The effects of hedonic and utilitarian product associations in premium promotions

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The effects of hedonic and utilitarian product

associations in premium promotions

A STUDY ON THE EFFECTS OF HEDONIC AND UTILITARIAN ASSOCIATIONS IN PREMIUM PROMOTIONS OF BOTH DURABLE AND NON-DURABLE PRODUCTS

Master Thesis

University of Groningen

Faculty of Economics and Business

MSc. Business Administration

Marketing Management

Amsterdam, July 2012

Ramon Sloof

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The effects of hedonic and utilitarian product

associations in premium promotions

A STUDY ON THE EFFECTS OF HEDONIC AND UTILITARIAN ASSOCIATIONS IN PREMIUM PROMOTIONS OF BOTH DURABLE AND NON-DURABLE PRODUCTS

Author

Ramon Sloof

Cornelis Anthoniszstraat 32-III 1071 VV Amsterdam

The Netherlands ramonsloof@hotmail.com

06-12201621

University of Groningen Faculty of Economics and Business

MSc Business Administration Marketing Management

Supervisors

1st Supervisor: prof. dr. L.M. (Laurens) Sloot 2nd Supervisor: J.H. (Jacob) Wiebenga, MSc

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MANAGEMENT SUMMARY

For marketing managers it is essential to compose promotions perfectly, to attract attention and generate consumer incentives. Namely, this way the promotion effectiveness and consumer perceptual value is augmented, thereby realizing the desired sales quota or additional organizational requirements.

Monetary promotions like simple price discounts or buy-one-get-one-for-free deals occasionally have both long- and short-term negative consequences for an organization. Some examples are the erosion of an organizations’ capacity to rent market share in the short run (Abraham and Lodish, 1990), the increase of price sensitivity and damage on brand equity (Mela et al., 1997), and the reduction of reference prices of consumers on the long run (Palazon and Delgado-Ballester, 2005, 2009a,b). Therefore, marketing practitioners might prefer applying non-monetary promotions, like premium promotions, to overcome these precarious consequences. A premium promotion can be described as a product offered for free with the purchase of another product. Since premium promotions are two different products combined in one single promotion; consequently, the products’ characteristics and the connection between both products are likely of great importance.

Considering products’ characteristics, consumers have certain associations with products. Namely, consumers might discriminate some products as primarily hedonic, creating an affective, experiential and sensory experience (Dhar and Wertenbroch, 2000; Tripat Gill, 2008). Other products can be associated as being primarily utilitarian, which commonly facilitate performances or increase productivity and efficiency for consumers (Dhar and Wertenbroch, 2000).

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Subsequently, taking both product associations and both product categories into account, how can premium promotions be composed to generate the best consumer evaluation and purchase intention and thereby increase the overall promotion effectiveness? Two inquiries are therefore present, namely to what extend will congruent or incongruent combinations of product associations within premium promotions have a significant influence on consumers’ evaluation and purchase intention? Congruent being similar combined associations and incongruent being dissimilar combined associations applied in one single premium promotion. Furthermore, to what extend will there be any differences in either the durable or non-durable product category concerning these particular (in)congruent premium combinations?

Because of various theoretical rationalizations about product associations and product categories, it is expected that the hedonic premium products will have more positive effects on consumers’ evaluations and purchase intentions in premium promotions. Also, congruent combinations of both associations are expected to present higher positive results in the non-durable product category in comparison to the durable one.

The questionnaire developed for this research consists out of several purchase scenarios using multiple base products, or the products on sale, combined with several premium products, the products received for free with the purchase of the base product. The products applied in the research are preselected on their distinctiveness based on both the product category they belong to and their perceived product association. In every scenario in the questionnaire the products are circulated creating various premium promotion combinations that have to be rated on evaluation and purchase intention by the respondents.

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PREFACE

After a couple of years of studying at the Rijksuniversiteit of Groningen, the end of my student life has finally arrived. No more governmental student support, no public transport card or studying in the library. Nonetheless, last years have been incredibly important for my formation and development of my academic foundation, which definitely has prepared me for the challenges of the forthcoming business life.

The subject of this research paper derived from various aspects of my master, which attracted my attention, like the consumer physiological topics in daily shopping circumstances. As consumer psychology is extremely extensive, it requires extra anticipation and understanding of consumers, which is an interesting challenge. Furthermore, during this marketing master and my internship at the marketing department of Beiersdorf NV, I increasingly started to focus on marketing related aspects in real life, especially advertisements and promotions. So, putting these two features together and investigating what is still unexplored in the marketing academic literature till this day convinced me to research a topic within this field.

I would like to thank a number of people for their help and support during the writing of this research project. First of all I would like to thank my supervisor Laurens Sloot for his enthusiasm, commitment and understanding during the development and progress of this paper. He always gave comprehensible and direct feedback, has been very supportive and responded promptly when necessary. In this respect, I would also like to thank my second supervisor Jacob Wiebenga, who also provided me with useful and structural feedback, which definitely enhanced the contents of this paper as well. They both contributed a significant amount of their time and effort in helping me and thereby improved this thesis on all levels.

Many thanks go out to my friends and parents for their support and sympathy during the writing phase. I want to thank my girlfriend Elise in particular for her help, support and especially for having great patience with me. Last but not least I would like to thank all the respondents of my questionnaire, as this research would have not been possible without their cooperation.

