The current chapterprovides a critical review of the existing literature with regards to thebusiness problem indicated in the first chapter. The purpose of this chapter isto summarize insights and develop hypotheses to put these into the context ofexperience products.
First, a definition of experience products is provided, followedby an explanation of what experiential marketing means. Next comes a revisionof the existing literature on the signaling effect of price, the priming effectof a product description and the possible interaction of the two. Finally,expected product quality is defined and its effect on purchase intention isdiscussed.
1.1 Defining experience products According to economics,experience good is a product or service which has characteristics that aredifficult to be evaluated in advance, i.e. before purchasing and consuming theproduct. Philip Nelson (1970) is probably the first to distinguish it from asearch good. Later on, Klein (1998) defines experience good as “dominated byattributes that cannot be known until purchase or use of the product or forwhich information search is more costly and/or difficult than direct productexperience” (p.199). Cooper-Martin (1991)suggests a different definition according to which experience products are oneswhich consumers choose, buy and use solely to experience and enjoy.
Inaddition, she classifies them as either tangible experience products such aswine and recreational drugs, and services such as sports events and vacations.Holbrook and Hirschman (1982) conclude that the main benefit of such productsis hedonic consumption – the feelings and sensations experienced duringconsuming the product. And since product experience in its essence is ambiguous(Hoch & Ha, 1986), experience products could also be viewed as rather ambiguoustype of products. This literature reviewhelps to hereby formulate a concise definition of experience product. It is aproduct which is purchased for the purpose of satisfying a hedonic need. Itpossesses attributes which are difficult to be described prior to consumptionsuch as quality, taste, fun, thrill etc. It can be a physical product such aswine and gourmet meal or a pure experience such as a movie, festival, and theperforming arts. 1.
2 Experiential marketingIn a number ofindustries, companies have changed their focus from traditional “features-and-benefits”marketing towards creating experience for their customers (Schmitt, 1999).According to Schmitt (1999), traditional marketing views customers as rationaldecision makers while experiential marketing views them as rational andemotional human beings. The first ones care only about functional features andthe second are concerned with achieving pleasurable experiences. Inexperiential marketing, consumption is a holistic experience, and consuming theproduct satisfies a symbolic or hedonic need (Schmitt, 1999). Experientialmarketing has become the milestone of the advances in branding, retailing andevents marketing (Petkus, 2004), and it is marketing’s most contemporaryorientation (Williams, 2006). Marketers need to take advantage of theopportunities offered by experiential marketing and use them to address thechallenges posed by experience products (e.g., their quality uncertainty priorto purchase and their hedonic value).
1.3 Signaling product qualityOne of the problems withexperience products is that due to their ambiguous nature assessing theirquality is more difficult, especially prior to consumption. So in order toconvince the customers of the quality of the product even before they haveconsumed it, the marketers ought to signal product quality with some sort ofquality cues (Moorthy & Srinivasan, 1995; Zhao, 2000). As Kirmani and Rao(2000) conclude, the strategy of signaling product quality is especiallysuccessful for products whose quality is unknown before consumption and forwhich customers are quality sensitive (as is the case of experience products). Experienceproducts pose higher risks for consumers of making the wrong consumptionchoice. That is why in order to justify their choice, consumers need some sortof quality cues to decrease the risks associated with buying a product forwhich they have scarce intrinsic information prior to purchase (Shimp , 1982).
Shimp and Bearden (1982)find out that customers use different risk-reduction strategies and the mostcentral one is relying on product cues to indicate quality and performance. Changand Wildt (1996) specify several situations when consumers rely heavily onextrinsic attributes to evaluate a product, including: – Inability to process intrinsic attribute information- Theexistence of intangible functional qualities that cannot be attributed totallyto generic intrinsic attributes- The existence of nonfunctional quality (symbolic or prestigequality) due to extrinsic attributesAll of the abovementioned can be observed with experience products – due to the intangibilityof their functional qualities, difficulty of processing intrinsic informationand their symbolic functions; customers find it easier to process theirextrinsic attributes (price, brand, product description) and use them in theirproduct evaluations. JK1 1.4 Price as a signal of quality Price is such extrinsicproduct attribute (Olson & Jasoby, 1972) meaning that it is not part of thephysical product and has no direct effect on functional performance.
Nevertheless, as an extensive body of literature suggests, customers regularlyuse it in their quality judgements and product evaluations. There is a vast amount ofliterature on the relationship between the marketing mix component price andthe quality of a product. (Dawar & Parker,1994; Grewal & Monroe, 1995; Bagwell & Riordan, 1991; Erdem, Keane& Sun, 2008). In summary, people usethe price as a proxy for quality (Makasi & Govender, 2017). The so-calledprice-quality heuristic is used as a shortcut for making a product choice – ifthe price is high, it must be of good quality (Gneezy et al.
