Marketing manipulation: a consumer's survival manual 9789813234710, 9813234717

Table of contents :
Contents......Page 8
About the Author......Page 6
Chapter 1. The Impact of the Marketing Environment......Page 10
A. Pound Cake?......Page 24
B. System I Processing......Page 26
A. System II Processing......Page 34
B. The “Anchoring Effect”......Page 36
C. Availability Cascade......Page 40
D. The Bandwagon Effect (Herd Behavior Bias)......Page 41
E. Base Rate Fallacy......Page 43
F. Choice Supportive or Confirmation Bias......Page 45
G. The Denomination Effect......Page 47
H. The Endowment Effect......Page 48
I. The Framing Effect (“Money Illusion for Currency”)......Page 50
J. Escalation of Commitment......Page 52
K. Sunk Cost Fallacy......Page 53
L. Baader–Meinhof Effect......Page 56
M. “Mere Exposure Effect”......Page 57
N. Negativity Bias......Page 58
O. Reactance......Page 60
P. Rhyme-as-Reason Effect (Keats Heuristic)......Page 61
Q. Selective Perception......Page 63
A. False Consensus Effect......Page 66
B. LakeWobegon Effect (Illusionary Superiority)......Page 69
C. Out-Group Homogeneity Bias......Page 70
D. Self-Serving Bias......Page 73
A. Schema Incongruence Effect......Page 78
B. Context Effect......Page 80
C. Egocentric Bias......Page 81
D. Fading Affect Bias......Page 83
E.1. Primacy......Page 85
E.2. Recency......Page 86
F. Spotlight Effect......Page 87
G. Von Restorff Effect......Page 88
H. Zeigarnik Effect......Page 89
A. Consumer Perspective......Page 94
B. Company Perspective......Page 98
A. Introduction......Page 102
B. Menu Math......Page 106
C. Bundling......Page 107
D. Price Anchoring......Page 110
E. Reference Prices......Page 112
F. Price–Quality Relationships......Page 115
A. Introduction......Page 118
B. Consumer Confusion......Page 119
C. International Branding and Branding Issues......Page 121
D. Secondary Meaning and Trade-Dress......Page 124
E. Dilution......Page 127
A. Introduction......Page 132
B. The Case of Rezulin......Page 134
C. How Drug Companies Manipulate You......Page 136
D. The Impact of Brand Name......Page 137
E. Actual Brand Names......Page 141
F. Packaging......Page 143
G. The Consumer’s Susceptibility to Drug Color and Packaging......Page 145
A. Introduction......Page 148
B. False Designation of Goods......Page 151
D. Phony Gift Schemes and Upselling......Page 153
E. Bait and Switch......Page 154
F. Sale Pricing......Page 156
G. Price Lining......Page 158
H. Protecting Yourself from Various Deceptive Selling Tactics......Page 159
A. Introduction......Page 160
B. The Lanham Act in False Advertising......Page 162
C. Comparative Claims......Page 163
D. False Advertising Claims Involving Ingredients......Page 165
E. A New Wrinkle on Deceptive Advertising Claims......Page 168
F. Deceptive Brand Names......Page 172
G. Negative Price Options and More......Page 175
H. Two-Sided Advertising......Page 176
I. Consumer Defense to False and Deceptive Advertising......Page 182
A. Introduction......Page 184
B. Why Negative Advertising Can Be Impactful......Page 193
C. The “Sleeper” Effect......Page 194
A. Introduction......Page 200
B. Revealing the Alternative Consequences of the Issue......Page 203
C. Question Format Biases......Page 204
D. The “Mere Measurement Effect”......Page 206
E. Written Framing of the Choice Alternatives......Page 207
F. Visual Framing of Choice Behavior: A Focus on Color......Page 208
G. Visual Framing of Choice Behavior: A Focus on Background Imagery and Experimental Design Usage......Page 212
A. Introduction......Page 218
B. The Loser and Winner’s Curse......Page 221
C. How to Increase Your Chances of Winning on eBay......Page 227
D. Strategizing on Priceline......Page 229
E. Tickets to the Big Game......Page 231
Chapter 15. Wrapping It All Up......Page 234
Index......Page 242

Citation preview

Marketing Manipulation A Consumer's Survival Manual

10839_9789813234703_tp.indd 1

18/6/18 9:12 AM

World Scientific–Now Publishers Series in Business ISSN: 2251-3442

The World Scientific–Now Publishers Series in Business publishes advanced textbooks, research monographs, and edited volumes on a variety of topics in business studies including accounting, entrepreneurship, finance, management, marketing, operations, and strategy. The Series includes both applied and theoretical topics that present current research and represent the state-of-the-art work in their respective fields. Contributed by academic scholars from academic and research institutions worldwide, books published under this Series will be of interest to researchers, doctoral students, and technical professionals. Published: Vol. 14 Marketing Manipulation: A Consumer’s Survival Manual by Michael Kamins Vol. 13 Project Risk Analysis Made Ridiculously Simple by Lev Virine and Michael Trumper Vol. 12 Real Options in Energy and Commodity Markets edited by Nicola Secomandi Vol. 11 Global Sourcing of Services: Strategies, Issues and Challenges edited by Shailendra C. Jain Palvia and Prashant Palvia Vol. 10 Cross-Functional Inventory Research edited by Srinagesh Gavirneni Forthcoming: Innovative Federal Reserve Policies During the Great Financial Crisis edited by Douglas D. Evanoff, George G. Kaufman and A. G. Malliaris Marketing for Economists and Life Scientists: Viewing Marketing Tools as Informative and Risk Reduction/Demand Enhancing by Amir Heiman and David Zilberman The complete list of titles in the series can be found at https://www.worldscientific.com/series/ws-npsb (Continued at the end of the book)

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World Scientific – Now Publishers Series in Business: Vol.14

Marketing Manipulation A Consumer's Survival Manual

Michael Kamins Claremont College, USA

World Scientific

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18/6/18 9:12 AM

Published by World Scientific Publishing Co. Pte. Ltd. 5 Toh Tuck Link, Singapore 596224 USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE and now publishers Inc. PO Box 1024 Hanover, MA 02339 USA

Library of Congress Cataloging-in-Publication Data Names: Kamins, Michael A., author. Title: Marketing manipulation : a consumer’s survival manual / Michael Kamins (Claremont College, USA). Description: New Jersey : World Scientific, [2018] | Series: World Scientific-Now Publishers series in business ; Volume 14 Identifiers: LCCN 2018011140 | ISBN 9789813234703 (hc : alk. paper) Subjects: LCSH: Consumer behavior. | Marketing--Psychological aspects. Classification: LCC HF5415.32 .K35 2018 | DDC 381.3/3--dc23 LC record available at https://lccn.loc.gov/2018011140

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library.

Copyright © 2019 by Michael Kamins All rights reserved.

For any available supplementary material, please visit https://www.worldscientific.com/worldscibooks/10.1142/10839#t=suppl

Desk Editors: Suraj Kumar/Sylvia Koh Typeset by Stallion Press Email: [email protected] Printed in Singapore

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About the Author

Michael A. Kamins is currently a Professor of Marketing at the Peter F. Drucker School of Management at Claremont College. He was previously a Professor of Marketing, Area Head and Director of Research at Stony Brook University (SUNY) at the Harriman College of Business. He also taught for 25 years at the University of Southern California as well as at the Bernard M. Baruch College of the City of New York (CUNY) and New York University.

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b2530   International Strategic Relations and China’s National Security: World at the Crossroads

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Contents

About the Author

v

Chapter 1.

The Impact of the Marketing Environment

1

Chapter 2.

System I Processing

15

Chapter 3.

Cognitive Biases and System II Processing

25

Chapter 4.

Social Biases

57

Chapter 5.

Memory Biases

69

Chapter 6.

The Problem of Inertia

85

Chapter 7.

Price and Its Influence Upon Choice

93

Chapter 8.

Deceptive Products: Consumer Confusion, Secondary Meaning and Dilution

109

Marketing Manipulation by the Drug Companies is Enough to Make You Sick!

123

Selling Tactics That Have the Potential to Deceive

139

Chapter 9.

Chapter 10.

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Chapter 11.

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Contents

Deceptive Advertising and Promotional Techniques

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Chapter 12.

Political Advertising and Deception

175

Chapter 13.

Manipulative Marketing Research from Questionnaire Design to Results

191

Winning Strategies for Online Purchases (eBay, Priceline and StubHub)

209

Wrapping It All Up

225

Chapter 14.

Chapter 15. Index

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Chapter 1

The Impact of the Marketing Environment

Imagine that you are taking your weekly trip to the supermarket to buy groceries with your significant other, and as you pass by the cereal aisle, you reach for a box of Kelloggs’ Frosted Flakes and quickly place it into your shopping basket. Your significant other, whose main role in life seems to be to serve as the critic of what you eat and how you lead your life in general, tells you: “Get that stuff out of the shopping cart, first of all, it’s not good for you and secondly it’s for kids!” You counter her arguments by telling her that everyone who knows Tony The Tiger, the spokes-tiger for Frosted Flakes knows that they are GREATTTTTTTTT for you, taste good, and moreover as Kelloggs’ own advertising just recently suggested, are not ONLY just for kids, but for adults too, so there! But is your choice of Kelloggs’ Frosted Flakes a decision as simple as merely tossing it into your shopping cart? Let’s back up just a bit and examine more deeply what influenced you to choose Frosted Flakes in the first place, and what factors contributed to your belief that it is “great” for you and great tasting to boot! A colleague of mine from Stony Brook University studied this very question and found out that the advertising characters that one is exposed to in childhood influence your brand evaluations when you become an adult.1 So for those of you who had warm and fuzzy feelings when you were a kid about the Burger 1 See Connell, Paul M., Merrie Brucks, and Jesper H. Nielsen. “How childhood advertising exposure can create biased product evaluations that persist into adulthood.” Journal of Consumer Research 41(1) (2014): 119–134.

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King, Ronald McDonald, Tropicana, Toucan Sam, Tony the Tiger, Chiquita Banana, Captain Crunch and the like, those feelings in many cases may have evolved into a deeper yet subconscious commitment to these icons and the brand they represent as you grew into adulthood. No, I am not insinuating that you had an affair with any of these characters, nor can I conclude that you obsess over them day and night. What I can conclude, however, is that the positive feelings you had toward these advertising characters when you were a kid are alive and well today when you are an adult and you may not even know it! The feelings that you hold toward these characters can potentially result in a preference for the brands that feature them, and ultimately an “enduring bias” toward the quality of the brands they represent. In the case of Frosted Flakes, this bias toward Tony the Tiger may reflect itself in the degree of nutritional health benefits that you believe the product conveys to you. In other words, if you liked Ronald McDonald as a child, the fries that you eat as an adult are perceived as healthier than other brands; if you liked Tony the Tiger as a child, then as an adult you are more likely to perceive the cereal as healthier than those not familiar with this 1950s icon. It is easy to simply discount these findings about Tony as just a figment of the imagination of some mad academic researchers in an ivory tower with lots of student subjects, time on their hands and a computer to analyze the resulting data. But these findings spanned two countries and focused on actual consumers outside of the classroom. Indeed, the cynic might argue: “everyone knows these characters are just that — characters, they have no impact on me now, and had no impact on me then, why would anyone prefer a food just because it had an advertised character?” The answer comes from a study from Yale’s Rudd Center for Food Policy and Obesity.2 This research, using identical products (graham crackers, gummy fruit snacks and carrots), found that the packaging that contained a cartoon character as opposed to one that did not resulted in significantly more

2 See Roberto, Christina A., Jenny Baik, Jennifer L. Harris, and Kelly D. Brownell. “Influence

of licensed characters on children’s taste and snack preferences.” Pediatrics 126(1) (2010): 88–93. See also Lapierre, Matthew A., Sarah E. Vaala, and Deborah L. Linebarger. “Influence of licensed spokes-characters and health cues on children’s ratings of cereal taste.” Archives of Pediatrics & Adolescent Medicine 165(3) (2011): 229–234.

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4–6 year-old children preferring the snack with the cartoon character. But the findings do not stop there; the kids actually believed that the packaging with the cartoon character tasted better. So, the link between, the use of advertising characters and better taste starts at a young age, that is, this is probably as a result of extensive exposure to kids cartoon programming and advertisements with engaging characters hawking products to their young viewers. This product preference can then travel across time, even decades, influencing us as an adult to prefer the same brand that we loved as a kid, only now, not only causing us to rationalize that our product preference tastes better than the competition, but even that it is more healthy for you. This led my colleague at Stony Brook to argue that parents today should take more care in checking the labels on the products they have loved and embraced since they were children because it is possible that affectionate feelings for brand characters that they carry from childhood can interfere with the relevant nutritional information on the box. It also suggests that each of us should more carefully examine our brand choices to make sure that childhood desires are not subconsciously leading us to choose unhealthy foods in the present for ourselves and for our children. That is, just because you were cuckoo for Cocoa Puffs as a child, does not mean that “Sonny the Cuckoo bird,” (yes, that’s his name) should have a shot at influencing your kids’ cereal choice. By now you have probably heard enough of cartoon characters and brand symbols, and you have made a silent vow not to let them interfere with your product choice. So, armed with this newfound knowledge you go back into the supermarket and re-start your shopping trip. As you begin shopping, I implore you to begin paying attention to the background music being played. Once you do this, you may begin to wonder why the tempo and beat is so slow? You ask your significant other, but she says that she doesn’t pay attention to such things, she just shops. But as you reach the checkout, you realize that not only have you spent an inordinately longer time in the store than you typically would want to, but you seem to have bought more. This, while a surprise to you, is not a surprise to those researchers who examine environmental stimuli and their impact on the consumer. Indeed, there are many studies which have shown that slower music tempo in a shopping environment gets the consumer to walk slower,

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and when you walk slower you notice more things, and when you notice more things . . . guess what . . . you purchase more things.3 I guess a side benefit to this environmental manipulation, however, is that you are getting free dancing lessons in the supermarket as you subconsciously move to the beat of the music. Who knows maybe one day you can fulfill your secret dream of getting on the hit show, “Dancing with the Stars.” So now you are avoiding brand characters and trying to walk quicker than the music that’s playing in the background so you are not influenced to buy items you didn’t plan on buying in the first place. All of a sudden, you notice that it’s cold and drafty in the supermarket, so you put on your extra sweater but still the tip of your nose has a certain chill. By putting on that extra layer of clothing you are engaging in a physical process called thermoregulation, defined as an attempt to keep our internal temperature within certain boundaries.4 However a set of researchers from my Alma Mater, Bernard M. Baruch College, claim that humans, aside from thermoregulating themselves on the physical dimension of warm–cold, also engage in a mental form of thermoregulation via decision-making styles.5 For example, someone who is referred to as a “Hot-Head” is an individual who defers to his/her emotions, whereas someone who is described as “cool and calculated” typically is seen as taking one’s time to think from an indepth carefully considered cognitive perspective. Is it possible that when an individual is feeling cold, that they may adopt a decision-making style that is emotional or warm in nature, and that when one is warm they may thermoregulate by adopting a more calculating (cool) and cognitive decision style? Hadi, Block, and King (2012) studied this phenomenon in a series of experiments designed to examine the cognitive approach consumers took to a decision choice involving the consumption of a relatively unhealthy rich chocolate cake versus a more calorie-deprived fruit salad for a snack.

3 Milliman, Ronald E. “Using background music to affect the behavior of supermarket

shoppers.” The Journal of Marketing 13(2) (1982): 286–289. 4 Brunjes, Peter C., and Jeffrey R. Alberts. “Olfactory stimulation induces filial preferences

for huddling in rat pups.” Journal of Comparative and Physiological Psychology 93(3) (1979): 897–906. 5 Hadi, Rhonda, Lauren Block, and Dan King. “Mental thermoregulation: affective and cognitive pathways for non-physical temperature regulation.” NA — Advances in Consumer Research 40 (2012): 42–47.

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When subjects were previously asked to drink a hot liquid, (used to induce feelings of warmth), more than twice as many individuals chose the fruit salad as opposed to the chocolate cake. Moreover, when another group of subjects was asked to drink the iced drink first, the majority then chose the chocolate cake. What do these findings suggest? If one is feeling overly hot, then pursuing a cognitive decision approach which is perceived as cool should be utilized as a form of thermoregulation. Therefore, the more healthy fruit salad should be more decidedly chosen over the unhealthy chocolate cake in this condition, as it indeed was. Likewise, if one is cold, and warmth is needed to self-regulate via thermo-regulation, then the more emotive decision-making approach should be taken, and more individuals should chose the chocolate cake over the fruit salad, as was found. For those doubting Thomases among you who think that this result is strange, consider the authors’ second experiment where the focus involved the dollar amount of insurance the owner would purchase for an antique clock. The clock was either described as having significant sentimental value or not. Subjects were again exposed to the hot/cold drinking manipulation discussed previously. After drinking the contents of the glass, subjects were then given the clock manipulation where either the sentimental value was expressed or it was not. Findings showed that consumers were willing to purchase generally higher amounts of insurance for the “sentimental” family heirloom clock, relative to the identical clock that was not described as such, but only when subjects had consumed the cold drink. But why? . . . because drinking the cold drink led to the need for mental thermoregulation, which manifested itself in affective or emotional (warm) thinking, as those participating in the experiment got in touch with their sentimental selves. These individuals felt the emotional need to insure the antique clock against loss when the sentimental value of the clock was highlighted by the experimenter. This temperature effect on decision-making also was shown to be evident in a series of studies conducted in Israel led by a researcher from the Hebrew University.6 Tapping into prior research which shows that

6 Zwebner, Yonat, Leonard Lee, and Jacob Goldenberg. “The temperature premium: Warm

temperatures increase product valuation.” Journal of Consumer Psychology 24(2) (2013): 251–259.

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physical warmth leads to social warmth and appreciation of others,7 and that brands are often used as a device to reflect one’s own identity,8 the authors maintained that when the consumer is physically warm or even feeling hot, their willingness to pay for a variety of different products is significantly greater than when they are not feeling hot and bothered. For example, in one of their experiments, subjects were placed into a room where the ambient temperature was set at either 79◦ (warm) or 65◦ (cool). Next, participants were told that they would be presented with images of a number of products that were available for purchase. The results showed that participants in the warm room were willing to pay more for the products than those in the cooler room across 11 different product categories. The researchers claimed that the effect found was driven by the emotional warmth driven toward the product that the physical warmth had induced. So, if we value products more and are willing to pay higher prices for them when we are uncomfortably hot, those of you who late at night are sitting in a hot room at your computer trying to snipe on eBay, may be better served to put some ice cubes on your head, turn on the air conditioner, go to bed, and place your bids in the morning. You may find that the amount you wish to bid is lower, consistent with the temperature in the room. But if physical warmth triggers emotional warmth toward others and toward the products we consume, does it also possibly influence those who we seek for advice when making key decisions? Research in decisionmaking with financial consequences makes the claim that consumers are disposed toward using others’ opinions as input into choice decisions when individuals are warm. That is, a tendency to “conform to the crowd” was evident in research recently conducted at a Hong Kong university, finding that when environmental conditions are warm, this increased the subjects’ perceptions of social closeness to other decision-makers, resulting in others’

7 Bargh, John A., and Idit Shalev. “The substitutability of physical and social warmth in

daily life.” Emotion 12(1) (2012): 154. Also the implications that physical warmth leads to closeness to others has humongous implications for dating. If this is true then don’t go on a date in Alaska during the Winter. 8 See Fournier, Susan. “Consumers and their brands: Developing relationship theory in consumer research.” Journal of Consumer Research 24(4) (1998): 343–373.

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opinions being given greater weight in decision-making.9 This research used none other than the racetrack to test this proposition. In this context, it was found that on days when the temperature at the track was warmer, there was a greater tendency for bettors to place bets on what is known as the “chalk” or, in simple parlance, the favorite horse. This is because betting on the favorite represents what is generally known to be the “wisdom of the crowd.” After all, that is why the horse is the favorite, because more people think that he/she will win the race! Justify’s Triple Crown win at Belmont occurred on a warm day where the temperature reached 83 degrees. Coupled with the fact that he was the sentimental favorite, many $2 win tickets were placed on him. If history follows a pattern (see American Pharoah), many of these tickets will never be cashed as pundits believe that they will be worth more on eBay later than presently at the track. So, you say, I don’t go to the racetrack and I don’t use off-track betting, in fact I am NOT a gambler, so this segment of the book does not apply to me! Really? I’ll bet that many of us who do not consider themselves to be gamblers, are actively involved in “investing” in the stock market, which I have been told is the biggest gamble of all. So as you sit at home plugging away at your computer, making financial decisions regarding where to allocate the money you just placed in your 401 K, if you happen to do this task on a hot day, do you simply buy the stock that analysts all prefer? Or maybe you go into an air conditioned room and place your money on that penny biotech stock that someone told you could go to the moon, if it simply completes a Phase I, II and III trial and ultimately gets approved by the FDA. And if you are doing your tax return on a cold day or with the air conditioning blowing down hard on your back, do you finally decide to get “creative” with your tax return and shun the advice of your wellintended accountant? Clearly, the findings of this particular study extend well beyond the racetrack and should bring your attention to the fact that the air-conditioning works well in San Quentin, where socialization with other prisoners may not be a good idea! 9 See Xun (Irene) Huang, Meng Zhang, Michael K. Hui, and Robert S. Wyer. “Physical

warmth and following the crowd: The effect of ambient temperature on preference for popularity,” in NA — Advances in Consumer Research, 40, Zeynep Gürhan-Canli, Cele Otnes, and Rui (Juliet) Zhu, (eds.), Duluth, MN: Association for Consumer Research (2012), pp. 42–47.

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So, now back to the story. Here we are, still in the supermarket, staying away from brand characters, paying attention not to dance to the beat of the background music that’s playing and now cognizant of the temperature inside the supermarket itself. So when you go to choose your favorite brand of spaghetti, you now wonder, is it truly my favorite brand, or is it the favorite brand of my significant other, and I chose it just because they have the heat on in the supermarket? In addition, am I feeling particularly amorous toward my significant other because I truly love her, or is it the heating system in the supermarket at work again or am I wearing thermal underwear? In any event, at this point the trip to the supermarket is getting more complicated than anyone can ever imagine. So, with the wind of the heating system blowing at your back, and the cash register ringing up your final purchase, you decide to take your significant other to the movies to relax, and it should shock no one that the choice is to see a romantic movie. You arrive early at the box office, find a good seat, and sit down with your significant other with the sole intention of relaxing. But now, the price you pay for being early is that before the movie begins, you typically have to sit through 10 minutes of advertising and another 10 minutes of previews, for movies that you have absolutely no intention of seeing and products you have no intention of buying. So, you plan ahead and rush out to buy some popcorn as a diversionary tactic, and start to munch quietly through the advertising and through the previews. Interestingly, research shows that the act of munching on popcorn serves to disrupt the process of cognitive focus which typically involves one covertly and silently simulating the pronunciation of the more familiar words present in the advertisement (typically the brand name).10 If you doubt that we covertly and silently repeat words, just think about how you behave when reading a book. Is there anyone out there who can read without mouthing or repeating the words in their head?11 This silent and covert simulation has been shown to

10 See for example, Stroop, J. Ridley. “Studies of interference in serial verbal reac-

tions.” Journal of experimental psychology 18(6) (1935): 643; as well as Topolinski, Sascha, Sandy Lindner, and Anna Freudenberg. “Popcorn in the cinema: Oral interference sabotages advertising effects.” Journal of Consumer Psychology 24(2) (2014): 169–176. 11 I admit to having the amazing ability not to repeat the words of the text silently when reading books in Icelandic.

