Categorical reasoning

Yesterday, I wrote about “Pricing to create shared value”, a Harvard Business Review article by Marco Bertini and John Gourville.

The same (June 2012) issue of HBR includes an interview with Alexander Chernev, an associate professor of marketing at Northwestern University, whose research (conducted with Aaron Brough) suggests that “customers will pay more for less."

As described by HBR, the research included five experiments in which …

“… respondents were shown a series of products – phones, jackets, backpacks, TVs, watches, shoes, luggage, bikes, wine and sunglasses. Some were relatively expensive, others inexpensive. Respondents in one group were asked how much they would pay for an item by itself, and those in another group were asked how much they would pay for a bundle combining a high-priced and a low-priced item. Defying conventional wisdom, respondents shown the bundle were willing to pay less than those shown the more expensive product alone.”

Chernev attributes the results to “categorical reasoning”, in which “people rely on decision shortcuts, or heuristics, that trade accuracy for reduced cognitive effort.”

Responding to a question, Chernev notes that shopping baskets can create an “implicit bundle”, leading consumers to potentially value multiple items at a discount. One of his examples explores the impact of putting “a $30 hardcover and a 99-cent digital novel” in the same cart on Amazon.

There appears to be a way to overcome the phenomenon: shift the conversation to non-price attributes. According to Chernev, “People categorize along just one dimension at a time.” He describes things like comfort, durability or versatility as opportunities to refocus a consumer’s attention at the time of purchase.

In publishing terms, the impact of categorical reasoning is likely a function of choice and abundance. Whether directly or through trading partners, publishers will need to learn to test some new ways to distinguish similar content in different containers.

For hardcover books, we’ll probably need something beyond “the perfect holiday gift”. Maybe “the format that outlasts you”, or “DRM free, since Gutenberg”.

About Brian O'Leary

Founder and principal of Magellan Media Consulting, Brian O’Leary helps enterprises with media and publishing components capitalize on the power of content. A veteran of more than 30 years in the publishing industry and a prolific content producer himself, Brian leverages the breadth and depth of his experience to deliver innovative content solutions.