A Hard and Soft Side of Marketing

Daniel Harrison has put together some of his thoughts on organizational behavior here, and it is a great reminder to me that this subject cuts through many aspects of professional and personal life. Daniel’s listing brought me over to Dr. Andrew McAfee’s (a Harvard Business School professor) post here, which starts off citing some reasons (by Dr. John Gourville) why consumers should not be thought of as  "… highly rational evaluators of the old vs. the new products, lining up pros and cons of each in mental tables and then selecting the winner …". The post goes to mention three explanations (each of which either stem from or highly relate to prospect theory):

• We make relative evaluations, not absolute ones.  When I’m at a poker table deciding whether to call a bet, I don’t think of what my total net worth will be if I win the hand vs. if I lose it.  Instead, I think in relative terms —  whether I’ll be ‘up’ or ‘down.’

• Our reference point is the status quo.  My poker table comparisons are made with respect to where I am at that point in time.  "If I win this hand I’ll be up $40; if I lose it I’ll be down $10 compared to my current bankroll."  It’s only at the end of the night that my horizon broadens enough to see if I’m up or down for the whole game.

• We are loss averse.  A $50 loss looms larger than a $50 gain.  Loss aversion is virtually universal across people and contexts, and is not much affected by how much wealth one already has.  Ample research has demonstrated that people find that a prospective loss of $x is about two to three times as painful as a prospective gain of $x is pleasurable. 

What is interesting to reflect on is that it is not always very easy for marketing organizations to explore the points above in a quantitative way. Figuring out where people’s reference points are (e.g., on a market segment basis) often requires primary research that may be expensive (e.g., millions of dollars). Hence, organizations may (primarily or initially) resort to secondary research methods that may tend to be biased toward assuming that consumers are rational evaluators.

Some ways to bootstrap the marketing research process may be to use focus groups, interview distributors (e.g., of competitors), and/or conduct mystery shopping efforts. What bootstrap methods have others used and found to be effective? How does it complement secondary research?