Marketing Mar 2, 2015

Offer­ing Points and Prizes Can Draw Customers

We over­es­ti­mate how like­ly we are to win, mak­ing us will­ing to take a gam­ble on low-cost purchases.

Yevgenia Nayberg

Based on the research of

Kelly Goldsmith

On Amir

Admit it: at some point you’ve con­sid­ered buy­ing one of those scratch-off lot­tery cards at the local cor­ner store. Some­one has to win, right? Maybe you have even par­tic­i­pat­ed in a risk-based endeav­or like last year’s MyCoke pro­mo­tion. MyCoke offered points under bot­tle caps for cool prizes like cam­eras and trips. And as you hand­ed over your cash for those soft drinks, you rea­soned that you just might win. Per­haps on a whim you also bought some McDonald’s fries to get a chance at last year’s Monop­oly-game pro­mo­tion. After all, you ratio­nal­ized, fries are not exact­ly a high-cost item.

So goes the push and pull of deci­sion mak­ing that Kel­ly Gold­smith, an assis­tant pro­fes­sor of mar­ket­ing at the Kel­logg School of Man­age­ment, and On Amir, an asso­ciate pro­fes­sor at the Uni­ver­si­ty of Cal­i­for­nia – San Diego, explore in their study of prod­uct pro­mo­tions and uncer­tain­ty. Mar­keters need to attract con­sumer dol­lars, the researchers remind us, but they also need to remain cost effec­tive, so incen­tives such as MyCoke and McDonald’s Monop­oly game are tools of their trade. But how often do con­sumers have to win to make the pro­mo­tion worth­while? Might they jump in regard­less of the uncertainty?

It turns out con­sumers will take the risk either way, Gold­smith found. In the research on psy­chol­o­gy and in a lot of research on judg­ment in deci­sion-mak­ing, uncer­tain­ty gets a bad rap,” Gold­smith says. There’s a lot of lit­er­a­ture that says that peo­ple pre­fer risk­less ben­e­fits — the sure’ thing of get­ting a good prize — over any sort of risky’ ben­e­fit.” And that assump­tion makes intu­itive sense, Gold­smith says, because no one wants to be a los­er, or at least feel like one.

On the oth­er hand, there are a lot of con­sumer pro­mo­tions we see that involve uncer­tain­ly — like a sweep­stakes where you’ve got a 1 in 100 chance of win­ning some­thing, and peo­ple must on some lev­el know” they stand to lose, Gold­smith says. Yet peo­ple take the 1 in 100 chance any­way, she says.

Most peo­ple most of the time have a pret­ty opti­mistic outlook.”

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Get­ting To the Bot­tom of It

The ques­tion is whether peo­ple are kid­ding them­selves by respond­ing pos­i­tive­ly — through rose-col­ored glass­es,” as Gold­smith puts it — to prod­uct pro­mo­tions like the MyCoke exam­ple, which car­ried so much uncer­tain­ty. To inves­ti­gate, Gold­smith and Amir designed a study to exam­ine retail­ers’ preva­lent use of uncer­tain­ty and con­sumers’ appar­ent con­fi­dence because, as the study paper points out, con­sumers expect to receive the best pos­si­ble outcome.”

To find out where con­sumers draw the line on risk, Gold­smith looked first at how con­fi­dent con­sumers are in their chances of win­ning. Most peo­ple most of the time have a pret­ty opti­mistic out­look,” she says, adding that that can-do out­look extends to things we think we are good at, rel­a­tive to oth­ers. Opti­mism also reigns with neg­a­tive out­comes. We think we’re less like­ly to have hor­ri­ble life events hap­pen to us than to oth­er peo­ple,” Gold­smith says.

At work are two types of opti­mism: Con­scious opti­mism allows a per­son to know the base rate for a poten­tial­ly risky enter­prise — open­ing a restau­rant, for exam­ple, where the odds of suc­cess are a pal­try 60 per­cent. Even with this knowl­edge, the fledg­ling restau­ra­teur, under the spell of con­scious opti­mism, thinks, I’m lucky; I’ve got a good idea. That 60 per­cent doesn’t apply to me.”

The sec­ond cat­e­go­ry is innate opti­mism, which is intu­itive and pos­i­tive, yet has bound­aries ringed by dol­lar signs. If I’m in a high-stakes gam­bling sce­nario, I’m not going to come into it with an innate opti­mistic response,” Gold­smith says, because by def­i­n­i­tion the nature of the sce­nario is going to make me…hesitant, cal­cu­lat­ing. I’m going to fig­ure out the odds because there’s a lot hang­ing on that.”

