Monday, October 29, 2012

Marketing Promotions, Optimism, and Uncertainty

Kellogg Professor Kelly Goldsmith and UC-San Diego Professor On Amir have conducting a fascinating new study about marketing promotions such as the McDonald's Monopoly game or the MyCoke campaign.  They examine whether people act rationally when considering their odds of winning in these types of situations. 

The researchers distinguish between two forms of consumer optimism:  innate and conscious.  In the case of these types of marketing promotions, the scholars argue that innate optimism rules.   This form of optimism is both innate and intuitive.  It tends to drive our behavior in low-stakes situations such as these marketing promotions.  We enjoy the game, and we know the stakes are low.  Therefore, we don't worry about the low probability of winning.  We don't even both calculating the odds.  We overestimate the likelihood of winning something during the promotion, and we engage in it as a consumer. 

Conscious optimism takes hold when the stakes are higher.  Suppose we are considering opening a restaurant. We will have heard all the statistics about the low probability of success.  Nevertheless, we convince ourselves that we can succeed where others have failed.  We become overconfident and plunge in head first to this rather risky endeavor.

The scholars focused on innate optimism situations in their experiments.  They evaluated whether an individual would purchase a six-pack of soda under three "prize" scenarios:  Godiva truffles (more expensive, valued prize), two Hershey's kisses (less expensive, lower value prize), and an uncertain outcome (not sure which prize would be awarded).   Naturally, individuals respond to the high-value prize more than the low-value prize.  However, they responded to the uncertain outcome almost as much as the high-value prize!  The uncertain nature of the outcome seemed to trigger innate optimism and make consumers happy to participate. 

If, however, the researchers primed the respondents to think carefully about the odds in the game, then people are much less likely to purchase the soda!  In other words, when we move them out  of an innate optimism state, then their likelihood of responding to these types of promotions falls!

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