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underlie the famous “mere exposure” effect12 where it was found that the more a stimulus is repeated the more it is liked. You all know this effect maybe not by its name, but certainly by its impact upon you. Simply go back in memory to when you were a kid and heard a song on the radio. The first time you heard it, it may have caught your ear (like Wrecking Ball, although the visuals there was where all of the action was). The second time you heard it, you liked it a little better, and when it became familiar and you could sing along, you liked it a lot. A recent study conducted in Germany found that munching on popcorn, or talking during previews, (something that is sure to get a shussssh from the person behind you), served to immunize the viewers from the impact of the advertising presented in the cinema. The munching interrupted the silent repetition of the brand name and distracted the individual from processing the advertising. So, if you do not need what they are hawking at the cinema, and are annoyed by seeing the advertising or previews, simply munch away, and be proud of it! Munching may interfere with your amorous intentions however. Our story, does not end here at the movies, rather this venue will serve as the pushing off point for the rest of our journey exploring how without being armed with the proper knowledge, one can be unintentionally directed to make specific decisions and come to specific conclusions by marketing tactics designed to influence how you think, feel and act. This book is intended to shed light on your daily adventure as a consumer in a world in which you are exposed to an estimated range of from 200 to 5,000 advertisements a day, telemarketing on steroids and purchase decisions that range from buying a cup of coffee to evaluating whether you need one, two, three, four or five blades on your safety razor to deciding which house or car to purchase. Notice, I have not even mentioned the 25 calls on your cell phone that you get daily which are labeled by your phone as “Potential Fraud.”13 At this point, it should be evident that factors existing in the environment itself influence how you think, feel and act toward brands. These are factors

12 Zajonc, Robert B. “Attitudinal effects of mere exposure.” Journal of Personality and

Social Psychology Monograph Supplement 9(2) Part 2 (1968): 1–27. 13 I recently missed a meeting with the Dean of the College of Business when my cell phone mistakenly labeled his number as a “potential fraud.” Maybe the phone knows more than I do?

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that the store, movie house or even online marketer can manipulate to serve to manipulate you. However, environmental factors in a sense are a step away from marketing manipulation of the actual product and the way it is promoted to the public, priced or distributed. In marketing, we often convey the idea that a product is sold through the consideration of the 4 Ps or what is affectionately known as the “marketing mix.”14 In this regard, Borden (1964) described the marketing manager as a “mixer of ingredients, one who is constantly engaged in fashioning creatively a mix of marketing procedures and policies in his efforts to produce a profitable enterprise.” But what does this marketing chef mix? The answer is the product itself, the price charged for it, how it is communicated to the public through advertising and promotional techniques and finally where it is distributed or placed. For each of these 4 Ps, (product, price, promotion, and place), marketers can utilize techniques which can serve to influence the public into purchasing the product, sometimes through the use of complex psychological approaches triggering inherent consumer biases that are either cognitive, memory or socially based. I am not saying that in each and every purchase decision, the consumer is manipulated by corrupt marketers to purchase their product like mindless zombies. I AM saying that there are tools on the side of every marketer which can tilt the consumer’s decision process a bit toward that specific seller’s offerings. An awareness of such tools and techniques in advance would be beneficial to the consumer as he/she moves toward purchase, specifically of higher ticket items such as cars, household appliances, electronic items and even the purchase of one’s home. The purpose of this book is to describe in detail such techniques so that the consumer is, at the very least, aware of them and, at the very best, armed with knowledge to combat them. Hence, the chapters that follow will focus on each of the 4 Ps as well as selling techniques used by marketers which serve to induce purchase. We will also devote chapters to marketing techniques used in areas involving products and services that the consumer will most likely be exposed to on a continual basis such as prescription drugs, political campaigns and the Internet. 14 See Borden, Neil H. “The concept of the marketing mix.” Journal of Advertising Research 4(2) (1964): 2–7.

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However, before we disembark on a thorough discussion of these marketing mix elements, a tutorial is needed in advance to introduce the various consumer biases (cognitive, social and memory based) that impact the way we think, feel and act. That is, these biases represent tendencies to think and act in certain ways that in fact can outwardly reflect rigidness and inflexibility and ultimately poor decision-making. Such biases can lead to a significant deviation from a standard of rationality or good judgment, but yet seem perfectly rational to the individual. This is because the bias reflects the way the individual has always thought or behaved in their arrival at choice options! If marketers are aware of these biases, then they can utilize them against the consumer by facilitating one’s brand choice consistent with such existing biases. For example, consider the availability heuristic, a famous cognitive bias.15 This bias reflects the ease with which one can bring to mind exemplars or examples of a specific event resulting in an overestimation of the likelihood that a given event occurs as a function of recent past history. So for example, in selling insurance for the loss of one’s credit card (in case it is lost or stolen), the vendor can emphasize the fact that a credit card is lost or stolen in America every 5 seconds or so, or that you (the buyer) probably know someone who has experienced identity theft in the past year. These selling tactics simply serve to make you more sensitive to such events happening to you and therefore more willing to purchase the protection. Selling hurricane insurance would seemingly be a bit easier in Texas and Florida after the recent arrival of Harvey and Irma. When you are on the receiving end of such a selling technique in light of being on the receiving end of such a hurricane, it is hard to resist unless you know what the seller is attempting to do and formally which cognitive bias they are trying to tap into. Consider another simple example, we all know that “more is better,” or is it?16 Aside from my profession as a marketing professor, I also frequently serve as an expert witness in judicial cases involving marketing issues. In this capacity, I am often asked to undertake a survey of consumers to

15 Folkes, Valerie S. “The availability heuristic and perceived risk.” Journal of Consumer

Research 15(1) (1988): 13–23. 16 Solnick, Sara J., and David Hemenway. “Is more always better? A survey on positional

concerns.” Journal of Economic Behavior & Organization 37(3) (1998): 373–383.

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determine how important various attributes of a product are in triggering or motivating their purchase. For example, I once worked for a pie and restaurant company based in California who was being sued via class action by a group of consumer plaintiffs because the fat content on the label of their Chicken Cordon Bleu frozen entrée was underestimated. According to the lawsuit, a reduction in fat content on the label led California consumers to believe that the entrée was healthier than it really was and generated sales to the public that would not have occurred if the entrée was properly labeled. I was asked to undertake a survey evaluating the importance of various attributes in the purchase of a frozen dinner entrée. The findings showed that flavor was most important, followed by value, with fat content way down the list. Hence, the survey showed that consumers who bought the focal brand did so mostly for other reasons than fat content, revealing that for many consumers fat content was not critical in their decision choice and was not heavily relied upon. In another case, a consumer chose to sue a breath mint company because the total weight of the package of mints listed on the package was significantly less than the actual weight inscribed on the side of the package. In his deposition, the plaintiff claimed that everyone purchases breath mints mainly because of the weight of the package, and from a comparative brand perspective, the more ounces the better. The attorney who took this consumer’s deposition then asked him if he purchased everything as a function of its weight inclusive of his car, he responded yes! He was then asked if he would prefer to eat a slice of cheesecake that weighed 8 pounds or one that weighed 8 ounces . . . the answer is still forthcoming. But the “more the better bias” can spring up out of the blue when you least suspect it. Consider, the shopping trip that I took today with my son to the local CVS drugstore in search of a probiotic that my doctor said would be good for me to take. On the shelf were different options, inclusive of pills, that ranged from 3 billion active bacteria to 20 billion. That’s Billion with a “B”! The idea that I could buy and consume a tablet that had almost three times as many individual bacteria as the world’s human population, made me feel powerful to say the least. It almost made me forget about trying to figure out how they got all those bugs inside the pill, as well as my possible class action suit against the company, if after counting, I found that I was one bacterium short!

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Now, without any idea regarding how to evaluate which brand of probiotic is best, I immediately told my son that I had to have the one with 20 billion in the pill, since after all, more bacteria is good, no? But wait, “aren’t we told that bacteria is bad, I said?” “But this is the good kind” my son said. “How do you know, I asked are they wearing white hats?” So as I got to the checkout, my son yelled, don’t buy it yet, I found a pill with 100 billion in it.” “Must be a big pill I shot back, and I bought it.” After all, more is better right? In summary, reading this book will not make you bulletproof from marketing manipulation, since marketing offers, like weeds, grow every day. However, reading the book will make you attend to and critically interpret marketing tactics and approaches that you may never have even given a second of your time or attention to previously. The book will provide you with a kind of X-ray vision to see through attempts to influence you and more importantly to see repeatable patterns that marketers can and have used to get you not only to purchase their product but to make you think that you made the best purchase possible. In addition, we will discuss how you can avoid cognitive, social and memory-based biases to get the best price, particularly when you are using an online purchase environment where price is fluid (think Priceline and eBay as examples). So now, let’s begin the process of making you a knowledgeable consumer. We begin in Chapter 2 by first shedding light on the way that we as humans typically approach decisions, often through the use of simplified and automated/unconscious heuristics (i.e., simple rules). That is, we often use basic decision rules when facing a complex decision-making environment, designed to help us navigate through the decision process with some relative degree of ease. Yet, you the reader may realize that sometimes, when it really matters, we do tend to take our time and consider even minute details when coming to a decision, oftentimes about something that is near and dear to us (e.g., the decision involved in the purchase of a car or the choice regarding which university we should attend). As noted by Kahneman (2011),17 human decision-making is currently widely seen

17 See Kahneman, Daniel. Thinking Fast and Slow. New York: Farrar, Straus and Giroux

Press (2011), pp. 19–31.

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as being governed by two cognitive systems: automated rules or heuristics (System I) that produce rapid actions and perceptions over which we have little conscious control, and more deliberative or reasoned rules (System II) that more carefully consider features of the environment, and over which we have considerable conscious control. Understanding when and why we use each of these different systems is a first step in being aware of our marketing environment. It is important to note however, that, the consequences of using “System I” by putting our mind on autopilot can make us susceptible to a myriad of selling schemes presented by unscrupulous marketers. For example, deceptive sales schemes used by internet marketers can be effective by endowing websites with features that encourage decisions to be made by System I (instinctive) processes, while suppressing features that would activate System II (reasoned) processes. These latter processes could otherwise serve to alert and discourage consumers from signing up for programs and “deals” that have little real value, and for which in many cases, the majority of consumers are not even aware that they have signed up for in the first place! Chapter 3 sheds light on an important human behavioral tendency which is caused by cognitive, memory-based and social biases which arise as a function of the type of processing we use when making decisions. This behavior, called System II processing is so prevalent among us that we tend to ignore it, and therefore even accept it as “normal.” But its presence, if left undetected, leads to poor decision-making and conservative choices that hurt you financially and even emotionally. Starting with Chapter 4, we take a deep dive into a discussion of the cognitive, memory-based and social biases in the chapters that follow as they impact decisions. Let’s now begin and step into the world of “Marketing Manipulation.”

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Chapter 2

System I Processing

A. Pound Cake? Just the other day, for my wife’s birthday, I decided to buy her a cake from an upscale supermarket in our neighborhood. I knew that her favorite type of cake was an Apple Crumble and I found one rather quickly on the shelf which also appeared to be on sale. Lucky me, I thought as I scanned the price asked for the cake. The packaging said, “$39.99 per pound,” and right below this the label indicated the following: YOUR PRICE: $29.99. For a split second, the irrational thought crossed my mind that the reason the cake is on sale is because . . . They must know that I’m the kind of guy who doesn’t pay retail, and because this purchase is for a special event, MY PRICE is $10.00 off . . . or maybe because I’m such a nice guy and they knew this in advance they are giving me a price break! Then I came to my senses and realized it really doesn’t matter why the price discount is present, just scoop it up stupid, place it in the basket and be thankful that you purchased a great cake for a great price. When I arrived home, I opened the cake and placed it on our cake stand, and for the first time noticed that it seemed rather small. Then when I looked at the package, the cake weighed in at only 12 ounces, not the ONE pound that I had assumed. Therefore, the reason that MY PRICE was $29.99 and not $39.99, was because I only bought ¾ of a pound! There was no BIG sale, only an underweight cake in comparison to what I expected! Indeed, the FTC might consider such price labeling as deceptive, since such labeling has the potential to mislead consumers. But then again, the FTC may come to the conclusion that I should have more carefully examined the label in advance to discover the actual weight of the cake. 15

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But what caused the deception? Well, to be honest, I actually deceived myself as I expected that, in general, cakes are sold in pounds as a unit of measurement, not 12 ounces. Just like coffee used to be packed in 16-ounce cans, today one is lucky to get an 11-ounce can of coffee. The use of such potentially deceptive pricing tactics are geared to get consumers to engage in System I processing.1 Such processing is best described as resulting in fast, associative, effortless and often emotionally charged actions over which one has little conscious control. This processing involves rapid and automatic actions or perceptions for which we have very little cognitive awareness, almost as if we behave on automatic pilot attracted to bright lights and environmental cues as moths are attracted to a flame. A central feature of System I processing is that consumer perceptions and behaviors are often driven more by the cues consumers expect to see in an environment rather the cues that are objectively there. Hence, it is through System I processing that my quick and false assumption that the cake weighed a pound was derived; I simply believed it did, and so it did . . . until it didn’t. For example, suppose that you entered a gas station that had a large sign visible from the road which stated the price for gas purchased using “cash” and a price for gas purchased using “credit.” Now suppose that you intended to pay with your debit card, for gas using your debit card, the question then is, what price would you expect to pay for your gas? Since the sign does not indicate the price of gas when paid by the use of a debit card, the consumer is left to his/her experience as to the price they expect to pay when using their debit card. Hence, when the seller provides incomplete information at the point of purchase, the consumer is left to utilize System I processing to engage their expectations regarding what price they will pay at the pump. What price would you expect to pay with your debit card, the “cash” price or the “credit” price? Consider another example, that of online marketers who offer one the opportunity to gain detailed information on anyone in the country for the “low” price for example of only 95 cents. One simply needs to click on the bright orange button, to get the deal and receive 75% off of the “regular”

1 Kahneman, Daniel. “Maps of bounded rationality: A perspective on intuitive judgment and

choice.” Nobel Prize Lecture 8 (2002): 351–401.

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price. However, if one clicks on the button, they could be immediately enrolled into a monthly program often run by a third-party vendor who receives their payment information, which requires the consumer to make the cognitive effort to cancel the program if they are not happy with it. But canceling the program is an action that few consumers take because many are unaware that they even joined the monthly program in the first place. This pricing approach is called, “negative option pricing” that makes acceptance of membership the default action for consumers, shifting the burden of effort in the sales process from the seller to the consumer.2 Under System I processing, one simply does not take the time and effort needed to clearly process the fact that the bargain button includes with it a bundled deal with another vendor, or even a second commitment with the initial vendor. One would not even expect that this is indeed the case. System I processing in such a case is encouraged because the consumer is attracted by a vibrant high chroma button coupled with the discount offered and clarifying print often so small that an eagle would need contact lenses to see it. B. System I Processing Every day as we go about our purchase activities and simply carry on with our lives, we are exposed to hundreds of advertisements and promotions.3 Hence, we absorb and store a huge amount of data and images in a way that is beyond our conscious awareness or control. While this information is not highly processed, it is argued that with repeated exposure, certain connections and associations will be made. Consistent with System I processing, consumers who are exposed to advertising under low involvement conditions (i.e., one in which the consumer has little or no motivation to process or learn the material) are typically persuaded to purchase through a “peripheral” route to attitude change, which occurs NOT because the individual has carefully considered the pros and cons of an issue or a product purchase, but rather because the object is associated

2 Robert Meyer. “Prepared statement of Robert J. Meyer.” Presented to the United States Senate Committee on Commerce and Transportation. November 17th (2009). 3 CBS News, September 17th (2006).

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with positive or negative cues (e.g., they liked the music contained in the advertisement, possibly they liked the celebrity associated with the brand, or even the images shown in the advertisement).4 In fact, processing an advertisement or making a purchase decision under low involvement conditions can be rather dangerous since such conditions result in the consumer suspending the typical intensity and critical perspective with which they traditionally view an advertisement, and therefore they can be more susceptible to the sales pitch. Indeed, this suspension of criticism in advertising is present in the practice of product placement, where brands are placed within the context of movies.5 Seeing Halle Berry drinking your favorite beer or Daniel Craig driving the new Aston Martin in the most recent James Bond flick “Spectre” works wonders for awareness and sales, just ask the Hershey company about “Reece’s Pieces,” and the impact that placement in the movie E.T. had on sales.6 But System I processing can be found in many other consumer purchase contexts. Consider the concept of price bundling. This is the situation where a manufacturer puts several products or services together into a single package and typically sells the “bundle” for a price that is lower than if one were to purchase the items individually. We have all come across a price bundle when we enter a McDonald’s restaurant, where we are typically asked if we want the “combo” of a Big Mac, large fries and a drink. When we purchase a bundle of items, we typically are the ones who are asked whether we want it (such as in the McDonald’s example typically by the cashier), and we often assume that the elements of the bundle go together nicely, such as shampoo and conditioner, and are offered at a discount in combination. But are there any situations where it was never your intent to purchase a bundle, and yet

4 Petty, Richard E., John T. Cacioppo, and David Schumann. “Central and peripheral routes to advertising effectiveness: The moderating role of involvement.” Journal of consumer research 10(2) (1983): 135–146. 5 Gupta, Pola B., and Kenneth R. Lord. “Product placement in movies: The effect of prominence and mode on audience recall.” Journal of Current Issues & Research in Advertising 20(1) (1998): 47–59. 6 You could also ask Mars (who were asked first) about their decision not to use M&M’s in the film but I suspect that they would not be very happy to talk about it!

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that is what you leave the store with? It’s easy to imagine this happening at McDonald’s but could this possibly happen for a relatively expensive good? Consider the following example, I enter a department store (that shall remain nameless) looking for a pair of pants, and I see bright red tags indicating that a sale is going on. Those bright red tags, serving as a cue, should be enough to get your heart pumping if you are even onetenth the shopaholic that I am. You notice that the terms of the sale are as follows . . . you can buy any wool pants on a given rack filled with designer names (e.g., Michael Kors, Ralph Lauren, Calvin Klein, etc.) for the “discounted price” of $99.00. Next to this rack, a wide range of sport-coats in identical designer names are offered for $199.00, also “on sale” . . . but you can get the best deal of all, in that you can choose a pair of pants from one rack AND a sports-coat from the second rack for the super sale price of $2297! Now what is going on here? Has the department store gone crazy, have they missed something? Does someone not know how to add? After all, if the pants cost $99 and the sports-coat costs $199, the total should be $298 not $229 for the combo. If you are quick at math, and even if you are not, you soon come to realize that you better act fast and buy the pants and the sports-coat, and take it to the cashier who is first to admit when questioned that they hated first-grade math! Now before you do this, let’s wait a moment and catch our breath before we purchase. Say that I really had absolutely no need to buy the entire suit when I first entered the store and that I simply came into the store to buy a pair of pants. Would I be able to resist the purchase of a suit? Well the typical consumer would cash in on this super deal by purchasing a sportscoat AND a pair of pants for $30.00 more than the sports-coat alone ($229 versus $199), even if they only initially had the purchase of a pair of pants in mind. That is, the department store got the consumer to purchase the bundle (a suit), in place of simply buying pants because the buyer could not pass up the opportunity. What happened was that the consumer lost

7 Note that with this deal you are also given a coupon for $25.00 off your next purchase at the department store, effectively making the sports-coat purchase and the pants and sports-coat purchase almost identical in cost to the consumer.

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focus on the pair of pants they wanted to buy, and instead focused on the relative advantage of purchasing pants and sports-coat for only $30.00 more than purchasing a sports-coat. In other words, you, the consumer, bought a bundle without the initial intention of doing so simply because you were driven almost by instinct to get the bargain for the set of items relative to the single item that you initially intended to purchase. Essentially, the seller switched your frame of reference from a pair of pants to a comparison of the sports-coat versus the pant/sports-coat combination. In the book “Predictably Irrational,” Dan Ariely describes a similar type of offering where the Economist proposed a 1-year subscription to the Economist.com for $59.00, a print subscription for $125.00, and a print and web subscription for $125.00. The author notes that when he studied the consumer’s preference among the three choices, by asking 100 students at the Sloan School of Management at MIT their choice, 84 chose the web and print subscription and 16 chose the web subscription alone. Importantly, not one student chose the “decoy” or inferior choice of the print subscription for the same price ($125.00) as the print and web subscription. However, when Dr. Ariely removed the inferior choice option and gave a different set of students a choice between the web subscription alone for $59.00 versus the print and web subscription for $125.00, the choice was overwhelmingly in favor of the cheaper web subscription alone, in fact this option was chosen by 68% of those surveyed. What is amazing is that by simply removing the option chosen by no one (i.e., the print option alone for $125.00), preferences went from 16% choosing the web subscription to 68% choosing this option. The reason for this result, according to Dr. Ariely, is that consumers see choice options relatively, that is the presence of an inferior option led to the choice of the option which was superior, even though a cheaper option was available. What is important to consider here is that options which seemingly are not valued by the consumer can ultimately influence choice; this effect can also, in some cases, lead to the purchase of more items than one had originally planned. That is, in both cases, a bundle was purchased (a suit and a combined print and web offering), in place of a single item. Clearly, the consumer had been manipulated. System I processing and decision-making is oftentimes described as low effort, rapid, associative, contextual and automatic. Imagine you are

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visiting a city that you have little knowledge of, and are getting hungry for lunch. Would you go into the restaurant that is extremely crowded with a wait time, or the one across the street that has no one inside, with the only people waiting being the waiters who are waiting for customers to enter. The answer of course is that you would dine at the crowded restaurant under the naive belief that if many people are standing outside to get in, the food must be great. You would rather wait 1 hour to get a table than 1 hour in the emergency room to have your stomach pumped! The belief that the busier a restaurant is, the better the food, can be classified as a “naive belief” which is typically used as a decision-making heuristic under System I processing. Naive beliefs are informal, common-sense explanations that consumers utilize in their everyday lives to make sense of their environment and often diverge from formal, scientific explanations of what actually happens.8 Such beliefs are used because they require little cognitive effort and can be accessed quickly and applied easily to almost any decision-making situation. Indeed, recent research has explored how a variety of naive theories are used as the basis for consumer inference.9 For example, research recently documented the fact that consumers assume that when a firm is profitable, their advertising is more credible and therefore is more favorably evaluated. This is possibly the case because when a firm is profitable, the naïve belief held by consumers is that the firm must produce quality goods which sell to a relevant market and are therefore positively

8 Deval, Hélène, Susan P. Mantel, Frank R. Kardes, and Steven S. Posavac. “How naïve theories drive opposing inferences from the same information.” Journal of Consumer Research 39(6) (2013): 1185–1201. 9 Labroo, Aparna A., and Anirban Mukhopadhyay. “Lay theories of emotion transience and the search for happiness: A fresh perspective on affect regulation.” Journal of Consumer Research 36(2) (2009): 242–254. Raghunathan, Rajagopal, Rebecca Walker Naylor, and Wayne D. Hoyer. “The unhealthy = tasty intuition and its effects on taste inferences, enjoyment, and choice of food products.” Journal of Marketing 70(4) (2006): 170–184. Steinhart, Yael, Michael Kamins, David Mazursky, and Avraham Noy. “Effects of product type and contextual cues on eliciting naive theories of popularity and exclusivity.” Journal of Consumer Psychology 24(4) (2014): 472–483.