Ramon Sloof

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LIST OF FIGURES AND TABLES

Figure 1: Conceptual Framework ... 10

Figure 2: The overall consumer perceptual value... 12

Figure 3: Information processing of product characteristics ... 22

Table 1: Pre-test Selected Non-durable products ... 32

Table 2: Pre-test Selected Durable products... 32

Table 3: Factor analysis ... 39

Table 4: Internal Consistency Hedonic and Utilitarian variable... 40

Table 5: Non-durable product associations ... 40

Table 6: Durable product associations... 41

Table 7: Internal Consistency Product Involvement, Information processing and Durability . 42 Table 8: CE & PI Premium Product effects: Non-durable Hedonic Base Product... 45

Table 9: CE & PI Premium Product effects: Non-durable Utilitarian Base Product... 46

Table 10: CE & PI Premium Product effects: Durable Hedonic Base Product... 48

Table 11: CE & PI Premium Product effects: Durable Utilitarian Base Product. ... 49

Table 12: CE & PI Base Product effects: Non-durable products ... 51

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1 INTRODUCTION

1.1 Theoretical background

As long as competition among organizations increases, sales promotion activities and techniques, applied in marketing communication campaigns, will keep on growing in numbers, scale and variety; therefore to stay innovative, original and in front of competition, sales promotion variety and effectiveness is essential (Peattie, Peattie and Emafo, 1997). Variety is not only the most difficult factor, as it requires creativity, but it is also an exceptionally important aspect, as consumers always have to be triggered while among numerous of marketing approaches applied by other organizations. Consequently it is crucial for organizations to discover how to compose sales promotions perfectly to generate the required consumer behavior.

Two different kinds of sales promotions exist, namely monetary and nonmonetary. A monetary promotion can best be described as a simple price discount like for instance 50% off or a 2+1 promotion. An extra free product promotion, called a premium, can be seen as a nonmonetary promotion.

Many marketers have some sort of anxiety for the negative effects of monetary promotions. Some illustrious examples are the costs of price promotions, the reduction of the consumers’ reference prices, lower perception of quality (Palazon and Delgado-Ballester, 2009a), but also the erosion of an organizations’ capacity to rent market share in the short run (Abraham and Lodish, 1990), the increase of price sensitivity and damage on brand equity (Mela et al., 1997). Nonmonetary premium promotions on the other hand tend to circumvent these negative aspects of monetary promotions (Prendergast and Thompson, 2008) and “are framed as segregated gains rather than reduced losses” (Lowe and Barnes, 2012). Furthermore, nonmonetary promotions can be seen as exceptionally useful when it comes to persuading a consumer to buy at this time, as it provides value-addition together with instant gratification. Namely, a premium is “provided by a company as a promotional stimulus, a simple product or service offered for free or at a relatively low price in return for the purchase of one or many products or services” (d’Astous and Jacob, 2002).“There is no delay, nothing to collect, lose, forget, stuff, or stamp" (Joyce, 2006).

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investment adequately (Rust et al., 2004). Furthermore, according to Prendergast et al. (2008), focusing on sales promotions and “treat them as a homogenous set of tools may produce the same behavioral responses” and therefore promotions ought to be examined independently. The focus of this paper will therefore be explicitly on nonmonetary premium promotions.

1.2 Problem identification

Accordingly, premium promotions have a great potential to become increasingly applied by marketing practitioners. However, as a premium product is received for free, together with the purchase of the base product, it is interesting to explore the influences of the distinctive product characteristics of both products involved. The base product is considered in this paper as the product that is on promotion and thus promoted with an additional premium product. So what combinations of these products, considering their characteristics, generate the best promotion effectiveness?

Excluding services, products can be distinguished in either durable or non-durable products. Both kinds of products can be stored, however durable products are considered as goods that have an average service life of at least three years, whereas non-durable products have an average service life of at most three years (Gomes et al., 2009). These product categories are further elaborated later on in this paper. Within both of these categories the products contain highly distinctive features, and for a marketer to justify marketing investments, it is important to know how consumers might evaluate a certain premium promotion within each of these categories. Preceding research on durable- and non-durable products hardly focused on premium promotions and merely concentrated on the effects of price sensitivity or elasticity (Liberali et al., 2011; Sethuraman and Tellis, 1991), price-quality measures (Lichtenstein and Burton, 1989) and the purchase timing or purchase order of consumers (Kasulis et al., 1979).

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(Crowley et al., 1992; Voss et al., 2003), while others apply hedonic and utilitarian product associations with converged products in the electronic/digital sector and thereby discovered a certain “asymmetric additivity effect”. To be more specific, according to Tripat Gill (2008) “converged products with a utilitarian base gain more from adding an incongruent, hedonic functionality than a congruent, utilitarian one. Whereas converged products with a hedonic base gain less from an incongruent, utilitarian addition than a congruent, hedonic one. With premium promotions, instead of converged products, two separate products are combined in one single deal. For that reason, this is interesting to explore, because the products’ associations are in this case also likely to have a certain influence on consumers, but perhaps in a totally different way. Taking all of these products characteristics into account creates inquisitiveness about what the effects are on consumer evaluation and purchase intention, when either a utilitarian or hedonic associated base product, is promoted with an extra (in)congruent hedonic or utilitarian premium product. Plus, will these compositions generate differences in these consumer reactions when applied in either the durable- or nondurable product category?

1.2.1 Research objective

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Figure 1: Conceptual Framework

1.2.2 Research questions

All and all, two key research questions can be implemented concerning the effects on CE and PI within premium promotions:

1. To what extend is the combination between base and premium product, considering the match of both hedonic and utilitarian product associations, of influence on consumer evaluation and purchase intention?

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1.3 Research relevancy

The relevancy of this research will be elaborated in the following part. The first part explains the practical and social relevance of this research, more specifically, the pertinence to society and how results might provide insightful information for future marketing strategies. The second part illustrates the scientific relevance, which elucidates why this particular research topic is academically interesting and distinctive.

1.3.1 Social relevance

Nowadays, a sales promotion can be seen as much more than a straightforward economic incentive to purchase, because it has numerous other effects on consumers’ purchase intentions and evaluations, some of which managers may not even be aware of. According to Raghubir et al. (2004), “the multiple routes through which a consumer promotion exerts an influence on consumers is crucial and therefore practitioners should consider all of these factors when designing a certain promotion”. The use of non-monetary promotions, like premium promotions, seems to ascend on a daily basis and they are becoming an increasingly appealing solution to marketers as these promotions circumvent the potential problems of price-based strategies as mentioned above.

