood affect: low economic inequality (M = 2.37, SD =. 70) vs high economic inequality (M = 2.21, SD = .69). Furthermore, I included mood as a control variable and subjected it to a two-way ANCOVA. The interaction effect between economic inequality and ad appeal on the people’s likelihood to purchase control restoring goods remained highly insignificant F (1,104) = .03, p = .85. However, mood as a covariate had a highly significant p - value which means that it has an effect on people’s product purchase likelihood F (1,104) = 25.27, p < .001. Thus, the current mood that the participants reported, accounts for variance in the dependent variable.

Product Liking. Firstly, I aggregated all the items measuring the favorable, positive and

liking attitudes toward the product from the ad, into an average score encompassing product liking attitudes. Afterwards, I have subjected product liking attitudes to a two-way ANCOVA. After controlling for the participants’ product liking attitudes, the main interaction effect between economic inequality and ad appeal on the outcome variable remained still insignificant

F (1,104) = .08, p = .76. Interestingly, product liking as a covariate had a highly significant

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be concluded that product liking attitudes explain up to 70% of the variance in the outcome variable. In other words, liking attitudes towards the product explains a lot of variance in the outcome variable. People’s purchase likelihood of control restoring high effort goods was more influenced by the fact that they liked the product, rather than that they were influenced by the ad appeal in terms of effort.

Furthermore, in order to further test whether product liking attitudes could predict the product purchase likelihood, I conducted a linear regression with the average score of product liking attitudes on the dependent variable. The results of this analysis proved to be highly significant

F (1,107) = 257.35, p < .00. This suggest that product liking evaluations are also a good

predictor of the participants’ product purchase likelihood. Moreover, by looking at the adjusted

R square value = .70, it can be concluded that up to 70 % of the variance in the outcome variable

can be explained by the liking evaluations of the product presented in the ad.

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5. Discussion

In the following research my goal is to demonstrate how perceptions of economic inequality influence consumer behavior, so that consumers will seek more control restoring goods. The literature review suggests that inequality does trigger social comparison, increased risk - taking that lead to low subjective well - being (Buttrick et al., 2015; Kelley & Evans, 2016; Wilkinson & Pickett, 2009). As a result, people exposed to high economic inequality have an urge to compensate for the resulting aversive feelings, among which is a lowered sense of control. In this paper I precisely investigate the role of products in compensating for the negative consequences induced by economic inequality.

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significant product evaluations effect. Nike has a very high brand equity and brand awareness. Therefore, participants’ already strong attachment and loyalty towards the brand could explain the significance of the product evaluations. Specifically, brand attachment is a high predictor of consumer behavior (Park, MacInnis, Priester, Eisingerich and Iacobucci, 2010). Strong brand attitudes are able to predict whether the brand will be part of a consideration set prior purchase, the actual purchase intention and the brand choice (Park et al., 2010; Priester, Nayakankuppam, Fleming & Godek, 2004). This highlights that higher product purchase likelihood is based on the consumers’ high brand attachment (Keller, 2013; Park et al., 2010).

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6. Conclusion

This paper discussed the role of economic inequality and its implications for the consumer behavior. A key fact, as revealed by the literature review, is that the economic inequality results in negative consequences for the society as a whole, and at the individual level. Societies with high levels of economic inequality experience lower social mobility (Wilkinson & Pickett, 2016), greater consumer debt (Frank, 2013), among others. Individuals exposed to high economic inequality experience feelings of economic threat which lowers their self-esteem and the sense of control (Fritsche & Jugert, 2017). Taken together, the resulting aversive feelings motivate individuals to look for ways to offset these feelings and compensate for it.

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of participants - a issue that is further discussed in the study limitations section. Moreover, the results point to the salience of the product brand that accounts for variance in the dependent variable. In other words, the presence of Nike - a brand with a strong customer-based brand equity resulted in significant product evaluations which surpassed the effect of the product ad frame that was intended to shape the participants’ product purchase likelihood of control restoring high effort goods.

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7. Study Limitations and Future Research

This study has several limitations that provide directions for future research. Firstly, the sample size was limited and not enough representative, fact that diminished the statistical power of the study. From a total of 143 recruited participants only 109 were considered in the actual analysis. Furthermore, the fact that Nike brand was used in the actual product manipulation could have biased the participants’ responds and impacted the outcome variable. The participants’ prior attitude towards the Nike brand was not measured in the study. Brand attitudes were found to form the brand attachment and to moderate the relationships that customers form with brands (Ahluwalia, Burnkrant & Unnava, 2000). I also did not consider and did not measure the brand commitment of the participants towards Nike that could have impacted the participants’ product ad perceptions and explain the variance in the outcome variable. Ahluwalia et al. (2000) maintain that brand commitment is part of the attitude strength towards the brand. For this reason, the level of brand commitment plays an important role in how product brand related information is processed (Ahluwalia et al., 2000). Especially, high - commitment consumers are more loyal and resistant to negatively portrayed brand - related information than low - commitment consumers (Ahluwalia et al., 2000).

Besides, the lack of an effect of economic inequality perceptions on the outcome variable could be explained by the manipulation of economic inequality perceptions on a state (societal) level rather than on a more personal level. It is interesting to see if by including a closer in proximity to an individual variable, such as income (inequality) would generate a different outcome. Also, I believe that it is meaningful to test the study’s hypotheses, but using a less popular product brand, towards which people hold neutral attitudes.

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Appendix

Appendix A - Inequality Manipulation Graphs

High Inequality Condition

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Graphs comprehension questions:

1) Do you feel that you understood the information represented in the pie charts about wealth distribution in your state? (Yes or No)

2) How equally distributed do you perceive the wealth in your home state to be? (0=Extremely unequal, 10=Extremely equal)

3) To what extent do you feel that your state is suffering economically? (0 = Far too little, 10 = Far too much)

4) How satisfied are you with the current level of economic equality of your state? (0 = Extremely dissatisfied, 10 =Extremely satisfied)

Appendix B - Product Effort Manipulation

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Product evaluation questions

1) How much do you like this product? (0 = dislike very much; 10 = like very much) 2) How positive is your attitude towards this product? (0 = not at all positive; 10 =

extremely positive)

3) How favorable is your attitude towards the product? (0 = completely unfavorable; 10 = completely favorable)

4) Do you think this brand is a good choice for you? (0 = extremely bad; 10 = extremely good)

Dependent Variable: How likely are you to purchase this product? (0 = extremely unlikely, 10 = extremely likely) -

Appendix C - Sense of Control Measure

For each statement please check the box corresponding to the answer that best

represents your level of agreement with each statement as it applies to you. (Answers from 1 = Disagree strongly, to 7 = Agree strongly)

- I can do just about anything I really set my mind to. - Whatever happens in the future mostly depends on me.

The Effect of Economic Inequality on Consumer Behavior: