&Quot;I Saw the Sign&Quot;: Current Trends in Marketing Signal Research

Citation:

J. Jeffrey Inman (1995) ,"&Quot;I Saw the Sign&Quot;: Current Trends in Marketing Signal Research", in NA - Advances in Consumer Research Volume 22, eds. Frank R. Kardes and Mita Sujan, Provo, UT : Association for Consumer Research, Pages: 343-344.

Advances in Consumer Research Volume 22, 1995      Pages 343-344

"I SAW THE SIGN": CURRENT TRENDS IN MARKETING SIGNAL RESEARCH

J. Jeffrey Inman, University of Wisconsin-Madison

The objective of this special session was to explore the role of associations among marketing phenomena in consumer choice heuristics. Unfortunately, the discussant, Terry Shimp, was unable to attend the conference due to an illness in the family.

The information processing literature is rife with evidence (see Bettman, Johnson, and Payne 1991 for a review) that consumers have limited processing capability (and motivation to utilize this capability). In many instances, therefore, consumers tend to use heuristics to reduce the amount of processing required. Heuristics such as lexicographic, elimination-by-aspects, and affect referral all serve to simplify the decision making process.

Consumers may also use associations between attributes to simplify the choice process, particularly in cases where one attribute is easily determined or processed and the other attribute is less observable or more difficult to process. The presence of the one attribute is used to "signal" the presence or level of the other attribute. The most often studied area of the association or "signal heuristic" is the literature on the price-quality relationship, where almost 100 studies have examined the relationship between price and consumers' perception of quality (see Zeithaml 1988 for a review). This research suggests that the strength of the price-perceived quality relationship is moderated by the availability of other information (e.g., brand names, advertising), individual factors (e.g., price awareness, expertise), and category factors (e.g., price variation, perceived quality variation).

Beyond the price-perceived quality literature, research on the use of signals by consumers is much more limited. Research in the scanner data modeling literature and consumer behavior literature led Inman, McAlister and Hoyer (1990) to hypothesize that consumers may associate the simple presence of a promotion signal (sign or marker attached to the brand display) with a price cut on the signed brand. Their experimental work and subsequent empirical work by Mayhew and Winer (1992) and Inman and McAlister (1993) support the notion that some consumers make this association.

The papers in this session extended the work on signals on three fronts. In the first paper, authored by Eric Greenleaf, the role of price signals was examined from the standpoint of the seller, as opposed to previous work which has focused primarily on signals from the buyer's perspective. The purpose of the paper is to observe how people set reserves in a particular type of auction, an open English auction where bidders have independent private values, and compare their behavior with normative predictions. Greenleaf does not expect that the sellers will set optimal reserves. Instead, based on some recent findings in consumer behavior, he hypothesized that when sellers set reserves in successive auctions and can learn from their experience, they will place too much emphasis on processing the signal of whether or not an object sells at auction (termed a "buy-in" if the object fails to sell), and too little emphasis on magnitude information (i.e., the price that the object brings if it does sell at auction, or the highest bid offered if it does not sell). Greenleaf noted that in almost all auction situations, sellers should expect buy-ins to occur occasionally even if they set the optimal reserve. Thus a buy-in does not necessarily indicate a faulty reserve strategy. Recent work in consumer behavior indicates that consumers tend to give more attention to discrete signals than to magnitude information when judging prices. There is also evidence that consumers attend more to frequency than to magnitude information when they examine a series of prices to judge the overall price of a market basket of goods at different stores (Alba,Broniarczyk, Shimp, and Urbany 1993). He used this literature to make three predictions, which he then tested via experiment: sellers use a "buy-in" (i.e., failure of the item to sell) as a signal that the reserve is set too high, sellers set suboptimal buy-ins in cases where the probability of a buy-in at the optimal reserve is very high or very low, and sellers set lower, suboptimal reserves as the number of bidders decreases. These hypotheses were supported.

