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Financial prosperity and brands: how product classifications and

need for social acceptance affect willingness to pay a price

premium.

by

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Financial prosperity and brands: how product classifications and

need for social acceptance affect willingness to pay a price

premium.

by

Yorrith Joosten

University of Groningen Faculty of Business and Economics

Department of Marketing Master Thesis 6/19/2014 Wilhelminapark 16 7941 GM Meppel 06-14542589 y.joosten@student.rug.nl S2279401

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Abstract

The spending capacity of individual consumers is of great importance to them, especially when one is on a strict budget. Building on budgeting and social influence theory, the current study aimed at increasing the understanding of how consumers’ financial prosperity relates to their willingness to pay for premium branded products. Especially when making the

comparison between budget-restraint and non-restraint consumers. The study is conducted in a simulated shopping situation were the budget-restraint group received a budget and the non-restraint group did not. Furthermore, the need for social acceptance for every single

respondent is measured. Based on the results, the budget effect is very strong for budget-restraint consumers and their willingness to pay for premium branded products is lower in comparison to non-restraint consumers. Besides, the need for social acceptance proved not to have an effect for budget-restraint consumers, whereas the non-restraint consumers show a small effect for need for social acceptance. Additionally, the willingness to pay for premium branded products is measured for hedonic and utilitarian products. Consequently, no different effects between budget-restraint and non-restraint consumers were found. Meaning that both groups spend more on hedonic products in comparison to utilitarian products. The

implications of this study are that budget imposed on consumers tend to have a strong effect on consumers, such that their spending behavior is restricted. In addition, the effect of need for social acceptance is not present due to the strength of imposed budgets, in contradiction this effect –although in small extend- is present for non-budget consumers. Nonetheless, budget-restraint consumers are still willing to pay for premium branded products. Therefore, retailers should not forget this particular group of customers in their marketing campaigns.

Keywords: Budgeting, Social Influence, premium brands, budget shoppers, non-budget

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Table of Contents

1. INTRODUCTION ...5

2. THEORETICAL BACKGROUND ...7

Budget Setting ...7

Willingness to Pay Price premium... 10

The Effect of Social Influence ... 11

Hedonic Versus Utilitarian Products ... 15

Research Model ... 17

3. METHODOLOGY ... 19

Design and Procedure ... 19

Determination of Hedonic and Utilitarian Products ... 20

Measurement ... 21

4. RESULTS ... 23

The Effect of Financial Prosperity on Willingness to Pay a Price Premium ... 23

The Need for Social Acceptance and Effect on Willingness to Pay ... 25

Influence of Product Classification on Willingness to Pay ... 27

5. DISCUSSION & CONCLUSION ... 29

Conclusions ... 29

Discussion ... 30

Managerial Implications ... 33

Limitations and Future Research Directions ... 33

REFERENCES ... 36

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1. INTRODUCTION

People’s financial situation is always an eloquent subject. The economic crisis made people reconsider their spending behavior; after years of increasing expenditures by households the economic- and credit crisis had a significant effect on expenditures and consumer confidence (CBS, 2012). According to CBS (2012) spending power dropped with 0.5 per cent in 2010. This was the largest drop since the first measuring of spending power in 1985. In this respect, budgeting expenses became more and more important from a consumers perspective.

Yet, most research in this area focuses on psychological effects of branding on low-income consumers (Isaksen and Roper, 2008; Hamilton, 2012). Hamilton and Catterall (2005) focused on the disadvantages low-income consumers encounter in the marketplace and

challenge commonly held beliefs about them. Nevertheless, whether consumer financial prosperity(where we will refer to consumers with low-income as budget restraint consumers and consumers with higher income as non-restraint consumers) influences the willingness to pay for premium branded products at the cost of other basic needs, has received relatively little attention in literature (Hamilton and Catterall, 2005). A possible explanation could be that for marketers, low-budget consumers are not of interest due to their low spending capabilities and therefore they are not willing to invest in research on this topic. Moreover, the effect of the social environment on these purchase decisions and how different product classifications influences decision-making. For example the difference between soft drinks and cleanser (Batra and Ahtola, 1991).

Building on budgeting theory (Heath and Soll, 1996) and social normative influence (Burnkrant and Cousineau, 1975) this research aims at increasing the understanding on the differences between budget restraint and non-restraint consumers and their willingness to pay for branded products and whether decisions are influenced by the social environment.

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studies suggest that the social environment influences purchase decisions (Rook and Fisher, 1995; Stafford, 1966; Bearden, Netemeyer, and Teel, 1989).In addition, this research empirically investigates whether such decisions are affected by different product

classifications (Voss, Spangenberg and Grohman, 2003; Dhar and Wertenbroch, 2000). More specifically,in this research three issues will be examined: (1) “How does financial prosperity relate to the willingness to pay a price premium for branded products?”, (2) “What is the effect of social influence on the willingness to pay for branded products?”, and (3) “Is there a difference in willingness to buy branded products when taken different products

classifications into consideration?”.

This research contributes to budgeting theory by examining consumer financial prosperity and willingness to pay price premiums and whether the social environment and product classifications significantly influence purchase decisions. Furthermore, relevant academic and managerial implications are presented. First, this study offers insights whether budget restraint customers are willing to spend on premium brands at the cost of other basic needs. Second, insights are provided on how spending behavior is affected by consumers need for social acceptance. Finally, different effects on willingness to pay price premiums for different products are demonstrated.

