1
Investigating the effect of inequality on consumers’ preference for control
increasing products.
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Investigating the effect of inequality on consumers’ preference for control
increasing products.
University of Groningen Faculty of Economic and Business Master Thesis, MSc Marketing Management
Completion date: June 18th, 2018 First Supervisor: dr. S.A.E.G. Albalooshi Second supervisor: prof. dr. B.M. Fennis
Nienke Veltman Abel Tasmanplein 104
9726ER Groningen, The Netherlands +31637351545
3 Abstract
Perceived economic inequality influences customer behavior. One of the consequences on customer behaviour implies that people who perceive inequality, will perceive a lack of control. Earlier research suggest that people restore their control through compensatory consumption, which is by buying products. Building on this findings, we researched the effect of inequality on product preference that frames control, by conducting a 2 (Inequality: high vs. low) x 2 (Product frame: control-increasing vs. control decreasing) between-subject factorial design experiment. Results validate the pattern showing that participants exposed to high inequality have a preference for the control increasing product, compared to participants exposed to low inequality. Also, results show that participants who were exposed to low inequality did not have a preference for either the control increasing or the control decreasing product. We also examined desire for control and self-efficacy as possible mechanisms for an underlying interaction effect. However, neither desire for control nor self-efficacy was found to mediate the findings.
4 Preface
5 Table of Contents
1. Introduction ... 7
2. Theoretical Framework ... 8
2.1 Economic Inequality and Desire for Control ... 8
2.2 Economic Inequality and Compensatory Consumption ... 10
2.3 Hypothesis ... 10
2.4 Alternative underlying mechanisms ... 11
3. Methodology ... 11
3.1 Participants and design ... 11
3.2 Procedure ... 12
4. Results ... 13
4.1 Manipulation checks ... 13
4.2 Main Analysis ... 14
4.3 Potential underlying mechanisms ... 15
4.4 Mood ... 16 4.5 Control variables ... 16 5. Discussion ... 17 6. Limitations ... 18 7. Conclusion ... 19 8. References ... 20 9. Appendix ... 24
Appendix A – Inequality manipulation pie charts ... 24
Appendix B – Control manipulations advertisements ... 25
Appendix C – Product evaluation scale ... 26
Appendix D – Desire for control scale ... 26
6 List of figures
7 1. Introduction
Economic inequality is an increasing global trend (Payne, Brown-Iannuzzi, & Hannay, 2017; Saez & Zucman, 2016). In advanced economies, the gap between the rich and poor is at its highest level in decades (Dabla-norris & Kochhar, Suphaphiphat, Ricka, & Tsounta, 2015). Saez and Zucman (2016) showed that wealth inequality increased at the top over the last three decades. They estimated that this increase resulted from the share of wealth owned by the 0.1% richest family of the USA. In 1978 this was 7%, but it increased to 22% in 2012. In addition, Saez (2016) showed that income disparities have risen which resulted that America’s top 10 percent owned in 2015 on average more than nine times as much income as the bottom 90 percent of the American population.
Higher rates of economic inequality are associated with higher crime rates (Choe, 2008), greater consumer debts (Frank, 2013), decreased prosocial behavior (Coté, House, & Willer, 2015), gambling (Freund and Morris, 2006) and poorer health outcomes (Pickett & Wilkinson, 2015). Research indicates that the effects of inequality persists even after controlling for median average income and this is indicative of the fact that economic inequality has unique effect distinct from individual income levels (Payne, Brown-Iannuzzi, & Hannay, 2017).
In the consumption context, less is known on the impact of economic inequality on consumers cognition and behavior. To address this void, in this research I will examine the impact of economic inequality on consumer behaviour, by showing that societies with high levels of economic inequality will likely influence consumption behavior of consumers positioned in that society. In particular using research on economic inequality (Bapuji, 2015; Coté et al., 2015; Payne, Brown-Iannuzzi & Hannay, 2017), economic uncertainty (Borlagon, 2015; Griskevicius et al., 2013; Mittal & Griskevicius, 2014), financial deprivation (Diener, Suh, Lucas, & Smith 1999; Panning, 1983; Podder, 1996; Sharma & Alter, 2012; Sharma, Mazar, Alter, & Ariely, 2014), desire for control (De Charms, 1968; Fiske, 2010; Langer, 1975; Thompson, 1993) and compensatory consumption (Cutright, 2012; Cutright & Samper, 2014; Woodruffe-Burton & Elliott, 2005; Yoon & Kim, 2017), this research shows that high levels of economic inequality drives preference for control increasing products. The explanation for this effect is that consumers in societies marked with high levels of inequality, may feel like they possess very little to no control over their own outcomes and seek control increasing products as means of compensating for their lack of control.