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evaluated. This favorable belief about the product therefore filters down to the consumer’s perceptions of the firm’s advertising.10 But consider the following statements: “If you want to be perceived as someone who knows how to dress well, wear what everyone else is wearing; you can’t go wrong by following current trends in fashion,” versus “You’ll be seen as a fashion maverick if you wear a unique dress, and you will be the envy of everyone at the party.” These statements represent naïve theories of social acceptance and provide seemingly contradictory messages about the desirability of wearing a particular garment. The first statement implies that wearing what others wear leads to a favorable impression among interested others. In the latter example, not wearing what others wear leads to a favorable impression among interested others. So whose advice should you take? The answer of course is it depends . . . It turns out that my colleagues and I conducted an experiment regarding the “best” dress to wear to the prom among high school seniors. We asked, should you choose the unique dress that no other girl is wearing, therefore making a fashion statement of individuality at the ball, or should you wear the dress that is in fashion and show others that you simply can wear it better and are also part of the group in the know? Those participating in the experiment were shown each type of dress. But we were a little sneaky than simply just asking this question; you see, before the women had to make their choice we primed them with information in the form of a paragraph that they were asked to read. We simply had them read about either the importance of conforming to norms or the importance of being a trailblazer. Quite simply by “priming” potential consumers by having them read a short paragraph about either the benefits of product uniqueness or product conformity, we expected to influence preference of choice. To make things more interesting and to be tricky, we even decided not to have the paragraph discuss dresses or clothing at all but rather a sports car. In the “popularity” condition, we described the model Mustang in 2001 as having sold 500,000 units over the past year and in the “uniqueness” condition the car was said

10 Posavac, Steven S., Michal Herzenstein, Frank R. Kardes, and Suresh Sundaram. “Profits

and Halos: The role of firm profitability information in consumer inference.” Journal of Consumer Psychology 20(3) (2010): 327–337.

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to only have been made in a limited edition of 5,000 units available similar to the 1968 Mustang made by Ford in 2001 commemorating the 1968 movie “Bullitt” starring Steve McQueen. The results of the experiment were fascinating. Those exposed to the popularity cue chose, by a vast majority, the current popular dress to wear to the prom, whereas those exposed to the limited edition cue (The “McQueen” cue) decided by a vast margin to wear the unique dress. Again, evidence is provided here that one’s own naïve theories which guide one’s own decisions can be manipulated by a simple exposure to information that may not be even directly related to the choice decision one is facing. How fickle we humans are. Now, this chapter has not addressed System II Processing, which involves an effortful, controlled and slower way of thinking involving deliberative and reasoned rules. But as we shall see in this book, even System II can be subject to cognitive biases in the marketing realm even though such thinking is presented as dominated by “reason,” as opposed to emotion.

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Chapter 3

Cognitive Biases and System II Processing

A. System II Processing While System I has been described as “automatic processing,” System II is best characterized as “effortful.” While System I processing has been characterized as “emotional,” System II is known as “logical.” Other characteristics of System I processing is that it is “subconscious,” and “stereotypic,” whereas, respectively, System II is known as being “conscious,” and calculating (see footnote 17 of Chapter 1). The subtle message conveyed to those who would compare both systems of cognitive mechanisms that individuals use to process information and make important decisions is that System II is “better” because it is logical while System I is emotional. That is, one would generally believe that if they were to utilize System II processing as opposed to System I when facing a decision choice, the outcome would be more optimal when using the prior system. For you baby boomers out there, this is equivalent to saying that the decision choice, made in times when the Enterprise is threatened, should be made by Mr. Spock as opposed to Captain Kirk. If Spock makes it, then the decision is likely to be more logical, well thought out and, in a word, better! But if Kirk made it, you can be sure it came with eye candy! But hold onto your horses, just because one thinks logically, doesn’t mean that one thinks more effectively. In fact logical thinking and the use of System II processing subjects all of us to cognitive biases. Consider the following. I was recently walking down Rue Rambuteau in the third arrondissement (Marais) section of Paris when I came across a bistro by the name of Camille (pronounced Cam-ee). TripAdvisor gave it an excellent rating 25

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of 8.7/10, and while the prices were a bit expensive the entrées seemed irresistible. Consider such gourmet entrée choices as Tartare de Boeuf, if you are into eating raw chop-meat, or Filet Bernaise if you are into fish or even Magret de Canard for those duck lovers out there, all for 30 Euro’s or less. In fact, why not have the appetizer of Escargots de Bourgogne as a “starter,” if a taste of snails whets your appetite for the entrées to come. You could finish it off with Creme Brulee Maison or even Moelleux au Chocolat Maison topped with a fresh scoop of vanilla ice-cream from Normandy. My wife and I indeed partook in an extravagant dinner at Camille, and while our stomach was filled with exotic tastes my wallet was emptied, as the total bill with wine came to over 200 Euro’s ($250 in American dollars at the current exchange rate). While this is not necessarily expensive for dinner at a quality bistro in Paris, it was much more than I intended to pay when I first sat down to eat as I am more familiar with that Scottish gourmet restaurant in America called McDonald’s. Now, the next time we found ourselves walking down the same street (as our hotel was nearby), we noticed a small restaurant called “Suzette” right next door to Camille. You guessed it, they served Crepes, only crepes, as the name suggests. So my wife, seeing Camille and remembering the expensive meal we had recently eaten, suggested that we save money and calories this time by eating at Suzette as they served various main course crepes in addition to delicious dessert crepes (which in theory we could avoid . . . but only in theory). After dinner, we decided to have coffee at Camille and I got into an interesting discussion with the head waiter. I asked him, “aren’t you upset that this crepe place seemingly moved right next store to you?” He answered, “Why should I, we own Suzette also!” He explained that the owner of both Camille and Suzette in Paris (as well as two other local restaurants with women’s names)1 intentionally positioned Suzette next to Camille so that potential diners who had tried one or who simply were aware of both restaurants, would then be attracted to the other,

1 The owner also believes that naming a restaurant after a woman, attracts men to eat at the restaurant. It is not surprising that this particular owner is French, think Pepe le Pew. In addition, the owner of Camille admitted that “Camille” is not someone he knows, wants to know, or has known.

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seeking either a simpler or more complex meal and having the choice right next store! Clearly, this tactic, known as a framing bias and discussed in this Chapter, resulted in our eating at BOTH restaurants, and come to think about it, I’m supposed to be the guy who knows when marketing manipulation is occurring! This manipulation was at least delicious. This chapter introduces various biases in human judgment which if left unchecked serve to lead the consumer to make purchase decisions that seemingly of their own choice are actually determined by some external invisible forces. Such decision options may be far from being optimal or even rational. In the academic literature in the fields of Social Psychology, Psychology and Sociology, many different biases have been identified; however, not all impact purchase decisions and not all can be covered in one book. Therefore, I have decided to select those cognitive biases which are both relevant to purchase behavior and of a nature that the consumer, once aware, can take action to counter the bias. A discussion of these biases now follows. B. The “Anchoring Effect” Let’s begin with our first cognitive bias, a phenomenon called “anchoring,” particularly numerical anchoring. There is a significant amount of research in the marketing literature that shows that consumers are influenced in their decision-making by arbitrary numbers they are exposed to before a purchase decision is made. For example, in a study conducted at Stanford University, subjects were shown four products and asked to state the highest price at which they would be willing to buy a specific product.2 The experimental sequence proceeded as follows. First, they were shown pictures and descriptions of each of the products. They were then told to enter the last two digits of their social security number and asked the following two questions about this number: (1) “Now assume that the last two digits of your SSN are a price in dollars. Would you be willing to pay this

2 Simonson, Itamar, and Aimee Drolet. “Anchoring effects on consumers’ willingness-topay and willingness-to-accept.” Journal of Consumer Research 31(3) (2004): 681–690.

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price for this [toaster]? Yes or No?” and (2) “What is the highest price you would be willing to pay for this [toaster]?” Results showed on average across the four product categories considered, that the group of subjects whose last two social security number digits exceeded “50” were willing to pay over a 50% premium in price to those whose last two digits fell below “50.” Now what is most surprising about this effect is that, presumably, the last two digits of one’s social security number should have little predictive value regarding the price one would pay for a toaster, phone, backpack or radio headphone, yet the findings here are undeniable, and were replicated in four experiments by the authors’ and in many different academic treatises.3 So, does this mean that if you are planning to purchase a new car, and the salesperson asks you to write down the last five digits of your social security number (mine is 92721),4 that you will actually use this anchor in terms of your willingness to pay for a car? If, so, then I am in trouble, since my number is a bit on the high side. What exactly is going on here? According to Simonson and Drolet (2004, p. 688), “value uncertainty makes consumers more susceptible to external influence, including influence by arbitrary anchors. Since personal value uncertainty plays a greater role in willingness to pay judgments, one can influence the elicited maximum purchase prices by causing consumers to consider arbitrary price anchors.” But arbitrary anchors may not be the biggest problem for the consumer. Consider the fact that in many stores when purchasing a durable good, the consumer is faced with a tag on the merchandise which typically says: Regular Price: XXX; Sale Price: X. The anchoring effect suggests that consumers will use the regular price given as a strong reference price or anchor in deciding whether or not to purchase the item.5 However, the

3 Ariely, Dan, George Loewenstein, and Drazen Pralec. “Coherent arbitrariness: Stable

demand curves without stable preferences.” Quarterly Journal of Economics, 118(1) (2003): 73–105; Wilson, Timothy D., Christopher E. Houston, Kathryn M. Etling, and Nancy Brekke. “A new look at anchoring effects: basic anchoring and its antecedents.” Journal of Experimental Psychology: General 125(4) (1996): 387. 4 Of course dear reader, these numbers are made up, I was born in New York City after all! 5 Kamins, Michael A., Xavier Dreze, and Valerie S. Folkes. “Effects of seller-supplied prices on buyers’ product evaluations: Reference prices in an Internet auction context.” Journal of Consumer Research 30(4) (2004): 622–628. See also Liefeld, John, and Louise A. Heslop. “Reference prices and deception in newspaper advertising.” Journal of Consumer Research 11(4) (1985): 868–876.

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best remedy, to inoculate yourself from the effect of any anchor is to shop around and gather significant information about what you are purchasing, so that you know in advance what is a reasonable and not-reasonable price offer. That is, just because a product is claimed to have a “regular price” of XXX at the store you are shopping at, it does not mean that this is the “regular” price at any other store . . . in fact, what is “regular” supposed to mean anyway? Consider that today, as I write this paragraph I visited Macy’s for their “Last Act” sale, which purportedly means that this is the last chance that the consumer has an opportunity to purchase these items at Macy’s for ANY price. Each item has the original tag on it from the manufacturer, along with a discounted sticker indicating the Last Act price. But if the consumer looks at the manufacturer’s suggested retail price (MSRP) as their anchor, in comparison to the Last Act price, they may be making an error for the cases in which the item is NEVER sold at the MSRP. You are NOT anchored to the anchor given . . .please remember this. For example, did you know that on Amazon, if you are looking for a specific pair and model of shoes made by Florsheim for example, that the price varies by shoe SIZE? So, why not pay say $30 less to get the shoe in size 13 instead of size 12? Just buy yourself a Dr. Scholl’s insole “et voila!” you have saved a bundle of money? This example, however, may not work in reverse, as frankly, I’d think about it if you were to buy size 12 instead of size 13. Trips to the podiatrist to fix bunions and corns are much more costly than $30. Also, if you are traveling from say Los Angeles to New York City, why just focus on JFK when there might be incredible deals available going to LaGuardia or Newark? In fact, there may be a cheaper flight to Boston! But you are not going to Boston you say, what kind of booking is this anyway! Well, what if I told you that the flight makes a stop at JFK en route to Boston and is $150.00 cheaper than a non-stop to JFK? Now does it sound interesting to be a bit creative in your bookings? Again, flying from Los Angeles through Anchorage to get to New York might not have the same attraction. Consumers may also anchor on a specific attribute in a purchase decision, losing focus of a significantly more important attribute which in the long run may carry much more weight and save you a lot more money. Consider, for example the points offered in the servicing of a loan. If you reduce say a 5%, $200,000 loan by ¼ point of interest, by

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paying $2,000 up front (“1 point” in the lingo of the loan trade), you can save $8,160 in interest over the length of the loan. Therefore, a strategy designed to avoid paying “points” up front may lose the forest from the trees, especially if you plan to hold on to your home for a longer period of time. Finally, it seems that the old familiar anchor of a 15% tip when eating at a restaurant has disappeared altogether. As the reader knows, I am a “quant” type of person. I have always been quick with numbers and have tried to avoid calculators like the plague. In fact, I take pride in my ability to calculate the waiter’s tip in my head quickly and exactly . . . until bills came with suggestions of tips ranging from 15% on the low side to 20% on the high side, and sometimes even higher in certain restaurants (see Figure 1). In other words, all of a sudden, a 15% tip, which had been standard, is now considered, at least by this receipt, as not even on the radar, so now the scrooge option is the “tiny” 18% tip. So, am I now supposed to be ashamed if I give the server 15%? Even worse, the exact tip at each of these rather high percentages is now pre-calculated for your bill. So, if my bill for dinner comes to say $56.48, the tip of $8.47 (at 15%) and $11.30 (at 20%) is already indicated, as are other amounts. So even if I wanted to tip the server a lower amount, they are already instantly aware of it. Moreover, I find myself relying on these tip calculations (because I am inherently lazy), and not thinking about what tip I should traditionally be giving. Whomever

FIGURE 1: Suggestive Check

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came up with this idea is a genius — I’ll bet they work at an exclusive high-end restaurant!6 C. Availability Cascade What cable station comes to mind when I mention the term “breaking news”? Could it be . . . CNN? CNN has become so synonymous with the term “breaking news” that Saturday Night Live (SNL), recently parodied them during primetime with a CNN pregnancy test that continually gives you updates in the form of “breaking news” about your pregnancy, without telling you much of anything. The reason for an association between the term CNN and “breaking news” is the degree to which it is repeated on the television screen and by each of the commentators during the day, consistent with what has been called an “availability cascade.”7 An “availability cascade has been defined in the literature as “a selfreinforcing process of collective belief formation by which an expressed perception triggers a chain reaction that gives the perception of increasing plausibility through its rising availability in public discourse.” (Kuran and Sunstein, p. 683). In simple terms, this means that the more one repeats a statement, the greater the likelihood that it will be accepted as gospel. But by continually labeling every bit of news as breaking news (especially when the news program is repeated multiple times on a given night), ultimately relates in it being ignored or, worse yet, being labeled as “Fake News,” This is the downside of such a strategy. That is, if everything is labeled as game changing, ultimately it is ignored or characterized as fake. You know the old proverb, if you cry wolf too many times . . . To defend against making a false inference as a function of this bias, one should do their own research and try to consider the source of one’s information, as well as investigating what competing sources say about the supposed “fact” under consideration. For example, a company stating 6 I do have an interesting idea on how to avoid calculating the tip while tipping the

“traditional” standard of 15%. Simply, wait for the time when a 30% tip is pre-calculated on your bill, then merely cut it in half, or if you want to be cheap about it, presently you can simply cut the suggested and pre-calculated 25% tip in half. 7 Kuran, Timur, and Cass R. Sunstein. “Availability cascades and risk regulation.” Stanford Law Review 51(4) (1999): 683–768.

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that it is the leading seller of a drug designed for a specific usage does not necessarily mean that it is the “best” drug for the consumer. My own research conducted on pioneer brands and market leaders generally showed that consumers tend to believe that if something is the market leader then it must be the best.8 If not, it would not have sold so many products. But if a new generation computer (or drug designed for a specific disease) is just recently on the market, it could boast the best quality/effectiveness but actually not yet have the greatest sales simply because it is new to the market and not yet known, and so few people have purchased it. So, one should avoid using simple heuristics (rules of thumb) as the sole source of information in decision-making. D. The Bandwagon Effect (Herd Behavior Bias) If you have ever bid on goods online through eBay, sometimes you will come across two offerings say for a DVD of a new movie, offered by the exact same seller at the same time and for the same starting price of say a penny. Over time as the auction matures you may notice that one of these auctions is getting a lot of bids and the price is rising, but the other identical listing is sitting there without a bid being placed. It’s as if it has been secretly contaminated by some hidden disease, and that anyone who bids on it thinks that by touching the keyboard of the computer and placing a bid on the item will for some reason, send themselves to the hospital. Indeed this very event was recorded many times by researchers from SUNY University at Buffalo, finding illogical purchases by consumers that could not be explained by the economist’s concept of the “rational man.”9 That is, behaviors observed on eBay were hardly rational.10 What we are discussing is a real-life example of the bandwagon effect or what is more descriptively called “herd behavior bias.” That is, consumers have a tendency to do or believe things mainly 8 Kamins, Michael A., Frank H. Alpert, and Lars Perner. “Consumers’ perception and misperception of market leadership and market pioneership.” Journal of Marketing Management 19(7–8) (2003): 807–834. 9 I hate to say it, but I will . . . there is little in the world explained by the economist’s concept of the rational man. 10 Dholakia, Utpal M., and Kerry Soltysinski. “Coveted or overlooked? The psychology of bidding for comparable listings in digital auctions.” Marketing Letters 12(3) (2001): 225–237.

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because many others do or believe the same thing. This bias is known as the “wisdom of the masses.”11 Many bidders, for some strange reason, would be hesitant to bid on the identical item that has no bids, simply because no one else has bid on that item. But how can that other item be inferior to the one that is garnering lots of bids, if it is the identical item, from the same seller, and indeed uses a stock photo to illustrate what is being sold? Yet, you hesitate and finally place a bid on the more popular identical twin, and in the end, pay a high price and feel contented about it. Did you do this because of a sense of belongingness, that is, you believed that the masses knew something about the popular identical twin that caused it to be embraced, while the other twin was shunned? It would be hard for me to believe this since the items could be identical new Play Station Consoles, how could one be “good” and the other “bad” if they weren’t even used? The better explanation of our behavior is that we as humans can and do take the path of the other lemmings and seemingly jump off the cliff, following the pied piper as he leads us to the edge. That is, there is an inherent belief among our species that some external invisible force knows the truth and one can gain access to that truth by observing mass behavior which flocks to it . . . good luck. Consider the concept of market leadership, discussed above. When you buy the market leader, why do you do so? Many people will tell you that if it is the choice of the masses, so it must be the best! But there is absolutely no evidence that market leaders excel in actual measured quality over other brands. What they do excel in, however, is sending signals that they are the best in perceived quality since the consumer typically has the naive belief that if many people are buying it, then it must be the best in quality. Indeed, my own research and that of others shows this.12 This implies that once a brand becomes a market leader, it is somewhat difficult to lose this position

11 Surowiecki, James. The Wisdom of Crowds. New York: Anchor Books (2005). 12 Alpert, Frank H., and Michael A. Kamins. “An empirical investigation of consumer

memory, attitude, and perceptions toward pioneer and follower brands.” The Journal of Marketing 59(4) (1995): 34–45; F. Ferguson, Andrew, Jere R. Francis, and Donald J. Stokes. “The effects of firm-wide and office-level industry expertise on audit pricing.” The Accounting Review 78(2) (2003): 429–448; Hellofs, Linda L., and Robert Jacobson. “Market share and customers’ perceptions of quality: When can firms grow their way to higher versus lower quality?” The Journal of Marketing 63(1) (1999): 16–25.

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because consumers blindly attribute superior quality to it. This is the reason may brands lower price in order to gain market share and then bask in the sunlight of market leadership. But what does all of this discussion mean to you? In terms of eBay bidding, it suggests that you should be brave and take the “risk” of bidding on the identical item that has received fewer bids, I assure you it is not contaminated. In addition, try to pull yourself away from the magnet type attraction to do what others are doing, and think for yourself. In the stock market, there is a famous phrase which a select few adhere to when asked how they made money in the market: “I bought when others sold.” Simply stated, don’t follow the lemmings.