The remainder of this paper will be structured as follows: First, a theoretical

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2. THEORETICAL BACKGROUND

Budget Setting

During the economic crisis consumers paid more attention to the value of money. Consequently, consumer with less monetary resources had to take a closer look at their budgets and were forced to take their expenditure behavior into consideration. In this investigation financial situation of consumers or “consumer financial prosperity refers to a successful, flourishing, or thriving condition, especially in financial respects”

(dictionary.com, 2014). The global economic crisis resulted in people setting up budgets. This is referred to as mental budgeting which means that consumers set budgets for various

expense accounts of their total resources (e.g., entertainment or household expenses) (Heath and Soll, 1996). When spending the money they recalculate the remaining budget. When budget is depleted consumers resist further expenses. Heath and soll (1996) divide mental budgeting in two processes: “budget setting” and “expense tracking”.

To effectively track expenses they first need to be identified and secondly they need to be allocated to the proper accounts (Heath and Soll, 1996). In an investors environment, expenses are salient and the context is clearly defined therefore budget tracking is easy. However, for consumers expense tracking is more difficult because they have to remember a variety of purchases to assign to the proper accounts. Consequently, “when expenses are easy to overlook or difficult to categorize , budgeting decisions will be strongly affected by the expense tracking process” (Heath and Soll, 1996: 42). An expense will not affect budget if either identifying or allocation of budget fails. This entails that, when a consumers is not aware of his expenses the budget he or she has is no longer functional.

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planning from doing, the implication is that when one considers himself as being impulsive there is some sort of rational planner that constraints the possible impulsiveness (Heath and Soll, 1996). Before elaborating further on the consequences of self-control mechanisms, the consumer context could be important. The earlier mentioned mental budgeting is the way of consumers to keep spending within budget. How various households deal with this situation depends on their financial situation. In general one can argue, that the smaller the budget the more explicit budgeting rules will emerge. Families living near the poverty level use strict, explicit budget. Finally, in wealthy families budgets are both less binding and less well defined (Thaler, 1999).

Building on the consumer context as explained in the former section; a self-control mechanism that is accurate should be somewhat inflexible. Heath and Soll (1996) mention that when consumers are allowed to reallocate budget simply on a whim, inappropriate

reallocations might occur. For example spending money at a nightclub instead of buying paint for the living room. In addition Thaler (1999) states that budgeting is not ‘fungible’ in order to matter and thus its effects have consequences for consumer behavior. Consumers on a budget tend to intentionally set the budget too low in order to deal with difficult self-control

situations (Thaler, 1999). In addition, Heath and Soll (1996) showed that when budgets are set too low for a particular product or category, consumers will avoid buying these products even though they still want them. When consumers budget to much they will buy too much

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with a budget restriction are willing to pay more when (1) they receive discount or extra resources or (2) when the actual product is much desired whatever the consequences.

Additionaly, Thaler (1985) mentions that neither over- nor under-consumption is considered being optimal entailing that it is not rewarding to buy extra what is not desired or not to buy what a consumer truly wants.

In conclusion, this research will define budget shoppers as ‘restraint consumers’; consumers who shop with strict and explicit budgeting rules in mind. Consumers with a more wealthier financial situation have less strict and well defined budgets and will be defined as ‘non-restraint consumers’. The budget consumers will generally represent consumers with lower income compared to the wealthier consumers. To illustrate what the difference between the two type of budget consumers; restraint consumers and non-restraint consumers, further elaboration is warranted.

It is common advice to consumers who want to control their expenses to impose a restraint on oneself. Larson and Hamilton (2012) state: “Making a price restraint salient is almost universally encouraged as a method for reducing expenditures”.

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is assumed that the explanations given by Larson and Hamilton (2012) on budget consumers, are well applicable in this study. Furthermore, in this research only the target restraint is tested due to the possibility of overspending. One of the goals of this research is to look into

consumer willingness to spend extra money on premium brands. When an upper restraint is given this opportunity is no longer possible.

Willingness to Pay Price premium

To understand the drivers of budget-restraint consumers it is important to learn more about the characteristics of these consumers. Hamilton and Caterall (2005) employ a definition of the budget-restraint consumer that can be defined as: individuals unable to obtain goods and services necessary for an adequate and socially acceptable standard of living. This definition includes a perspective on poverty that assumes that these low-income consumers lack the resources to participate in what could be seen as normal in their environment. These inabilities tend to be two-sided. First, restrictions originating from the limited purchasing power and restricted income. Second, suppliers restrict consumers by imposing price

discriminations in the form of higher prices, low-quality goods and limited choice (Hamilton, 2012). In this paper no further attention is given to the background of these restrictions.

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Unfortunately, not everybody is able to drink Heineken, buy chips from Lays or possess an Iphone.

With this in mind, this research aims at discovering a relation between financial prosperity (budget-restraint versus non-restraint) and willingness to pay a price premium. At this point, it is assumed that the budget restriction imposed on low-income consumers is that strong that their willingness to pay for branded products is lower in comparison to

non-restraint consumers. In conclusion, this research assumes that non-restraint consumers do not have sufficient resources to actually buy premium brands (Heath and Soll, 1996; Thaler, 1999; Hamilton and Caterall, 2005). Therefore, budget restraint consumers will spend less because of their self-imposed restraint. Furthermore it is almost seen as a traditional method to save money when budgets become salient (Larson and Hamilton, 2012). Thus, it is hypothesized that budget restraint consumers are less willing to pay for premium brands than non-restraint consumers.

H1: The willingness to pay for premium brands is higher for non-budget restraint consumers than for budget-restraint consumers.