Interesting is, that all kinds of promotions have distinctive influences when it comes to the effect on consumers, namely Lowe (2010) states “consumers perceive price discounts and extra free product promotions differently because of the commensurability of the units of the promotion with the product price”. Obviously, it is interesting for managers to know what proper strategy is best to implement when promoting particular products. It is important for them to keep in mind that price discounts are processed in monetary terms and therefore specifically evaluated in comparison to the product price; whereas a premium is a nonmonetary sales promotion, which makes it difficult to identify how consumers exactly evaluate this kind of promotion because of its “incommensurate nature” (Nunes and Park, 2003). This perceived consumer value has recently gained much attention from marketers and researchers because of the important role it plays in predicting purchase behavior and achieving a sustainable competitive advantage (Chang et al., 2009).

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premium of relatively negligible monetary value can still be evaluated favorably as it might be perceived as desirable to the consumer, however if the consumers’ judgment of the organizations intentions influences the gift perception, an expensive premium might not result in a more favorable gift evaluation but raise a suspicion of manipulative intent”. It can therefore be said that the perceived monetary value of the premium, in perspective with the base product, is important.

However, as also indicated in Figure 2, besides merely focusing on the perceptual monetary value, the characteristics of both products within a premium promotion, and whether there is a good match between them, is also likely to influence the overall consumer perceptual value and can therefore be seen as another important contribution. In other words, exploring product associations in various combinations within premium promotions in different product categories will most likely produce different levels of perceptual value and thereby also affect CE and PI. It is therefore interesting to explore which combination of products within premium promotions, based solely on their characteristics, will generate the highest levels of perceptual value and thereby increases the perceived value of consumers and thereby also the promotional effectiveness.

Figure 2: The overall consumer perceptual value

1.3.2 Scientific relevance

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of hedonic and utilitarian product associations within premium promotions between two different product categories. Namely, even though several researches already devoted a lot of attention to most of these topics separately, as mentioned before, none of them explore whether certain combinations of these aspects within premium promotions generate any remarkable results. According to Chandon (1998), examining the attitudes and behavioral responses of consumers towards sales promotions is becoming increasingly interesting to marketers as “it produces additional knowledge into several ongoing promotion puzzles which are difficult to explain from a purely economic perspective”.

More specifically, since every product can be allocated to a certain product category, and consumers process every product characteristic in their own way, distinctive reactions towards various compositions of premium promotions are expected (Chandon et al., 2000). Importantly, as still little is known and examined about these specific combinations and the degree to which it can create additional consumer value, marketers and researchers are likely to be interested in verifying what kind of premium products can best be applied to promote a particular set of base products. Therefore this paper creates an opportunity for a valuable specific contribution to the current academic literature on premium promotions. According to Raghubir et al. (2004) this is important because “the fine tuning of promotional offers may well be the route to make this tool an efficient tactic and allow promotions to realize greater profitability”.

1.4 Thesis structure

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2 THEORETICAL REVIEW

This chapter will elaborate on various theories, statements, conclusions and concepts of previous theoretical literature on sales promotions, premiums, product associations, product categories and in what way consumers might be influenced by these aspects.

2.1 Sales promotions

Sales promotions are intended to trigger unplanned purchases, cause stockpiling, encourage buying non-promoted merchandise and accelerate store traffic (Laroche et al., 2003). One of the reasons why sales promotions are utilized increasingly over the years is because of the development of technology. Namely, because of enhanced technology, like in-store scanners and the Internet, promotions can be applied more efficiently by allowing for more targeted promotions, so that prices and values can be varied across consumer segments via different kind of promotions (DelVecchio, 2005).

Furthermore, as Chang (2009) and Rothschild and Gaidis (1981) confirm, sales promotions play an increasingly important role, as they add value to products and have major effects on behavioral intentions and consumer evaluations. Therefore staying behind by not applying sales promotions (correctly) might have disastrous consequences for an organization and its competitive advantage.

Sales promotions can be divided in two sorts, namely monetary and nonmonetary. Monetary and nonmonetary sales promotions are becoming much more distinctive and important in the world of the manufacturer, retailer and the consumer.A monetary promotion can best be described as a simple price discount like for instance 50% discount or a 2+1 promotion, whereas an extra free product promotion, called a premium, can be seen as a nonmonetary promotion.

2.1.1 Premium products

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current transaction of the base product such as price cuts, coupons, rebates, and additional free amount of the same product. An extra quantity of the base product will therefore be seen as monetary promotion because it is “value increasing and therefore manipulates the price/quantity relationship as price discounts do” (Palazon and Delgado-Ballester, 2009a). In this paper however, premium promotions are to be considered as a nonmonetary product stimulus because they will be value-adding and at the same time will not manipulate the price/quantity equation of the product purchased.

2.1.2 Premium promotion perceptual value

Simonson et al. (1994) state that a crucial component of a premium promotion is that the premium product must be attractive in the eyes of the consumer. However, as mentioned previously, it is interesting that premium promotions are more difficult to evaluate than price discounts, as consumers do not have an accurate understanding about the premium’s pecuniary value (Palazon and Delgado-Ballester, 2009a,b). Therefore creating high perceptual promotional value is crucial to ensure that the promotion will succeed and be appreciated by the consumers. Therefore, one crucial psychological factor to keep in mind, and also a significant dilemma of a premium product, is its overall perceived consumer value. For instance, when the value of a premium is perceived as being too low, consumers might not be interested in the deal at all. On the other hand, when the premium has a considerable high value in comparison with the base product, a possibility exists that consumers fall in a perception of the deal being “too good to be true”; resulting in reduced perceived value for the overall offer (Chang, 2009). Furthermore, according to d’Astous and Jacob (2002), mentioning the value of the premium might create ambivalent effects. In their paper it is stated that when the value of the premium is mentioned, consumer appreciation of the offer increases significantly, however, the perception of manipulation also increases and therefore “may lead to the inference that there might be some gimmick behind the offer” (d’Astous and Jacob, 2002).

