New research by Ahreum Maeng, an assistant professor in the KU School of Business, finds that socially crowded environments lead consumers to be more conservative. Specifically, Maeng finds that consumers in crowded settings prefer safety-oriented options and are more receptive to prevention-framed messages than promotional messages — for example, preferring a toothpaste offering cavity protection over a toothpaste promising a whiter smile. Maeng also finds consumers in crowded settings are less willing to make risky investments.
“Consumers in crowded environments get conservative and safety-focused,” Maeng said. “We believe this is because people in socially crowded settings activate an avoidance system that results in a more prevention-focused mindset. This, in turn, makes socially crowded individuals more likely to choose options that provide prevention-focused benefits.”
Maeng points out that the research has important implications for retailers as well as policymakers. “For example, our findings indicate a store would benefit by selling and marketing products differently on a crowded Saturday during the holidays versus a Tuesday morning in August,” she says. “And even within the same day, stores might consider changing their signage or product placement to account for different levels of crowding.”
A new working paper (gated) by Yi Qian, Eric Anderson, and Duncan Simester looks at how a factory or outlet store affects a retailer’s regular-priced products. Using 12 years’ worth of data from a U.S. apparel retailer, they found that the factory store contributed positively to the business:
We study how the opening of a factory store impacts a retailer’s demand in its other channels. It is possible that a factory store may damage a retailer’s brand image and lead to substitution away from its higher quality core channels. Alternatively, the opening of a factory store may have positive effects as it may attract new buyers and serve as a form of brand advertising. In this paper, we use a natural experiment that arises from a retailer introducing a factory store in 2002. We analyze data that spans all customers and all channels from 1995 to 2007. This allows for careful pre and post analysis of the factory store opening. We find that the introduction of the factory store led to substantial positive spillovers to the core channels that lasted for multiple years. Customers purchase more items from the higher priced, higher quality channels after the factory store is opened. These positive spillovers represent approximately 17% of all of the incremental sales that result from the factory store opening (the other 83% are contributed by sales in the factory store itself).
Reader Tim Kelly sends in photo from a store in Lombard, Illinois:
As Tim writes:
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I spotted an interesting sign while out Christmas shopping the other day. The sign stated the company’s “breakage policy,” where any broken item must be bought, but that the store will only charge half price on the broken item. The sign continued offered to repair the broken item, free of charge (I confirmed the free repairs from the shop owner, as it is not explicitly stated in the sign).
The sign was located on a mall kiosk selling Christmas ornaments. I imagine breakage is a big issue for such a shop, as their product is relatively fragile and are highly enticing to bored kids stuck Christmas shopping with their parents.
My initial instinct upon seeing the sign was that this policy seemed to be inviting people to game the system.
The attached picture is a display at the local CVS in Ann Arbor, Mich. My thought was that this shelf display is a great example of complements: Enjoy a chocolate bar together, and who knows what nice things might follow? My son thought that it depicted substitutes — no luck in love, so drown your sorrows by eating chocolate. I don’t know who is correct, but the example illustrates well the fact the complementarity/substitutability can depend on the specific situation being examined.
Our latest Freakonomics Radio on Marketplace podcast is called “A Cheap Employee Is … a Cheap Employee.”
It’s about the question of whether low-paid employees are indeed a good deal for a retailer’s bottom line as the conventional wisdom states.
The piece begins with a couple of stories from blog readers, Eric M. Jones and Jamie Crouthamel, which were solicited earlier here. (One of the true pleasures of operating this blog is having a channel by which to turn readers into radio guests — thanks!) Read More »
We blogged a while back about how some retail firms succeed by hiring more, not fewer, floor employees, and by treating them particularly well. Among the examples: Trader Joe’s and Whole Foods; among the counterexamples: Michael’s.
This prompted an e-mail from Hal Varian, Google’s chief economist. (If you don’t know of Hal you should, as he’s an impressive and fascinating guy — check out the Q&A he did here a few years back.) His e-mail reads:
Saw your piece about Trader Joe’s et al. Here’s one reason to pay people more than their market wage (from my textbook):
Gabor Varszegi has made millions by providing high-quality service in his photo developing shops in Budapest. (See Steven Greenhouse, “A New Formula in Hungary: Speed Service and Grow Rich,” New York Times, June 5, 1990, A1.)
Varszegi says that he got his start as a businessman in the mid-sixties by playing bass guitar and managing a rock group. “Back then,” he says, “the only private businessmen in Eastern Europe were rock musicians.” He introduced one-hour film developing to Hungary in 1985; the next best alternative to his one-hour developing shops was the state-run agency that took one month.
We’re working on a new Freakonomics Radio piece about what might best be called “retail etiquette.” It was inspired in part by this blog post, about how the quantity and quality of employees affects a company’s bottom line; and by this e-mail from a listener named Dawn Nordquist:
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I’ve noticed that, at the beginning of the podcasts, a short banter between the two of you is included regarding thanking the listening audience. Thanking the listening audience aside, what are your thoughts/observations on thanking in commercial transactions? I have recently been struck by how often I am not thanked when purchasing something.
Yesterday we published a post about how some retailers spend a lot of money and effort on their employees, how other retailers spend much less, and how that difference affects shoppers.
I mentioned finding long lines and few cashiers at the arts-and-crafts store Michaels. And I wrote this too:
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FWIW, critics — especially Democratic critics — may note that Michaels is a chain that went public a long time ago, expanded widely, and was taken private in 2006 when it was acquired by two investment firms: the Blackstone Group and, yes, Bain Capital.