The Effect of Social Influence

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In the former paragraph it was introduced purchase decisions are driven by consumer financial prosperity. Consumers living according to tight budgeting restrictions tend to decrease their spending whereas consumers with no imposed restrictions spend more. Additionally, it was discovered that consumers living on tight budgets do value premium brands. They often lack the opportunities to buy such higher priced products. These decisions are likely being influenced by the external environment of the consumer. For example: Low-income consumers tend to disguise their actual situation of poverty by buying branded products instead of cheaper versions (Elliot and Leonard, 2004). Furthermore, The low-income consumer engages in symbolic consumption to create a positive self-identity (Piacentini and Mailer, 2004). Consequently, in this research it is of major importance to discover whether the willingness to pay a price premium is influenced by the social influenceability of consumers.

According to Burnkrant and Cousineau (1975) social influence can be exerted on two levels. First, informational social influence referred to as the “influence to accept information obtained from another as evidence about reality”. This happens in two ways: individuals may

search for information through others with high levels of knowledge or make inferences based upon the behavior of others (Bearden et al. 1989). Informational influence operates through the process of internalization, which occurs if information from others increases the

individual's knowledge about some aspect of the environment or when it is instrumental to a solution for a problem. Furthermore, informational influence has been found to affect

consumer decision making regarding product evaluations and brand selection. (Burnkrant and Cousineau, 1975; Bearden et al. 1989). Second, social normative influence is defined as, “the influence to conform to the expectations of another person or group” (Burnkrant and

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behavior is beneficial to the self-concept of the individual, it is also referred to as value expressiveness. The second is said to occur when the individual conforms to the expectations of another in order to receive a reward or avoid a punishment, imposed by that other and is also referred to as utilitarian influence (Bearden et al. 1989; Burnkrant and Cousineau, 1975). According to Rook and Fisher (1995), a normative viewpoint on individual behavior provide both general and specific social guidelines for acceptable conduct in particular situation. It is related to consumer judgments about the appropriateness of making an impulsive purchase in a particular situation. In this research it is argued that normative influence is derived from norms which are considered as desired behavior in a particular social environment. In line with Rook and Fisher (1995) it is assumed that social normative influence has a moderating effect on purchase decisions. For example, when a consumer is shopping alone he or she feels less exposed to external judgment and therefore is less likely to purchase what is desired by others. However, when a consumer is doing groceries for a self-organized party it could be that he or she is being influenced by the needs of the invitees and therefore is driven by his or her social environment (Burnkrant and Cousineau, 1975; Bearden et al. 1989; Rook and Fisher, 1995). In conclusion, the compliance process could only occur when the individual believes his actions are visible to others. Consequently, the particular individual is forced to comply with the believes of the others in order to avoid punishment or receive rewards.

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way others do, either because the opinion of those others is valued or because of normative pressure to conform (Raghunathan and Corfman, 2006). In extension, the relation between consumers and brands could even be seen as somewhat similar to a normal social relationship. Therefore, actions of a brand need to conform to norms of the relationship seen from the consumers perspective. When the brand fails to comply it receives a negative evaluation (Aggarwal, 2004) however this investigation neglects this phenomenon and is solely interested in the influence of the ‘real’ social environment.

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their social environment demands such behavior (Elliot and Leonard, 2004; Isaksen and Roper, 2008; Piacentini and Mailer, 2004).

Therefore, it is proposed that the willingness of consumers to pay for premium branded products is influenced by consumer traits. In this investigation a different effect for budget-constraint and non-constraint consumers is expected. As proposed, consumers with low-income tend to disguise their real situation and aim at stimulating their self-identity. It is expected that consumer with no budget-restraint do not operate with such thoughts or to a lesser extent. In conjunction with a need for social acceptance the willingness to pay for premium brands increases stronger for budget-restraint consumers than for non-restraint consumers. Thus, it is hypothesized that:

H2: The effect of need for social acceptance on consumers’ willingness to pay a price premium for branded products is larger for budget-restraint than for non-restraint consumers. Such that, those with low need for social acceptance spend less in comparison to those with a high need for social acceptance when being budget-restraint. The difference in willingness to pay for premium branded products when having no budget restriction is insignificant regardless the low or high need for social acceptance.

Hedonic Versus Utilitarian Products

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Furthermore, Dhar and Wertenbroch (2000: 61) define hedonic goods as “ones whose consumption is driven by affective and sensory experience of aesthetic or sensual pleasure, fantasy and fun. Utilitarian goods are ones whose consumption is more cognitively driven, instrumental, goal oriented and accomplishes a functional or practical task”. In conclusion, (1) a hedonic classification results from positive feelings aroused by product experience and (2) a utilitarian classification results from functionality attributed to product usage (Voss et al. 2003).

According to Suh (2009) product characteristics guide the information processing of consumers and affect brand choice. Additionally, literature also mentions that products higher on a hedonic level offer more opportunities for premium pricing. Therewith, an increasing likelihood of consumers’ willingness to spend more money on hedonic products (Dhar and Wertenbroch, 2000). Furthermore, stemming from the previous chapter on social influence, it is assumed that strength of consumers need for social acceptance is more determining for budget-restraint consumers. Consequently it is expected that budget-restraint consumers are more focused on the proliferation of their image through branding and therewith increase their spending. Whereas non-restraint consumers will probably focus more on the actual value a product is delivering. For instance, a restraint consumer focuses more on aspects of a brand that can stimulate their self-concept whereas non-restraint consumers do not need stimulation of their self-concept because they simply are in the position to buy such products without consideration. Thus, it is hypothesized that the effect of hedonic versus utilitarian products on consumer willingness to pay for premium branded products is different between budget-restraint and non-budget-restraint consumers.