2.2 Product characteristics

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premium promotions are more difficult to evaluate for consumers, the match between the base- and premium product, and the degree to which it creates consumer value, is also essential. The products’ characteristics are thereby prone of having a significant influence as well. Namely, the better the match between both of the products and its characteristics, the more likely it will create a higher consumer perceptual value and thereby a higher CE and PI. In the following part these product characteristics, which are applied in this paper, are shortly described.

2.2.1 Product associations The Hedonic dimension

Nowadays, consumers are increasingly seeking for entertainment and searching for products, services and experiences that create pleasure, amusement and enjoyment. In other words, people have hedonic needs, or inherent desires for sensory pleasure. Fortunately, to satisfy these hedonic needs, there are also goods and services that can be distinguished as providing hedonic benefits to satisfy these inherent desires for sensory pleasure. According to Dhar and Wertenbroch (2000) and Tripat Gill (2008) “hedonic goods are defined as ones whose consumption is primarily characterized by an affective, experiential and sensory experience of aesthetic or sensual pleasure, fantasy, and fun”.

Utilitarian dimension

Most people also have utilitarian needs, which motivates them to look for products that solve consumption-related problems or tasks. Therefore, “utilitarian goods are ones whose

consumption is more cognitively driven, instrumental, and goal oriented and accomplishes a functional or practical goal” (Dhar and Wertenbroch, 2000). The most important aspect of a utilitarian product is to solve a problem or increase performance, productivity and efficiency for the consumer.

2.2.2 Product categories

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years”. Clothing, food, paper, rubber- and plastic products, textiles, footwear, coal, and oil are all examples of non-durable goods.

The lifespan of durable products is generally expected to be longer in comparison with non-durable products, as “consumers value a non-durable product for the services it provides over multiple periods” (Bruce et al., 2005). Furthermore, durable products in general tend to be more complex higher-unit-cost objects, more difficult to evaluate, purchased less frequently and therefore likely to cause a relatively higher perceived risk to consumers (Grewal et al., 2004; Sethuraman and Tellis, 1991). On the other hand, as being generally purchased on a daily basis, consumers might get more accustomed with non-durable products, causing a loss of common interest together with a reduction of perceived risk during the purchasing phase (Grewal et al., 2004).

2.3 The match between products associations

As mentioned above, overall consumer perceptual value is essential in achieving promotional effectiveness. Important thereby is, besides merely focusing on the perceived monetary value, that the overall consumer perceived value is likely to be influenced by the value created by the proper match between the products’ characteristics as well. Namely, the better the match between both of the products and its characteristics, the more likely it will create a higher consumer perceptual value and thereby a higher CE and PI. The following part will therefore explicate more about the match between the products in the premium promotions.

2.3.1 Congruent and incongruent match

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Tripat Gill (2008) states that a congruent combination of converged products, as being symmetrically goal oriented, might be subject to diminishing returns, as the addition of a similar feature might reduce the incremental value of the product. In other words, the degree of overlap between feature added and the base product determines the extent to which a feature is goal contrasting or goal assimilating. However, as premium promotions enclose receiving two separate products instead of one converged product, only a minor amount of overlap is to be expected as an entire new product is given for free besides the product purchased. In this case it is therefore more probable that a congruent premium rather tends more to an additional effect on CE and PI instead of an assimilated effect, as in the case of a converged product. Accordingly, in complementary premium promotions it is likely that the product combinations generate more complementary- instead of converged incremental value. Noticeably, two hedonic products will most definitely contribute to a significant experience of pleasure and fun (Batra and Ahtola, 1990; Hirschman and Holbrook, 1982; Mano and Oliver, 1993), but is expected to barely create any practical or functional value. Correspondingly, combining two utilitarian products is likely to generate a high degree of functional value, however, on its turn hardly any level of pleasure or fun will be experienced.

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2.3.2 Influence of the premium product

When looking at either hedonic or utilitarian premiums, it is assumed that a hedonic premium will influence the experiential enjoyable value of a consumer, whereas the utilitarian premium product will provide a certain gain in utilitarian value. As the utilitarian premium is likely to be perceived as much less fun or enjoyable (Dhar and Wertenbroch, 2000), the effect on CE and PI is expected to be lower in comparison to a hedonic premium. Moreover, Bazerman et al. (1998) mention that a consumer behavioral decision can be either determined by an affective preference ("want") or a cognitive or reasoned preference ("should"). Therefore, as the premium is pre-determinately given for free, it is likely that a “wanted” product is more positively evaluated by the consumer in comparison to a product that is perceived as a “should” (Dhar and Wertenbroch, 2000; Tversky and Kahneman, 1991).

Additionally, Kivetz and Simonson (2002b), believe that consumers might acknowledge that the advantages that utilitarian products provide cause some sort of inequity in their lives where not enough money and time is spend on having fun and doing pleasurable things that go beyond the vital minimum. They therefore state that consumers are likely to pre-commit to indulgence themselves and guarantee that they will not spend all of their resources on necessities (Kivetz and Simonson (2002a,b). Receiving a hedonic premium product for free can thus be perceived as a perfect opportunity to enhance this process of indulgence.

In addition, MacInnis and Price (1987), McGill and Anand (1989) and Keller and McGill (1994) state that hedonic products are more imagery in comparison to utilitarian products and therefore emanate a stronger amount of influence on consumers and the consumption process, whereas utilitarian products are exclusively seen as being primarily practical or functional.

