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Chatterjee research helps make sense of “the consumer”

By : Merrill Douglas

Subimal Chatterjee is associate professor of marketing in Binghamton University’s School of Management.
Consumers are irrational creatures.

Marketing professionals know, for example, that people will drive out of their way to get an advertised 50 percent discount on a $10 calculator, but they won’t make the same detour for a 5 percent discount on a $100 jacket.

Most fail to compute that each trip offers the same $5 savings.

“Our research has shown that in many cases, consumers simply react to whatever information is put in front of them,” said Subimal Chatterjee, associate professor of marketing in Binghamton University’s School of Management.

Shoppers often approach buying decisions without strong preferences, Chatterjee said.

“The environment, or what we call the context, surrounding the consumer is what ultimately drives the consumer’s preferences,” he said.

Marketers who understand this can emphasize or downplay certain elements in the hope of steering shoppers toward products or services.

In one recent project, Chatterjee and Timothy Heath of Miami University of Ohio used laboratory experiments to explore how people make decisions that involve risk. The experiment’s purpose was to improve upon prevailing theories, finding a more accurate way to predict when people will or won’t embrace uncertainty.

In one experiment, subjects were asked if they would rather receive $5 or take a one-in-1,000 chance of winning $5,000. Most chose to gamble.

One popular theory — called prospect theory — suggests that people choose such options because they “over-weight” the small probability of winning.

To test this explanation, Chatterjee and Heath offered another set of subjects the choice between $500 or a one-in-1,000 chance to win $500,000.

“If the prospect theory’s interpretation is correct, they would still over-weight one-in-1,000 and go for the riskier alternative,” Chatterjee said.

But most people in this group took the $500.

When subjects explained their choices, members of the first group said that $5 is “a pittance” — too small a sum to dissuade them from trying for a higher reward. But $500 is “a lot of money” — enough to persuade the second group to accept a sure thing rather than gamble on a jackpot.

Along with information gained in lab experiments, Chatterjee has begun to exploit the wealth of data captured at supermarket check-out lines when shoppers have their purchases scanned, and when a clerk swipes a shopper’s “loyalty card.”

In analyzing data on purchases of staple products over eight years, Chatterjee and Heath are testing whether or not a discount steers shoppers in a particular direction. In lab experiments, they’ve found that national brands of orange juice benefit from discounts more when they dominate a store’s lower-priced brand.

Now they want to see if the same pattern holds true across marketplace lines.

“When a national brand is discounted, did we see a sudden spike in their market share?” Chatterjee said. “Preliminary results show that it makes a huge difference.

“Deep discounts of national brands, when they create such dominance effects, help those national brands more as compared to discounts that do not create dominance.”

Real-world data is also helping Chatterjee explore the economics of movie sequels. Films succeed when they exceed expectations, he said.

When a studio follows “The Matrix,” for instance, with “The Matrix Reloaded” and “The Matrix Revolutions,” audiences expect more gratification with each film, making success even harder to attain. To keep attracting crowds, movies in a series must get better with each release.

However, Chatterjee said, “If you believe in the regression to the mean, then successes and failures should converge to the mean quality of the Matrix franchise. “Studio managers are very smart people,” he said. “So the reason they make these sequels must be that they have figured out some way of beating the so-called regression to the mean argument.”

Chatterjee has also joined forces with Suman Basuroy of the State University of New York at Buffalo and S. Abraham Ravid of Rutgers University to assemble a database on more than 500 movies.

Their goal is to define the characteristics of sequels that make money, and pinpoint why some sequels do not.

Included in their information: box office receipts, distribution, production budgets, positive and negative reviews, and more.

“Perhaps there is no point in thinking in terms of a mean quality level,” Chatterjee said. “Perhaps when studios make the sequel, they make a deliberate decision to be even more lavish” than in the first movie.

An earlier collaboration between Chatterjee, Basuroy and Ravid showed that a large budget and popular stars often cushion the fall from a bad review. Could these factors also work in favor of a sequel, regardless of its quality?

“We’re trying to gather the data,” Chatterjee said, “but our initial hypothesis is that successful sequels keep exceeding expectations” with ever-bigger budgets and stars.

“It’s nice when your theories are supported, but it’s even nicer when they’re not, because then you know that the problem is more rich than you thought,” he said. “Whenever I get into my research, I try to keep as open a mind as possible. And I love these surprises.”
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Last Updated: 10/14/08