Tuesday, February 23, 2010

Shoppers so good at budgeting that they go wrong by 47 cents!! Hawthorne effect?

Feb 23, 2010

Authors Karen M. Stilley, Jeffrey Inman (both University of Pittsburgh), and Kirk L. Wakefield (Baylor University) say that the average budget deviation (actual spending minus planned spending) in a study they conducted of shoppers in a grocery store was only $0.47. Is this really the case or is it just Hawthorne effect?

According to the researchers, the field study was conducted at several grocery stores in Texas. The researchers asked shoppers what items they planned to purchase, how much they expected to spend on the planned items, and how much they expected to spend on the total trip. After shopping, participants provided their receipts and answered questions about themselves and the experience.

If the study is accurate, it has a lot of implications for the retail industry. Retail, in many chains, is very promotion driven. Retail spends a lot of money on price promotions and display type promotions. This implies that none of those create incremental sales.

My own observation has been that with price fluctuations at the grocery stores, even if you purchase the same thing every trip, you will have trouble nailing the estimate of your final bill to 47 cents when the average bill is 20$. In reality, the consumer's basket changes from one trip to the next for various reasons: pantry loading, changes in their needs because of what they are planning to cook that week, impulse shopping etc. There is even more reason why a shopper can't nail their estimate this well.

Analysis of point of sales data at a store product day level over a period of years at varied chains from low promoters like Walmart and Target to high promoters like FoodLion and Safeway show that price promotions have a significant impact on sales. There is a discrepancy between the analysis by product and this study by shopper. One possible explanation is that the shopper adjusts their buy of other products when they buy something that is on sale. On the other hand, in a normal shopping trip, shoppers don't keep a mental accounting of how much they have bought; at least not very well. So the analysis of sales from an individual product perspective doesn't jive with the analysis of sales from the consumer perspective.

My contention is that in this study, the shoppers altered their behavior according to how they answered the questions at the start of the trip. In my mind this is classical Hawthorne effect. Hawthorne effect is described as "a form of reactivity whereby subjects improve an aspect of their behavior being experimentally measured simply in response to the fact that they are being studied."

The shoppers told the researchers they are going to spend $25.50, let us say. They adjusted their shopping to hit something close to that $25.50. Then they rationalized any deviations which are explained here as "slack". In my mind this is not a normal shopping trip. The shopping trip has been influenced by the fact that it is under observation and people would like others to believe that they are good at budgeting.

I doubt the implications of this study on effectiveness of promotions. Long live promotions! The story of your death is premature. What do you think?

Karthik

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