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opportunity, as they normally would have never spent money on a particular product like this. Naturally, as this hedonic product is now accessible for free, the psychological pain associated with acquiring this product is bound to be low (Prelec and Loewenstein, 1998; Kivetz and Simonson, 2002b) and thus likely to generate extra gratifying feelings by the consumer.

All and all, in this current context, it is expected that receiving a hedonic premium with the purchase of a base product is not only likely to have an enhancing effect on CE an PI; it is also expected that hedonic premiums are likely to emanate a higher amount of influence in comparison to utilitarian premiums, which are perceived as being merely practical or functional and therefore less fun or enjoyable.

2.3.3 Influence of the base product

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2.4 Effects of product match in different product categories

The effects of the match between product associations are likely to vary not only within, but also among the product categories, as consumers process information differently for either durable or non-durable products. Namely, as mentioned in the previous chapter, the sort of information that influences the attitudes of a consumer can diverge, as attitudes can either be related to cognitive or utilitarian meanings and beliefs on one hand, or more to affective or hedonic meanings and beliefs on the other (Venkatraman and MacInnes, 1985). On the other hand, according to Dijksterhuis et al. (2005), the amount of information that a consumer processes is dependent on various moderators, like for instance the amount of involvement of a consumer with the products. The sort of information processing is therefore more related to the product associations, whereas the amount of information processing is likely to vary among the product categories. Consumer information processing is therefore important in this case, as it is fundamental when making a certain purchase decision and is generated from a particular source of consumer information and consumer knowledge (Petty, Cacioppo, and Schumann, 1983). According to Hoyer and MacInnis (2010), “this source, or the psychological core, covers motivation, ability, and opportunity; exposure, attention, and perception; categorization and comprehension of information; and attitudes about an offering”. The following part will elucidate on the amount of information processing of consumers between both product categories.

2.4.1 Amount of information processing among product categories

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products is associated with a relatively greater perceived risk to consumers, it can be assumed to cause relatively more systematic information processing during the purchasing stage, whereas the purchase of non-durable products can be associated with a rather heuristic way of information processing (Grewal et al., 2004; Sethuraman and Tellis, 1991; Trumbo, 1999).

Besides risk, as durable products are generally high-cost and purchased rather infrequently, the effects of a certain purchase become long-term and thus generates a higher perceived importance to consumers (Trumbo, 1999), which causes them to seek extensive information beforehand (Sethuraman and Tellis, 1991). Systematic processing is defined as “a comprehensive, analytic orientation in which perceivers access and scrutinize all informational input for its relevance and importance to their judgment task, and integrate all useful information in forming their judgments” (Chaiken et al., 1989). In contrast, as non-durable products can be associated with judgment of relatively less risk and are purchased relatively more often, it is likely that the consumers make more use of their product knowledge and previous product experience for these kinds of products. Consequently, as heuristics are based on knowledge, previous experiences, are presumable learned and stored in memory (Chen, 1999), it can be assumed that the consumer applies a more heuristic way of information processing during the purchasing phase of non-durable products. To clarify the description of the product characteristics and the related information processed, Figure 3 illustrates four base categories considering both product categories and the product associations, which will be applied further throughout this paper.

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2.4.2 Effects of information processing on product match in premium promotions

As systematic processing entails a higher level of consumer cognitive capacity, it can be assumed that the judgments derived from this way of information processing are more thoroughly developed and justified (Trumbo, 1999). This can be strengthened by the fact that “heuristic processors only use simple decision rules to accomplish their goals, whereas systematic processors will accomplish the same by extensively processing more relevant information” (Chaiken et al., 1989). More importantly, Trumbo (1999) emphasizes that judgments generated through a heuristic process tend to be less stable and less tied to subsequent behavior than judgments reached through more extensive systematic efforts. Furthermore, as Mittal (1989) also mentions, “a consumer may not indulge in much information processing if she or he has already acquired the requisite information previously, or relies solely on expert recommendations, or simply repeats her or his previous choice”. So, what are the probable effects of information processing in both product categories of consumers, taking into account the match of products in premium promotions?

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premium as it all seems to good to be true. This is enforced by Trumbo (1999), who states, “in this mode, individuals may exert considerable effort in a search for information and a scrutiny of arguments, maintaining higher standards for the quality of information used in decision making”.

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3 HYPOTHESES

The following part will consider all the information and influences described above concerning congruent or incongruent premium promotions in both product categories and transform these into comprehensible hypotheses, to be tested in a subsequent phase or this research.

3.1 Impact of premium products

When looking at either hedonic of utilitarian premiums, it is assumed that a hedonic premium will influence an experiential enjoyable value of a consumer, whereas the utilitarian premium product will provide a certain gain in utilitarian value. As the utilitarian premium is likely to be perceived as much less fun or enjoyable, the effect on CE and PI is therefore expected to be lower in comparison to a hedonic premium. Consequently, a hedonic premium product is assumed to be more appealing in comparison to a utilitarian product when combined with a base product, and thus the following hypotheses can be formed.

H1a. The consumer evaluation of a hedonic premium will be more positive than when a utilitarian premium is received.

H1b. The consumer purchase intention of a hedonic premium will be more positive than when a utilitarian premium is received.

3.2 Impact of base products

When taking the base products into account, a distinction can be made between both hedonic- or utilitarian product associations of either durable or non-durable products, also illustrated in Figure 3. These characteristics of the base products are observed in the following part to see what impact these effects might have on a premium promotion.

3.2.1 Base product associations

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H2a. The congruent combination of a hedonic base product together with a hedonic premium will generate a more positive effect on consumer evaluation than all other possible combinations between the base- and premium product.

H2b. The congruent combination of a hedonic base product together with a hedonic premium will generate a more positive effect on purchase intention than all other possible combinations between the base- and premium product.

