The Impact of Perceived Economic Inequality
on Customers’ Switching Behavior
Aikaterini Katsikoudi
Master Thesis MSc. Marketing Management
The Impact of Perceived Economic Inequality on Customers’
Switching Behavior
By: Aikaterini Katsikoudi S3299589
University of Groningen Faculty of Economics and Business
Department of Marketing
Supervisors
First Supervisor: Dr. M. Moeini-Jazani,
Second Supervisor: Dr. M. C. Leliveld
Aikaterini Katsikoudi
Van Heenvlietlaan 260D, 1083 CN Amsterdam
É +31 630956991
Abstract
This thesis examines the impact of the different level of inequality to customers’ switching behavior. The theoretical framework discusses this relationship of perceived economic inequality and switching behavior to be mediated by customers’ sense of control. In addition, this research also discusses how perceptions of economic mobility moderates the above relationship. The result shows that the main relationship is marginally significant and the mediating and moderated mediation relationship are both not significant. This was concluded due to the low correlation between all variables. Following the study discusses the possible explanations of the results and the limitations of the current study, which lead to recommendations for further research.
Table of Contents
1. Introduction ... 5
2. Theoretical Framework ... 6
2.1 Perceived economic inequality ... 6
2.2 Customers’ Switching Behavior ... 8
3. Hypotheses and figure ... 10
4. Methodology ... 12
4.1 Experimental Design and Data Collection ... 12
4.2 Variable manipulation: Inequality ... 12
4.3 Measuring sense of control ... 13
4.4 Measuring customers’ switching behavior ... 13
4.5 Measuring perceived economic mobility ... 14
4.6 Plan of analyses ... 14
5. Results ... 14
5.1 Testing the main effect of perceived economic inequality on Switching Tendency ... 15
5.2 Testing a sense of control as a mediator using Hayes (model 4) ... 15
5.3 Moderated mediation using Hayes (model 8) ... 17
5.4 Robustness Check analysis ... 18
6. Conclusion ... 18
7. Discussion ... 20
8. Future research ... 21
9. References ... 23
1. Introduction
“Nowadays, the odds a child will earn more than his parents are no better than a coin toss. It’s becoming the norm for someone to start and end his or her career at the same income level” (“The Troubling Economic Trend Is Unfairness, Not Inequality” 2017). “Inequality gap widens as 42 people hold the same wealth as 3.7bn poorest” (Jan 2018, “The Guardian”). These are two among thousands of articles in recent years which illustrate the current global issue of inequality. Income inequality has increased in most developed countries over the past 25 years, resulting in both psychological and behavioral consequences for people with lower incomes than others in their social environment (Briers and Laporte 2013). Researchers, policy makers and customers have always been interested in questions of economic inequality which gradually increasing spanning the years (Australian Productivity Commission 2018) due to the increased gap between poor and rich and also the effect of it in both the behavior and psychology of the society.
In 2016, the World Bank published some statistics how prevalent inequality is around the world. Around 11% of the global population lives in poverty and on less than 2$ per day. Especially in the United States poverty and economic inequality the top 1% of families brought in a record-high 23.8% of the overall income in 2016 (Matt Egan, 2017). The bottom 90% of families now make less than half of the country's income (“Record inequality: The top 1% controls 38.6% of America's wealth” 2017). On the one hand, 70% of people born into the bottom 20% never make it to the middle class, and only 20% of those born into the middle class make it into the top 20%. It’s been this way for 40 years, following these evidence in the U.S. social mobility is low.
Since 2009 in 43 states evidence show that the incomes of the wealthy 1% grew faster than the incomes of the poorest 99%. On the top of it, in nine states the income growth of the richest was more than 50% of all income growth till 2015 (Aghion, Akcigit, Bergeaud, Blundell, Hémous, 2015). As a result, rich are getting richer and the poor are getting poorer in the United States nearly in every state (Matt Egan, 2017).
problematic situation makes customers feel that they are victims of unfairness and this is mirroring in their everyday life, behavior and feelings.
In the last decades, many studies analyzed the above situation about economic inequality, psychology, social mobility and behavior and proved different options of how all these factors coexist and interact. However, less is known about how economic inequality influences consumer judgment and decision-making. This research aims to bridge this gap by exploring how perceived economic inequality modulates consumers’ willingness to switch between different brands. We argue that because perceived economic inequality threatens individuals’ sense of control, people may be more willing to switch between brands as a symbolic manifestation of their ability to restore control.