, 2014). Typically,experience products have even lower price elasticity as consumers are afraidthat a lower price might be due to lower quality or unobservable problems withthe product (Vining & Weimer, 1988). Rao and Monroe (1989) are probably thefirst to test experimentally the positive relationship between price andbuyers’ evaluations of perceived quality. Consumers often lack the time,resources or inclination to judge a product’s quality and that is why they useavailable cues – such as price (Gneezy et al., 2014).
They conclude that veryoften extrinsic attributes influence people’s evaluations of a product (intheir study the product is wine). The pleasure of consuming a product dependsnot only on sensory input such as smell and taste, but also on extrinsicattributes such as brand name and price. This assumption is further supportedby Shiv, Carmon and Ariely (2005) who researched the so called placebo effectsof marketing actions, they demonstrate that the pricing can alter the actualperception of product efficacy (in their case an energy drink). Theirsubstantial research on the topic can be summarized as follows: price can exerta nonconscious influence on expectancies about product quality; suchexpectancies can have an impact on actual product performance; and suchexpectancies can also be induced through non-price information such asadvertising claims about product quality. To conclude, there is enoughtheoretical background to support the assumption that customers use qualitycues when evaluating products and the price is probably the most prominent cue.
The existing literatureprovides insight into that phenomenon mainly in the context of consumer goods.Here, it is aimed to investigate whether the price quality heuristic also appliesto the context of experience products. Consequently, the first hypothesisregarding price is formulated.H1a: Price has a positive effect on expected quality of anexperience product.
1.5 Price as a factor in purchaseintention So far it hasbeen established that price is a prominent factor in the quality evaluations ofa product. Next, it is necessary to investigate its effect on a morebehavior-related concept – purchase intention. According to Chiang and Jang(2007) perceived price is one of the main considerations in purchasedecision-making together with value (combining price and quality).
JK2 They find out that perceived price positivelyaffects purchase intentions when leisure travelers evaluate hotel bookings. Asthe hedonic factor is present in both their case and in this study, it isreasonable to expect that the same effect could also be found for experienceproducts. Since this type of products poses higher risks for consumers becauseof the quality uncertainty prior to purchase and because of these products’symbolic value and hedonic benefits, it is expected that a higher price will leadto higher purchase intention. Thus, the next hypothesis about price isformulated as follows:JK3 H1b: Price has a positive effect on purchaseintention for an experience product. 1.6 The effect of product description Understanding howconsumers use product information is an interesting issue and it has beenresearched from different perspectives (Chang & Wildt, 1996).
But what iseven more interesting is studying how to convince consumers to use andinterpret product information in a certain way. This can be achieved by using apriming technique which allows a customer to interpret an advertising message,product description etc. in the way intended by the marketer (Yi, 1990).
Potcheptsova et al. (2008) demonstrate that itis possible to induce customers to frame an ambiguous target product as every-dayor special by using a priming technique. According to Rajagopal and Burnkrant(2005) when using different cues “it is possible to prime consumerinterpretation strategies so as to control the inferences made about theproduct by consumers and the evaluations of such products” (p.362). But how does it actually work? Srull and Wyer(1979) find out that priming leads to judgments of the target object thatassimilate towards primed constructs.
Priming technique works as peoplemistakenly interpret the high accessibility of primed concepts as theirreaction to the target object. Therefore, just as an illustration, when readinga product description which evokes excitement, exhilaration, the customerassociates these with the product and believes that it is exciting as well. Hereby, it is expectedthat this type of influencing the customer would be especially appropriate forexperience products, where product information is scarce prior to the purchaseand where people base their product choices on emotions and feelings more thanon functional characteristics because of the hedonic nature of the experienceproducts (Hirschman & Holbrook, 1982). Jourdan (2001) confirms this assumption- he states that experience products tend to be evaluated on affective criteriawhich are more subjective or emotional. Consequently, the choice of the messageis very important.
Existing literature suggests that product evaluations dependon the type of information customers consider when making these evaluations. E.Cooper-Martin (1992) finds out that the different product information sourceshave different effect on the customers’ evaluations of the credibility andusefulness of the message. She also finds out that for experience products,experiential information sources are more useful and credible to consumers (inthe case of movies).Additionally, in theirstudy on menu items descriptions, McCall and Lynn (2008) discuss the heuristicstheory of Tversky and Kahneman (1974) which assumes that customers useshortcuts to simplify complex decisions. One of the best examples of this theorywas already discussed in the previous section – the price-quality heuristic.