Although hedonic congruent combinations are most likely to generate interesting results, there might also be a possibility that utilitarian base products also have some sort of congruency effect with utilitarian premiums. Namely, as a utilitarian premium is given besides a utilitarian base product, it is likely to create a confident degree of functionality. Furthermore, receiving a utilitarian premium besides a hedonic base plausibly creates some sort of dilution. Therefore it is expected that applying two utilitarian products in one congruent combination will produce a fairly higher CE and PI in comparison to an incongruent combination of a hedonic base products with a utilitarian premium. Therefore following hypothesis is created.

H3a. The congruent combination of a utilitarian base product together with a utilitarian premium will generate a more positive effect on consumer evaluation than an incongruent combination with a hedonic base product and utilitarian premium.

H3b. The congruent combination of a utilitarian base product together with a utilitarian premium will generate a more positive effect on purchase intention than an incongruent combination with a hedonic base product and utilitarian premium.

3.2.2 Base product categories

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into account. Namely, it is interesting to explore whether the effects of a congruent premium combination are evaluated differently for either durable products in comparison to non-durable products.

Considering the theory described in paragraph 2.4.2, it is likely that the consumer reactions will differ between durable products in comparison to non-durable products. Consequently, it is expected that the CE and PI, are higher in the non-durable product category in comparison to the durable category. Taking these aspects into account, the following hypothesis for the hedonic congruent combination can be composed.

H4a. The consumer evaluation of a congruent hedonic premium promotion is more positive in the non-durable product category in comparison to durable product category.

H4b. The purchase intention of a congruent hedonic premium promotion is more positive in the non-durable product category in comparison to durable product category.

And the subsequent hypothesis is created for the utilitarian congruent combination.

H5a. The consumer evaluation of a congruent utilitarian premium promotion is more positive in the non-durable product category in comparison to durable product category.

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4 RESEARCH METHODOLOGY

To be able to identify the effects of different premium combinations in two product categories, an experimental research is conducted. The following chapter illustrates the research design and explicates how the hypotheses will be tested. It will also explicate how the data is gathered and what factors have to be considered during the research, so that the required results can be analyzed. With these analyzed results, the hypotheses can be tested and the previously asked research questions can be answered. Afterwards the proper conclusions or implications, concerning future marketing strategies or researches, can be drawn.

4.1 Research method

4.1.1 Research variables

The hypotheses described above are a result of expected relationships between distinctive dependent and independent variables. The premium promotions are examined in two distinctive product categories with each either a hedonic or utilitarian base product in combination with either a hedonic or utilitarian premium product. The following variables are essential within this research and will therefore have to be applied and measured so that the necessary input for the analysis can be generated:

- Independent variable 1: the match of products concerning the product associations (congruent or incongruent).

- Independent variable 2: differences between congruent combinations of products concerning product categories (durable or non-durable).

- Dependent variable: consumer evaluation and consumer purchase intention.

It is expected that changes in the combinations of these independent variables will result in alterations in the dependent variables. The hypotheses assert that certain combinations of products in premium promotional deals are likely to show different levels of CE and PI.

Consumer evaluation and consumer purchase intention

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evaluation, or consumer attitude towards a particular product or promotional deal, is obviously an important factor as it determines whether the consumer is even intended to further examine the deal or product. Enforcing, according to Cooper and Schindler (2006), “because an attitude is a predisposition, it would seem that the more favorable an attitude is towards a product or service, the more likely that product or service will be purchased”. Therefore it can logically be assumed that the likelihood of a consumer buying a product, or purchase intention, is strongly connected with the attitude, or evaluation of that consumer, towards that particular product. Therefore, in this case, attitude scaling can be applied. Attitude scaling is the process of assessing an attitudinal disposition using a number that represents a person his or her score on an attitudinal continuum, for example ranging from an extremely favorable disposition to an extremely unfavorable one (Cooper and Schindler, 2006). Furthermore, as the participants are used as judges of the objects or indicants presented to them, the emphasis of the survey is on measuring the attitudinal differences or similarities among participants concerning various combinations of independent variables. As the consumers have to verify their evaluation and purchase intention, they have to rate each promotional scenario presented to them. The perfect scale applicable in this case is the likert scale. “The likert scale can be applied using different numbers of scale points and is only useful if it matches the stimulus presented and extract information proportionate to the complexity of the attitude object, concept or construct” (Cooper and Schindler, 2006). In this questionnaire a 5-point likert scale is applied to rate the opinions of the respondents.

4.1.2 Survey instrument

To test the hypotheses of this research paper, a quantitative research will be conducted using an online survey in the form of a questionnaire. Namely, opinions and attitudes of people are best acquired by communication-based research, whereas observation techniques are considered as being incapable of obtaining these elements (Cooper and Schindler, 2006). The application of an online communicative survey, in the form of a questionnaire, is therefore an obvious choice in this research paper.

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promotion combination, is commonly preferred, or more importantly significantly preferred. As every respondent is able to rate multiple scenarios in one questionnaire, about 200 respondents is sufficient to be able to draw significant conclusions. The questionnaire will be composed out of four parts and is started with a short introduction concerning the relevant information about premium promotions. In the second part the essential purchase scenarios concerning various premium promotions in the two distinctive product categories are illustrated to the respondent. To be more specific, each respondent will be asked to rate certain statements associated with each scenario, based on his or her evaluation and purchase intention. An example of one of the scenario’s is: “Imagine you are visiting the electronic shop to buy a stereo set of about €500,-.

Now imagine the following four scenario’s, with each receiving one of the FREE premium products illustrated below worth €100,-, and rate it on both your evaluation and purchase intention.