E. Base Rate Fallacy Imagine that a new company called Cardio-Scan has invented a new scanning device that can tell today whether or not you are an exceedingly strong candidate to have a fatal heart attack within the next year. Assume also that the MAK HMO which owns the new scanner serves a specific local community which is actually inhabited by 100,000 individuals (1,000 people who have such a poor cardio condition and 99,000 people who do not) and that you are one of the individuals who are served by that HMO. Assume further that the scanner is not perfect and suffers from two potential problems. The first, called a Type I error or “false negative,” occurs when the scanner result is suggestive of a good heart and an extremely low potential of a fatal heart attack when in fact there is a lot to worry about. Say this happens 0.5% of the time. The second error, called a Type II or “false positive,” occurs when the scanner result is suggestive of significant cardio damage, predictive of a pending fatal heart attack, when in reality there is little or nothing to worry about. Say this happens 2% of the time. Now we can debate which error is worse, being told you have a great heart and bingo you are dead from a heart attack, or being told that you have a poor heart but that you are actually in great health. I’ll take the latter please, that way I’m still alive but worried so much that I’ll probably die from a nervous breakdown rather than a heart attack! But here is the key question, suppose that your doctor says that you should undergo a Cardio-Scan simply for health maintenance purposes but

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you have had no shortness of breath and in fact you feel fine. You agree to take the scam, I mean scan, and amazingly the insurance company signs off on it. You go in to take the scan and a week later your doctor calls to tell you that the result came back . . . positive, showing the potential that you have significant heart disease. In other words, is it time to get the bucket list in order? What changes should you make to your life now? Maybe you should quit your job, take out your life savings, and go to Tahiti for 3 weeks? Should you throw caution to the wind and start eating all of those fatty foods and sugary treats which you avoided because you were worried about being overweight and having the onset of diabetes and heart disease or should you begin to make protein shakes with the Magic Bullet with lots of blueberries, cranberries, bananas and other anti-oxidants? Well, before you do all of that, let’s ask, what is the probability that you have heart disease bad enough to kill you given that the Cardio-Scan result is positive? A quick calculation off the top of your head says that there is a 98% chance that you are going to die of heart disease in the next year. Why? Because, only 2% of the time does the scanner result come back positive AND YOU DON’T HAVE HEART DISEASE. That means that 98% of the time it comes back positive AND YOU DO HAVE HEART DISEASE. So, the odds are 49 to 1 against you that you can successfully plan to go to next year’s Super Bowl or even buy green bananas. But wait a minute, in your haste, you have made a BIG miscalculation. That is, there is a difference between the number of positive tests per say 100 scans of gravely sick people versus the number of healthy people per 100 positive scans. Consider the following, if the 100,000 people who are served by MAK HMO were to get a scan, of the 1,000 people who have significant heart disease, 995 would get a positive test result indicating significant heart disease (0.995 × 1,000). Of the 99,000 people who DO NOT have significant heart disease, approximately 1,980(0.02 × 99,000) would get a positive test result. Therefore, the true probability that you (who received a positive test result) indeed have heart disease is 995/995 + 1,980 or approximately one in three. Maybe you can make reservations for the Super Bowl and buy green bananas after all! If this is still not clear after these calculations, consider the following fact. There are two ways that the scan can be positive, either you have heart disease and it comes back showing that

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you do, or you do NOT have heart disease and it comes back showing that you do. We have shown that approximately twice the number of people who have a “positive” scan showing the presence of heart disease are actually healthy versus sick. When you focus on the statistic that the scanner, detects heart disease correctly 99.5% of the time for those who are ill, what you are leaving out in your calculation is the percentage of time it does the same for those who are healthy, and there lies the bias. Another example of the base rate fallacy can be seen as follows. Suppose that Irene is 31 years old, single, out-spoken and very bright. Let’s say that she majored in social work at UC Berkeley and participated in many student demonstrations. As a student, she was deeply concerned with issues of discrimination and social justice and also participated in anti-nuclear demonstrations. She was a strong supporter of Hillary Clinton in the last election and despises President Trump.13 Now, is she more likely to be a bank teller or bank teller and active in the feminist movement? Most individuals would argue that she is more likely to be a bank teller active in the feminist movement because she appears to be left leaning in her political and social interests. However, looking at this problem mathematically instead of socially, one notes that the probability that she is BOTH a feminist added to the requirement that she ALSO be active in any movement clearly has to be lower than her simply being a bank teller. That is, requiring that a person fit dual characteristics is more difficult than fitting just one. So once again, the message here is take the time to process the critical information before making decisions that impact your life. This “base rate” bias is highlighted here to give you awareness of some simple and avoidable errors that we as human decision-makers are exposed to in our daily lives. F. Choice Supportive or Confirmation Bias Now here is a bias that will convince you that your choice of wife/husband or present girlfriend (or both for that matter) is the right choice and that all

13 This is a scenario made famous by Kahneman and Tversky to show decision-making bias

and discussed in Dr. Kahneman’s book titled “Thinking Fast and Slow.” Yours truly added the UC Berkeley component to the scenario since Berkeley is famous for a liberal bent on issues and adding into the scenario Hillary and Trump was something I could not resist.

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other options were inferior. It may also explain why so few couples matched on the show the “Bachelorette” and the “Bachelor” end up married, but more on that later. This bias is described as the tendency to remember past decision choices as better than they actually were. In other words, in order to avoid cognitive dissonance, one tries to elevate the decisions they have made in the past, and derogate the choice options they did not choose. In a study conducted at Princeton University, it was found that subjects tended to attribute, both correctly and incorrectly, more positive features to the option they had selected than to its competitor, and more negative characteristics to the competitors.14 The scenarios’ tested included the choice of a college roommate, who to go out with on a blind date and who to hire in a job interview context. The study proceeded as follows in the blind date context. First, participants were shown a description of two individuals that they could go on a date with. Each individual was described on 12 personal characteristics that could be interpreted as either being positive, negative or neutral in nature such as “comes from California,” “is easily annoyed,” “likes to hang out and talk.” Then the participant was asked to choose one of the two to go out with on a blind date. After the choice was made, subjects were asked what they recalled about each individual. Sure enough, more positive characteristics were recalled for the individual chosen than the individual rejected, and the reverse was true regarding negative characteristics where more were recalled for the rejected choice than the lucky individual who was chosen to go on the date.15 In terms of marketing decisions, such a bias is indeed problematic since it suggests that it may be difficult for consumers to change brand choice if they are biased toward their prior choice and tend to discount past

14 Mather, Mara, Eldar Shafir, and Marcia K. Johnson. “Misremembrance of options

past: Source monitoring and choice.” Psychological Science 11(2) (2000): 132–138; See also Nickerson, Raymond S. “Confirmation bias: A ubiquitous phenomenon in many guises.” Review of General Psychology 2(2) (1998): 175. 15 Andy Kauffman once appeared on the show, the “Dating Game,” as Latka Gravas, it is quite clear that Patrice Burke (the model who he attempted to win a date with), could only recall negative factors about his character since she rejected him.

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un-chosen options. While this favors the maintenance of brand loyalty and is beneficial to companies (since this bias requires that they make little effort in convincing their present customers that their choice was optimal), it makes it difficult for you, the consumer, to break out of established consumption patterns, unless of course you are aware of this bias. I must admit that I suffered from this bias. When I first came to California, I needed to buy an inexpensive reliable car since I was just starting out as a Professor at the University of Southern California. I never revisited my choice of a Honda at that time since in 1984, it seemed superior to all other options out there. But since then, I have bought six Honda’s never even stepping foot into a competitor’s showroom. As I write about this bias, and see my footprint all over it, I’m thinking now of daring to explore what Hyundai or even Volkswagen has to offer when the time comes for a new car, and for the first time in 30 years venturing out from my Honda man-cave. Oh, and I almost forgot! Why do “Bachelorette” and “Bachelor” couples never seem to hook up in real life when the show has ended? It’s simple, the winner who either rejected 12 eligible bachelors, or 12 eligible bachelorettes, to arrive at their “dream” match, soon realize when they leave the tight confines of the show, that there is a BIG world out there, not in any way restricted to the small subset of humanity being considered on the show.16 In addition, being famous now, as a “winner,” means that a lot of that humanity throw themselves at you, which of course expands the choice set of eligible “beautiful” people who have not yet been rejected by the winner. When compared to your match on the show, there is typically no comparison, and the dream couple dissolves into smiles and goodbyes and sometimes shouts and shoves and of course other choice options. G. The Denomination Effect Do you find it hard to break a $100 bill? It turns out that you may not be alone! A recent study conducted at NYU and the University of Maryland found in three field studies that consumers, once they make the decision to spend, are more likely to do so when they are spending an equivalent sum

16 I’ll agree that the “segment” of humanity who participates in the show is usually extremely

attractive.

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of money in small bills (e.g., 20 singles) rather than one large bill (e.g., one $20 bill).17 The authors’ maintain that this effect is due to the fact that large denominations are psychologically less fungible than smaller ones and that there is a psychological pain, especially for “tightwads” to spend or break a larger bill. It seems to me that servers at restaurants are quite familiar with this effect. Did you ever notice that when your bill is say $14.65 and you place $20.00 in that leather holder, your change always comes back in five single dollar bills?18 This of course facilitates the giving of a larger tip and makes it easier for you to part with your money. But if the bill were say $32.00, and you pay with $40 in cash, should the waiter return eight $1 bills to the customer, or a $5 bill and three singles? The standard 15% tip in such a situation (which we have seen earlier in this Chapter, is no longer standard), comes to $4.80, so one could argue from the perspective of the server and that of the “denomination effect” that singles should be given to the customer since they are easier to part with. But does the presence of a $5 bill make it more likely that it will be given as a tip for someone who rounds up the $4.80 (15%) tip to an even $5.00? This is an open question. If the goal of the economy is to increase the savings rate, then banks and their ATM’s should be stocked with high denomination bills, since for most people, breaking such a large bill, as the denomination effect suggests, is not only psychologically difficult, it is physically difficult. That is, every time I do so, I feel that the cashier is inspecting me from head to toe like an eagle with piercing eyes wondering whether or not I am a drug dealer with access to such large bills. This is my imagination at work. Thankfully, I’m just an academic who thinks too much about the implications of money and who can use the automatic pay option at Stop N’ Shop to cash these high denominations! H. The Endowment Effect Richard Thaler, an economist from the University of Chicago observed that people often demand much more to give up an object that they own than

17 Raghubir, Priya, and Joydeep Srivastava. “The denomination effect.” Journal of Consumer

Research 36(4) (2009): 701–713. 18 Plus 35 cents hopefully.

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they would be willing to pay to acquire it. He named this pattern of behavior the “Endowment Effect.” That is, if you own an object and someone shows an interest in purchasing it, all of a sudden that object seems to increase in value. I observed this pattern of behavior one night watching the popular television show “Pawn Stars,” which follows the various purchases that Rick Harrison and his family make from the general public who bring various items into their Las Vegas pawn shop that can range from an electrical guitar owned and played by the legendary Les Paul (bought from his nephew for $90,000 and sold on eBay for $110,000) to an American first edition of the famous classic “20,000 Leagues Under the Sea,” by Jules Verne (purchased for $9,500, and sold at auction in California for $10,000). On this particular show, Rick was on the road taking a vacation and stopping in at other pawn shops to see what they offered for sale. In one particular shop, he came across an old Samurai helmet dating from hundreds of years ago. The owner of the shop had a $300 tag on the item but Rick, being honest, told him that it was worth about $2,500. Rick then offered him $1,250 for it more than four times the original price tag, but the owner then asked for $2,000 (more than six times the original price tag). They finally settled for a price of $1,650. Quite a unique demonstration of the Endowment Effect I’ll say, as well as the honorable character of Rick Harrison. I’ll give you another example, closer to home. Aside from being a marketing professor who writes books and academic articles from time to time, I am a full time coin seller on eBay. I have been a coin collector since I was 7 years old.19 Since my dad was an auctioneer, eBay and the purchasing and selling of coins using this online vendor has appealed to me ever since the company was founded. Well one day, while I was looking through a canvas bag of 5,000 “wheat backed” cents that I purchased from a dealer (for those of you who are not familiar with this term, it describes U.S. pennies which have two sheaths of wheat on the back and were minted between 1909 and 1958), which I occasionally do to pass

19 My original interest in coins was an attempt to scam my father. You see he would not

give me money to purchase baseball cards and I was addicted to them. However, he agreed to give me coins if I started a coin collection. So of course, I started the one in the largest denomination (half dollars), which I would then cash in to buy baseball cards.

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the time. Incredibly I found a 1914-d penny (minted in Denver) that was in extra fine condition and worth at the time about $250. My wife told me to sell it, but I told her that I found it and since I found it, it had sentimental value and I would NEVER sell it (kind of like Rick’s autographed picture of the Fonz as featured on one episode of Pawn Stars). Well, recently after 15 years of “advice” from my wife, I decided to put it up for sale on eBay, but I put a ridiculously “Buy It Now” price of $750.00 (it is worth at max $500 today), so I could satisfy my wife that I put it up for sale and at the same time not even come close to selling it, which I didn’t! So consideration of the Endowment Effect matters, especially when you are purchasing an item for sale using a “Buy It Now” option on eBay. Sometimes, buying it for the price the seller offers is not the best strategy to take, since such an item may include within its price an Endowment Effect premium from the seller. This is especially true for items that the seller has had for a long time and could be rare, one of a kind or have sentimental value attached to them. In addition, since the “Buy It Now,” price is usually a high number, the anchoring effect, discussed earlier in this Chapter suggests that you must be careful not to be influenced by it in subconsciously motivating you to bid high. I. The Framing Effect (“Money Illusion for Currency”) Rodney Dangerfield once said: “If you want to appear skinny, hang around fat people.” That in a nutshell is a framing effect. But let’s focus in on such an effect in the marketing arena. Frank Luntz, is a well-known strategist for the Republican Party who subscribes to the belief that: “80 percent of our life is emotion, and only 20 percent is intellect.” (Frontline interview, 2007).20 His observation is indeed consistent with Tversky and Kahneman’s (1983)21 research which essentially proposed the existence of System I and System II processing. He professes that he is much more interested in how people feel than how they think. With an expertise in doing qualitative

20 The Frank Luntz reference deals with a Frontline video called the Persuaders, where he

makes this exact statement. Frontline is created by PBS. 21 Tversky, Amos, and Daniel Kahneman. “Extensional versus intuitive reasoning: The

conjunction fallacy in probability judgment.” Psychological Review 90(4) (1983): 290–315.

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marketing research through carefully examining how people react to various positioning statements, he is able to identify specific words that trigger a significant positive or negative reaction in someone when heard. In fact, Luntz, describes his specialty as: “testing language and finding words that will help his clients sell their products or turn public opinion on an issue or a candidate.” (Frontline interview, 2007). He is famous for advising the Republican Party to use the word “Climate Change” in place of “Global Warming,” as the former is less negatively emotionally charged than the latter and hence more likely to be accepted by and influence the general public. Moreover, he advised that if one wishes to gain support against an “estate tax” or “inheritance tax,” which was part of the Republican platform, then one should use the term “death tax” which is more negatively emotionally laden. Similarly, to deflect the negative perception against oil drilling, his position is that it is more appropriate to call it “energy exploration,” than oil drilling (On air interview with Terry Gross on NPR, 2007).22 The strategic selection of the proper way to communicate to one’s target market is part of the way a message is framed, and the “Framing Effect,” is simply defined as the ability of an individual to draw different conclusions from identical information depending upon how it is presented or who presents it. Framing effects in marketing are not found simply in communication, but appear in every element of the 4 Ps inclusive of pricing, product presentation, promotion and distribution, as well. Take a pricing example for instance: remember the two authors that we discussed earlier whose research focused on how hard it is for someone to spend a $20 bill versus 20 $1 bills. Well, they are back again, examining what happens when consumers travel to foreign countries and have little or no idea of what the foreign currency is worth. These researchers find that individuals’ valuation of a product in an unfamiliar foreign currency is biased toward its face value with inadequate adjustment for the true exchange rate. This leads to underspending when the value of the foreign currency is a multiple of an equivalent unit of the home country currency (e.g., the Israeli Shekel

22 Frank Luntz as heard on “Fresh Air” interviewed by Terry Gross, January 9th 2007. PBS

station.

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is currently approximately four units to one U.S. dollar), since the item seems expensive in Shekels. This is especially true when you don’t know how much a Shekel is worth. For example if a certain dress is available at Macy’s for $149 but is sold in Israel for 599 Shekels, the mere magnitude of the perceived price difference (i.e., 599 Shekels versus $149) may prevent you from buying the dress because it is perceived as high priced in the local currency. Moreover, overspending occurs when the foreign currency unit is worth more than the respective home country unit (e.g., the British Pound is currently 1.36 American dollars). Hence in this situation what one could buy in America for $20, is approximately “only” 14.7 British Pounds, a 26.5% discount, or is it? Finally, marketers are clever in the way that they present their model numbers for the different products in a specific product line offered for sale. Clearly the BMW 5 series is better than the 3 series. For example, MSRP prices for the 2018 BMW 3 series begins at $32,955, whereas that for the 5 series when discounted off of MSRP start at $49,950. Is the consumer given a frame to accept those prices as reasonable through the use of the model number? For example, the 3 series begins in the low $30,000 price range since after all it is a “3” series and the first number in the price is after all a 3. The 5 series, therefore should reasonably charge somewhere in the $50,000 range to start with and hence a price of $49,500 by this standard is a clear bargain. Therefore, maybe you are directed to buy the 5 series and perceive it to be a “deal” simply on the basis of the model numbers as compared to the price. Again, it depends upon what you anchor on.

J. Escalation of Commitment This is defined as a phenomenon where consumers continue on with a decision based upon the extent of their prior commitment, despite evidence that continuance on the path one is taking is counterproductive. Ken Burns’ recent documentary about the Vietnam war, highlights the fact that despite believing that the war was lost, both President Kennedy, and particularly President Johnson, continued on with the war in the slight hope that with even more assigned soldiers, it could be won. But let’s get back to marketing. Consider, a bidding situation on eBay where your bid presently represents the highest bid for an item. Just a couple of hours before the close of the

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auction, a competitor places a bid that exceeds yours. Despite the fact that you swore that you wouldn’t place a bid on the item that exceeded your prior bid, you resent not being the highest bidder and place another bid to contest the competitor. Of course, the competitor then tops you and you top him and so on and so on. At a certain point, continuing to bid for the item becomes counterproductive since the amount bid will exceed the item’s value. However, given the history of the auction and the battle versus a specific competitor you refuse to give up and you win.23 But by winning at a price higher than the value of the product you may have vanquished the competition, but you have lost the war. In fact, you have achieved what Thaler (1988)24 calls the “Winner’s Curse.” The way to avoid this phenomenon is to decide in advance what the value of an item is BEFORE you even place a bid in the auction, and, of course, try to NOT let your emotions get the better of you! This strategy of placing your maximum bid in advance is called “setting your reserve.” K. Sunk Cost Fallacy Believe it or not, your decisions are tainted by the emotional investments you accumulate, and the more you invest in something, the harder it becomes to abandon it. I hate to use this example because it is one of the most difficult decisions I have ever had to make in my entire life. It involves my third son, Mister Magoo, who happens to be my youngest son, but also my oldest son. You see Mister Magoo is 15 years old and a pedigree Wire-Fox Terrier. So his 15 years of life, represent 105 in our lifetime, so he is a pretty old geezer! Recently, he has been diagnosed with cancer which is not his biggest problem. His major illness is DM (degenerative myelopathy which is the doggie equivalent of Lou Gehrig’s disease and ultimately results in total paralysis, the stage at which he is presently). The decision of course, is when to end his life and my wife and I are torn between loving him too much and doing what is required and put off the inevitable almost on a daily

23 On eBay each bidder or participant chooses an ID which represents them when bidding

for an item or selling an item. 24 Thaler, Richard H. “Anomilies: The Winner’s Curse,” Journal of Economic Perspectives,

2(1) Winter (1988): 191–202.

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basis. Yesterday, he did not eat in the morning but when it came time for his dinner, he worked up a phenomenal appetite. So, when I saw he was eating everything in sight, I decided to give him some Reese’s Dark Chocolate Peanut Butter Cups, as well as half of the steak that was on my plate since given his condition, he was not going to get many opportunities where he felt well enough to eat such things nor to eat period. I tried to hide all of this from my wife, but when she caught me, she screamed . . . “What are you giving him to eat, it’s bad for him, he’s liable to get Diabetes!” I felt ashamed for a second, but then realized, why does she care about his getting diabetes, when we face a daily decision regarding when to end his life? It then dawned on me that thinking like this in a sense reflects a sunk cost fallacy. That is, we are so emotionally attached to him as a family member that we ignore the short run reality which stares us in the face, and make decisions as if his life horizon was extended long into the future. Eating a half pound of steak and Reese’s Peanut Butter Cups can do little harm in the long run, if that long run only extends to tomorrow or a few weeks from today. Most importantly, this example shows us that the sunk cost effect can impact your view of decisions that determine the future path that you take, and financial decisions are not immune. William O’Neill, founder and publisher of the financial newspaper “Investor’s Business Daily,” always states that one should not fall in love with a stock or hold the stock beyond a certain level of loss. Holding a stock because of the fear that a paper loss will then become a “real” loss is reflective of what is relatedly termed a “Black Hole Bias.” That is, one refuses to sell for example after a 10% loss and when the loss becomes 20% it becomes more and more difficult to sell. Some individuals then ride the stock down to bankruptcy, when of course they are then FORCED to acknowledge the situation as a real loss, which then represents the total amount of their investment. Lets’ now move on to a more relevant and more pleasant example of the sunk cost examined by Gourville and Soman in their 2002 article about price bundling published in the Harvard Business Review.25 Here, the authors, among other experiments, conducted two different versions of

25 See Gourville, John, and Dilip Soman. “Pricing and the psychology of consumption.”

Harvard Business Review 80(9) (2002): 90–96.

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a survey in a Colorado ski town, exposing 50 skiers each to one of two different scenarios. The first group was told: It’s early Spring in Colorado and you’re on a 4-day ski vacation. The day you arrived, you purchased four one-day ski tickets for $40 each. It’s now the morning of the last day. You’ve had three excellent days of skiing, but rain hit the area last night making a mess of the slopes. A friend suggests that rather than skiing, you leave early to beat the traffic home.

Members of the second group were told essentially the same thing with one major difference, that is, they were told that they had purchased in advance a 4-day ski pass for $160.00 total. Individuals in each group were then asked to indicate on a 10-point scale, the likelihood that they would ski on the last day on a range of 1 = “Definitely would not ski” to 10 = “Definitely would ski.” The findings were interesting. Those in the group who bought individual tickets for each day said on average that they were very likely to ski (Mean = 7.0) while those who bought the 4-day ski pass were alternatively very unlikely to ski (Mean = 3.0). Now, since the monetary consequences for each group in terms of missing the last day of skiing is identical, then what motivated a dramatic difference in intention to ski, albeit on a horrible day for skiing? As Gourville and Soman (2002, p. 94) state: It is far easier to account for and identify the cost of an individual product in an unbundled transaction than within a bundled transaction. The oneto-one relationship between price and benefits in an unbundled transaction makes the cost of that item obvious, creating a strong sunk-cost effect and a high likelihood of consumption.

So through price bundling, one can avoid sunk costs effects simply by changing the frame of reference that the consumer uses to account for cost. However, does the seller want you, the buyer, to avoid feeling the pain of the sunk cost effect? The answer is no! Here is the logic. If you experience the discomfort of having paid for something, and therefore the need to consume what you paid for, if you do not consume it, you feel the sunk cost pain. If you do consume it, the act of consumption avoids the pain. The act of consumption also has another effect on you, that is, it suggests to you that the product is important to you and that indeed you should purchase it again. So, we are all familiar with the good old notion that pricing impacts

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demand, in general even old economics texts will tell you that if you charge a lot for something, then demand will drop. But what we have discussed here is a different phenomenon, namely that pricing tactics impact consumption, not just purchase behavior. When consumers purchase a bundle of goods, they cannot attribute the cost of an item to a specific good; hence, they may be less susceptible to the sunk cost phenomenon, and hence less likely to consume the good, which means less likely to purchase the bundle the next time an opportunity presents itself. Simply, the attribution is made that if I used the good or service, then I must like the good or service.