Accord­ing­ly, Gold­smith and Amir lim­it­ed their study to low-stakes sce­nar­ios, like those prize codes under Coke bot­tle tops where the poten­tial finan­cial loss is small enough to not evoke a skep­ti­cal or con­tem­pla­tive response. Indeed, in an uncer­tain scheme like a lot­tery card, innate opti­mism is def­i­nite­ly at work, Gold­smith says, because most buy­ers do not sit down and cal­cu­late the base rate. If they did, they would real­ize that, The odds are far less than being hit by light­ning or being eat­en by sharks,” Gold­smith says with a laugh. But, a lot­tery tick­et? It’s low stakes — only a dol­lar’ — and it seems kind of fun.” The thing is, buy­ers are not even think­ing about the risk. Try sur­vey­ing peo­ple who pur­chase lot­tery tick­ets some­time, Gold­smith sug­gests. They’ll say the odds are far high­er than they real­ly are.”

To test their pos­tu­late that innate opti­mism is at work with mar­ket­ing pro­mo­tions, mak­ing uncer­tain­ty” a valid mar­ket­ing strat­e­gy, the researchers designed sev­er­al incen­tive exper­i­ments. Each resem­bled an actu­al retail sce­nario, ask­ing par­tic­i­pants to imag­ine hav­ing the option to pur­chase a prod­uct such as a six-pack of soda under one of three pro­mo­tion­al prize scenarios.

The ques­tion the exper­i­ments explored was whether sub­jects would be more like­ly to pur­chase the soda if promised a more val­ued prize like Godi­va truf­fles, a less esteemed prize like two Hershey’s Kiss­es, or — the uncer­tain incen­tive — either one.

The truf­fles of course proved a strong incen­tive. But in exper­i­ment after exper­i­ment, uncer­tain­ty was also a suc­cess, often scor­ing just as high­ly as the val­ued” incen­tive, just as Gold­smith and Amir pos­tu­lat­ed. Peo­ple respond­ed much more pos­i­tive­ly to the uncer­tain incen­tives than they should have, which is what made it an inter­est­ing find­ing,” Gold­smith says.

Also inter­est­ing was what amount­ed to a real­i­ty check for the stu­dent par­tic­i­pants — mak­ing them take stock of the risk they were tak­ing. We found, even with this very sim­ple exper­i­ment, that if you ask peo­ple to sit down and think about their like­li­hood of get­ting the high­er-val­ue incen­tive — if you force peo­ple buy­ing a lot­tery tick­et to respond to what’s your real like­li­hood of win­ning?’ — their inter­est in get­ting the lot­tery tick­et plum­mets,” Gold­smith says. So what that tells us is a lot about people’s default state: that when we walk into a store and see one of these pro­mo­tions, we don’t have that real­i­ty check com­ing up auto­mat­i­cal­ly in these low-stake, low-price sce­nar­ios. It seems like people’s reac­tion is too positive.”

In short, when con­sumers think about the lack of poten­tial for get­ting those truf­fles, they are not as inclined to pur­chase the soda.

Use It Wisely

Gold­smith says that extrap­o­lat­ing her find­ings to oth­er sce­nar­ios is tricky but that the oper­a­tive fac­tor is how much peo­ple elab­o­rate on a deci­sion involv­ing risk. Cer­tain­ly what­ev­er trig­gers move us from con­tem­pla­tive and cal­cu­lat­ed buy­ing deci­sions to snap deci­sions that let intu­itive opti­mism rule are fer­tile grounds for future research.

Mean­while, any impli­ca­tions of the incen­tive find­ings like­ly hang on the indi­vid­ual goals of a firm sell­ing con­sumer prod­ucts. For online com­pa­nies, any indi­ca­tors that might arouse con­sumer skep­ti­cism, such as the com­pa­nies’ new­ness, may influ­ence how favor­ably con­sumers respond, Gold­smith says. That takes the oomph’ out of the pos­i­tive effect of uncer­tain,’ ” she adds. Fur­ther, being a brick-and-mor­tar store as opposed to an online ven­dor can increase the like­li­hood that uncer­tain­ty” will work, Gold­smith points out, cit­ing more of her study’s findings.

In the long run, con­sumer com­pa­ny exec­u­tives may have dif­fi­cul­ty manip­u­lat­ing human psy­chol­o­gy when it comes to design­ing a prod­uct pro­mo­tion, Gold­smith acknowl­edges. But they can still cer­tain­ly ask them­selves, Who am I as a retail­er?” and then, depend­ing on the answer, con­clude that these find­ings are some­thing I can use,” Gold­smith says. If I’m some­one who sells some­thing like soda, which is a pur­chase peo­ple don’t think too much about, or chew­ing gum or a mag­a­zine,” Gold­smith remarks, this kind of uncer­tain incen­tive could work.” If, on the oth­er hand, you’re sell­ing cars or homes, look else­where, Gold­smith advis­es with a laugh. The sur­pris­ing suc­cess of uncer­tain incen­tives sim­ply will not work for you.

*This arti­cle appeared in the April, 2011 issue of Kel­logg Insight.

Featured Faculty

Kelly Goldsmith

Member of the Department of Marketing faculty until 2017

About the Writer

Joan Oleck is a freelance writer based in Brooklyn, New York.

About the Research

Goldsmith, Kelly, and On Amir. 2010. Can uncertainty improve promotions? Journal of Marketing Research 47(6):1070-1077.

Read the original

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