8 that it impacts consumption behavior. Second, I add to the literature on compensatory consumption by evincing the important effects of inequality on compensatory consumer behavior. This research, thus, provides a more nuanced understanding of the effects of economic inequality at a societal level.
2. Theoretical Framework
2.1 Economic Inequality and Desire for Control
Consumer perceptions of their own economic standing are not only influenced by resources that are within their reach, but it is also highly influenced by subjective factors and relative comparison, and therefore, by inequality (Payne, Brown-Iannuzzi, & Hannay, 2017). In research on economic inequality, it is rather common to find economic inequality being used to describe effects pertinent to poverty as experienced on an individual level and effects of personal relative deprivation, which refers to assessment of one’s own financial standing as compared to others. For the purpose of the current research, I make use of the definition of economic inequality that confers with the economic phenomenon that wealth is concentrated in a small proportion of the population (Coté et al., 2015) and by wealth, I mean dispersion of accumulated wealth over a period of time. This accumulated wealth can be in the form of mobile and non-mobile assets, such as houses, automobiles, stocks, bonds and cash assets (Bapuji, 2015).
9 Another consequence of inequality is financial deprivation (Podder, 1996). Financial deprivation refers to people who compare their income, assets and possessions to the same indicators of others or themselves in the past in order to assess their financial state (Diener et al. 1999). In this context we assume that people who act in financial deprivation feel financially worse off compared to their peers. In order to be able to compare yourself with someone in a different position, an unequal situation is needed. This implies that inequality is an essential source of relative deprivation (Podder, 1996). Also, the research of Panning (1983) shows that reducing inequality reduces the level of relative deprivation. Research shows that as a consequence of financial deprivation people tend more to cheat for financial gains (Sharma, Mazar, Alter, & Ariely, 2014), they act in compensatory behavior (Wood, Giordano-Beech & Ducharme, 1999) and have a preference for scarce goods compared to abundant goods (Sharma & Alter, 2012). A possible explanation for this could be that people who feel financial deprived act in these kind of compensatory behavior in order to restore their control.
10 (1993) shows that when people perceive a lack of control, people try to regulate this sense of control by finding alternative means to assert control. So people are able to restore control in different ways, where one of the ways is via products (Cutright & Samper, 2014).
2.2 Economic Inequality and Compensatory Consumption
When people perceive a lack of control, they are likely to engage in consumption behavior that compensate or enables them to restore control (Cutright & Samper, 2014). Compensatory consumption occurs when individuals perceive a need, lack or desire and are not able to satisfy this with a primary fulfillment, they seek for alternative means of fulfillment to satisfy it (Woodruffe-Burton & Elliott, 2005). For instance, when consumers perceive low power, they desire to acquire status-related goods in order to increase the feeling of power (Rucker & Galinsky, 2008). This could be explained by the fact that products communicate information about the identities of the owner (Belk, Bahn, & Mayer, 1982; Shavitt, 1990; Shavitt & Nelson, 2000). Products can also restore control, because products serve as external resource that can help to make a desired outcome more achievable (Cutright & Samper, 2014). For example, Cutright (2012) showed that when personal control is threatened, people prefer products that imply structure. A possible explanation might be that people prefer these products in order to boost their perception of control. When linking the concept of compensatory consumption to this research, I argue that when an individual perceive a lack of control as a result of inequality, consumers use consumption as an alternative mean of fulfillment.
2.3 Hypothesis
In this research, I will examine the influence of inequality on the preference of control increasing products. I expect that when consumers are exposed to high inequality, compared to consumers who are exposed to low inequality, they will evaluate a product more positively when it promises control in order to restore their control. In contrast, I expect that when consumers are exposed to low inequality, they will have no preference when the same product does not promise control. Thus, I hypothesize the following:
H1: Consumers exposed to high inequality, compared to consumers in low inequality condition, should evaluate a product more positively when it promises control, but there should be no difference when the same product does not promise control.
11 1.
2.