In the following study, we first discuss how customers’ switching behavior is affected by perceived economic inequality. Secondly, we present a number of studies providing evidence in order to prove the above relationship and also the effectiveness of self-mastery in it as a mediator. Using an online survey as a tool, we collected and analyzed the expected results which we present and discuss in the last parts of this study. Finally, limitations of the study are addressed.
2. Theoretical Framework
2.1 Perceived economic inequality
but also it is experienced in individual-level bringing economic and psychological results as an effect.
In particular, customers are asked to manage a dramatic situation and as it mentioned in the report of Morgan Stanley, inequality affects consumption, investments and also growth (Nuzzo, Bartsch, Roberts, Alsford 2015). Additionally, economic inequality affects also customers’ psychology and behavior and in some cases, it thought as more difficult as it really is due to the thoughts and feelings. In other words, some of the customers around the world hold incorrect perceptions of what really economic inequality means (Hauser, Norton 2017). This misperception of economic inequality arises from many different reasons both psychological and financial. As for example antisocial behavior, negative stress, aggressive behaviors that are harmful to others) (DeCelles, Norton 2016) and economic threat, which switches customers’ social attitudes and behavior, and that most of the time it is getting worse and it appears during economic downturns or rising social inequality (Fritsche, Jugert 2017). Due to the effects which we mentioned above customers keep feeling insecure and less able to handle the rising threat. The emotion of reduced mastery of self it is the lack of control which reflects an individual’s beliefs about his or her ability to manage important life circumstances which integrates several aspects of psychosocial stress and leads customers to behave in a strange way. Lack of control during perceived economic inequality is theorized that it is affected by socioeconomic status through a variety of pathways. Customers with increased the sense self-control are likely to act in a standard way and they are not trying to change or take higher risks especially during economic inequality. On the contrary, when customers compare themselves with others and feel like poorer and as a result they have a lower self-mastery to probably trying to change in order to improve their negative position. Research also shows that people who are feeling poor are motivated to overcome this situation by finding ways of gaining money easier i.e. playing the lottery (Blalock, Just, and Simon 2007).
people overestimate social class mobility which leads in both costs and benefits for individuals and society as well (Kraus, Tan 2015).
Taking into account all the above findings we believe that feeling poor influenced by lack of self-control and combined with a belief in social mobility can all drive changes in how the customers behave during consumption. Especially we believe and trying to prove that perceived economic inequality is not only connected but also can increase the tendency of switching brands and that this relationship is mediated be the sense of control and moderated by the belief in social mobility.
To summarize, this first chapter reviewed the existing literature on how economic inequality (or the feeling of it) has been proven to be strictly connected to lack of control, and also how belief in social mobility is able to influence customers actions. However, less is known about the connection between perceived economic inequality and customers switching behavior. However, in the next section a viable way to address this gap in the literature will be proposed.
2.2 Customers’ Switching Behavior
Customer switching behavior is defined as an act of being loyal to one service categories but switch from one service provider to another, as a result of dissatisfaction or any other related problems (Keaveny, Parthasarathy 2001). Consumer behavior is always influenced by a vast number of factors, which simulates the behavior of customers towards either remain to their choice or switch towards a new one. Various strategies, which are frequently used by firm managers to (de)motivate customers switching behavior. However, firms around the world lose a high percentage of their customers in a period of five years. But most managers fail to address the reason for losing and keep making mistakes because a climbing switching rate is a sign that a business is in trouble (Shukla 2004).
Spanning the years, a crucial question for researchers is what motivates customers to behave in a different way. Some of the main motivating drivers for customer switching behavior can be identified: personal values and attitudes such as a sense of control, psychological stimuli, thinking about social comparison, belief in social mobility and financial threat are able to have greater influence to buyers' behavior than the amount of income.
making when self-control is lower overspending people can face consequences of falling in debt, poor credit, psychological problems (stress, guilt, anxiety) and social consequences (strained relationships) (Ahmed, Khan, Samad 2016). In consumer settings, control has also been determined to be positively related to customers’ favorable emotions and might therefore, increase their satisfaction in a service failure (Prenda, Lachman 2001). In other words, when customers live under dissatisfying (at least for themselves) circumstances, they are trying consciously or not to choose products or services which make them feel better in any way, for example they can probably decide to buy a MacBook Air instead of a Lenovo despite the fact that the cannot afford it, only to satisfy themselves in order to feel happier or more approved by the society.