This way, each participant can rate each combination of the stereo set with one of the four different premium products (two hedonic and two utilitarian) on both evaluation and purchase intention. Logically, this scenario is also repeated for products from the other product category. To be more exact, multiple scenarios are applied to make sure that all possible combinations of product characteristics, illustrated in Figure 1, are covered. Furthermore, following Park and Moon (2003), we used more premium products per product type to increase the validity of the research. In other words, for each kind of premium illustrated in the “Premium Products” column of Figure 1, two distinctive premium products are actually applied in each scenario in the questionnaire.

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4.2 Data collection

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4.3 Data analysis

The results of this research will present whether variations of the independent variables indeed have significant effect on the dependent variables so that particular inferences can be made concerning different premium promotion combinations. As previously described, a likert scale is applied, with 1 = very unattractive and 5 = very attractive to measure the respondents’ consumer evaluation and with 1 = very unlikely and 5 = very likely to indicate the respondents’ purchase intention. Although the scales asked are normally seen as ordinal data, they are considered in this analysis as interval. This is because the opinions of the respondents are measured on a likert-scale and this research wants to explore whether there are differences in general between the opinions, but also whether the opinions of the respondents vary on similar ways each time. That is mainly why the data is considered as interval data. This way it can be explored whether the ratings between every combination differ significantly and whether this is true for every respondent. Because the differences between the opinions of all respondents is tested, and to see whether these significant differences exist correspondingly among all of them, applying separate paired T-tests appears to be the most appropriate tool. Furthermore, the ratings between the product combinations are considered to be somewhat related, as only the base- or premium product will vary each time while the other combined product is kept constant. Concluding, paired T-tests are applied to determine whether the differences in the means of the combinations are significant. So, by analyzing the data derived from the survey, it can be found whether any differences in relationships among the variables exist and more importantly whether these differences are significant.

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5 RESULTS

In the following section all the results and data derived from the questionnaire are demonstrated and all remarkable and significant facts are analyzed and discussed. The first part describes the demographic distribution of the sample and further explores whether other noteworthy facts come to light. Subsequently, the reliability and consistency of all the variables involved in the entire analysis are tested, applying a factor analysis and checking the cronbach’s alpha coefficients. Ultimately, in the last subchapter the hypotheses will be tested applying multiple paired T-tests considering the CE and PI.

5.1 Demographic characteristics sample

In total 211 fully completed questionnaires are collected. This sample also includes 50 respondents purchased from the panel of thesistools.com, which exactly represented the Dutch population. This is done to ensure that at least several respondents in all possible demographic categories are covered to enhance the representativeness of this survey.

The sample further consists of 48.8 % male and 51.2 % female participants, which is quite consistent compared with the current Dutch population. However, when taking the age distribution of the sample into account, it illustrates that half of the participants belong to the age categories 20 – 24 and 25 – 29 years. This extreme majority is as expected, because the network of the researcher primarily contains students or young employees. However, performing the analysis while excluding each of these age groups did not indicate any significant differences on the results discussed in the following part. Furthermore, as these students and employees are unlikely to have a very high income, it is coherent that the “lower than €1000, -“ income category illustrates the highest quantity (31.1%) as well. All of the analyses are also performed with temporarily excluding these groups each time and the results did not vary significantly at all. Therefore it is decided to keep the original sample derived from the survey in the analysis described in the following paragraphs.

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with the amount of students participating in this survey as 31.9% of the respondents lives with friends or other students.

All and all, it should be taken into account that with this distribution of participants, some groups have a larger share in the outcomes of this research in comparison to other groups. To obtain the entire demographic characteristics of this survey, appendix B1 illustrates all available information of this sample in tables and charts.

5.2 Reliability and consistency variables

To explore whether the additional variables from the questionnaire, can be explained in terms of a smaller amount of variables as intended, a factor analysis is performed. Furthermore, a cronbach’s alpha analysis is applied to discover whether these variables are also internally reliable and consistent.

5.2.1 Factor analysis

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1 2 3 Pleasant Sensual pleasure Fun ,730 ,604 ,780 Useful Functional Productivity ,916 ,882 ,751 Attractiveness Interest Importance ,746 ,788 ,760 Info search Tradeoff Effort Right choice Consequences ,832 ,795 ,855 ,743 ,798 Cheap Frequency Risk -,628 -,809 -,806 Table 3: Factor analysis

5.2.2 Internal consistency of variables

The following paragraph illustrates the reliability of these variables by measuring the internal consistency. The cronbach’s alpha is applied to ascertain the reliability of the questions for measuring a single construct with a minimum value of 0.6 to indicate an acceptable internal consistency (Malhotra, 2007).

Hedonic and utilitarian variables

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of consistency and reliability of the variables indicating the hedonic and utilitarian consumer associations, these two variables are eliminated from the hedonic and utilitarian factors applied further in this analysis. Table 4 illustrates the cronbach’s alpha coefficients of both variables, excluding each of these eliminated variables. As can be seen, the cronbach’s alpha coefficients of both separate variables are now quite above 0,6 and thus provide sufficient internal consistency.

Constructs: Cronbach’s alpha • Hedonic: - Pleasant - Fun • Utilitarian: - Useful - Functional α = ,721 α = ,913

Table 4: Internal Consistency Hedonic and Utilitarian variable

As additional manipulation check, to illustrate that all the products are associated as theoretically intended, the results of the product associations are presented in Table 5 and Table 6. Furthermore, as can be seen in appendix (B2.2), all of these differences between the products associations are significant and therefore also consistent with the pre-test. This illustrates that no additional alterations are needed in this case.