McCall and Lynn (2008) conclude that choice options which are described in morecomplex, elaborate terms are seen as having higher quality and being moredesirable than items described in basic terms. A very important implication ofthat idea is the fact that these higher quality perceptions allow for pricingstrategies which are consistent with the customers’ price-quality beliefs (Nagle& Holden, 2002). Li (2017) studies how description cues for wine influencepurchasing behavior. He finds out that even small differences in wine tastingdescription can have substantial impact. Additionally,Shiv et al. (2005) do an extensive research on the placebo effects of marketingactions and find out that a favorable advertising copy induces expectanciesabout quality and that it can also reinforce the price-quality perceptions.
In summary, it can beconcluded that by using priming technique, marketers can create appropriateproduct descriptions for their experience products, which customers cansuccessfully use as a quality cue to form their product evaluations. This leadsto formulating the next hypothesis. H2: The complexity of product description positively affectsthe expected quality of an experience product. 1.7 Interaction of price and productdescriptionWhat would be even moreinteresting is to find out whether these two variables (price and productdescription) interact i.
e. whether the effect of one of them depends on thelevel of the other. Miyazaki et al. (2005) study the effect of multipleextrinsic cues on quality perceptions and conclude that the consistency of thecues is essential. Moreover, they find out that when intrinsic information isscarce (as in the case of experience products), the price-quality relationshipis stronger when a positive price cue is used in combination with anotherpositive cue (e.g., strong warranty, positive country of origin, or strongbrand).
Thus, it is expected that when one quality cue is paired with anotherone which is consistent with the first, the effect will be enhanced. Rao and Sieben(1992) also hypothesize that “the effect of consumers’ product knowledge maymoderate the price-perceived quality effect” (p.256). As already mentionedin the previous section, Shiv et al. (2005) study the relationship between theadvertising message and the expected quality, they also conclude that it can strengthenthe price-quality perceptions. Chang and Wildt (1996) also research the impactof product information on the use of price as a quality cue and conclude that “theuse of price in subjective quality evaluations is influenced by the nature andavailability of other product information” (p.55).
This study expects that apositive moderation between the two exists, meaning that the positive effect ofprice on expected quality is enhanced when it is paired with an appropriateproduct description. Consequently, the next hypothesis is formulated as follows:H3:The effect of price on expected quality of an experience product is positivelymoderated by the complexity of the product description.JK4 JK5 1.8 Mediating effect of expectedqualityDespite the fact that theterm quality is extensively used in everyday life as well as in marketing, theliterature does not provide a universal definitionfor quality. Since this research is interested in how marketing managers canuse cues in order to increase quality perceptions of customers in an effort toinfluence their purchase intention, it is vital to define what quality means inorder to understand fully how consumers evaluate it.
Product quality is apivotal determinant of product choice and purchasing behavior (Zeithaml, 1988).He defines perceived quality as “the consumer’s judgement about a product’soverall excellence or superiority” (p.3). Additionally, he views it as aglobal assessment, a higher level abstraction rather than a product attribute. Zeithaml(1988) also differentiates perceived and objective quality.
In this study theinterest is in the expected quality since that variable is measured before theconsumers have made a purchase and consumed the product. Therefore, wedistinguish it from perceived quality, conceptualized as post-purchase measure (Sanchez,Callarisa, Rodriguez & Moliner, 2006); and objective or actual quality,defined as superiority on the basis of some measurable and verifiablecharacteristics and predetermined ideal standards (Zeithaml, 1988). According to Olson andJacoby (1972) “quality perception seems to be strongly related to actualpurchasing behavior” (p.167). Since testing actual purchasing behaviorwould be hard considering our resources, purchase intention is used instead.
Purchaseintention is considered a behavior related construct. Spears and Singh (2004)summarize available literature on the topic and define purchase intention as “anindividual’s conscious plan to make an effort to purchase a brand” (p.56).It is widely used construct in marketing because purchase intentions areconsidered an important indicator of actual purchase (Chang & Wildt, 1994).Therefore, for the purposesof this research, it is important to investigate whether the qualityevaluations of consumers translate into intention to purchase an experience product.Consequently, the next hypotheses are formulated as follows: JK1Putyour research questions at the end of your literature review Research gap àQuestion you will answerRQ1RQ2 Etc Then put a new chapter for hypothesi development.The hypothesis should be in parallel to your researchquestions RQ2 àHypo JK2Ido not fully get this JK3Ido not fully get it – consider rewording? JK4Inwhich way does it depend JK5Or:The complexity of the product description positively moderates the effect ofprice…