In addition, being approved by the society members and the social comparison is one of the most ubiquitous features of human social life. This human tendency to observe others in order to receive information about how to think, feel, and act has provided us with the ability to thrive in a highly complex and interconnected modern social world (Mitchell, Banaji, MacRae 2005). In other words, when social comparison matters for them the boundaries between the have and have not between customers reinforcing the ones in a less powerful position to switching in order to find the brand which can “upgrade” them or at least make them feel equal to the ones that the compare themselves.
Furthermore, during the 20th century and up to the present day, most people in the developed democracies have been socially mobile and the majority of them have been upwardly mobile (Breen 2010). Social mobility refers to the intergenerational social mobility, comparing an individual’s circumstances with the circumstances of the family in which he or she was raised and studies show that brand switching can result from customers’ social mobility (Lam, Ahearne, Schillewaert 2010).
An additional factor, with an important impact on customers’ switching behavior is financial threat. The financial threat is defined as fearful-anxious uncertainty regarding one’s current and future financial situation (Fiksenbaum, Marjanovic, Greenglass 2017). In sum, customers do not have the willingness to change because this probably will lead them to a wrong investment.
behavior is getting place due to the feeling of economic inequality which leads customers to feel less satisfied on only thing into account their financial situation but also the psychological effects which being a society member can bring and finally how all the above are connecting under the reduced presence of self - control.
3. Hypotheses and figure
Individuals’ perception of economic inequality influences distributional preferences. Moreover, exposure to inequality can be emotionally arousing, as for example an aggressive social behavior (DeCelles, Norton 2016). This suggests that the salience of inequality might induce reactions against other society members. Furthermore, it is supported that experiencing inequality can lead to behavior that influences switching behavior (Hauser, Norton 2017). However, the literature of today is not clear about if people who do this also drive their consumption choices.
Customers under perceived economic inequality and under less control condition are trying to minimize conflict and difficulty associated with their choice in order to not mess it up in the future. We believe that customers, in order to avoid wrong future decisions, tend to change products and this relationship is also influenced by lack of control. Build on the described literature; it is hypothesized that people under economic inequality changing their purchasing decisions.
H1: Perceived economic inequality increases brand switching behavior of customers
compared to people who do not feel poor.
feel a low level of personal control, resulting in decreased level of brand switching. People who feel financially equal are expected to have higher levels of control and resulting in reduced levels of brand switching behavior.
H2: Personal sense of control mediates the relationship between perceived economic
inequality and brand switching.
This year’s study of Shai Davidai proved that economic inequality is negative related to economic mobility, and that this assumed from attributions they make about wealth and poverty. While economic inequality increases, people gradually attribute economic success and failure to external factors that are beyond an individual's control and waiting for economic mobility to drop. As a result, people's belief in economic mobility is getting higher while underestimating economic inequality (Davidai 2018).
Additionally, the mobility of social classes and willingness to move in higher class also changes the consumption behavior of next lower class who copy the higher classes which can be achieved through education, promotion in their profession.
According to the evidence above, we will try to prove that tendency to social mobility plays the role of a moderator in the relationship between perceived economic inequality and brand switching.
H3: Tendency to perceived social mobility moderates the relationship between perceived
economic inequality and brand switching.
Figure 1: shows a conceptual representation of these hypotheses and the relationships between the different concepts.
4. Methodology
4.1 Experimental Design and Data Collection
All hypotheses were tested through an online experiment, which was divided into 2 parts; Inequality manipulation (IV) and test for sense of control (mediator), and the Customers switching behavior (DV), with a 2 (high inequality vs low inequality) x 2 customers switching behavior (change vs not change). Participants were required to complete an anonymous online questionnaire using Qualtrics software. All participants were recruited online via Amazon Mechanical Turk (MTurk). This specific platform was chosen due to the fact that it is crowdsourcing and allowed us to gather a large sample of participants whose demographics were diverse and crucially unlimited to the university students (Buhrmester, Kwang, and Gosling 2011). The respondents are from different states of the USA. A total of 200 MTurk participants completed the study in exchange for financial compensation and they participated voluntarily. Respondents were first randomly assigned to either a high inequality condition and the other group is exposed to low inequality condition. The sample size was predetermined.