Figure 1: Conceptual Model
2.4 Alternative underlying mechanisms
The level of self-efficacy might be one of the mechanisms influencing the relationship between inequality and preference for control. Self-efficacy can be defined as “the belief in one’s capabilities to organize and execute the courses of action required to manage prospective situations.” (Bandura, 1995, p. 2) Research showed that there are several physical factors that are affecting self-efficacy. One of these factors is stress. The perception of stress results in lower self-efficacy (Zajacova, Lynch, & Espenshade, 2005). Since stress is one of the possible consequences of inequality (Reiss, 2013), it could be possible that the perception of high inequality results in a lower self-efficacy compared to the perception of low inequality. In addition, research showed that people who have a high self-efficacy have a stronger feeling of control over their lives. In contrast to people who have a low-efficacy, who experience less control over their lives (Bandura, 1977). So this could mean that people with a high level of lower-level of self-efficacy are seeking for control and thus, have a preference for control increasing products. This means that it could be possible that self-efficacy is mediating the relationship between inequality and the preference for control increasing products.
3. Methodology
3.1 Participants and design
In this study we explored the effect of perceived economic inequality on preference for control-increasing (vs. control-decreasing) products. We posit that economic inequality drives preference for control-increasing products and this effect is due to desire for control after being exposed to situations that depict high levels of inequality.
In total 168 participants (88 men and 80 women, Mage = 31,93, SD = 7,812) were
recruited from Amazon Mechanical Turk for a 2 (Inequality: high vs. low) x 2 (Product frame: control-increasing vs. control decreasing) between-subject factorial design experiment. The participants were all living in the United States and were ethnically diverse and identified
12 themselves most commonly as 131 White/Caucasians, 14 African Americans and 14 Asians. After excluding subjects who did not pass the comprehension questions, 13 participants were excluded and the analysis was conducted using data from 155 participants.
3.2 Procedure
Inequality Manipulation. After a brief introduction, participants were first asked to respond to a few demographic questions such as their gender, age, ethnicity, annual household income, employment status, political ideology, subjective SES, and then asked to indicate their state of residence. After participants indicated their state of residence, they waited while the computer purportedly retrieved the wealth distribution in their state. Participants were then randomly assigned to view one of two versions of a pie chart portraying simulated (fictitious) data showing that their home state featured either a relatively high or a low degree of inequality (See Appendix A). The simulated data in the charts were adapted from research by Coté et al. (2015) and consisted with our working definition of economic inequality where the pie charts depicted different proportions of wealth owned by each quintile of the population. Following instruction from previous use of this manipulation and to increase credibility of the information, I indicated that the charts had been constructed using data from the US Census Bureau’s 2017 Economic Census, and that the Census is conducted by means of a representative stratified sampling of households. As a manipulation check, after viewing the randomly assigned pie chart, participants indicated how equally distributed they perceived the wealth in their home state. In addition the participants were asked to what extent they feel that their state is economically suffering, and how satisfied they are with their state. We performed a comprehension check. The participants were asked 3 questions to validate comprehension. These 3 questions asked the participants to do an easy task and fill in the different percentages they were able to see in pie chart. Participants who answered these questions wrong were excluded from the analysis.
13 read: “Let the classic bland take charge of your taste buds”. This manipulation was adapted from the research by Faraji-Rad, Melumad & Venkataramani Johar (2017). They found evidence that the control-increasing condition is perceived as an increased sense of control in contrast to the control-decreasing frame. After exposure we measured the dependent variable (See Appendix C), participants were asked to indicate their positive reaction towards the product (“0: not positive at all” to “10: extremely positive”, the likelihood that they would purchase the product (“0: not likely at all” to “10: extremely likely”), how much they like the product (“0: not at all” to “10: very much”), whether they think the product would be a good choice for them (“0: not at all” to “10: very much”) and how favourable their attitude towards the product is (“0: completely unfavorable” to “10: completely favorable”).
Underlying mechanisms. In order to explore potential underlying mechanisms, participants were asked to fill in the scale for desire for control of Burger and Cooper (1979), where the participants had to indicate their agreement for twenty statement using a 7-point Likert scale (See Appendix D). As well participants were asked to fill in the self-efficacy scale of Zhang and Schwarzer (1995), which consisted out of 10 questions where participants needed to indicate their agreement on a 7-point Likert scale (See Appendix E). To conclude the survey a attention checks were added in order to check how attentive the respondents were during filling in the survey, how they indicated their mood, from which device they filled in the survey, whether they ever participated in a similar study and what they think the aim of the study is.
4. Results
4.1 Manipulation checks
14 Based on these checks I can conclude that the inequality manipulation was effective.
4.2 Main Analysis
A 2 (Inequality: high vs. low) × 2 (Product frame: control-increasing vs. control decreasing) between-subjects factorial analysis of variance (ANOVA) tested the effect of perceived inequality on the preference on control implying products.
A reliability analysis was performed on the depended varianble measures comprising 5 items. Cronbach’s alpha showed the measure to be reliable with α = 0.95. All items appeared to be worth to retain, because of the result in a decrease in the alpha if deleted. Therefore all measures are aggregated into one measure.