L. Baader–Meinhof Effect No, this is not an effect where for some strange reason you believe that you have become a Prussian WWI field officer in charge of mine control or an aging supreme court justice. Sorry to disappoint you dear reader. Rather, the term was popularized by Linguistics Professor Arnold Zwicky of Stanford University to describe a phenomenon which occurs in which a concept or thing you just found out about (or bought) seems to crop up all around you. It was first named however, by a commenter on the St. Paul Pioneer Press’ online discussion board, who came up with it after hearing the name of the ultra-left-wing German terrorist group twice in 24 hours. Zwicky argued that the phenomenon is caused by two cognitive biases that are activated at the same time. The first is called selective attention, which is a process by which the brain selectively filters out a lot of stimuli in order to focus on what is presently relevant. For example, did you ever have the experience that when you purchase a new car, all of a sudden you notice a lot of identical cars to yours on the road? The second bias that’s activated is called confirmation bias which occurs when you consider each sighting to be further proof of the fact that the element of interest is indeed ubiquitous and therefore your purchase decision is confirmed. This bias can have an impact on you as a consumer in a unique way. First, it serves to decrease the negative feelings that you may have that you made a purchase mistake, for example if you have purchased a big ticket item. That is, if you attend to the fact that many other individuals purchased say the same car as you, you may feel better from the perspective that EVERYONE could not have made the same mistake. This essentially

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serves to reduce the cognitive dissonance you have after purchase. We have all felt such dissonance as we continually think of items we rejected in the purchase process rather than the purchase we made especially for high ticket items. Secondly, if this bias makes you think that something you have purchased is a lot more common than it truly is, you may devalue it when it comes to selling, but never fear, the endowment effect discussed above will serve to counter such an unfavorable outcome. M. “Mere Exposure Effect” Zajonc (1968) (see footnote 12 of Chapter 1) was the social psychologist who coined the concept of the “mere exposure effect.” In Chapter 1, we discussed this effect, but to refresh your memory it relates to the fact that repeated exposure is enough to enhance attitude toward a stimulus. More recently, it was reported that the effect was found to be stronger when subjects were not cognitively aware of the stimulus than when they were.26 So, does this phenomenon explain long marriages, that is, the more you become familiar with your spouse, the more you like him/her,27 come to think of it, doesn’t this effect come at odds with the colloquial expression that “absence makes the heart grow fonder?” In what can be truly frightening, Zajonc (2001, p. 224),28 claimed that the “mere exposure effect” operates at a subliminal level. More importantly, he hypothesized that simple exposure to a stimulus, even if you are not aware of it, can increase liking to that stimulus, but also to similar stimuli that you have not been previously exposed to, and to totally distinct stimuli as well. Now, how does one defend oneself, if you are not even aware of the attraction you have to an object place or thing? The answer is that no defense may be needed unless of course the behavior becomes harmful, addictive or self-destructive. This distinction is important because the mere exposure effect has been found in many forms of consumption behavior. Consider 26 Bornstein, Robert F., and Paul R. D’Agostino. “Stimulus recognition and the mere

exposure effect.” Journal of Personality and Social Psychology 63(4) (1992): 545. 27 I don’t believe that anyone can explain long marriages, even the husband who is involved

in it! 28 Zajonc, Robert B. “Mere exposure a gateway to the subliminal.” Current Directions in

Psychological Science 10(6) (2001): 224–228.

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the findings of a Canadian researcher who observed that university students had a more favorable attitude toward a fruit drink that they had been initially unfamiliar with the more times they tried it.29 Moreover, a researcher from the Netherlands, argued that binge eating is driven by a learning theory model and that elimination of cues which expose the individual to various food can serve to reduce the behavior.30 Consider the fact that over my lifetime, I must have been exposed to thousands of United Airline advertisements which utilized the Gershwin theme of Rhapsody in Blue. In fact, United just recently brought back this music in their most recent flight of television commercials featuring an orchestra. Over time and over exposure to such commercials, I have begun to develop a deep appreciation for the music and for Gershwin, so much so that when it was played at the Hollywood Bowl this past Summer, I had this immediate desire to run out of the Bowl and drive to LAX to get on the next plane to New York. Although I am kidding of course, this example shows that a linkage was strengthened between the brand (United) and the music (Rhapsody in Blue) so that over time, all I need to do is hear the music to think of the brand. When you find yourself humming a tune that you are not even aware you are humming or even having ever been exposed to, take a step back and make an inventory of your behavior and question at least once every month why you are doing what you are doing. Hopefully I am not the cause of it and it is NOT Rhapsody in Blue. At minimum, be aware of the fact that continued exposure to a stimuli such as a brand or even advertising for a brand can result in favorable feelings toward that object, place or thing irrespective of whether or not you want this to be the case or are even aware of it! N. Negativity Bias Imagine that I asked you to think back to your time in High School and to remember one comment that sticks out in your mind made by another

29 Pliner, Patricia, and Karen Hobden. “Development of a scale to measure the trait of food

neophobia in humans.” Appetite 19(2) (1992): 105–120. 30 Jansen, Anita. “A learning model of binge eating: Cue reactivity and cue expo-

sure.” Behaviour Research and Therapy 36(3) (1998): 257–272.

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student about you . . . are you thinking? Well, what was the comment? Well, let’s make it a bit easier, was the comment positive or negative. Unfortunately in most cases, you will have recalled something negative that was said about you. That’s just the way things work, that is, humans tend to more often recall and give greater weight to negative statements, events, characteristics, and objects than they do for positive factors. This is called “Negativity Bias.” Mittal, Ross, and Baldasare (1998)31 actually showed that (1) negative performance on an attribute by a product or brand has a greater impact on overall satisfaction and repurchase intentions than positive performance has on that same attribute, in decisions regarding health-care choices and automobile purchases. Clearly, the impact of negative information on consumers’ choice behavior has not been lost on politicians, who seemingly believe that a law has been passed where you are actually required, in each and every advertisement for your campaign, to derogate the opponent in the form of what is called an “attack ad.” This was no more evident than in the 2016 Presidential election between Hillary Clinton and President Trump, and in the prior Republican primary. But there’s a surprise for such politicians, because such a negative tactic is being used so often it is beginning to lose32 its effectiveness. In fact, a meta-analysis (a study across studies) claims that there is absolutely no support that negative campaigning is an effective way to win votes. The effect of negative information also seems to have more weight than it should have when it comes to ratings of hotels on TripAdvisor and even on the online auction site eBay. In fact, Standifird (2001)33 reported that negative reputational ratings emerged as highly influential and detrimental.

31 Mittal, Vikas, William T. Ross, and Patrick M. Baldasare. “The asymmetric impact of

negative and positive attribute level performance on overall satisfaction and repurchase intentions.” Journal of Marketing 62(1) (1998): 33–47. 32 In case you forgot, the 2016 Presidential election was quite nasty with lots of mud and name calling going around both in the general election and the Republican Primaries. Consider the names President Trump came up with inclusive of Lyin Ted, Little Marco, Low Energy Bush, and Crooked Hillary. This led Ms. Clinton to accuse Bernie Sanders of all people as the instigator which inspired Mr. Trump’s creation of her nickname. Also for those millennials out there, the word is correctly spelled as “lose” NOT “loose.” 33 Standifird, Stephen S. “Reputation and e-Commerce: eBay auctions and the asymmetrical impact of positive and negative ratings.” Journal of Management 27(3) (2001): 279–295.

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While concluding that reputation was important in influencing final price for an item sold on eBay, this researcher found an exaggerated and unfavorable influence on price of negative reputation. Why you might ask? Simply because of the fact that negative feedback is relatively rare on eBay, so that if a seller gets one, it has a dramatic impact on reputation. So what does the negativity bias mean to you in your role as a consumer? First, it means that you should consider negative ratings in the context of all of the positive ratings a seller or hotel may have and do not discount such positive ratings out of hand. My wife is a French destination specialist selling travel to various locations in France and other locations in Europe and I have seen her being criticized time and time again, simply because a client has found one negative rating online for a hotel that she has recommended. This is clearly taking negativity to an extreme. Secondly, you should carefully manage your own reputation as a seller, so that negativity is managed. The use of positive client testimonials go a long way in establishing your reputation and inoculating you against negative evaluations. Finally and probably most importantly, you should try to manage consumer expectations if you are a seller; no one can be perfect 100% of the time, and expecting that simply is expecting the impossible. Oh! And a parting comment, one of my best friends from USC who used to run an International M.B.A. program offered the following example of negativity bias. I had asked him about his memories of New York because he told me that he had gone there as a young man just returning from the Peace Corps after a stay in Uganda. He recalled the day that he had just arrived at Kennedy airport, thinking that he was going to spend a few days relaxing in the city after his difficult adventure in Africa. The first thing he did was go over to a cab driver who was waiting to pick up a fare in front of the terminal, he asked the driver, “What is the cheapest way to go to New York City from here?” The driver simply said, “F’off kid,” He then called home and said he was coming back to California on the next flight, New York City was much too primitive for him! O. Reactance Could you imagine exposing smokers to anti-smoking messages, and then finding out that the messages encouraged them to smoke even more than before they saw the anti-smoking campaign? This exact effect was found

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many times in the marketing and social psychology literature and can be explained as due to reactance and mortality salience (or making one aware of their ultimate demise).34 That is, when you show younger smokers graphic images of diseased lungs and people with tracheotomies, they seemingly cannot relate to these consequences of smoking for two reasons. First, they have their whole life in front of them and such things supposedly only happen to career smokers, and of course, secondly, they plan to quit before such a thing happens to them. But seeing such images activates a psychological defensive wall brought on by reactance to the fact that mortality is made salient to them. Therefore, many smokers who see these images, simply either smoke more (to show that they can do this and still survive), or state an increased intention to smoke more in the future. This effect is kind of like, “if you dare me, I’ll show you I can do it — so there!” The same effect can occur when a salesperson uses much too aggressive tactics to complete a sale, resulting in the potential customer being less likely to purchase the product as opposed to more likely. I’ve heard many customers say after such an experience: “I’ll never purchase another thing from that pushy company.” However, such an attitude is a function of reactance, and in this particular case is truly a reaction to one specific salesperson where the negative attribution being made is directed to the entire company. If this happens, then the customer suffers, especially if the product offered by the shunned company is truly what they desire and value as the best in the market. So be careful regarding the inferences you make, and try not to cut off your nose to spite your face! P. Rhyme-as-Reason Effect (Keats Heuristic) When I lived many years ago in Sheepshead Bay Brooklyn, I would take the bus to the train station and pass a fruit and vegetable stand along the way. But this was no ordinary fruit and vegetable stand, even by Brooklyn standards. The shop was known by locals as the “poet,” and despite the fact that there

34 See for example, Erceg-Hurn, D.M., and Steed, L.G. “Does exposure to cigarette health

warnings elicit psychological reactance in smokers?” Journal of Applied Social Psychology 41(1) (2011): 219–237; as well as Martin, Ingrid M., and Michael A. Kamins. “An application of terror management theory in the design of social and health-related antismoking appeals.” Journal of Consumer Behaviour 9(3) (2010): 172–190.

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were many other fruit and vegetable stores to choose from, the crowd in front of the “poet” was always standing room only! Why? You ask? Simply because of the slogan the shop had on their windows. It went like this . . . “I may not be a poet, but when it comes to fruits and vegetables, I know it.” Now, I cannot be certain that the poet’s popularity derived from his poem, but I can be certain of the existence of an effect identified by two Psychology professors from Lafayette College in Pennsylvania coined the “Rhyme-as-Reason Effect.”35 These authors’ maintain that under certain conditions, people may base their judgment of a statement’s veracity in part on its’ aesthetic qualities. This effect has been called the Keat’s heuristic because of the famous poet’s assertion that “... beauty is truth, truth is beauty.” While this finding is interesting, at this point the reader may be wondering exactly what underlies the effect? That is, why would anyone think that just because a message rhymes, it should be perceived as more credible than a similar one that doesn’t? The answer lies in simple heuristics, defined earlier as rules of thumb that individuals use to arrive at decision choices. Quite simply, when people lack the knowledge or the motivation to critically evaluate a message, their processing of its content is often based on the use of simple heuristics (e.g., common sense, an educated guess, a rule of thumb, a poem). Remember the famous rhyme uttered by Johnnie Cochran about the gloves that O. J. Simpson purportedly wore during the murder which served to convince jurors that one of USC’s most famous graduates was indeed not guilty? “If it doesn’t fit, you must acquit,” and “If it doesn’t make sense, you should find for the defense.” Consumers may think that celebrities are truthful, that familiar sayings got that way because they can be relied on, or the aesthetic qualities of a message underlie its truthfulness.36 Earlier in this chapter, I gave the reader the advice to avoid the sole use of simple heuristics in decision-making and I give that same advice again. So if you feel you are beginning to believe

35 McGlone, Matthew S., and Jessica Tofighbakhsh. “Birds of a feather flock conjointly(?):

Rhyme as reason in aphorisms.” Psychological Science 11(5) (2000): 424–428. 36 Eagly, Alice H., and Shelly Chaiken. “Communication modality as a determinant of

message persuasiveness and message comprehensibility.” Journal of Personality and Social Psychology 34(4) (1976): 605–614.

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that you are being convinced by the slogan on the box of your local pizza shop, “You’ve tried the rest, now try the best,” take a big breath, eat a slice and repeat 20 times, “You’ve tried the rest, now try number 1” and see if the pizza tastes as good! I bet that it doesn’t. Q. Selective Perception On a brisk November Saturday afternoon, many Novembers ago, the undefeated and nationally ranked37 Princeton University college football team played Dartmouth College at Princeton’s Palmer field. Dartmouth needed to win to give them a winning overall record, and the Tigers wanted to maintain their perfect record and increase their national ranking. Because of what was at stake, the game turned out to be a relatively violent affair. In an attempt to study perceptual biases, a video of the game was then shown to undergrads from each school and as they watched it, they were asked to indicate whether or not they witnessed violations of the rules, and if they did were they mild or “flagrant.” Amazingly, Princeton viewers reported seeing nearly twice as many rule infractions committed by the Dartmouth team than did the Dartmouth viewers. One Dartmouth alumnus apparently did not see any infractions committed by the Dartmouth side and erroneously assumed he had been sent only part of the film, requesting the remainder.38 His lack of finding of any rule violations should be considered in light of the fact that Dartmouth served as the model college for the famous film, Animal House, starring John Belushi as the uncontrollable “Bluto.” Clearly, in that film every rule in the book seemed to be violated and, in that context, finding no rule violations is completely understandable. The results of the study show support for selective perception. That is, we have a tendency not to notice and more quickly forget stimuli which are inconsistent with our prior beliefs and which therefore may cause emotional distress. In my own research I observed the same effect,

37 They were ranked 6th nationally at the time. Princeton won the game 13-0 and their

quarterback, Dick Kazmaier was drafted into the NFL by the Chicago Bears, also winning the Heisman Trophy along the way. 38 Hastorf, Albert H., and Hadley Cantril. “They saw a game; a case study.” The Journal of Abnormal and Social Psychology 49(1) (1954): 129.

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regarding identification, not with a university as above, but rather with a company. That is, investors in an environmentally green mutual fund, and who strongly identified with the fund, were told that the fund digressed by purchasing some companies who were not entirely green (i.e., moderately negative publicity). This information resulted in significantly more negative corporate associations for investors weakly identified with the fund than for investors who had relatively strong identification with the fund. However, when the information was severely detrimental to the fund (e.g., the CEO embezzled invested funds), both stronger and weaker identified investors reacted extremely negatively and expressed disdain for the firm. These findings are not unlike what recently happened to the Los Angeles Clippers and the racist comments made by their owner Donald Sterling. One could imagine that if less severe information had come out about the Clippers or their owner, say for example that the NBA declared them as the dirtiest team in terms of some measure of aggressive play, Clippers fans would discount this fact and their rivals would embrace it. However, the comments of Donald Sterling which were so egregious were thankfully not embraced by anyone, Clippers fan or not. Therefore, you should realize that when it comes to something you identify with, be it a professional sports team, or even a Frequent Flyer program from a specific air carrier, you will generally be more likely to condone their behavior if it is mildly to moderately negative. Hence, these organizations in a sense are inoculated against say a poor performance up to a point, a consideration you would NOT give to brands or organizations you do NOT identify with.39 The common thread that ties all of these cognitive biases together as they impact the consumer is that awareness of them makes you less susceptible to their effects. As you proceed through the marketing landscape, you will surely encounter situations which can easily result in such biases. The more you experience each situation and observe your actions, the less susceptible you will be to the bias the next time! Now let’s explore some Social Biases that can impact your purchasing behavior.

39 Einwiller Sabine A., Alexander Fedorikhin, Allison R. Johnson, and Michael A. Kamins.

“Enough Is Enough! when identification no longer prevents negative corporate associations.” Journal of the Academy of Marketing Science 34(2) (2006): 185–94.

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Social Biases

A. False Consensus Effect One day, as I was sitting in front of my computer with nothing to do at work, I began to scan the rare book section of eBay. You see, I always wanted a certain book that was in my father’s library. The book is titled: “Unmasking Robert Houdin,” and was written by the famous magician Harry Houdini. The book was signed and inscribed “To my brother DocApril 1912.” “Doc” was born as Leopold Weiss and was the younger brother of Houdini. He also was a friend of my dad’s and a well-known radiologist, and he used to purchase items from my dad’s used furniture store on Amsterdam Avenue in New York back in the 1950’s. One day as a gift, he gave my dad the book and it sat in his library, or so I thought it did, ever since. So, as the story goes, one day recently, I finally got up the “nerve” to ask my dad for the book. Shockingly, he told me that just a week before, he had sold a whole bunch of books to a rare book buyer in Santa Barbara and among that set was the signed Houdini book. Well, I almost fainted! My reaction was that I had to have either that exact book back, or another one just like it, signed by Houdini. So, I called up the used book seller who purchased the book and told him that there had been some mistake, that indeed my dad did not intend to sell the book at all, and certainly NOT for $400 among a set of other books. The bookseller said that the “mistake” could be rectified if I would give him $3,000 for the book and you know what I told him, it cannot be repeated on these pages, and it wasn’t Abra 57

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Kadabra! So scanning the internet, I could find no viable option except for a listing on eBay which at the time was offered at an opening price of $1,100. I could only imagine that everyone would bid on this book and that everyone would appreciate its value as I did. So, what did I do? I got into a bidding war with one other bidder that I won, and by the time it was over the book sold for $3,500. So I had 3,500 reasons to keep my mouth shut when my wife asked me why I was spending so much time on the internet, particularly on eBay recently. Making things worse, I began to find other signed copies of the book after I purchased mine selling for $1,100 or less. Of course I could NEVER imagine such a thing happening since I thought that the book, clearly a rare item was so much in demand. I was wrong and indeed was suffering from a false-consensus effect, and that bias cost me at least $2,400 in my bidding efforts. The false consensus effect is defined as a phenomenon where a person tends to over-estimate the extent to which their beliefs or opinions are typical of others.1 For example, the study that initially observed the effect requested students to walk around campus (Stanford) with a sign exclaiming “REPENT!” Those who agreed with the need to repent, believed that 63% of their fellow students would also agree with this position and wear a sign (placard) saying so, while those who disagreed with the need to repent, believed that approximately 77% would refuse to wear such a sign. Gershoff, Mukherjee and Mukhopadhyay (2008) maintain that the effect is more severe when an individual likes an alternative than when he/she dislikes it. The false consensus effect can also lead to a greater degree of confidence in making judgments. For example, if you are eyeing the purchase of a stock, you may also believe that others are thinking about purchasing it, this may motivate you to purchase the equity sooner than later. The same effect could operate in reverse however with you selling the stock because you believe that everyone will sell. For the most part, investors may reach such conclusions about dramatic interest in purchasing

1 Ross, Lee, David Greene, and Pamela House. “The ‘false consensus effect’: An egocentric

bias in social perception and attribution processes.” Journal of Experimental Social Psychology 13(3) (1977): 279–301; as well as Gershoff, Andrew, Ashesh Mukherjee, and Anirban Mukhopadhyay. “Consumer acceptance of online agent advice: Extremity and positivity effects.” Journal of Consumer Psychology 13(1&2) (2008): 161–170.

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or selling a particular equity by entering the chat-room for that equity on the internet. Here, supposedly other investors indicate their evaluation of the stock and in many cases try to influence you one way or the other about impending doom or impending prosperity. The problem is that one individual can take on many different monikers and make it seem as if the overall sentiment is either positive or negative among the group of interested investors. Therefore, your confidence in the stock’s price movement may not be reflected in terms of what actually happens to the stock, and hence you may have bought too early or sold before the big price uptick as a function of believing that the sentiments you read reflect a larger group of investors which they may not. This again reflects the “False Consensus Effect.” Many “pump” and “dump” schemers who operate by publishing what seem to be “insider” equity newsletters sent personally to you, typically include a post-it on the front page stating: “To Mike, from J,” thought you would find this interesting are using the false consensus bias to take advantage of you. Such newsletters typically fan the flames by telling you things that supposedly only “insiders” know, making you think that if you don’t act quickly you will miss the boat, for surely if others had the information you were just given they would buy the stock in a second. So what happens? You buy (the “pump” part). The stock rises slightly initially and then falls like a rock (the dump part) and you are left holding the bag.2 I know this for a fact. Many years ago, I got a newsletter that told me all of the wonderful things about a company called BioGas that owned a cattle farm in Lamar Colorado. Supposedly, the cattle were fed special feed so that they would become more flatulent and that gas would be collected as a new/natural form of methane. I thought that this was ingenious and ran to purchase the stock before others could get this information and get wise to the millions of dollars I was going to make from purchasing this equity. Well, before I knew it, my $10,000 investment had turned to $500 as the company became what was produced by the cattle out of their Southernmost orifice.

2 The term “bag holder,” is often used in stock chat-rooms to describe pejoratively someone who was left with a worthless stock after having purchased the stock on false dreams of great success.

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B. Lake Wobegon Effect (Illusionary Superiority) I have a friend who just can’t seem to find the right person to settle down with. He has been on every dating site imaginable inclusive of “Christian Mingle,” “J-Date,” and of course “Match.com.” He has gone on countless dates and every time it does not work out, either because he thinks that he is much too smart for her, or she is much too short for him! He is also very critical of the looks of potential suitors, in fact one time he was sent five pictures from a particular women. They were taken on the beach with her dog, and in every photo she was wearing a wide brimmed hat obscuring her face. So, he decided to contact her on the online dating site, asking her to specify which one in the picture was her, the one on the left or the one on the right (the canine). Let’s say that this particular date did not work well, as you can imagine, it never happened at all. The bias of illusionary superiority represents a bias that results in people overestimating their positive qualities and abilities and underestimating their negative qualities, relative to others. Once again, it leads to overconfidence and may explain why losing strategies are repeated time and time again with the same result. Consider the fact that recently a newsstand near my house went out of business because society has increasingly become more digitalized as opposed to print based. In fact, the New York Times recently announced that their number of digital subscribers recently exceeded their newspaper circulation for the first time in their history. Despite seeing that stand fail, another entrepreneur bought the space, and put up the exact same type of newsstand, with once again many lookers but no buyers. You have to believe that some healthy degree of illusionary superiority played a part in the decision to open such a retail location as the new owner thought that he could do something better than the old owner did. At times, the effect can be somewhat humorous as 88% of drivers thought themselves to be in the top 50% of driving ability,3 while 68% of the faculty at the University of Nebraska thought themselves to be in the

3 Svenson, Ola. “Are we all less risky and more skillful than our fellow drivers?” Acta

Psychologica 47(2) (1981): 143–148.