Non-durable base products Hedonic Utilitarian

Chocolates 3,82 1,72

Toilet paper 3,06 4,53

Non-durable premium products

Potato chips 3,55 1,78

Cookies 3,79 2,01

Hand soap 3,29 4,20

Dishwashing brush 2,58 4,23

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Table 6: Durable product associations

Product involvement, information processing and durability variables

As theoretically explained in chapter 4.1.4, product involvement is a precursor, but not a necessary one, to information processing. The factor analysis is performed to indicate what variables belong together and shows overlapping measurement characteristics related to the intended original set. Furthermore, as can be seen in Table 3, the factor analysis did not fully provide support that the variables product attractiveness, -interest and -importance are allocated to one factor of involvement. Namely, “importance” seems not to be related to the other two variables intended to measure involvement. However, when checking appendix B2.1, the cronbach’s alpha coefficients of the variables supposedly to measure product involvement, it proves that eliminating the variable “importance” slightly increases the coefficient from α = ,818 to α =, 828. So, as this is not a considerable increase, and α = ,818 confirms already a high internal consistency, it is decided that “importance” is not excluded further throughout this analysis and that all three of the items are kept together as one construct product involvement as theoretically intended, also illustrated in Table 7.

On the other hand, prior search for relevant information, prior product trade-offs made, prior product comparisons made, time and effort put into making a purchase decision, the importance of making the right choice, and the amount of thoughts based on the consequences of the purchase are indeed related to a second factor, information processing. For information

Durable base products Hedonic Utilitarian

Stereo set 3,99 3,28

Washing machine 3,58 4,59

Durable premium products

DVD-player 3,89 3,39

MP3-player 3,75 3,14

Electric toothbrush 3,34 3,77

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processing no elimination of variables increases the coefficients and therefore no alterations are made. So, as can be seen in Table 7, the cronbach’s alpha is quite high, and therefore no variables are eliminated.

Constructs: Cronbach’s alpha

• Product involvement: - Attractiveness - Interest - Importance • Information processing: - Info search - Trade-off - Effort - Right Choice - Consequences • Durability: - Cheap - Frequency - Risk α = ,818 α =, 939 α = ,750

Table 7: Internal Consistency Product Involvement, Information processing and Durability

For the product durability variables, as negatively related to information processing, they still present a cronbach’s alpha higher than 0.6. Therefore it is decided to treat the variable durability, as consistent with the theory, as a negatively corresponding variable with information processing. This way both variables can be implemented as descriptive determinations of whether the products applied in the questionnaire can actually be assigned to either the durable or non-durable product category as intended.

5.2.3 Interpretation of variables

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So, when taking the graphs in appendix B3 account, it appears that the products mostly are allocated as intended and are therefore also consistent with the theoretical elements described before. Namely, interestingly enough, it seems indeed that product involvement is indeed “a precursor, and not a necessary one at that, to purchase-decision involvement” (Mittal, 1989), or in this case information processing.Explicitly, the product involvement of non-durables products is lower in comparison with the durable product category, which is consistent with the theory. Interestingly however, when looking at the information processing of the products, it becomes clear that for the non-durables this diminishes, whereas for the durable products it rises, but still highly corresponding with product involvement. The effects of the durability on products can probably explain the causation of this, as for all three factors, the non-durables are indeed considered as being rather inexpensive, have a rather high purchase frequency and a low degree of perceived risk in comparison to the durable products.

5.3 Testing hypotheses

This paragraph focuses on the effects of the premium products within the promotional combinations on CE and PI. Therefore, in the following parts, all the combinations are compared varying the premium products while keeping the base product constant each time and explore whether any remarkable or significant results will originate relating to the theoretical part described previously, so that the hypotheses can either be rejected or accepted.

5.3.1 Hypothesis 1

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Non-durable products

The following graphs shortly illustrate the means of the combinations of both CE and PI of the non-durable products.

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rather extreme case. Therefore, in order to acquire more detailed results, a more explicit approach has to be performed. Table 8 and Table 9 therefore exemplify the results of the paired T-tests of the non-durable products, varying the premium products each time, and compare whether the means differ significantly.

Consumer Evaluation

Purchase Intention

Non-durable Hedonic Base Product

Varying premium products Mean

difference t (p-Value) difference Mean t (p-Value)

Chocolates + Chips

Chocolates + Hand soap ,403 3,463 (.001) ,322 3,061 (.003) Chocolates + Chips

Chocolates + Dishwashing brush ,927 8,231 (.000) ,741 7,268 (.000) Chocolates + Cookies

Chocolates + Hand soap ,995 10,589 (.000) ,785 7,985 (.000) Chocolates + Cookies

Chocolates + Dishwashing brush 1,500 15,384 (.000) 1,210 12,528 (.000)

Table 8: CE & PI Premium Product effects: Non-durable Hedonic Base Product.

From Table 8 we can conclude that:

- Both consumer evaluation and purchase intention present corresponding results.

- All the means of the combinations with a hedonic premium are rated higher in comparison to the ones with a utilitarian premium.

The effects of hedonic and utilitarian product associations in premium promotions

The effects of hedonic and utilitarian product

associations in premium promotions

Master Thesis

University of Groningen

Faculty of Economics and Business

MSc. Business Administration

Marketing Management

Amsterdam, July 2012

Ramon Sloof

The effects of hedonic and utilitarian product

associations in premium promotions

Author

MANAGEMENT SUMMARY

PREFACE

TABLE OF CONTENTS

LIST OF FIGURES AND TABLES

1 INTRODUCTION

1.1 Theoretical background

1.2 Problem identification

1.3 Research relevancy

1.4 Thesis structure

2 THEORETICAL REVIEW

2.1 Sales promotions

2.2 Product characteristics

2.3 The match between products associations

2.4 Effects of product match in different product categories

3 HYPOTHESES

3.1 Impact of premium products

3.2 Impact of base products

4 RESEARCH METHODOLOGY

4.1 Research method

4.2 Data collection

4.3 Data analysis

5 RESULTS

5.1 Demographic characteristics sample

5.2 Reliability and consistency variables

5.3 Testing hypotheses

Consumer Evaluation

Purchase Intention