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non-restraint consumers. Such that, for utilitarian products the willingness to pay premium prices will be lower in comparison to hedonic products.

This effect is not expected when having no budget restriction.

Research Model

Based upon the concepts explained in the theoretical background, and the formed hypotheses it is possible to introduce the conceptual model (figure 1) of the current investigation.

FIGURE 1 Conceptual model

It is proposed that financial prosperity -in this investigation measured by budget restraint consumers and non-restraint consumers- has a relation with consumer willingness to pay for premium branded products. In this relation it is expected that consumers with budget

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3. METHODOLOGY

In the study 196 participants were involved where 160 completed the survey. This resulted in a response rate of approximately 82%. The 36 respondents that did not filled in the survey completely were left out of the analysis. Consumers were randomly assigned to a category (budget-restraint versus non-restraint) and are approached via snowball sampling using Facebook. The average age was 29 (age range: 16-75), where the largest group was between 21-25. Approximately 70% had an education level of HBO or higher and 26.3% were women.

Design and Procedure

The study design is a between-participant design with budget restraint consumers and non-restraint consumers. Consumers have to make choices in a computer simulated shopping situation. Respondents are asked to organize a small garden party. The products used in the survey were pre-tested on a hedonic-utilitarian scale which will be explained further in this chapter. In the end eight products were chosen, four with hedonic characteristics (Snacks, chips, beer and juice) and four with utilitarian characteristics (plates, salad, carrots and forkes, knives and spoons). As a result, participants had to make eight choices with 3 options: low-price (non-branded) high-low-price (premium brand) and no choice. Between the products significant price differences are present as can be seen in table 1.

TABLE 1

Chosen brands in the survey

Hedonic Utilitarian

Beer (Pitt (€4,94) versus Hertog Jan (€13.99)) Plates (no brand (€0,85) versus Duni (€4,--))* Snacks (Snackfan (€1,99) versus Mora (€3,55)) Salad (Karaat (€1,85) versus Johma (€2,89)) Chips (Crackito (€0,53) versus Lays (€1,59) Carrots (All seasons (€0,79) versus Jumbo store

brand (€2,--))**

Juice (Pure fruit (€0,75) versus Appelsientje (€1,25)) Forks, knifes and spoons (no brand (€1,50) versus Biofutura (€5,80))*

*For plates and forks, knives and spoons higher equity brands score automatically high on environmental and biological aspects, therefore it could be that other effects could be measured as well.

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Third, there is also the possibility not to choose the product, it could be that someone is not willing to spend money on healthy products or for example alcohol. The consumers with a budget restriction were allowed to overspend their budget, however this will result in complex calculations to be made and therefore major implications on daily life. This is in line with Thaler (1999) where it is stated that budgeting has severe consequences. Furthermore all participant were given questions about their susceptibility towards social influence which we will further refer to as need for social acceptance.

Determination of Hedonic and Utilitarian Products

To measure the differences between product classification a separate survey is conducted. In this survey a set of 20 products is tested among 22 random selected respondents. A scale developed by Voss et al. (2003) is used to measure hedonic and utilitarian product

characteristics. Ten pairs of semantic differentials are rated on a 5-point scale1. Five of them capture hedonic product attitudes and five of them capture utilitarian attitudes. The outcomes are averaged to form a hedonic and a utilitarian dimension score. The scale is developed in such a way that to score high on a dimension the score should come close to 5. For a low score 1 needs to be approached. Table 2 sums the different items used in the survey. The products used in the survey were: Cola, Fanta, Beer, wine, plates, coffee, cocktailnuts, snacks, chips, toast, salad, cucumber, olives, carrots, cherry-tomato, cheese, sausage, French bread, juice and forks, knives and spoons.

TABLE 2

Hedonic/utilitarian scale-items

Hedonic Utilitarian

Not fun/fun Effective/ineffective

Dull/exciting Helpful/unhelpful

Not delightful/delightful Functional/not functional Not thrilling/ thrilling Necessary/unnecessary Unenjoyable /enjoyable Practical/impractical

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The results show a quite vague picture of what common sense tells us about hedonic and utilitarian products. However, explanation could be that the scale used in the study is not tested with food-related products. Therefore, in addition to a one-samples T-test attention is also given to the means and the range between outcomes. Using common sense, a feasible division of hedonic and utilitarian products is found. The analysis suggests the following products score highest on the two dimensions as can be seen in table 3. The statistics are given in appendix B.

TABLE 3 Product choices

Utilitarian Statistics (significance) Hedonic Statistics (significance) Plates T=12,93 (p-value: 0.00) Snacks T=2,717 (p-value: 0.022)

Salad T=3,742 (p-value: 0.04) Chips T=2,211 (p-value: 0,051)

Carrots T=2,973 (p-value: 0.014) Beer* T=0,304 (p-value: 0.767)

Forks, knifes and spoons T=9,898 (p-value: 0.00) Juice T=2,659 (p-value: 0.024) *Beer is the exception, common sense tells us that beer is a hedonic product and we consider this as a fault in the data set. In conclusion, the products that will be incorporated in the survey to test the proposed

conceptual framework are: Plates, salad, carrots, forks and knifes and spoons (utilitarian) and snacks, chips, beer and juice (hedonic). Plates and forks, knifes and spoons are logical products for utility, salad and carrots are perhaps considered as healthy and score therefore high on the utilitarian dimension. Juice could be considered as a luxury product whereas beer snacks and chips are probably stimulating pleasure among other hedonic aspects. For plates, forks, knifes and spoons higher equity brands almost automatically result in environmental friendly products, this could implicate the measuring of spurious causal effects. Nevertheless, the willingness to pay extra for such products might vary extensively between budget-restraint and non-restraint consumers.