The second paper, by Kay Lemon and Deepak Gupta, focused on the multifaceted role of brand displays in consumer decision making and choice. Display provides multiple cues: availability, convenience, and price promotion; whereas price promotion merely signals a price advantage for the brand. Given that display signals an accompanying price cut (even when one is not present), the combination of price cut and display may serve to heighten the consumer's awareness of the price cut for brands which benefit from price promotion, and, therefore, increase the overall effectiveness of the promotion combination. Several hypotheses were tested with regard to the relative effectiveness of price promotion and display (See Figure 1). Evidence suggests that: (1) display will be more effective for low market share brands, (2) price promotion will be more effective for high price brands, and (3) simultaneous price promotion and display will be more effective for high price brands. The results of this research suggest that marketing managers may be over-promoting unnecessarily. A high market share, high price-tier national brand, for example, may be better off focusing on successive price promotions, rather than fighting for expensive end-of-aisle displays. High price-tier, niche brands, by comparison, may benefit by combining price promotions and displays in the same promotion. Private label brands may eschew price promotion entirely, and pursue a pure display promotion strategy. By understanding the position of the brand in the market, managers can begin to optimize their promotional strategies, choosing the combination of price promotion and display which will provide the strongest response from the consumer.

The third paper, co-authored by Jeff Inman and Anil Peter, examined the role of another type of signal, purchase quantity limits, on consumer choice. Scarcity theory (Lynn 1989) posits that when a product is made to appear scarce it becomes more desirable. This effect has been demonstrated even in instances of apparent scarcity. A limit sign effectively makes a brand more scarce and thus may act as a signal of scarcity. Consumers might infer that the price is attractive, so much so that the retailer wants to limit the quantity that can be purchased. The limit sign would thus represent a sign of a 'good deal'. Empirical work on promotional signals (Inman, McAlister and Hoyer 1990 and Inman and McAlister 1993) would suggest that such a signal would increase the likelihood of purchase. Inman and Peter predict that the impact of limit signs holds only for high need for cognition consumers. Experiment results show an effect for purchase quantity limits on choice and suggest that high need for cognition consumers account for this effect. Scanner panel data from a large grocery chain were also analyzed using 18 months of chain-level data. These data were for several different brands in various product categories that were promoted with a purchase limit on some occasions and with no purchase limitations on other occasions. Seemingly unrelated regression analysis was used to analyze individual brands and provided support for a limit effect on choice.

Much additional work remains to be done on the associations that consumers make between product attributes and between marketing phenomena. This session focused on research into this important topic, one that has not received much attention at previous ACR conferences. Additional research to identify and assess the prevalence of such heuristics is greatly needed, as it opens the door for the incorporation of such heuristics into marketing strategy development, public policy generation, and consumer education. Savvy marketers can use associations, for example, to ensure that a promotion is always accompanied by a special display. Public policy makers should use research into these associations to ensure that unethical practices (e.g., attaching a promotion sign to a brand display with no price cut) that prey on consumers who use such heuristics are banned and that consumers are educated. The papers in this session represented a step in that direction.

FIGURE 1

HYPOTHESIZED EFFECTS OF DISPLAY AND PRICE PROMOTION

REFERENCES

Alba, Joseph W., Susan M. Broniarczyk, Terence A. Shimp, and Joel E. Urbany (1993), "The Influence of Competing Cues on Consumer Perceptions of Comparative Prices," Journal of Consumer Research, in press.

Bettman, James R., Eric A. Johnson, and John W. Payne (1991), "Consumer Decision Making," in Handbook of Consumer Behavior, T. Robertson and H. Kassarjian (eds.). Prentice-Hall: Englewood Cliffs, NJ.

Inman, J. Jeffrey, Leigh McAlister, and Wayne D. Hoyer (1990), "Promotion Signal: Proxy for a Price Cut?" Journal of Consumer Research, 17 (March), 74-81.

Inman, J. Jeffrey and Leigh McAlister (1993), "A Retailer Promotion Policy Model Considering Promotion Signal Sensitivity," Marketing Science, 12 (Fall), 339-356.

Mayhew, Glenn E. and Russell S. Winer (1992), "An Empirical Analysis of Internal and External Reference Prices Using Scanner Data," Journal of Consumer Research, 19 (June), 62-70.

Zeithaml, Valarie A. (1988), "Consumer Perceptions of Price Quality, and Value: A Means-End Model and Synthesis of Evidence," Journal of Marketing, 52 (July), 2-22.

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