After data inspection 8 participants were excluded from analyses because they did not complete the survey correct or did not follow the needed instructions or failed attention’s checking question (IMC; Oppenheimer, Meyvis, Davidenko 2009). After data cleaning the new number of participants was n=182 and their demographic characteristics were (Age average=39,15, female=101, male=81) which provides us with sufficient power for the analysis. Our rationale for sample size was to get closer to a number to seek adequate power to detect a small-sized interaction effect if it was present.
4.2 Variable manipulation: Inequality
population segments is low). Afterward, the respondents were asked to answer a couple of comprehension questions to make sure they grasp the insights of the graph and increase their exposure frequency to (in)equality, which would potentially increase their feelings of equality or inequality. The respondents who do not demonstrate their comprehension of the survey are excluded from the data analysis. Therefore, three questions were presented (i.e., perceived economic suffering, dissatisfaction and perceptions) to enable manipulation check to be done in the following analysis.
4.3 Measuring sense of control
To measure the mediating role of sense of control, the respondents were asked to fill in a set of personality questions. Specifically, the category used for the self-reporting sense of control is the personal mastery category (as shown in Appendix 5), which is defined as individual's sense of effectiveness in achieving goals (Lachman and Weaver, 1998b). This category contains only 12 simple questions, which considered being more effective in this survey due to the way that is structured. Explanation of the questions.
Four questions on a 7-point Likert scale were asked about personal mastery and the average of these questions indicates the level of personal mastery. For the level of perceived constraints there were eight questions on a 7-point Likert scale of which the average was calculated to indicate their level of perceived constraints. This scale consists of in total 12 questions with equal weight with two different categories, which are perceived constraints and personal mastery.
4.4 Measuring customers’ switching behavior
4.5 Measuring perceived economic mobility
To measure the moderating role of perceived economic mobility, the respondents were asked to fill in a set of questions. This category contains 8 simple questions, which considered being more effective in this survey due to the way that is structured. Explanation of the questions. Eight questions on a 7-point Likert scale were asked about their beliefs regarding mobility from a social class to another. This scale consists of in total 8 questions with equal weight.
4.6 Plan of analyses
In order to analyze the data, first MS Excel was used to clean the data and calculate appropriate measurement averages. Second, the data was imported into SPSS for quantitative analyses. Data were analyzed using ANOVA and regression techniques. To establish mediation and moderated mediation PROCESS models 4 and 8 as described by Hayes (2013) were used.
5. Results
survey respondents perceive the economic inequality in their living area according to each treatment in every different condition.
5.1 Testing the main effect of perceived economic inequality on Switching Tendency A one-way ANOVA test has been conducted in order to see the main relationship between the variables in the hypothesis. In this case, the main effect of inequality on customers’ switching behavior is measured. As can be seen in Appendix 4, the effects of inequality variable to respondents’ customers’ switching behavior approached significance but it was marginally significant at 0.05 level.
When perceived economic inequality is low, brand switching takes values (M = 39.86, SD = 26.01) lower than the results under high perceived economic inequality when brand switching takes values (M = 46.36, SD = 25.13). In addition, the output shows that p-value is higher than the significant level (P= 0,088), although the results are marginally significant. Figure 2 show these differences in every condition.
Figure 2. Meanlevel of switching behavior per condition
5.2 Testing a sense of control as a mediator using Hayes (model 4)
combination of Sense of control and perceived constraints (Appendix 8). After running an ANOVA analysis, we found that perceived economic inequality and sense of control are not significant. Specifically, when perceived economic inequality is low, sense of control takes values (M = 4,6422, SD = 1,21219) lower than the results under high perceived economic inequality when sense of control takes values (M = 4,6528, SD = 1,27648).