Results of the 2-way ANOVA test indicated no significant main effect for product frame on product evaluation, F < 1. However, a significant main effect for the inequality factor on product evaluation was found, F(1,151) = 8.05, p = .005, η2p =.051. Importantly, there was a
marginal significant interaction between inequality and product frame, F(1,151) = 3.45, p = .065, η2p =.022.
To decompose the marginal interaction effect, results from a contrast analysis show that in the high inequality condition participants evaluated the control decreasing product (M = 6.44, SD = 0.36) less positive compared to the control increasing product (M = 7.2, SD = 0.37; F (1,151) = 2.2, p = .141, η2p = .014, 95% CImean-Differences = [-1.76, .25]). However, these results
are not significant. In the low inequality condition, there was no significant difference between the preference for the control decreasing and the control increasing product, F(1,151) = 1.31, p = .255, η2p = .009, 95% CImean-Differences = [-.42, 1.56]. Figure 2 displays the found pattern.
As predicted, in the control increasing product frame condition, participants in the high inequality condition evaluated the product more positive (M = 7.2, SD = 0.37) compared to the participants in the low inequality condition (M = 5.52, SD = 0.37; F(1,151) = 10.55, p = .001, η2
p = .065, 95% CImean-Differences = [0.66, 2.70]). In the control decreasing product frame
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Figure 2: Estimated marginal means of evaluation per condition
4.3 Potential underlying mechanisms
16 4.4 Mood
Research shows that the level of perceived inequality has an influence on people’s mood. Alesina, Di Tella, and MacCulloch (2004) and Oishi, Kesebir and Diener (2011) show that people who perceive a high level of inequality have a lower tendency to describe their mood as happy compared to people who perceive a lower level of inequality. However, Graham and Felton (2015) showed that inequality can increase happiness for people in the highest income quintiles.
In order to control for mood in our analysis, first a reliability analysis was performed on the mood measures comprising 3 items. Cronbach’s alpha showed the measure to be reliable with α = 0.92. All items appeared to be worth to retain, because of the result in a decrease or increase of .001 in the alpha if deleted. Therefore all measures are aggregated into one measure.
In order to measure the effect of the main effect of 2 (Inequality: high vs. low) × 2 (Product frame: control-increasing vs. control decreasing) on mood, I first subjected mood to a one-way ANOVA (Inequality: high vs. low). In contrast to the predictions results of this ANOVA test indicated that a high level of inequality resulted in a more positive mood (M = 5.66, SD = 1.11) compared to participants in the low inequality condition (M = 5.28, SD = 1.34;
F(2,153) = 3.94, p = .049). These results are not in line with the theoretical reasoning that state that inequality decreases the feeling of happiness. However, these results could be seen as inconclusive, since Rözer and Kraaykamp (2013) showed that past research about the effect of inequality on happiness is inconclusive. There are many studies conducted that go in very different directions.
4.5 Control variables
Income. I subjected participants’ evaluation to a 2 (Inequality: high vs. low) × 2 (Product frame: control-increasing vs. control decreasing) while controlling for income. Results suggest that income as covariate has no main effect on the product evaluation, F < 1. However, after controlling for income, the hypothesized two-way interaction between inequality and product frame on evaluation remained marginal significant (F(1,150) = 3.45, p = .065, η2p = .022). Also,
the main effect of inequality remained significant (F(1,150) = 7.8, p = .01, η2p = .049) and the
main effect of product frame remained insignificant (F(1,150) = 0.07, p = .79, η2p = .000).
SES. SES as covariate, has no main effect on the product evaluation, F(1,150) = 2.05, p
= .15, η2p = .014. However, after controlling for SES, the hypothesized two-way interaction
17
6.5, p = .01, η2p = .042) and the main effect of product frame remained insignificant (F(1,150)
= 0.07, p = .79, η2p = .000).
Years. The amount of years that the participant has been living in the state as covariate,
has no main effect on the product evaluation, F(1,150) = 0.14, p = .71, η2p = .001. However,
after controlling for the amount of years, the hypothesized two-way interaction between inequality and product frame on evaluation remained marginal significant (F(1,150) = 3.16, p = .077, η2p = .021). Also, the main effect of inequality remained significant (F(1,150) = 67.8, p
= .01, η2p = .050) and the main effect of product frame remained insignificant (F(1,150) = 0.07,
p = .79, η2
p = .000).