Measurement

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the value (table 1) of the participants selected products. A higher price will implicate a higher willingness to pay for branded products. An alternative could be to measure the number of premium brands chosen out of the eight choices to be made. In the end the expenses per product are given an index score (chosen product divided by non-branded product), to control for extravagant outcomes. For example a non-branded beer costs €4,94 while the premium branded beer costs €13,99, this will result in 13,99/4,94=2,83 so the index score for selecting a premium branded beer is 2,83.

The budget-constraint participant is giving a budget of €15,-- with the ability to overspend up to 20€. This provides the opportunity to purchase all products when selecting only non-branded products which will result in maximum spending of € 13,20; and still have the opportunity to select some branded products. The non-budget participant will receive no constraints, which enables the opportunity to spend a maximum amount of € 35,07 when only selecting premium branded products.

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4. RESULTS

First, it is checked whether the sample used, is representative. The average age was 29 (Meanage= 29,28; SDage=9,908) with a range of 16-75. Confronted with the histogram of age (Appendix D: figure 4 )one can see that there is not a perfectly normal distribution because of a large age group is between 21-25. Looking at education however, one can see from the histogram in Appendix D: figure 5 that there is an acceptable normally distributed sample.

Furthermore, before the results can be interpreted, elaboration is necessary on the need for social acceptance measurement. It is necessary for the hypothesis testing to construct a categorical variable out of the interval-scale variable that measures the phenomenon. Therefore a median-split is used. First, a factor analysis is conducted and this resulted in an item reduction from 12 to 9. The item numbers 2,4,6,7,8,9,10,11 and 12 were used that are mentioned in appendix A, the items left out of the analysis had a score below .4 and were therefore not fit for further analysis (Field, 2013: 676). Based on the communalities which can be seen in Appendix C: table 8, a new variable which measures ‘need for social acceptance’ is created and showed a Cronbach’s Alpha of α 0.867 (see appendix C, table 9)and therefore showing high internal consistency reliability which enabled summing up the questions. To create a high need for social acceptance and a low need for social acceptance category the median split from the summed variable is taken. The median is at a score of 44 with a 50.6% cumulative percentage of all respondents. Therefore a cut-off point at 44 will be set which means that: 47.5% of the population will have a high need for social acceptance and 52.5% will have a low need for social acceptance.

The Effect of Financial Prosperity on Willingness to Pay a Price Premium

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products. For the dependent variable total expenses (indexed) and number of premium brands bought are analyzed. What can be inferred from the results as can be seen in table 4, is that the test results are significant. When total expenses (indexed) is used as an dependent variable the test is significant (F(1,158)=67.10; p=.00) and shows that on average budget-restraint

consumers score a mean of 8,23 and non-restraint consumers score a mean of 11,62. When using number of premium brands bought as a dependent variable, there is also a significant effect (F(1,158)=56.10; p=.00) and shows that on average budget-restraint respondents bought between 1-2 (mean of 1.53) premium branded products whereas non-restraint respondents bought between 3-4 (mean of 3.24) premium branded products. Therefore, the conclusion is that financial prosperity has an significant positive effect on consumer willingness to pay for premium branded products and that non-restraint consumers spend more in comparison to budget-restraint consumers. Therefore hypothesis 1 is accepted. The graphs in figure 2 and 3 clearly depict the difference between budget and non-budget restraint consumers in both their expenses and number of premium brands bought.

TABLE 4

One-way ANOVA hypothesis 1

One-way ANOVA N Mean Standard Deviation F-value P-Value Total Expenses Budget 77 8,23 2,25 F(1,158)= 67.092 .00** Non-budget 83 11,62 2,91 Number of premium brands bought Budget 77 1.53 1.165 F(1,158)=56.104 .00** Non-budget 83 3.24 1.657 **significant at a level of α = .01

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FIGURE 2 FIGURE 3

Hypothesis 1 (total expenses indexed) Hypothesis 1 (premium brands bought)

The Need for Social Acceptance and Effect on Willingness to Pay

In order to analyze whether the need for social acceptance influences the relationship between financial prosperity and consumer willingness to pay for premium branded products a two-way analysis of variance is conducted. In this analysis, need for social acceptance (high vs. low) and financial prosperity (budget vs. non-budget) are used as independent variables. Total expenses (indexed) are used as indicator for willingness to pay premium branded products (dependent variable).

First, regarding the moderating effect of need for social acceptance on the relation between financial prosperity and willingness to pay for premium branded products the results presented in figure 4 show no significant effects (F(1,156): 0.72; p= .398). Additionally, figure 8 appendix E clearly confirms these findings. Therefore, the assumption that budget-restraint consumers increase their spending when they show strong need for social acceptance could not be supported. The variable financial prosperity shows significant effects (F(1,156): 67.31; p= .00; where need for social acceptance does not (F(1,156): 1.10; p= .298).2

2

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FIGURE 4

Total expenses (indexed)

Figure 4 clearly depicts that the differences within a cluster are very small. In support table 5 demonstrates the small differences between the means of different categories. What can be seen is that expenses increase when comparing low versus high need for social acceptance however the differences are very small between all conditions. The initial differences for non-budget consumers have an appearance of an effect and are therefore tested using an

Independent samples T-test. When total expenses Indexed is used as dependent variable, no significant difference is present (Low: 11,23; high: 12,02; t(81)= -1,23; p= .22). When number of premium brands bought is used as an dependent variable the test shows a significant effect (Low: 2,93; high: 3,58; t(81)= -1,80; p= .08) at α= 0.1.

