Stanford University marketing professor Itamar Simonson has studied consumer behavior for years and, until recently, considered most consumers “irrational,” making “inconsistent or incoherent” decisions, which were often “unambiguously the inferior choice.”
Now, Simonson — coauthor of the new book Absolute Value: What Really Influences Customers in the Age of (Nearly) Perfect Information — has changed his mind and has advice for you as a result.
The reason for his turnaround: the Internet. Thanks to its myriad of websites with consumer and expert reviews, the Internet has enabled consumers to become much more informed decisionmakers when buying products.
But, Simonson says, although we now have more information to make better choices, “many consumers do not take advantage of that information.” Older consumers, in particular, are still not comfortable seeking reviews and expert opinions online, he says. And many of us remain susceptible as ever to influence by marketers.
Before you see my interview with Simonson below, let me give you two examples of why he used to call consumers “irrational.”
In a University of Iowa study, people rated beef presented to them as “90 percent lean” as better tasting than beef containing “10 percent fat” even though it was the same beef. Another example, from a Simonson study published in 1992: When people were asked to choose between two Minolta cameras, one for $169 and one for $239, they selected the less expensive model. But when they were presented with a third camera costing $469, many opted for the now, middle-priced $239 model that they had once rejected. Simonson says there’s no rational reason why the once-scorned camera suddenly became a better choice.
So, now on to my questions and Simonson’s answers:
Next Avenue: Why do you believe consumers are more rational today?
Simonson: Consumers are much better informed about the actual, absolute values of products. When I started my career in the 1980s and for the following 20 years, my research showed that consumers often behaved irrationally. That was demonstrated by what I called the “compromise effect” in the camera test [mentioned above].
Recently a doctoral student here at Stanford, Taly Reich, and I tried to replicate this effect, but we found something interesting: For participants who first saw what consumers usually see when they shop for a camera online —lots of options, reviews written by other consumers, feature-comparison charts — the compromise effect was gone. They were no longer biased in favor of the middle option. Once consumers are better informed about the absolute values of products, they are not dependent on things like brand name or a small set of options in front of them.
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And what has been the effect of the Internet?
Consumers are becoming less susceptible to marketers’ influence. They are better able to evaluate products for what they are, rather than just how the products are described or how they compare with other options they happen to see.
This means that, contrary to what we frequently hear, consumers will — on average — make better choices and act more rationally. But there’s a catch: All this will happen only if consumers take advantage of the new information that is available out there, things like reviews from other users and expert opinions.
Does this mean consumers are now less loyal to brands than before?
Yes, in certain categories. Loyalty was useful in the old days because it reduced your risk as a consumer. If you had a good experience with other products by Brand X, you trusted this brand and bought their new product. Yet we’ve all seen cases where one product by a particular company is great, but the next one is not so great. So today, many consumers have replaced such proxies for quality with better sources of information.
However, this doesn’t apply to categories like beer or toothpaste, where consumers don’t rely on reviews as much. In those categories, brand loyalty will still play an important role in purchase decisions.
This is also true for certain luxury products. For example, when buying a luxury handbag or a scarf you’re not likely to rely much on reviews from other users, so brand names can play a more significant role.
How can consumers learn to be more rational?
It’s not so much about learning how to be rational as it is about making sure you’re exposed to the right information sources. Some consumers still base even important decisions on information they get from marketers on TV, newspapers or on the phone, without taking advantage of new information sources.
To make better choices, they need to use information sources such as expert opinions, reviews from other users and advice from people they know.
But it’s not enough to hear others’ opinions. It’s important to use diverse sources, perspectives and options; to visit several websites to gather different points of views from experts, shoppers and users. Susceptibility to marketers’ influence will decline only for consumers who take advantage of diverse sources of information.
What is the importance of review sites such as Yelp or TripAdvisor? How closely should consumers be reading them and how can they guard against phony reviews?
Review sites are a good source for information about products and services in that they give you a general idea about what you will likely experience.
It’s hard to detect fake reviews, so don’t rely on a single review but read several of them (and not only the good ones). If a restaurant has hundreds of reviews — and many do these days — you can get a sense of what this place is about.
Review sites are not perfect, so it’s a good idea to compare what users are saying with what experts are saying. In fact, sites such as Engadget (for consumer electronics) or Rotten Tomatoes (for movies) list expert and user ratings side by side.
Some other good websites for reviews include Zagat (for restaurants and nightspots) Expedia (travel), Amazon (many categories), Goodreads (for books) and CNET (for technology).
As the number of reviews and sites increases, isn’t there a danger of information overload?
You don’t have to read all the reviews of a particular restaurant to get a sense of your likely experience there. You can read several and take advantage of the fact that review sites often highlight the points that are frequently mentioned by reviewers. Searching on TripAdvisor, you can limit your search to hotels that best fit your needs.
While people face unprecedented amounts of information and some are overwhelmed by it, most consumers can handle the information just fine.
Are businesses aware of this new rationality? If so, what are they doing to address it? Are they creating new “gotchas” that consumers should be aware of?
There are companies that are fully aware of the new reality and the best of them try to address it by providing high-quality products and services based on what people say in their reviews. Unfortunately, there are also companies that try to game the system through fake reviews.
So consumers should take advantage of multiple information sources. In the long run, user and expert reviews have the potential to provide essential information about quality and help consumers make better decisions.