Because the relationship between perceived economic inequality and switching behavior was marginally significant, we proceeded to test for the mediating role of sense of control. As Hayes refers to one of his article “Beyond Baron and Kenny: Statistical Mediation Analysis in the New Millennium. Communication Monographs”, in 2009 when the main relationship is not significant the analysis should stop. However, in our case the results are marginally significant and the indirect effect might still present as he said in that specific article. Hayes supports that the mediation effect occurs, the mediator variable should yet be significantly correlated with the other two variables; independent and dependent variable. For this reason, we made also a correlation check among all performed variables. The results show that there is an insignificant relationship between Sense of control and perceived constraints and also between the combination of these two.
Following, Hayes model 4 used to measure how the personal sense of control mediates the relationship between perceived economic inequality and brand switching (H2). Model 4 supports that the third variable in our case sense of control is thought to come between the independent variable (perceived economic inequality) and dependent variable (switching behavior) and as a result perceived economic inequality leads to sense of control (mediator), which in turn leads to switching behavior. The following figure (3) shows the mediated relationship.
The results show that for the first part of the relationship between perceived economic inequality and sense of control the p-value=0.8709 which illustrates a non-significant relationship. In addition, the relationship between dependent and independent variable illustrates as following; Brand switching =44.1224+6.0566*Inequality0.8217*SoC and also that p-valueinequality=0.1125 and p-valuesoc=0.6009 and as a result they are not significant
(Appendix 9).
Dependent Variable: SoC
F df1 df2 Sig. 1.106 1 179 .294
Tests the null hypothesis that the error variance of the dependent variable is equal across groups. Design: Intercept+Inequality0Low1High
Tests of Between-Subjects Effects
Dependent Variable: SoC
Source Type III Sum of Squares
df Mean Square F Sig. Partial Eta Squared Corrected Model .039a 1 .039 .026 .871 .000 Intercept 3943.076 1 3943.076 2660.207 .000 .937 Inequality0Low1High .039 1 .039 .026 .871 .000 Error 265.322 179 1.482
Total 4208.694 181 Corrected total 265.361 180
a. R Squared=.000 (Adjusted R Squared=-.005)
5.3 Moderated mediation using Hayes (model 8)
effect of sense of control on switching tendency. The results show the following; SoC=3.2329-0.1651*Inequality+0.3905*PEM+0.0317*Inequality*PEM with a p-valueinequality
=0.7387 and also inequality*PEM is not significant (p-value=0,7999). Following, in the following relationship Brand Switching=44.7722+2.3484*Inequality-1.1711*SoC +0.2657*PEM+0.9820*Inequality*PEM and also values took the below values p-valueinequality=0.8390, p-valueSoC=0.5053, p-valuePEM=0.8988 and p-value Inequality*PEM
=0.7367 are all insignificant (Appendix 10).
5.4 Robustness Check analysis
To demonstrate that our main analysis regarding the relationship between perceived economic inequality and tendency to switch is valid, a robustness check analysis took place and the following results illustrate that regardless the presence of control variables (gender, ethnicity, employment status, education level, income level, age, political orientation) the results are keep being marginally significant.
*encoded not needed for this variable
6. Conclusion
This paper has tried to analyze the relationship between perceived economic inequality and customers’ willingness to switch between brands. Particularly, the study looked into the impact of low and high level of inequality on customers’ switching behavior. Despite the fact that the manipulation of inequality variable turned out to successfully impact the perceived inequality, the result of the main relationship is marginally significant and the indirect relationship is not. In this chapter, some possible explanations for these results will be presented.
Source Gender Sig. ethnicity Sig. employment Sig. Education Sig. Income Sig. Age Sig.
Inequality Conditions – use of a pie chart
A possible reason why the results were only marginally significant is that the participants were randomly exposed to a low or high inequality condition. The participants had to read a pie chart in which some percentages appeared, however probably for many people a chart as part of a survey does not mean anything on the contrary, maybe the use of a newspaper article for Washington Post (WP) in the example will be more persuasive than some statistics. The arguments appear and the important role of Media and especially media like WP will be more useful in order to convince participants to get involved in the survey and also to make understandable the effect of inequality in our everyday routine.
The way of measuring the dependant variable
For the dependent variable (customers’ brand switching) was used a 100-point scale, however, for the rest of the questions a 7-point scale was used and probably this difference made a choice unclear and confusing for the participants due to the fact that this scale was too long compared to the others, but it was supposed to measure just two different kinds of options.