5. Discussion
Inequality does influence individual’s behaviour. It is known that people who perceive higher inequality are associated with for example higher crime rates (Choe, 2008), greater consumer debts (Frank, 2013), decreased prosocial behavior (Coté, House, & Willer, 2015), gambling (Freund and Morris, 2006) and poorer health outcomes (Pickett & Wilkinson, 2015). Building on the findings of previous research, we researched the effect of perceived inequality on preference for control increasing products. The first aim of this research is to reveal the direct effect of the level of inequality on the preference of a control increasing product. The hypothesis predicted that people who were exposed to a high level of inequality, compared to consumers who were exposed to low inequality, evaluate the product more positively when it promises control. In contrast, the hypothesis predicted that when consumer exposed to low inequality do not have a preference when the same product does not promise control. Results of the 2x2 between-subject design experiment validate the pattern of our hypothesis stating that people who were exposed to a high level of inequality, compared to consumers who were exposed to low inequality, evaluate the product more positively when it promises control. In contrast to consumers who are exposed to low inequality, who do not have a preference when the same product does not promise control.
18 This study has a number of theoretical and practical implications. With this research we contribute to the growing body of research on the impact of economic inequality and show that it impacts consumption behaviour of people within the society. Second, the findings add to the literature on compensatory consumption by evincing the important effects of inequality on compensatory consumer behavior. People restore a lack of control by compensatory behaviour (Cutright & Samper, 2014). Our findings add evidence to this reasoning, since it shows that people compensate their lack of personal control because of perceived inequality by preferring a product that implies control over a product that does not. This research, thus, provides a more nuanced understanding of the effects of economic inequality at a societal level.
In addition, this research also has practical implications. The explanation of the relationship between inequality and the preference for control increasing products provide marketers with a better understanding of consumers’ behavior. If marketers are provided with this knowledge, they could use this in order to design their marketing strategies more effective. If marketers were to gain of this knowledge, marketing strategies could be designed in a way that it is communicating a control increasing message. Based on the findings, communicating this message is most effective when people perceive high inequality. So marketer should apply this strategy in unequal states or countries. However, the morality of these practices is debatable, since even the people in a bad financial situation are targeted and stimulated to make purchases (Alwitt, 1995).
6. Limitations
19 inequality manipulation was not credible and effective. In this research we did not control for accurate knowledge, so it could be that when controlling for accurate knowledge, more participants needed to be excluded from the research, which could potentially change the results.
Future research may therefore further explore our proposed hypothesis by using a bigger sample size, using a stronger product frame manipulation and controlling for accurate knowledge about the wealth distribution of the state.
7. Conclusion
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24 9. Appendix
Appendix A – Inequality manipulation pie charts Low inequality manipulation
25 Appendix B – Control manipulations advertisements
Low control advertisement
26 Appendix C – Product evaluation scale
- How positive is your reaction to this advertisement?
- How likely would you be to purchase this product if it were available today? - How much do you like the product?
- Do you think the product would be a good choice for you? - How favourable is your attitude towards this product?
Appendix D – Desire for control scale
- I prefer a job where I have a lot of control over what I do and when I do it. - I enjoy political participation because I want to have as much of a say in running government as possible.
- I try to avoid situations where someone else tells me what to do. - I would prefer to be a leader than a follower.
- I enjoy being able to influence the actions of others.
- I am careful to check everything on an automobile before I leave for a long trip. - Others usually know what is best for me.
- I enjoy making my own decisions.
- I enjoy having control over my own destiny.
- I would rather someone else take over the leadership role when I’m involved in a group project.
- I consider myself to be generally more capable of handling situations than others are. - I’d rather run my own business and make my own mistakes than listen to someone else’s orders.
- I like to get a good idea of what a job is all about before I begin.
- When I see a problem, I prefer to do something about it rather than sit by and let it continue. - When it comes to orders, I would rather give them than receive them.
- I wish I could push many of life’s daily decisions off on someone else.
- When driving, I try to avoid putting myself in a situation where I could be hurt by another person’s mistake.
- I prefer to avoid situations where someone else has to tell me what it is I should be doing. - There are many situations in which I would prefer only one choice rather than having to make a decision.
27 Appendix E – Self-efficacy scale
- I can always manage to solve difficult problems if I try hard enough. - If someone opposes me, I can find the means and ways to get what I want. - It is easy for me to stick to my aims and accomplish my goals.
- I am confident that I could deal efficiently with unexpected events.
- Thanks to my resourcefulness, I know how to handle unforeseen situations. - I can solve most problems if I invest the necessary effort.
- I can remain calm when facing difficulties because I can rely on my coping abilities. - When I am confronted with a problem, I can usually find several solutions.