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top 25% of teaching ability.4 But most importantly, those who suffer from this bias believe themselves to be less influenced by bias than the other guy! Finally, what is of most concern is that the effects of illusory superiority have also been found to be strongest when people rate themselves on abilities at which they are totally incompetent.5 This is downright scary, as I often tell my wife, “we don’t need anyone to manage our finances and investment strategies, I’m a wizard at it.” However, my perceived investment prowess is evidently better than my actual investment prowess as an adventure with my past tax returns has sadly confirmed. You see when I lose money for myself and my wife or my children in an up year on Wall Street, I always rationalize that I sold “the losers,” and that the winning stocks are sitting there in all of our accounts simply waiting to appreciate more in value and hence have not been accounted for as actual gains. But when you look at a trend of consistent losing over the past 10 years of market investment (as verified by my tax returns), it becomes clear that my perceived ability falls way short of my actual ability as my account value is still waiting to jump. I apparently am a victim of the Lake Wobegon bias, and apparently living in a state of mind where everything I do is above average . . . not! My wife believes that I would be better off fishing in Lake Wobegon than on the internet investing in stocks. C. Out-Group Homogeneity Bias One day while reading a household magazine, I came across an interesting advertisement for Kashi breakfast cereal. I normally wouldn’t look too long at the advertisement because the cereal, as depicted, looked to me like bird seed (I have since been told that the cereal is actually very healthy for you, which probably explains why it looks like bird seed and for all I know could taste that way). The ad did get my attention however because in many places in the text, the company who makes the product went out of their way to mention that it was kosher. Now for most people who do not know

4 Cross, K. Patricia. “Not can, but will college teaching be improved?” New Directions for Higher Education 1977(17) (1977): 1–15. 5 Kruger, J. and Dunning, D. “Unskilled and unaware — but why? A reply to Krueger and Mueller.” Journal of Personality and Social Psychology 82(2) (2002): 189–192.

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what “kosher” signifies, it simply means that the food conforms to the rules of Jewish dietary law (known as kashrut). So for example, chickens and cattle must be killed in a certain way to be kosher (where the animal suffers least harm) and fish without scales are not kosher since they generally are scavengers, and of course scavengers do not eat the best diet.6 Pig is not kosher, since in ancient times it carried trichinosis, a parasitic disease caused by eating undercooked pork and wild game (also not kosher) which carried the larvae of a roundworm called the Trichina worm (also not kosher!). See what you learn in marketing! So, after reading the ad, I came up with a simple idea for an advertising study. I would take Kashi (not a well-known cereal) and create an ad which mentioned multiple times that it was kosher, and another advertisement that was identical but did not mention anything about it being kosher. I then replicated these conditions with the well-known product Raisin Bran made by Post cereal.7 So I had four advertisements that either described the product as kosher or made no mention of being kosher that advertised a cereal that was either Post Raisin Bran or Kashi. This is formally known as a 2×2 experimental design since you are manipulating two different variables brand type — (known versus unknown) and (presence or absence) of a kosher designation. I was interested in how people evaluated the cereal after reading the advertisement. That is, what did they think for example of its quality, its taste, its pureness and what was their overall attitude toward the product? The results were very interesting, the Post Raisin Bran cereal was rated relatively high on quality, taste and pureness, and it didn’t appear to matter whether or not the product was described as kosher or not. Overall, the Kashi brand was rated lower than the Post product (to be expected) since it is a relatively unknown brand, but what was surprising was that it fared most poorly when it was described as being kosher. Now, the term

6 Eating a swordfish is particularly problematic because it loses its scales as it gets older,

so an observant Jew can eat a young swordfish but not an older one. How young you say? Oy vey! 7 Kamins, M.A. and Marks, L.J. “The perception of kosher as a third party certification claim in advertising for familiar and unfamiliar brands.” Journal of the Academy of Marketing Science 19(3) (1991): 177–185.

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“kosher” didn’t seem to matter when the Post cereal was described in this fashion, so you couldn’t argue that such a term introduced systematic bias in any fashion. In fact, in the colloquial use of the term, “kosher” means legitimate, permissible, genuine or authentic, all terms conveying a very positive meaning. So why was describing the cereal as “kosher” particularly problematic for Kashi? When I looked at the reasons people gave for why they rated the cereal the way they did, I found out that people felt that the “kosher” Kashi cereal was not for them, particularly if they were not Jewish. Hence, they focused in on one attribute and one attribute alone, ignoring other favorable characteristics and in fact interpreting kosher in a very narrow sense rather than its general meaning (not for me instead of authentic for example). It is quite possible that in this case, the false inference was driven by the cereal’s name — Kashi, which arguably sounds kind of ethnic and maybe even Jewish in some form. The implications of these findings are important for marketers in that it suggests that advertisers and companies who designated their products as kosher (Coca-Cola, See’s Candies, Ortega and Bumble Bee for example) can suffer a loss of brand image, if the brand itself is not strong enough to convey that it is indeed for a broad target audience. Can you imagine the confusion that exposure to kosher Ortega Mexican foods can create? So what is the bias that creates this confusion in the first place? It is called Out-Group Homogeneity bias, and it is reflected by the fact that out-group members are seen as more similar to one another than in-group members.8 But from a marketing perspective, the bias seems to reflect itself in the notion that ethnic relevant terms such as “kosher” or “halal” are not seen by the more general public to the full range of their meaning and instead maintain a restrictive image or meaning. Moreover, the use of such terms, unless the brand is more widely known, can seemingly restrict a company’s market share. Companies have addressed such issues, possibly not so effectively, by using terms not necessarily known to the general public, but meaningful to those subgroups they wish to target. For example,

8 Quattrone, George A., and Edward E. Jones. “The perception of variability within ingroups and out-groups: Implications for the law of small numbers.” Journal of Personality and Social Psychology 38(1) (1980): 141.

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a circle with a “U” inside of it, signifies “kosher” in that the product has been sanctified by the Orthodox Union of Rabbi’s. Now you also know if you didn’t already! D. Self-Serving Bias Ambiguity is a subjective variable, but it should be possible to identify “objectively some situations where available information is scanty . . . or highly conflicting; or where expressed expectations of different individuals differ widely.”9 In a marketing environment, consider the situation where expectations of different people vary widely. This sounds like a visit to TripAdvisor in search of a hotel, or the general lack of consensus regarding the watchability of a given movie. The information presented to you is sometimes vague, oftentimes directly contradictory and surely difficult to interpret. It is under such conditions that advertising can have a dramatic impact upon how you ultimately evaluate a product. Thirty years ago, Henry Assael and I conducted an experiment where we manipulated the degree of exaggeration in an advertisement designed to describe the writing performance of a ball point pen. In the “realistic” condition, we described the pen as it was (a relatively basic ball point pen that cost about a dollar).10 We then created more and more favorable descriptions of the pen’s writing performance to the point of telling subjects that it once wrote on the moon. What we observed was fascinating, since the pen’s performance is relatively ambiguous and difficult to judge in the short time we gave the subjects to write with it, we found that evaluation of the pen increased generally consistent with what was stated in the advertising. That is, what was stated in the advertisement influenced people’s evaluation of the product (until the “moon” text was encountered, then subjects said that the pen was terrible when actually used).

9 Quote attributed to Ellsberg, Daniel. “The crude analysis of strategy choices.” The American Economic Review 51(2) (1961): 472–478 and utilized by Hoch, S.J. and Ha, Y.W. “Consumer learning: Advertising and the ambiguity of product experience.” Journal of Consumer Research 13(2) (1986): 221–233. 10 Kamins, M. A. and Assael, H. “Two-sided versus one-sided appeals: A cognitive perspective on argumentation, source derogation, and the effect of disconfirming trial on belief change.” Journal of Marketing Research 24(1) (1987): 29–39.

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While this bias may not seem to be “self-serving” from the perspective of the consumer, it is from the perspective of the company who sells the pen. This is because the company, through the use of advertising, can get you to infer quality attributes about the pen simply as a function of having read the advertisement. That is, the advertiser can influence your thoughts about the pen. Sometimes however, you do the sales job on yourself. For example, on TripAdvisor, there are enough positive and negative experiences at the same hotel to last a lifetime, and I would argue that if you had a decision rule to avoid any hotel that had a single negative rating, you would be spending your summer vacation in your hot apartment in the city. Therefore almost like a Rorschach test, you can pick and choose among the quotes to convince yourself of anything, nice location, good service, close to the beach, anything. So if you have an agenda, for whatever the reason, you can cloak it with ambiguous information, kind of like my successfully convincing my wife that I wanted to see the Woody Allen movie about Rome, because I liked to see Italian cities. But mostly, (although not mentioned), because I liked to see a certain Spanish actresses by the name of Penelope Cruz, especially in the role that she played in that film.11 So if you are panicking because advertising can frame how you actually interpret product usage under certain conditions, you have a right to panic, particularly if it involves an expensive or risky purchase. In such a case, always consult other sources of information aside from advertising or trial. Consumer Reports comes to mind as does the opinion of “marketing mavens”12 who may be experts in the product area, as well as friends and family. I recently received a sales brochure from a real-estate agent in Southern California, detailing all of the recent sales this individual had completed over the past few months. The agent mentioned house after house that he had sold above the asking price all within a short period of time. He actually coined a slogan for his business and it went something like this: “Call Fred

11 I was not disappointed by her physical appearance in this movie titled: “To Rome with

Love.” 12 Linda Price wrote a fascinating piece of the concept of being a “Marketing Maven” in

the Journal of Marketing in 1990, discussed quite nicely by Malcolm Gladwell in his book “The Tipping Point.”

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Rice, for quick sales above the asking price!”13 Frankly, I looked at Fred’s results with amazement and awe until I opened up the local paper and read a report in the Los Angeles Times that home sales and prices in Southern California had increased dramatically over the past year with prices rising on average 20% often resulting in multiple bids on a given home, often for more than the asking price. Hmmmmm. All of a sudden Fred Rice’s amazing results seemingly could not be attributed to just Fred but were actually representative of the environmental conditions as a whole, and Fred was happy to take credit for this. I know for many of you this sounds awfully like a certain President I have in mind, but it’s not healthy to go there as it leads to Agida!14 I’m sorry to disappoint Fred, but this example is a poster boy for the “self-serving” bias where people choose explanations for behavior in a strategic way so as to make themselves appear in a more positive light to others. This bias has its origins in Attribution Theory, which attempts to explain the causes that humans use to infer the reason for why they (and others) behave in a certain way in a given situation.15 The self-serving bias implies that when the event is favorable to the actor (e.g., selling properties quickly and for a high price), such a result is attributed to an internal skill set which discriminates him/her from others, whereas when the event is negative (e.g., paying too much for a product or service), the attributional cause for such an effect is placed upon the situation, environment or the behavior of others. You can be sure that if home sales were dismal and Fred’s results were not so good, he would not be touting his exceptional ability in the real estate market but rather blaming environmental conditions, the Democrats, or the Republicans, for such a terrible economic and housing climate! Some people make lots of money claiming that they have the expertise to either financially manage your money, (as claimed by George Clooney

13 This is a fictitious name to protect the innocent. 14 Agida, for you baby boomers out there, came from an Alka Seltzer commercial and means

indigestion but more generally means mental anguish. 15 See Jones, Edward E., and Keith E. Davis. “From acts to dispositions the attribution

process in person perception.” Advances in Experimental Social Psychology 2 (1965): 219– 266; Folkes, Valerie S. “Recent attribution research in consumer behavior: A review and new directions.” Journal of Consumer Research 14(4) (1988): 548–565.

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in the recent movie Money Monster supposedly modeled after Jim Cramer on Mad Money), or become your effective life coach. But again, you must ask, is their success a function of the external environment? That is, can everybody during the same time period do just as well and where is the evidence that YOUR expert is doing better? So, how do you find such evidence if it exists? Ask for proof of the seller’s track record, ask for testimonials and ask for references. In summary, if self-serving bias relates to people’s tendency to attribute positive events to their own character but attribute negative events to external factors, be sensitive to those “experts” out there who make money by selling services and who tout impressive documentation. Always ask for it before engaging in their services.

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Memory Biases

If you are like me, you begin to realize that your memory is not what it used to be. Names and places become difficult to remember and when it comes to the names of my students, as we say in New York, fuggedaboutit. Now on top of those memory lapses, I have to tell you more bad news, in that when your memory actually works well, you can suffer from memory biases. So let’s explore what these biases are, but don’t feel down if you identify with these issues, since you probably will forget about them soon enough. A. Schema Incongruence Effect You just sat down to watch the Super Bowl and on comes a commercial which supposedly follows the life of an ordinary guy who suddenly and unexpectedly is challenged to a game of ping-pong by a long haired Arnold Schwarzenegger wearing a blond wig with a sweat band around his brow. The commercial is for Bud-Light, a Light Beer whose tag line happens to be “Are You Up For Whatever?” In other words, you should drink this beer when challenged by anything thrown at you in life. Now while you still may be trying to figure out what drinking beer has to do with life’s challenges, you probably remember the commercial because of the distinctive and “incongruent” usage of Der Terminator as a wigged out ping-pong player. If anything, given Arnold’s fame as a weight-lifter, and in the movies as Conan the Barbarian, and as the Terminator, you would expect him to challenge this mere beer drinking mortal in a test of strength, but ping-pong as Arnold would probably say, is a game for sissy’s. 69

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But this is what makes the use of Mr. Schwarzenegger so effective in the commercial. The He-man playing a “sissy” game, is incongruent, as is the likelihood that anyone would come across Arnold dressed up in shorts, wearing a blond wig and challenging you to a game of ping-pong. Both of these concepts represent a schema (a mental structure of core-conceived ideas) that are inconsistent with what one typically thinks about Arnold Schwarzenegger. This then makes for a recipe for effective placement of the commercial in the long-term memory of the viewer, so that when one is asked to recall a recent memorable commercial, Arnold, ping-pong and Bud Light come to mind. Research on images that are inconsistent with existing schema show that the introduction of information that was highly incongruent with the schema made schematic information more memorable, under both immediate- and delayed-recall conditions.1 For you, the consumer, while the commercial may be humorous, the most important characteristic of it is that it is memorable. It stands in memory above all other beer commercials, and from the perspective of the company it is hoped that high recall leads to high sales, but this is not always the case. What does matter is that you understand why such a commercial is easily recalled by you and why it stands out in your memory. It all boils down to the ludicrousness of the image and the impact that it has on your memory. Consider another series of incredibly humorous television commercials created by Snickers. In one scenario you have two young men talking to two women trying to make small talk so that they can socialize. But when one of the young men sees the girls looking beyond him at some other man walking in the background, he morphs into Joe Pesci in character from the movie Casino and tells the girls, “Whatta you looking at, we’re not good enough for you, you looking for something else, what are you a big super model, whatta you model gloves? It’s at that point that his friend takes him

1 See O’Sullivan, Chris S., and Francis T. Durso. “Effect of schema-incongruent information

on memory for stereotypical attributes.” Journal of Personality and Social Psychology 47(1) (1984): 55; also see Pezdek, Kathy, Tony Whetstone, Kirk Reynolds, Nusha Askari, and Thomas Dougherty. “Memory for real-world scenes: The role of consistency with schema expectation.” Journal of Experimental Psychology: Learning, Memory, and Cognition 15(4) (1989): 587–595.

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in the back room and asks him to eat a Snickers bar “because you get a little angry when you’re hungry.” When the camera goes back on the two “gentlemen” Pesci, after eating the Snickers bar morphs into his original persona, that of a 20 something bushy haired kid, who says: “So ladies” with the response of “So Losers” as one of the women has in turn morphed into Don Rickles. Again, this commercial works effectively on a schema incongruent level as Don Rickles and Joe Pesci take the place of, respectively, a young woman and young man in the promotion. Because of this, the commercial is quite memorable and even makes the point that by eating the Snickers you can break the hunger pangs that often make us grumpy. Who better than Don Rickles and Joe Pesci as examples of angry individuals? So the next time you are hungry, the answer is to eat a Snickers bar, but not necessarily to replace your regular meal. The commercial and its other variants work well for another reason, that is, it frames Snickers as something that addresses one’s hunger (therefore as a nutritious treat), rather than simply as an unhealthy candy bar. The framing effect was discussed back in Chapter 3.

B. Context Effect On a recent trip to Spain, I arrived at the airport in Barcelona, and while my wife waited in line to pick up the luggage, I sauntered off in the direction of the car rental. We needed a car since we planned to tour Spain, starting in Barcelona and visiting Grenada, Seville, Cordoba, and Toledo, finally ending up in Madrid. As I waited in line to pick up the car, my mind drifted off to thoughts of other occasions that I rented a car in a foreign country and had to make the “insurance” decision. I could not stop thinking about the one occasion that I decided that in order to “save money,” I would forgo getting total insurance coverage and chance it that I not get into an accident. I must have rented a car on such an occasion tens of times, but for some reason I could not get out of my head that fateful day when I was driven off the road by a 4×4 trailer in Ireland and ended up breaking the car’s axle and parts of my body. So when it was my turn to go up to the desk, the first thing I blurted out was, “I’ll take full insurance coverage,” before even being asked and even before the clerk knew who I was. This experience shows that cognition

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and memory are dependent upon context such that in-context memories are generally easier to retrieve than out of context ones.2 You find yourself in a rental car office, and your own rental experience from dating back when you were 25 may pass before you in a blur. And of course, because of the “negativity bias” and the “availability heuristic,” discussed earlier, most prominent in your memory are the bad experiences rather than the numerous times you rented the car and returned it none the worse for wear. So, while important decisions might benefit from being made in context, understand that the context effect serves to sharpen your recall of relevant experiences while the negativity effect interacts with it, making negative experiences more salient and more easily available in your mind. In this case, the end result is a conservative decision, which might have benefited by being made earlier and with more thought than emotion, way before you entered the rental location. C. Egocentric Bias I am going to admit here and now that I am an e-commerce addict, particularly in the use of eBay and Priceline. I often find myself at odd hours of the early morning trolling eBay looking for great buys and telling my wife the next day what I bought that I don’t need simply because I got a great price on it. I also cannot resist using Priceline to find a hotel room because I enjoy the “game” of bidding on something that could be wonderful at a bargain price and then telling all of my friends how I stayed at a five star hotel for a two star price.3 By the way, did I ever tell you about the time I bought a rare penny on eBay worth over $500.00 for $25.50. Well, I started out on eBay scanning the listings that offered “foreign coins,” which also had photos of the coins. I narrowed down those listings by looking at the record of each seller to see if they had primarily sold coins in the past. I then eliminated those who did. I was looking for novices who happened to have

2 Smith, Steven M., and Edward Vela. “Environmental context-dependent memory: A review

and meta-analysis.” Psychonomic Bulletin & Review 8(2) (2001): 203–220; also see Tourangeau, Roger, and Kenneth A. Rasinski. “Cognitive processes underlying context effects in attitude measurement.” Psychological Bulletin 103(3) (1988): 299. 3 I know for sure that I am an addict because I still go to find a hotel room on Priceline even in the event that the hotel room is being paid completely by my university such as when I go to a sponsored conference.

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some coins around the house, thought they were foreign and decided to sell them on eBay (similar to someone who sells things in a yard sale that has accumulated “stuff” over the years and does not know their true worth). I outbid everyone for the lot, and when it came in the mail I opened it. Among the 185 coins in the little canvas bag I received were 35 American coins that happened to be Indian pennies (pennies minted in the United States between 1859 and 1909 that had an Indian’s head on the front) and obviously were NOT foreign. Upon closer examination one of the pennies dated from 1909, and when I turned it over, it had an “s” indicative of being minted in San Francisco. Being in extra fine condition, it was worth $545.00. So, if you are clever you can get a great buy. When I again checked my records regarding the price that I paid for these coins to verify what I was telling you, the reader, I found out that I had actually paid $145.00 for them and not the $25.50 that I remembered and first reported. I was a victim of the “egocentric bias” since the memory of my eBay prowess was a little more exaggerated than my actual successes. This is similar to reporting that one caught a whopper of a fish which actually weighed in at nine ounces. But c’mon, getting a 1909s Indian Penny for $145.00 ain’t bad is it, especially when it’s worth almost four times that price! You see, I get a charge for being known among my friends as the “King” of eBay and Priceline and am seen as a Marketing Maven for these online retailers.4 That is, if you need a hotel room anywhere, I can get it cheap and I know how to bid on eBay so that you don’t necessarily overpay (the whole truth on how to do this will come out in Chapter 10, please don’t peek!). But this “need for acceptance” and “immature behavior” as my wife chooses to see it makes me susceptible to recalling the past in a self-serving manner, and hence I suffer from the egocentric bias, a memory-based affliction.5 Now that I told you, I feel better and can avoid paying oodles of dollars for psychiatric work!

4 Feick, Lawrence F., and Linda L. Price. “The market maven: A diffuser of marketplace information.” The Journal of Marketing 51(1) (1987): 83–97. 5 My wife also believes that I suffer from many other brain based afflictions. When she says this, I tell her that she must also suffer from some “biases” since she has been married to me for over 40 years.

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So how can we effectively deal with such a bias? If we have a tendency to remember the past in a way that is self-flattering, this makes it difficult to replicate what happened in the past, currently in the present. Consider the eBay example, if I incorrectly recall a price for a set of coins that I never actually won at that price, any deal I try to win will pale in comparison and I will never be satisfied. In fact, I may not even be willing to consummate the deal since it cannot even come close to what I did not get in the past. Therefore, it is important to document your past consumption activities and review them before making a purchase again. Priceline does this for you as does eBay, providing a past history of your purchases, respectively, within the last year and for 30 days or more on eBay. That way your expectations can be regulated and the price you paid can be compared to reality not fantasy. D. Fading Affect Bias If you have recently taken a trip on a plane that lasted for 10 or more hours (and I’m not talking about your last trip on Spirit Air between Los Angeles and Las Vegas), then you know how painful it was both psychologically and physically to sit there watching either a movie or simply viewing the map and the progress (or lack of progress) of the flight with little or nothing else to do. Yet the pain of sitting there at the time had to be many times more stressful than you reminiscing about it today, days or weeks later. This is because the emotion attached to unpleasant memories tends to fade more quickly than the emotion attached to pleasant memories.6 For example, sometimes, I can still feel the breeze on the beach in Kona 3 years after I first stepped foot in the Pacific. So, the question remains, why does one’s autobiographical memory for unpleasant/negative events dissolve faster than one’s memory for pleasant/positive events? Taylor (1991) presents an explanation in the form of the “mobilization–minimization” hypothesis.7 According to this hypothesis, when a person experiences a negative event, two sets of mechanisms are activated. 6 See Walker W. Richard, John J. Skowronski, and Charles P. Thompson. “Life is pleasant — and memory helps to keep it that way!” Review of General Psychology 7(2) (2003): 203. 7 Taylor, Shelley E. “Asymmetrical effects of positive and negative events: the mobilizationminimization hypothesis.” Psychological Bulletin 110(1) (1991): 67.