Furthermore, probably the case used to measure the dependent variable did not manage to make the participants identified to it. The case was related with a laptop purchasing (switching or not the brand). However if the participants were not obsessed with high-tech devices probably, they do not prefer to change regardless if they are feeling poor or not. In addition, the average number of the participants’ age is higher than 40 years old, and maybe they are not that attracted either from a case like the one we presented.
Likert scale
Economic inequality and a sense of control
The participants were exposed to a sense of control and also perceived constraints questions immediately after the perceived economic inequality pie chart. The can be also an explanation of the low correlation between inequality and switching behavior and also sense of control. The small gap and no delay of exposure to this scale could potentially describe the findings, and probably it could be a solution to measure sense of control in another time, as we did we perceived economic mobility questions. Specifically, when a participant learned in the survey that the economic inequality in his/her social class is high, according to the hypothesis; they will have to have a lower sense of control. Following the literature, we used to support our hypotheses when customers (in our case the surveys’ participants) feel insecure of their economic situation; they directly look for compensating factors to restore their self-concept and rely on the heuristics without elaborated thinking as discussed on the theory part of this paper. Additionally, the time lag between the scales was therefore underestimated and may have altered the results. Nevertheless, this theory is poor and more research should be done to get a more reliable justification, taking into account that the theory regarding the feeling of poverty and tendency to change brands in order to feel better suggesting a relationship between them.
Sample size
Adding more participants in the survey might increase the significance between independent and dependent variable. This research has less than 200 valid responders, after data cleaning. For future research, it would be useful to have more than 500 valid participants.
7. Discussion
necessary tests. The data cleaning and also the measurement of the demographics were analysed with the use of Python program language.
The analysis and also the tests were run, conclude that independent variable (inequality) and the dependent variable (customers’ switching behavior) is marginally significant. Additionally, the presence of the mediator (sense of control) or the moderator (perceived economic mobility) have any important effect on the above relationship. As a result, all our hypotheses must be rejected, and some reasons behind these results have been already discussed.
The way in which the survey was proceed, the sense of control and perceived constraints questions were appeared and probably the participants were already feeling disappointed by the economic conditions which were presented on them and as the literature proves the feeling of insecurity is able to manage their decisions and as a result their answers in our survey. Some further possible explanations were already analysed in the previous section. As a result of the above written, this study will finish with some questions for further investigation regarding the way that the research was developed and some possible ways to improve it in order to be more sufficient. Was the sample the most suitable one for our survey? Was the structure and procedure the optimal one to retrieve the needed information? How can they be sure that the participants were feeling under the conditions in which our study asked them to be?
8. Future research
Based on the presented study the direction of the related research in the future will be probably about the improvement of the survey and also about fingering out the causes for which the data were marginally significant or insignificant (for the indirect relationships), as we explained in discussion and results part of this paper, especially since the literature was predicted a relationship not only between inequality feeling and tendency to switch but also with the presence of self-mastery as a mediator and perceived economic mobility as a moderator in the above relationship between independent and dependant variable.
to avoid wrong feeling during responding in questions about perceived economic inequality. In addition, probably an article of a newspaper – publics’ influencer newspaper (i.e. Washington Post) could be more helpful to make the participants full involved and convinced that the inequality is part of our life and not just a piece in a pie chart.
Besides, since the recent study only involved American citizens, it is recommended to gather a population of more heterogeneous samples to avert potential biases and to have a more comprehensive implementation. In other words, our hypotheses are probably not valid for Americans who are familiar with living under inequality conditions and they somehow already approved that but it will not be the case for another country or continent (i.e. Europe).
In addition, in a future research a pre-test regarding the Likert scale could be done in order to measure the affectivity of it in the procedure and also if the way (positive or negative) that the scale measures / works is clearly understandable by the participants. The test it is not necessary to be done to the total number of participants, it can be done just in 40-50 in order to ensure that everything is clear for the responders. Invalid responses will be automatically excluded from the survey.
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10. Appendix
Appendix 1: Study Graphs - Low vs. High Inequality
High Inequality
Appendix 5: Sense of control – Perceived constraints (examples)