TABLE 5 Comparison of means

Total Expenses index Social acceptance N Mean Std. Deviation

Budget Low need for social acceptance 41 8,19 2,61

High need for social acceptance 36 8,27 1,78

Non-budget* Low need for social acceptance 43 11,24 2,30

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Therefore, one can conclude that the number of premium brands bought by non-budget consumers is significantly influenced by consumers need for social acceptance.

Overall, one can conclude that the test results are insignificant and consequently the willingness to pay for premium branded products between budget and non-budget-restraint consumers is not affected by consumers need for social acceptance. However, examining the means for the non-budget condition shows that significant differences occur and therefore a small effect for need for social acceptance is present within the non-budget-restraint

consumers. In conclusion, the main effect is not significant, and the presence of an effect for the non-budget consumers, which is surprising, implicates that hypothesis 2 is not accepted.3

Influence of Product Classification on Willingness to Pay

In order to analyze whether or not product classification has an effect on consumer willingness to pay for premium branded products and whether this effect is stronger for budget-restraint in comparison to non-restraint consumers, an independent samples T-test is conducted with financial prosperity (budget-restraint versus non-restraint) as an independent variable and percentage of branded hedonic products as the dependent variable. This

percentage explains the percentage of branded hedonic products bought in comparison to utilitarian branded products. The implication is that when the percentage is high more hedonic branded products are bought than utilitarian. The test is insignificant as can be seen in table 6 (t(95,79)= -0,04; p= .97). What can be inferred from table 6 is that the difference in buying branded products between budget-restraint and non-restraint consumers is relatively not existing. Therefore, one can conclude that approximately 80% of the purchases involving branded products existed out of Hedonic products for both budget-restraint (mean= 0,798) and non-restraint (mean= 0,80) consumers.

3

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TABLE 6

Independent samples T-test hypothesis 3

Independent T-test N* Mean Standard Deviation

t-value P-Value Utilitarian products

Budget 64 0,798 0,32 t(95,79)= -0,043 .966

Non-budget 80 0,800 0,18

*16 participants were removed from analysis because they did not buy any branded products

In conclusion, both ‘budget-restraint consumers’ and ‘non-restraint-consumers’ willingness to pay for premium branded products is higher for Hedonic products in comparison to Utilitarian products. The effect is the same for both budget-restraint as non-restraint consumers as figure 5 clearly depicts. Due to the absence of a stronger effect for budget-restraint consumers, hypothesis 3 is partly accepted.4

FIGURE 5

Division of buying hedonic/utilitarian premium branded products

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5. DISCUSSION & CONCLUSION

Conclusions

The goal of the current research paper was to examine how consumers financial situation determines their willingness to pay for premium branded products. In addition, it was expected that the social environment exerted some influence on decision makers. Therefore the expectation is that when consumer need for social acceptance is strong their willingness to pay is higher, especially for budget-restraint consumers. Finally, it was expected that a

difference in willingness to pay a price premium was present when looking at different product types (hedonic versus utilitarian).

Table 7 clearly present the results found in this study. First, consumers with a budget-restriction spend less in comparison to non-budget-restricted consumers. They do so by spending more money or buying more premium branded products. Second, the need for social acceptance does not have an effect on budget-restraint consumer willingness to pay for

premium branded products. This implicates that budget-restraint consumer purchase behavior is not affected by their need to conform or seek identification among other groups. In

contradiction with hypothesis 2, the need for social acceptance does have a small effect on non-budget-restraint consumer willingness to pay; therefore hypothesis 2 cannot be accepted. Finally, both budget-restraint and non-restraint consumers spend more money on premium hedonic branded products in comparison to premium utilitarian branded products. Basically, the product classification has an effect on consumer willingness to pay for premium branded products however, this effect is the same for both budget-restraint and non-restraint

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TABLE 7 Hypothesis results

Hypothesis Result

Financial prosperity; H1 Accepted

Need for social acceptance; H2 Not accepted Product classification; H3 Partly accepted

Discussion

This research contributes to budgeting theory by examining a research framework that in its combination is quite distinct. For example, within the budget theory –which in itself is quite strict and explicit- (Heath and Soll, 1996; Thaler, 1999) in general social aspects such as influence or conformity (Burnkrant and Cousineau, 1975) are not taken into consideration. Whereas (Hamilton and Catterall, 2005) only look from a lower-income consumer perspective this study examined both budget-restraint and non-restraint consumers, where non-restraint consumers could refer to higher income consumers. The current study confirms budget theory in its strictness and offers relevant managerial insights.

First, when solely looking at financial prosperity, it can be inferred that there are significant differences between budget-restraint and non-restraint consumers. Meaning, that consumers with no budget restriction tend to spend more than their budget restricted

opposites. In line with budgeting theory (Heath and Soll, 1996; Thaler, 1999; Hamilton and Caterall, 2005) the lack of resources resulted in lower spending and therefore budget-restraint consumers in general spend less in comparison to non-restraint consumers. Therefore it can be concluded that financial prosperity directly influences the willingness to pay for premium branded products.