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The first mechanism is the mobilization of resources: The theory maintains that when a negative event occurs, people will strongly mobilize their biological, psychological, and social resources to cope with the immediate consequences of the event. That is, the individual sometimes will try to make the best out of the situation. For example, in the 10 hour airplane trip example discussed above, one might ask for another seat cushion, a seat (if available) in an open row, or one could simply get up, walk up and down the aisles and ask for a stiff drink. Clearly, for positive events such a degree of distractive mobilization is not required as one wants the current moment to simply last longer. That is, keep it coming! The second mechanism that regulates the fading affect bias is minimization. Here, the goal is to minimize the impact of the event. Minimization occurs biologically, cognitively, and socially, and it is usually stronger for negative relative to positive events. The goal of minimization is to “deaden” the emotional impact of negative events relative to the impact of positive events. Such deadening occurs directly because people are motivated to view their life events in a relatively positive light. So how can you utilize the fading affect bias to your advantage when engaging in purchase behavior? Let’s go back to the familiar example I have used in this section regarding a 10+ hour airplane trip say across the Atlantic from Los Angeles to Rome. You compare the price to fly “First Class” versus “Coach” and see that the cost for the former ($9,013) is almost four times the cost of the latter ($2,363). Then you read an advertisement from a new airline which has just joined the Star Alliance, which states in a bold 50 point Headline: “The fastest 13 hours to Rome from LAX that you will ever spend.” In smaller text they mention, the extra leg room and padding in their seats, on-board free internet, two hot meals, a wide range of entertainment options inclusive of local television and competitive games across seat locations. This company is framing the flight ahead of time for the customer and delivering upon creature comforts (e.g., enhanced seating and leg room) as well as social linkages (competitive games between passengers) necessary to make the time flow faster. In essence, they are utilizing both mobilization and minimization in their strategy. Clearly, the slogan “The Fastest 13 hours to Rome,” focuses on minimizing the perceptual length of time that the passenger has to endure.

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E. Primacy and Recency Effect E.1. Primacy What does Wrigley’s chewing gum, Ivory soap, Kellogg’s Corn Flakes, Coca Cola, Crisco Shortening, Campbell’s soup and Colgate toothpaste all have in common? Despite being relatively famous brand names, they all happen to be “pioneer brands” an area of research that I have investigated rather thoroughly.8 That is, they are the first brand introduced in a product category, and therefore they have what is called in marketing the “FirstMover Advantage.” The first-mover advantage that the pioneer brand enjoys represents a primacy effect and is derived from three advantages that being the first brand in a category conveys. First, the pioneer brand sets the consumer’s expectations about the product class, since it is the first brand that they experience in the product class. Essentially, the pioneer becomes the category prototype and typically is used as the standard to which all other later entrants are compared. Second, the pioneer brand, since it is first in the market, can take the best position in the market since it has absolutely no competition as no other brand has yet entered the market. Finally, pioneer brands, since they are first in the market, can set up entry barriers to prevent other brands from entering successfully. For example, the more a company produces, the less the unit cost of production, and since the pioneer has a sales advantage against the competition, it ultimately has a cost advantage against the competition. Most people believe that the pioneer brand, since it is first, is the “best” brand in the category and this is biased thinking. Why? Simply because the later entrant benefits from observing the pioneer and avoiding the mistakes it has made; in addition, a later entrant may have developed some technological advantage relative to the pioneer which assures that its product quality is better than the pioneer.9 8 See Alpert, Frank H., and Michael A. Kamins. “An empirical investigation of consumer memory, attitude, and perceptions toward pioneer and follower brands.” The Journal of Marketing 59(4) (1995): 34–45. 9 See Alpert, F.H. and Kamins, M.A. “Pioneer brand advantage and consumer behavior: A conceptual framework and propositional inventory.” Journal of the Academy of Marketing Science 22(3) (1994): 244–253 for a interesting article on what are the sources of the pioneer advantage.

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E.2. Recency Recency represents another advantage that exists in the marketing and consumer behavior world. Consider the movie industry where typically 15 or more full length features are released each week. For some movies, approximately 50% of the total domestic take over the commercial lifetime of the movie is made in the first weekend of release. This was true, for example for three of the five Twilight movies released between 2008 and 2012.10 I actually tested the strength of the recency effect by giving my students a choice between watching “Unforgiven” a western themed movie and Academy Award winner of the “Best Picture” from 1992 starring Clint Eastwood, Gene Hackman and Morgan Freeman or the more recently released movie “A Million Ways to Die in the West,” starring Seth MacFarlane and Charlize Theron. The amazing result was that 95% of the students chose the more recent movie despite the fact that its credentials do not match those of “Unforgiven,” and most importantly not one student had previously seen or heard anything about the Unforgiven and many were not familiar with its stars. In addition, I had told the students that the new movie had only mediocre reviews. I have replicated these findings many times and they suggest to me that when it comes to movies, the objective measure of quality (e.g., an academy award movie rated as best picture), is ignored in favor of newness. Somehow, when someone is told that the quality choice is outdated or old, it is dominated by the item that is current even if that item is not blessed with the same favorable reputation as the older item.11 I find this effect also to be true with books, in that students would prefer to read a top 10 best seller than an older renowned classic and from my own observation the desire to read a current best seller wanes the longer it is on the market among those who have not yet read it but claim that they desire to do so. Hence, my advice to the consumer is to broaden their horizon by not taking the simple route of rejecting older products simply because they are

10 See the internet site, “Box Office Mojo,” for the entire Twilight series, consisting of five

movies. 11 This of course is not true when one is looking to buy antiques, where age is a valued and

essential characteristic of the item.

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old.12 I can understand such behavior if the item relies on technology, where one could reasonably claim that the older item is outdated and hence less effective or efficient that that available today. But what if the item offered for sale is a work of art, such as a book or a movie? By expanding the choice option, one can be more pleased with one’s choice and oftentimes the older product is available for a cheaper price than the product which has just recently been introduced into the market. So don’t be a “sucker” and fall for the recency bias. Everything new is not always the best and everything old is not necessarily decrepit and worthless. Come to think of it, this hits close to home as I am not a spring chicken.

F. Spotlight Effect Have you ever seen the television commercial where an attractive woman is about to kiss a man but stops because of his “ring around the collar?” This vintage commercial by Wisk was extremely powerful because it is an example of a fear appeal, directed at a negative social consequence for the consumer. Likewise, Talon zippers had a well-known commercial showing a man who did not realize that he had “gaposis” and upon meeting a date for the first time had his pants zipper completely open. As we say in New York City “X, Y, Z,………” But why are these commercials so effective? Part of the reason lies in the presence of the spotlight effect where people tend to believe they are being noticed more than they really are.13 This is due to a human tendency to forget that although one is at the center of one’s own world, one is not the center of everyone else’s. This of course is true for mostly everyone on earth everyone except Kim Kardashian, the Kardashian sisters and nieces and their mother and former dad. So when you combine an appeal that focuses on social shame or “fear” (e.g., a dirty collar or open fly that is noticed in an embarrassing situation) combined with this human tendency

12 I give the same advice as it applies to relatives and friends. 13 See Gilovich, Thomas, Kenneth Savitsky, and Victoria Husted Medvec. “The illusion of

transparency: Biased assessments of others’ ability to read one’s emotional states.” Journal of Personality and Social Psychology 75(2) (1998): 332.

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to believe that others are disproportionately looking at them, you have the recipe for an impactful ad campaign. For a fear appeal to be successful, however, according to Pratkanis and Aronson (2001), four components must be present.14 There must first be a threat, then a specific recommendation about how the target market should behave to resolve the threat (e.g., buy Wisk). Then the target market should believe that the recommendation will be effective in addressing the threat, and finally the target market must believe that they are capable of effectively applying the solution. What could be simpler than washing your shirts with Wisk? The lesson here is to realize that (1) You are not the center of the universe — hard for the Kardashians — hopefully easier for you if your name is not Caitlyn Jenner and (2) for many of these so called threats, they exist only in your mind. For example, one would have to get particularly close to you to see that your collar is dirty, and if someone did this to you in New York City, the best thing to do is call 911, don’t worry about your wash . . . you can do it later. The commercials which focus on fear appeals generate situations that are unlikely to happen and make them extremely likely (or in academic parlance . . . enhance the probability that the event will occur), remember this the next time your zipper is at half-staff.15 G. Von Restorff Effect It seems like every time you turn on the radio or watch TV you see another Geico commercial and the talking Gecko with the British accent. Many of their commercials show something out of the ordinary or ludicrous like basketball player Dikembe Mutombo blocking a child from throwing cereal into a shopping basket, or the famous Geico cavemen. But probably the most well regarded Geico commercial involved the presence of a camel walking through an office telling everyone that it was “hump” day (Wednesday). 14 Pratkanis, Anthony R., and Elliot Aronson. Age of Propaganda: The Everyday Use and

Abuse of Persuasion. New York: Henry Holt & Company (2001). 15 You are much more likely to forget to pull it up than for it to fall down and Talon does not

fix this problem. I have a greater tendency than the rest of the population to do this because I am a professor and I forget everything, like the time I forgot I had an attached microphone and I went into the bathroom. That’s a story for another time!

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Although many of the themes of these commercials have little to do with the purchase of insurance, they still are effective because their lack of reverence, uniqueness and creativity which strongly associate them with Geico. Moreover, as Jackie Mason would say, “Let’s be honest,” the product of insurance is not the most exciting product out there. The Von Restorff or isolation effect predicts that an item that stands out like a “sore thumb” is more likely to be remembered than other items and was first named in 1933 by Hedwig Von Restorff who worked as a postdoctoral assistant to Gestalt psychologist Wolfgang Kohler.16 The effect was extended to marketing and advertising by Morris Holbrook and Meryl Gardner (1993), who called it a “prominence effect.”17 Just because an advertisement is prominent, and easily recalled because of its uniqueness, it does not mean that the ad itself will be impactful. In advertising, marketers focus on what is called the “Hierarchy of Effects” first proposed by Lavidge and Steiner (1961), respectively, an advertising principle and professor at the University of Chicago. These authors proposed that advertising works by moving the prospective purchaser through the following stages: unawareness => awareness => knowledge => liking => preference => conviction and finally purchase. This can be alternatively viewed as moving the prospective consumer from cognition to affect or feeling and finally to action or purchase. The Von Restorff effect addresses awareness or cognition, that is, its impact is to make the advertisement or the product stand out. However, just because you notice something does not mean that you should buy it. Smart consumers go beyond simply awareness in their path to purchase, and I suggest that you do too. H. Zeigarnik Effect In my role as an expert witness in legal cases, I once worked on a case where a small company had created a product called the “Personal Post

16 Von Restorff, H. “Über die wirkung von bereichsbildungen im spurenfeld.” Psychologis-

che Forschung 18(1) (1933): 299–342. 17 Holbrook, Morris B., and Meryl P. Gardner. “An approach to investigating the emotional

determinants of consumption durations: Why do people consume what they consume for as long as they consume it?” Journal of Consumer Psychology 2(2) (1993): 123–142; see also Lavidge, Robert J., and Gary A. Steiner. “A model for predictive measurements of advertising effectiveness.” The Journal of Marketing 25(4) (1961): 59–62.

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Office.” While this sounds like a relatively complex product that has the capacity to do many different things, it actually was quite a simple product that looked like a fishing hook attached to a scale, the whole gizmo weighed about 5 ounces. You would attach your letter to the hook and the weight of your letter would pull down the hook, revealing some numbers indicating how much postage you were required to pay. Actually, the product was quite ingenious and was sold as a specialty product which had an important functional value as well as a conversational interest. The story would end there if not for the fact that Pitney Bowes, came along and decided to name their postage meter machine the “Personal Post Office,” neglecting the fact that the small company had already named their product by that name. Now a postage meter machine is very different than the product offered by the small company. First of all, it takes up a lot of space on a tabletop, weighs a lot, is computerized, and allows the user the ability to personalize one’s mail with specific messages in addition to actually generating the stamps needed for exact postage. After the smaller company complained about the potential for confusion between their product and that made by Pitney Bowes, Pitney Bowes then offered to resolve the name issue by naming their product the “Personal Post.” It was at this point that I was called in to attempt to resolve the issue from a marketing perspective. My position was that when a consumer is presented with the name Personal Post in the context of mailing letters and the need for stamps, they will complete the name “Personal Post” with the word “Office.” That is although the product is presented to you the consumer, as “Personal Post,” in your mind you will feel a need to complete the brand name and the most logical way to do this is with the word “Office” resulting in the brand name “Personal Post Office,” or the name that the smaller company already had usage of. This need for completion of a series of words or even a musical tune is consistent with what is known today as the Zeigarnik effect.18 According to the story, one evening Bluma Zeigarnik was eating dinner in a Viennese restaurant and noticed something strange. No, I know you are

18 The original article written in German by Bluma Zeigarnik was written in 1927. The

title and reference to the article is as follows: Zeigarnik, B. “Das Behaltenerledigter und unerledigter Handlungen.” Psychologische Forschung 9 (1927): 1–85.

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thinking that there was a fly in her soup, but if that was the case she would have discovered the “fly in the soup effect,” and that didn’t happen! What she did notice was that the waiters seemed to only remember orders which were in the process of being served. When completed, the orders evaporated from their memory. Finishing up her meal quickly, she ran back to her lab, and noticed that after she had eaten she could not remember exactly what she had eaten, . . . only kidding again. Actually, she ran back to her lab to test out a theory about what was going on, and she began to formulate the experimental design for what was to be the cornerstone of her published work. In her experiments, she asked participants to do 20 or so simple little tasks in the lab, like solving puzzles and stringing beads (Zeigarnik, 1927). Except, some of the time they were interrupted half way through the task. Afterward, she asked them which activities they remembered doing. What she found was that people were about twice as likely to remember the tasks during which they’d been interrupted in than those they had completed. Therefore, the Zeigarnik effect observes that people remember uncompleted or interrupted tasks better than completed tasks. In Gestalt psychology: http://en.wikipedia.org/wiki/Gestalt_psychology, the Zeigarnik effect has been used to demonstrate the general presence of Gestalt phenomena: not just appearing as perceptual effects, but also present in cognition as subjects express a need for completion.19 Heimbach and Jacoby (1972) extended this explanation from tasks to a consideration of messages, in particular, advertisements and marketing. They argued and found empirical evidence for the fact that hearing the beginning of a message leads to the development of a need to hear the rest of it. In their explanation, it was like “waiting for the other shoe to drop.” They noted that the resulting tension of a need to complete an uncompleted sentence resulted in an improvement in memory for the part of the message that had already been heard.

19 See Savitsky, Kenneth, Victoria Husted Medvec, and Thomas Gilovich. “Remembering

and regretting: The Zeigarnik effect and the cognitive availability of regrettable actions and inactions.” Personality and Social Psychology Bulletin 23(3) (1997): 248–257. These authors examine a Zeigarnik explanation for the more salient remembrance or regrettable omissions (inactions) than regrettable commissions (actions); see also Heimbach, James T., and Jacob Jacoby. “The Zeigarnik effect in advertising.” in M. Venkatesan (ed.), SV-Proceedings of the Third Annual Conference of the Association for Consumer Research, Chicago, Illinois (1972), pp. 746–758.

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Many of you will be too young to remember Salem Cigarette’s famous melody of the 1950s and 1960s which went like this: “You can take Salem out of the country but. . .” You could not help completing the sentence with the following: “You can’t take the country out of Salem.” Even to this day, that jingle is fresh in my mind. And if you are curious about the case of the small company versus Pitney Bowes, the attorney for Pitney maintained that I could not reasonably discuss the content of the article by Bluma Zeigarnik into my opinion on case issues because I had not read the entire original article in German before I was interrupted by having to take my dog out.20 My response was that I read the first 10 pages of the article in German, and remembered it clearly even though I do not speak or read German. He did not appreciate my humorous reference to the Zeigarnik effect, I hope you do! In the chapters that follow, we now turn to a discussion of how marketing manipulation is reflected for each of the 4 Ps of Marketing, that of price, product, promotion and distribution (place). Hopefully the chapters that follow will make you aware of techniques and strategies that are for example, designed to induce loyalty for a given product, get you to purchase more than you originally intended to and in fact get you to switch brands and even pay more for a product than you originally intended to. While you may not recall all of the suggestions that follow designed to make you a “smarter” consumer, using one or two techniques that will be suggested will get you a long ways down that path! So let’s begin. But first, let’s examine how not doing anything does not get you off the hook, as everyone must consume at some point in time. Our discussion of inertia leads us into a discussion of the 4 Ps.

20 This of course assumes that there are no translations of the article into English (which there

are), and if these translations exist, they do not do justice to the article’s subtle meanings as conveyed in its native language. I read the article in English, and relied on the translation for my contribution to the case. I rest my case.

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Chapter 6

The Problem of Inertia

A. Consumer Perspective In classical physics, inertia is defined as the resistance of any physical object to any change in its state of motion, including changes to its speed and direction. In other words, it is the tendency of objects to keep moving in a straight line at constant linear speed. So what does physics have to do with consumer behavior and marketing? It turns out that inertia exists in this context as well! In marketing, the word has been used to describe businesses and consumers that do not adapt or change their marketing strategies to meet changes in the marketplace or different economic situations. They simply keep moving straight ahead, running the same old play for 3 yards up the middle. When this happens one’s actions are predictable whether you are a company or a consumer. When a company or a consumer fails to regularly review its marketing strategy, marketing inertia takes over and profits or decisions suffer as a result. Henry Assael (2005) in his model discussing the “anatomy” of buying behavior maintains that consumers experience inertia when they are not highly involved in the purchase process, and when they perceive few differences between brands.1 Now, there are many product categories that we make purchases in, where it is difficult to maintain significant involvement since they seem to be mundane and therefore not worthy of significant cognitive effort. For

1 See Assael, Henry. Consumer Behavior A Strategic Approach. Boston, Massachusetts:

Centrage (2005), Chapter 3, part 3. 85

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such basic product categories, the consumer reacts as a cognitive miser. I can just imagine my wife’s reaction in a supermarket if I were to spend 15 minutes going over the different brands of toilet tissue in order to find the one with the most fibers and the greatest thickness. Clearly, an in-store product trial would not be possible in this product category! According to Fiske and Taylor (1991),2 the idea behind being a “cognitive miser” is that humans greatly value their mental processing resources and hence find different ways to save time and effort when negotiating their life’s path through the social world. Therefore, in our marketing interactions as consumers, we are hardwired to find simple heuristics (rules) to cope with the myriad of decisions we have to make during the day. One such simple rule would be to buy the brand one bought the last time, maintain the status quo and devote little time and effort to thinking about change. But if you simply have your head down all the time doing the same thing, you are not going to notice change when change should be noticed. Investors’ Business Daily, a newspaper devoted to hard-core investors who value a quantitative approach to investing, recognizes this phenomena by detailing “Ten Secrets to Success” of which two directly relate to countering inertia (Rule #3: “Take Action: Goals are nothing without action. Don’t be afraid to get started. Just do it.” And Rule #4: “Don’t be afraid to innovate: be different: following the herd is a sure way to mediocrity.”). So let’s examine a couple of case studies which illustrate the dangers of inertia from both a company and consumer perspective. Let’s start with myself, I happen to be a die-hard United Airlines flyer, but for the life of me, I cannot give you a logical reason why except for one fact. That is, I am enrolled in United’s Mileage Plus program and have been so for over 30 years. As a Mileage Plus member, I am entitled to many different perks from the airline as a function of the number of miles I fly in a given year and over my lifetime. Now there is something about me that is quirky (my wife would say there are MANY things about me that are quirky), I often keep track of events in my life, in particular events that involve numbers. For example, one goal in my life was driving 100,000 miles in a

2 Fiske, Susan T., and Shelley E. Taylor. Social Cognition, 2nd edition. New York: McGraw-

Hill (1991).

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new car that I purchased. I have done it once with a 1998 Honda Odyssey mini-van, and on the day we did it we had a party with friends and family celebrating my achievement. We took pictures of the car, specifically the odometer, put them up on Facebook and I proudly told everyone I knew about it. Recently, I lent my 2003 Civic that I purchased spanking new to my son who goes to school at American University, who needed a car for the summer session. The car had 98,634 miles on it and I told my son NOT to exceed 1,366 miles because I wanted to have the honor of reaching 100,000 miles with my foot on the pedal. He made sure he did not exceed 100,000 by totaling the car with 99,328 miles on it. For me, losing the car was not the worst problem, the ability to exceed 100,000 hurt even more and the fact that I missed it by 672 miles was a total disaster. So now back to the story. Because I am always aware of getting miles from United and because a goal in my life is to exceed 1,000,000 flight miles with the airline, (I have 940,303 as of this writing), I remain loyal to United and often pay more for a ticket than I could get from a competitor. So, from a marketing perspective, I am exhibiting brand loyalty, which may not be in my best interest, especially given that I am writing this book, which supposedly is telling YOU about the need to be a smart consumer. Marketers try to anchor consumers to their brand and develop inertia, by creating loyalty programs just like United, but the question one must ask is: are the benefits that you get from being loyal more useful to you as a consumer than if you were to shop around and purchase other brands? While this may seem to be an easy choice, (that is you go for the savings), it often is not easy due to emotional attachment to the company or to the goal you wish to achieve which may not even be logical for others. Indeed, the more you purchase from a given company, the more you identify with the brand, and price discounts galore may not entice you to switch brands.3 For example, telling an Apple user that an HP laptop is on sale for $450 less than a Mac will have little impact on the Apple user’s purchase behavior. Getting a lifetime Harley Davidson bike rider to ride Honda could be a lost cause — here the brand loyalty may

3 See Susan Fournier (1998) for a seminal article on consumers and their identification with

brands previously referenced.