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income engage in symbolic consumption to create a positive self-identity whereas Elliot and Leonard (2004) suggest that such consumers try to disguise their poverty by buying premium branded products. The results of the current study suggest that this behavior is not present. In fact, the current study shows an effect for consumers with no budget restriction. Consumers with high need for social acceptance spend slightly more than their low need for social acceptance adversaries. Why there is no effect present for budget-restraint consumers could have several reasons. First, and most important, it could be that the budget restriction imposed on budget-restraint consumers is experienced as very strict and exceeding the budget is

considered not an option. Thaler (1999) mentions the self-control mechanism of budgeting, within the current study this characteristic of budgeting was very strong and notably present. Furthermore, contradicting Heath and Soll (1996) even without tracking expenses, the budget-restriction was interpreted very strong. However, this could also be explained due to the limited choices respondents in the study had to make (eight choices), and therefore they did not forget they were shopping on a budget. Second, in all choices respondents had to make, the price was visible. It could be that this price remembered the customers to their budget, such that their budget was salient. As mentioned before, when prices are salient it almost always reduces expenses (Larson and Hamilton, 2012). Third, a more subjective argument; the possibility that the products incorporated in the study were not attractive to the

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acceptance is, when not having sufficient resources one is not able to purchase what is most desired. The small effect of need for social acceptance, present for the non-restrained

consumers could be explained by the fact that within these groups there is still the incitement to show off. Moreover, the possibility to conform was expected to be lower for non-budget restraint consumers. The result in this study however, suggest that within this group

consumers also tend to conform to the best in class, or seek identification with others (Burnkrant and Cousineau, 1975; Rook and Fisher, 1995). This might suggest that for all consumers conformity and identification behavior is important, regardless their budget situation. When solely looking at the non-restraint consumers one could infer that the results suggest an confirmation of social influence theory (Burnkrant and Cousineau, 1975; Bearden et al. 1989). However, to come up with decent conclusions this should be further investigated.

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Managerial Implications

Nowadays, the common thought on targeting budget-restraint consumers with premium products, is that because they do not have huge spending capacity, it is not profitable to serve such customers (Hamilton and Caterall, 2005; Hamilton, 2012; Isaksen and Roper, 2008). Consequently, retailers entirely shift their focus towards consumers with more resources. However, this research shows that budget-restraint consumers are willing to pay for premium branded products, and are sometimes even willing to do concessions. For example when organizing a party some consumers do not buy some products in order to purchase a specific kind of beer. Furthermore the results of this research suggest that significant differences are present between budget-restraint and non-restraint consumers, therefore it could be profitable to develop brands specifically aimed at low-income consumers. Such that, these consumers are more able to identify with the benefits of a premium brand without having to risk for example not being able to pay an electricity bill in the end of the month. In fact, one could argue that budget-restraint consumers are an underserved group by retailers offering

premium-branded products. Therefore significant opportunities lie ahead. Finally, the current study shows that nowadays most effective branding occurs for hedonic products. Marketing managers could try to shift the focus towards more utilitarian products, and try to create effective branding programs to stimulate the image for more utilitarian oriented products. This offers the opportunity to create unique brands and easily maintain such positions due to the absence of competition. An example of successful branding utilitarian products could be Altrex with its ladders or Chiquita with its Bananas.

Limitations and Future Research Directions

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Second, the need for social acceptance was measured using consumer susceptibility to interpersonal influence (CSII) as suggested by Bearden et al. (1989). To create high and low groups the median split was taken. This could have implications for the results. For example respondents that were quite similar on the CSII scale now belong to different groups (Field, 2013: 359). Furthermore, the respondents scored relatively similar outcomes on the CSII scale, implicating that there are no real outliers such that, the real existence of high and low need for social acceptance is not present in the sample. Therefore it could be interesting to measure this construct using another study design. For example, comparing organizing a party for friends with a situation of buying products just for one self.

Third, in line with results, the strength of need for social acceptance did not resulted in differences within the budget-restraint group whereas small differences are found in the non-restraint group. Therefore, it could be interesting to find out whether the need for social acceptance is depending on consumers financial prosperity.

Fourth, the dependent variable willingness to pay can be interpreted in different ways. In the current study several indicators are used such as spending and number of brands bought. Future research might examine whether consumers living on strict budget have the “desire” to purchase more premium branded products and whether such decisions are influenced by their need for social acceptance. Through this way of research, the actual financial situation of such consumers is omitted. For practitioners it might be interesting to investigate this aspect because it provides more insights in the motives and actions of budget-restraint consumers.

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Sixth, in the current study respondents were told that they had the ability to overspend on their budget with €5,-- and if they did, complex calculations have to be made. There is a possibility that this increases the strictness or salience of the budget. By just stating a budget it could be that the salience of the budget actually decreases. Therefore, budget-restraint

consumers might increase their spending.

Finally, the product classification used in the current study made it difficult to find the proper products in a consumer shopping situation. For example utilitarian products in the food sector are difficult to find. Therefore an alternative should be investigated for example: food versus non-food or hedonic versus non-hedonic.

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REFERENCES

Aggarwal, P. 2004. The Effects of Brand Relationship Norms on Consumer Attitudes and Behavior. Journal of Consumer Research. 31(1):87-101.

Batra, R., & Ahtola, O. T. 1991. Measuring the Hedonic and Utilitarian Sources of Consumer Attitudes. Marketing Letters. 2(2): 159-170

Bearden, W. O., Netemeyer, R. G., & Teel, J. E. 1989. Measurement of Consumer Susceptibility to Interpersonal Influence. Journal of Consumer Research. 15(4): 473-481

Burnkrant, R. E., & Cousineau, A. 1975. Informational and Normative Social Influence in Buyer Behavior Journal of Consumer Research. 2(3): 206-215.

Centraal Bureau voor de Statistiek. 2012. Welvaart in Nederland: Inkomen, vermogen en bestedingen van huishoudens en personen. Den Haag, Centraal Bureau voor de Statistiek

Dhar, R., & Wertenbroch, K. 2000. Consumer Choice Between Hedonic and Utilitarian Goods. Journal of Marketing Research. 37(1): 60-71.

Dictionary.com. “Prosperity”. Dictionary.com Unabridged. Random House, Inc.

http://dictionary.reference.com/browse/prosperity (accessed: February 25, 2014). Elliott, R., & Leonard, C. 2004. Peer pressure and poverty: Exploring fashion brands and

consumption symbolism among children of the 'British poor'. Journal of Consumer Behaviour. 3(4): 347-359.

Field, A. 2013. Discovering Statistics using IBM SPSS statistics. (4th ed.) London: Sage Publications.

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Hamilton, K. 2012. Low-income Families and Coping through Brands: Inclusion or Stigma? Sociology. 46(1): 74-90.

Hamilton, K., & Catterall, M. 2005. Towards A Better Understanding of the Low-Income Consumer. Advances in Consumer Research. 32(1):627-632.

Isaksen, K. J., & Roper, S. 2008. The impact of branding on low-income adolescents: A vicious cycle? Psychology & Marketing. 25(11): 1063-1087.

Larson, J. S., & Hamilton, R. 2012. When Budgeting Backfires: How Self-Imposed Price Restraints Can Increase Spending. Journal of Marketing Research. 49(2): 218-230. Piacentini, M., & Mailer, G. 2004. Symbolic consumption in teenagers' clothing choices.

Journal of Consumer Behaviour. 3(3): 251-262.

Raghunathan, R., & Corfman, K. 2006. Is Happiness Shared Doubled and Sadness Shared Halved? Social Influence on Enjoyment of Hedonic Experiences. Journal of Marketing Research. 43(3):386-394.

Reingen, P. H., Foster, B. L., Johnson Brown, J., & Seidman, S. B. 1984. Brand Congruence in Interpersonal Relations: A Social Network Analysis. Journal of Consumer

Research.11(3): 771-783.

Rook, D. W., & Fisher, R, J. 1995. Normative Influences on Impulsive Buying Behavior Journal of Consumer Research. 22(3): 305-313.

Stafford, J. E. 1966. Effects of Group Influence on Consumer Brand Preferences. Journal of Marketing Research. 3(1): 68-75

Suh, J. C. 2009. The role of consideration sets in brand choice: The moderating role of product characteristics. Psychology & Marketing. 26(6):534-550.

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Thaler, R. 1999. Mental Accounting Matters. Journal of Behavioral Decision Making. 12(3): 183-206.

Van Ittersum, K., Wansink, B., Pennings, J., & Sheehan, D. 2013. Smart Shopping Carts: How Real-Time Feedback Influences Spending. Journal of Marketing. 77(6): 21-36. Voss, K. E., Spangenberg, E. R., & Grohmann, B. 2003. Measuring the Hedonic and

Utilitarian Dimensions of Consumer Attitude. Journal of Marketing Research. 40(3): 310-320.

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APPENDICES

Appendix A: Consumers susceptibility to interpersonal influence (Bearden et al. 1989)

1. I often consult other people to help choose the best alternative available from a product class.

2. If I want to be like someone, I often try to buy the same brands that they buy. 3. It is important that others like the products and brands I buy.

4. To make sure I buy the right product or brand, I often observe what others are buying and using.

5. I rarely purchase the latest fashion styles until I am sure my friends approve of them. 6. I often identify with other people by purchasing the same products and brands they

purchase.

7. If I have little experience with a product, I often ask my friends about the products. 8. When buying products, I generally purchase those brands that I think others will

approve of.

9. I like to know what brands and products make good impressions on others.

10. I frequently gather information from friends or family about a product before I buy. 11. If other people can see me using a product, I often purchase the brand they expect me

to buy.

12. I achieve a sense of belonging by purchasing the same products and brands that others purchase.

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Appendix B. Statistics Hedonic versus Utilitarian Products.

Descriptive Statistics

N Min Max Mean Std. Deviation

Average_UT_Cola 11 1,00 4,40 2,1818 1,20151

Average_HED_Cola 11 1,80 5,00 3,4182 1,02549

N Min Max Mean

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Appendix C: Statistics organizing data

TABLE 8

Spss Table with Communalities

TABLE 9

Cronbach’s Alpha need for social acceptance

Variable Croncbach’s Alpha

Need for social acceptance 0.867

Based on 9 items

TABLE 10 Median-split

Median in old situation 44

Frequency Percent Cumulative percent

Low need for social acceptance

84 52.5 52.5

High need for social acceptance

76 47.5 100

Based on 9 items

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Appendix D: Descriptive statistics

TABLE 11 Descriptive Statistics

N Minimum Maximum Mean Std. deviation

Gender 160 1 2 1,26 0,441

Age 160 16 75 29,28 9,908

Education 160 1 4 2,86 0,813

Gender: 1=male; 2=female

Education: 1=middelbare school; 2=MBO; 3=HBO; 4=WO

TABLE 12

Frequencies gender and education

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Appendix E: Hypothesis testing

FIGURE 8

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