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be much too ingrained because consumers strongly identify with Harley Davidson. In other cases, loyalty may develop because the company has created barriers to entry which increasingly benefit the consumer (and the seller) with increased usage. Look no further than the online auction site eBay where bidders and sellers create an identity (I’m “DavidJosh,” a synonym representing the combined names of both of my sons). If you are an eBayer, you know that remaining with the site over time benefits you, because if you are a seller, you amass feedback from buyers each time you sell an item. Hence over time, if you have accumulated a strong reputation, it pays to remain with eBay so that you can strengthen your reputation even further by selling more. Indeed, researchers from George Mason University and the University of Arizona recently found a strong correlation between the favorability of the eBay seller’s reputation and the price achieved for goods at auction.4 However, they also found that a similar magnitude effect for reputation in the negative direction that was almost four times as powerful as a positive effect. So be careful out there when you sell . . . try to avoid buyers from giving you negative feedback as the slope is slippery, and just like life, reputation wise it is MUCH easier to go down than to go back up! We previously discussed this in Chapter 3 relating to the cognitive bias known as the “Negativity bias.” Finally, if you are a buyer, the longer you have utilized the site, the more familiar you should be with various sellers and the quality of the items they have offered for sale. This also acts to enhance loyalty and inertia, making it more difficult from the point of view of both the buyer and seller to leave the site for the competition. While these issues discussed above suggest that one might consider staying loyal to eBay and not consider switching to other online auction sites, this may not be an impactful strategy. Consider the case where you want to sell an item. Clearly, it is best to sell on eBay because this auction site has more people registered than any other site. The more potential buyers,

4 Houser, Daniel, and John Wooders. “Reputation in auctions: Theory, and evidence from

eBay.” Journal of Economics & Management Strategy 15(2) (2006): 353–369; see also Resnick, Paul, Richard Zeckhauser, John Swanson, and Kate Lockwood. “The value of reputation on eBay: A controlled experiment.” Experimental Economics 9(2) (2006): 79–101.

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the greater the price achieved.5 But an opportunity in arbitrage reveals itself if you are willing to avoid inertia. That is, you can buy your inventory on a site that has less registered users, such as Yahoo auctions (and pay less), and sell on eBay which has significantly more registered users (and sell for more). A monetary reward is given to you if you think fluidly and avoid inertia. B. Company Perspective According to the National Diabetes Fact Sheet, over 115 million people in America either have diabetes or are “pre-diabetic.”6 This represents approximately one-half of our adult population, and this percentage is growing with no end in sight. There is a segment of the population who need insulin to control their diabetes, and suffer from a fear of injections, which is problematic since today, this is the main way to deliver insulin into the body, but it isn’t the only way! In 2006, Pfizer Corporation received FDA approval to market Exubera, an inhaled insulin powder which was later retracted from the market after it failed to achieve even 2% of its sales estimates. But why did this new product fail? Many reasons were offered for speculation ranging from a lack of available samples for consumers to try the product, TV ads that were unexciting and late to market, and a lack of inventory after the product was supposedly launched.7 But probably of the two key reasons for the failure (ones that were not even mentioned above), related to inertia and embarrassment. For the former, it turns out that nurses of endocrinologists play the role of certified diabetic educators, as they are one of the main gatekeepers in the decision to put patients on insulin. Pfizer did not market to them, and to make matters worse, it turned out that like most new medicines, physicians simply weren’t willing to take on something new. It turns out that many physicians in order 5 Kamins, Michael A., Valerie S. Folkes, and Alexander Fedorikhin. “Promotional bundles

and consumers’ price judgments: When the best things in life are not free.” Journal of Consumer Research 36(4) (2009): 660–670. 6 See Glatter, Robert. “Half of Adults in the U.S. have Diabetes or Pre-Diabetes, Study finds.” Pharma and Health care Blog (September 8th 2015). 7 Please see Mack, George S. “Pfizer dumps Exubera.” Nature Biotechnology 25(12) (2007): 1331–1332.

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to avoid risk, are typically conservative in their prescriptions and can be characterized as being late adopters, typically waiting to see if someone else is using [a drug] and only then will they try it. This is an outward behavioral example of inertia. This of course presents a chicken and egg problem and explains why drug manufacturers typically enlist many top physicians to serve as representatives of the company in order to facilitate the launch of the new drug. According to Mack (2007), Pfizer was not impactful in this element of their marketing mix. The most embarrassing portion of the product retraction hands down was that the inhaler was the size of a flashlight, and many people were embarrassed to use it in public, since it had been most humorously characterized as a “bong.” Unless you are Justin Bieber, Willie Nelson, Michael Phelps or Amanda Bynes, most other people would be hesitant to use such a device in public and the sales confirmed this problem. Currently, MannKind, a company named after Alfred Mann (a serial entrepreneur who recently died) has brought to market the second generation of inhaled insulin which is delivered to the lungs by a powdered inhaler called “Dreamboat.” Despite two prior rejections by the FDA, MannKind finally received approval for this device, which fits inside the palm of your hand, as well as approval for their powered form of insulin called Afrezza.8 But despite a salient attribute in the form of a novel form of delivery which avoids the use of needles, the drug is off to a slow start despite being approved by the FDA over 4 years ago in April of 2014. Part of this slow take-off can be blamed on the lack of television and print advertising resulting in a lack of awareness among key target markets inclusive of those who have diabetes, those who are pre-diabetic, and finally nurses, general practitioners and endocrinologists. If the company effectively addresses these failures as their new CEO seems to be doing, they are more likely to achieve success

8 The company passed an FDA ADCOM (Advisory Committee) meeting on April 1st of 2014 with the panelists recommending approval of the device 13–1 for Type I diabetics, and 14–0 for Type II diabetics. The FDA accepted the ADCOM’s recommendation approximately 3 months later but the drug has not had success since Sanofi who originally joined in partnership with MannKind, it is said did little to promote it possibly because of their own set of pill based prescription diabetes drugs. MannKind ended their Sanofi agreement in early 2016.

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where others have failed. However in their case, their first few years in the market has proven to be a challenge, possibly because consumers are not convinced that inhaled insulin can be as efficacious as injected insulin and possibly because of a slight cough as a side-effect. Again, inertia at work! However, I recently saw a Mannkind commercial of all places at the Staples Center during a Los Angeles Kings game, but is this the right target market? Let’s go back in time to another company whose experience illustrates the need to battle inertia to receive the rewards received when this is effectively accomplished. Let’s go back to depression times in America in the early 1930s. The economy was not on a roll, but the Radio Flyer company still was selling approximately 1,500 wheeled toys (red wagon’s) a day at that time. With company cohorts advising that Radio Flyer CEO Antonio Pasin take a conservative approach to marketing and sales at that time due to the dampened predictions of the economy, he debated whether or not to develop a product tie into the 1933 World’s Fair in Chicago whose theme was “A Century of Progress.” Pasin took a loan of $30,000 (approximately 500,000 in today’s dollars) and built a 45-foot structure titled “Coaster Boy” which was a gigantic representation of his iconic red Radio Flyer wagon featuring a boy searching for adventure kneeling inside the wagon with his hand on the handle navigating the direction of exploration. The structure doubled as a gift shop where those who visited the fair could buy souvenir-sized Radio Flyer wagons for 25 cents each. After all was said and done, the company had sold more than 120,000 of these souvenirs allowing the repayment of the loan in full. But the company did more than just break-even with this strategy as the publicity that such exposure gave to the company resulted in positive word-of-mouth and significant promotional gains as well as a boost in sales when the economy turned around just a few years later and became profitable. Asked to explain the success that the company has had over the past 80 years, the current CEO, Robert Pasin (grandson of Antonio), stated that: “My grandfather was not nostalgic whatsoever, he would believe in changing with the times.”9 He also noted that his grandfather advised him

9 See Sonja Carberry. “He Hitched Kids’ Dreams to His: Little Red Wagons.” In Investor’s Business Daily, Section A, Thursday, May 29th 2014, Vol. 31(35), p. 3.

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to: “Stay close to the consumer and know what they want.” Putting both observations together suggests that a successful company must “roll” with the times, something that Radio Flyer did and still does. Hence, the lesson from this chapter is that one must be flexible and fluid in one’s strategy or decision criteria, whether you are a consumer or a CEO. The company that adjusts strategy to market conditions and the consumer that makes decisions with their eyes open without relying on the same old and tired decision rules is the one who will optimize as opposed to satisfice. Let’s now visit a discussion of the 4 Ps of marketing: Price, Product, Promotion and Place (distribution).

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Chapter 7

Price and Its Influence Upon Choice

A. Introduction My wife and I recently took AMTRAK to go from New York City to Washington D.C. to attend my son’s graduation at American University. I was appointed by my wife to be in charge of travel arrangements for our trip, and because of this assignment, I noticed an advertisement in the New York Times showing relatively inexpensive prices of $99 one way from Pennsylvania Station to Union Station in Washington D.C. The trip was advertised as a short 3 hours and 57 minutes one-way. I also considered other options such as driving, but I was even too tired to think about it no less drive it. I was also unwilling to fork over almost $50.00 in tolls, the bulk of which would be spent just leaving the city as I passed through the Brooklyn Battery tunnel and over the Verrazano Narrows Bridge. I also considered the Bolt bus, but the imagery of Jon Voight sitting in the back of the bus with a scruffy Dustin Hoffman in the old film Midnight Cowboy quickly made up my mind decidedly to “no.” My wife chimed in and pushed for a short plane trip, but I convinced her that by the time we arrived at the airport and passed through the TSA, we would almost be in Washington if we took the train. In fact, when she asked me about how long the train trip would take and how much it would cost, I shortened the 3-hour-57-minute trip to “about 3 hours,” and the $198 round-trip fare to “Way under $100.00 one-way honey”1 1 Note that I chose to report the one-way fare to her instead of the round-trip so that I could

further perceptually reduce the cost. 93

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So just as we passed the Newark Delaware train station, I was serenaded by my wife’s chorus of “why is it taking so long,” and if we took the plane as I said that we should, “we would have already been there.”2 Things then quickly got worse, when the answer was $99.00 to the question directed at me asking, “How much did we actually pay for this delightful experience?” “Yup,” my wife said, “that’s WAY under $100.00 for the pleasure all-right. I’ll never believe anything you tell me about numbers again.” Now in my own defense, I explained that my exaggeration of the length and cost of the trip could be explained by sound academic pricing principles, but this comment fell upon deaf ears. So I appeal to you, the reader to “hear me out.” The pricing literature has documented a phenomenon coined the “odd-pricing” effect which is said to occur when consumers ignore the right most digits of a given price (i.e., ignoring the .99 in the price $5.99 making the effective price $5.00) and/or rounding an odd price up to an even one (e.g., rounding $7.99 to $8.00). The underlying process that causes this effect is driven by the fact that rounding an odd price upward or processing all of the digits of a price involves considerably more effort than processing only the leftmost digits.3 Simply said, consumers are known to be cognitive misers.4 So even when price is replaced by time and a train trip takes 3 hours and 57 minutes to complete, the “odd-pricing” effect would suggest that when conveying the information to others, one would bias the actual time in a direction that would favor or benefit oneself. Hence when asked, how long the trip would take, one could reasonably respond as “around three hours,” which is what I told my wife. Similarly, if I bought a Beverly Hills “adjacent” fixer-upper house for $999,995,5 I would tell

2 This line was repeated over and over, and was sung to the tune of “You’ve come a long

way baby.” 3 See Schindler, R.M. and Warren, L.S. “Effect of odd pricing on choice of items from a menu.” NA — Advances in Consumer Research 15 (1988); and Quigley Jr, Charles J., and Elaine M. Notarantonio. “An exploratory investigation of perceptions of odd and even pricing.” In Proceedings of the 1992 Academy of Marketing Science (AMS) Annual Conference. Springer International Publishing, (2015), pp. 306–309. 4 See Liu, Ben Q., and Dale L. Goodhue. “Two worlds of trust for potential e-commerce users: Humans as cognitive misers.” Information Systems Research 23(4) (2012): 1246– 1262. 5 Note that in today’s market that’s a steal!

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anyone who was interested that I paid “in the 900’s for it.” That is, we will cognitively simplify the odd number in the direction that favors the inference or attribution that we are a “smart” or “sharp” purchaser. Alternatively, if I wanted to impress, I’d say “close to a million. Two University of Chicago researchers, Robert Schindler and Lori Warren (1988), hypothesized that when given a choice between odd ending versus even ending prices for specific items on a menu, consumers would choose the items with the odd ending price much more frequently than when the price was evenly ended.6 Indeed the difference between the price of the item when it was odd or evenly priced was trivial, often accounting to less than 5 cents on a $20.00 menu item. Price ending was varied by constructing two versions of each menu. If an item was odd-priced in the “A” version of the menu, then that item would be even priced in the “B” version of that menu. Each item which was even-priced in the “A” version of the menu was odd-priced in the “B” version. For example, the Baked Flounder was priced at $18.95 in the “A” version of each menu. In the “B” version of each menu, it was priced at $19.00. The Broiled Port Chops were priced at $16.00 in the “A” version of each menu, and were priced at $15.95 in the “B” version of each menu. Half of the subjects in the experiment received the “A” version of the menu and the other half received the “B” version. By this means, price ending was varied while keeping constant the name of the item and its approximate position on the page.

Results showed that consumers revealed a greater likelihood of choosing a specific menu item when it was odd priced than when it was even priced. This finding is worth reflecting upon, since not only did the consumers prefer the price of say $18.95 to $19.00 since this reflected a saving of 0.05, they also selected the item significantly more often as a part of their complete meal when it was odd priced as compared to when it was even priced. This is interesting since using an odd price reflected in a more favorable preference for an item even when compared to other menu

6 Schindler, Robert M., and Lori S. Warren. “Effect of odd pricing on choice of items from a menu,” in Michael J. Houston (ed.), NA — Advances in Consumer Research, Volume 15, Provo, UT, Association for Consumer Research, pp. 348–353.

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entrées that were cheaper than the item itself. This means that the use of “odd-pricing” can flat out influence menu choice. Schindler (1991) later hypothesized that the reason for the underlying effect of odd-priced endings was due to the fact that the consumer made symbolic inferences about the perceived value of the item relative to the alternatives.7 So say you take your girlfriend out to a well-known chic restaurant like Ivy in Los Angeles where regrettably in order to eat you have to turn your gaze down toward the menu rather than looking around the dining room to spy upon your favorite “actor”8 When you look at the menu you see various entrées, all a la carte. For example, swordfish is priced at $46, filet mignon is $68. And rack of lamb is $57. You think: “Well this restaurant is so chic, that the menu has dispensed with nickels and dimes in their pricing scheme.” But now comes some pricing/marketing magic! Let’s say that another chic restaurant wants to get rid of their two day old meatloaf.9 Say that they offer the meatloaf at a tempting price of $45.95. Indeed among the 23 entrées on the menu, this is the ONLY entrée that is priced used an “odd-pricing” technique. We already know from what we discussed above, that consumers will most likely discount this price to say $45.00 since they wish to simplify the price and are cognitive misers. This makes the price perceptually, the lowest price of any entrée on the menu. But even more importantly, they will be much more likely to attend to this odd-price for the simple reason that such a price stands out on the menu since it is the only price that is odd in form. So the next time you go to a restaurant, try and interpret the price as more than just a number which simply has a magnitude. And if you see an item, a single item on the menu that is priced at say $XX.95 realize that you may very well be in the sights of a marketing manipulator so that you are influenced to choose last weeks’ meat loaf and like it!

7 Robert M. Schindler. (1991) , “Symbolic Meanings of a Price Ending,” in NA — Advances

in Consumer Research 18, Rebecca H. Holman and Michael R. Solomon, (eds.), Provo, UT: Association for Consumer Research, pp. 794–801. 8 I am just informing the reader that I am not being sexist here by saying that one tries to find their favorite “actor.” As we are well aware, the term “actor” now refers to actors of each gender, at least this is the case in La La land. 9 Not the singer, the food, this is Los Angeles, but let’s not get ridiculous.

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B. Menu Math As we try to avoid choosing as our dinner last week’s meat loaf, my son notices a terrific deal offered on the menu. It seems this fancy restaurant with the integer pricing scheme offers a “prix-fixe” set of options. That is, for $55.00 you can choose from among a set of five different appetizers, three different entrées (Sword Fish, Filet Mignon and Ratatouille) and a dessert of either Key Lime Pie or Seven Layer Cake, in addition to coffee or tea. My son quickly noted a pricing oddity however; it seems that the menu lists the filet mignon option at $68 a la carte. Yet the same entrée when offered as part of a complete dinner in the prix fixe version is only $55 and that comes with choice of appetizer, dessert and coffee or tea. So, what’s going on here? Is it possible that the prix fixe filet mignon offering is half of the size of that offered a la carte, yet both are referred to as filet mignons? That is, is the former more filet and less mignon? I called the waiter over to make sure and he quickly reassured me that the steak they offer a la carte is identical in size (8 ounces) to that offered in the prix fixe dinner. Again, I ask, “What’s going on here?” The answer is clear and can be explained by showing that a clever marketer can influence one’s choice among options by simply presenting a consumer with what is called a “decoy” option, defined as an option that is inferior to an existing option on certain attributes, such that it would never be chosen in a head to head comparison. This was discussed briefly in Chapter 2 of this book relating to the research of Dr. Ariely. However, Dr. Ariely conducted an even more “sexy” experiment to show the effect through the creation of photos of the MIT equivalent of Brad Pitt, the MIT equivalent of George Clooney as well as the decoy Brad Pitt (with a slightly droopy eye and thicker nose), and a decoy George Clooney (with a similar asymmetrical face). Now, the photos were created such that female students in general were indifferent to the attractiveness of each unaltered face, that is, they felt that they were equally attractive when considering someone they would consider going out with. However, when students were shown the attractive “Brad Pitt” with the decoy “Brad Pitt” along with the attractive “George Clooney” photo, the majority choose the MIT version of Brad Pitt as the person they would go out with. Similarly, when they were shown the attractive “George Clooney” with the decoy “George Clooney” along with the attractive “Brad Pitt” photo, the majority choose the MIT version

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of George Clooney. In our menu situation, the a la carte selection of the filet mignon serves the role as the “inferior” choice, since for 13 dollars less, one gets the entrée PLUS an appetizer, desert and coffee or tea. The presence of the a la carte option, an option that no one in his/her right mind would choose in the presence of the prix fixe offering, actually serves to push customers to choose the entire filet mignon dinner. Now why would a restaurant do this? There are a variety of reasons, possibly it is a way of getting you to choose the option they wish because their inventory is too high, or possibly if they do not “sell” a lot of a specific item, it will spoil?10 Now let’s consider an equal size serving of swordfish offered either a la carte for $47, or as a prix fixe option choice for $55. Here, the deal for the bundle is not so clear since the prix fixe offering is more expensive than the a la carte choice. To determine if the prix fixe option is indeed a deal, one would have to add the price of the appetizer + desert and coffee or tea, to see if ordering the items separately is indeed more than the prix fixe. But there is also a hidden cost to the customer in this scenario. That is, if he/she chooses the prix fixe dinner, choices of appetizer, entrée and dessert are limited to offered options, whereas the a la carte choices have no restrictions except to what is offered on the menu. Alter all of this deliberation, I think I’ll have the hamburger for $4.29 at McDonalds and don’t ask me about purchasing the meal option! C. Bundling The modern concept of bundling is derived from the economics literature of the 1960’s and the issues of tie-in sales where the firm chooses to sell the products together as a bundle and not separately.11 A common form of bundling is practiced by perfume manufacturers who often give away free items (e.g., a tote bag), with the purchase of an item. Of course, the Prix Fixe example above was illustrative of a bundle as is McDonald’s

10 I’m sorry that I could not think up more mouth-watering options. 11 Guiltnan, Joseph P. (1987). “The price bundling of services: A normative framework,”

Journal of Marketing, 51 (1987): 74–85; see also, Stremersch, Stefan and Gerard J. Tellis. “Strategic bundling of products and prices: A new synthesis for marketing,” Journal of Marketing, 66 (2002): 55–72.

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value meal where one bundles together a Big Mac, Fries, and a drink for a price which is typically lower than if ordered separately, although I have not done the calculations recently to verify this. From the consumer perspective, bundling is based upon the idea that consumers value the grouped package more than the individual items which make up the package and appreciate the resulting simplification of the purchase decision and the typical discounts that grouping provides.12 Bundling offers various benefits for the seller inclusive of demand inducement and revenue enhancement. Whether they band together or operate as diversified entities in selling bundled goods, manufacturers benefit from improvements in costs via scale economies. Marketing firms and distributors who use different methods (like franchising, direct selling and multi-level marketing) also stand to benefit through a faster turnover of inventory. Indeed, some industries can use bundling to effectively compete with foreign competition through the enhancement of product variety and value. Stremersch and Tellis (2002, p. 56) define the term “bundling” in a marketing context as “the sale of two or more separate products in one package.”13 These authors refer to both products and services. Oftentimes a manufacturer will combine a cheaper (“supplemental”) item for free with a more expensive (“focal”) item and sell the set of items for a single price. I recently conducted research that found that describing one of the disparate products in the bundle as “free” (i.e., the “supplemental” item) decreased the price consumers were willing to pay for each product when sold individually. In effect, giving something away for free in the context of a bundle (i.e., the supplemental item) led consumers to think of the free item in a negative light that was reflected in a reduced perception of value

12 Recently, Air France introduced the French version of anti-bundling. That is one must

purchase air-fare separately from your seat. This makes one wonder, that if a seat is not provided with one’s purchase of airfare, exactly what product or service is being provided when you purchase airfare from Air France for say a trip between Paris and Los Angeles? Do they glue you to the fuselage, or attach you to the wing? Under this form of marketing manipulation, one could easily pay for air-fare, show up at the airport and be left on the runway or in the toilet. 13 Stremersch, Stefan, and Gerard J. Tellis. “Strategic bundling of products and prices: A new synthesis for marketing.” Journal of Marketing 66(1) (2002): 55–72.

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when the item was sold individually. However, the “freebie” also had a detrimental effect on the focal (higher priced) item in the bundle when it was sold individually. This was explained by the fact that respondents attributed negative characteristics to the focal item (e.g., last season’s offering, slightly flawed). That is, the thought process went something like this. . . “if one had to give something away for free in a bundle in order to sell it, it cannot be of too high quality!” Interestingly, a “freebie” offer did not influence the consumer’s perception of the appropriate overall price for the bundle of disparate products while it did when the bundle contained identical products or BOGO’s (i.e., Buy One Get One free). This is because the mental accounting needed to arrive at a reasonable price for a bundle of disparate items is much more difficult than for a bundle of two items that are identical.14 So how is your behavior influenced by encountering a bundle where something is being given away for free? Well, clearly, everyone wants to get a free gift, and that free gift can be tempting even if you never use it or realize that you might not need it. Heck, I recently bought a new suit because a second suit was thrown in for free. You might not think this was strange and illogical behavior until I tell you that the store did not have a second suit to offer me that was my size! So I still could not resist the “deal” and eventually had to give the second suit to my friend who was glad to have it! Consider the following script modeled after those typically used by television pitch-men such as Ron Popeil or Billy Mays: I’m not going to give you just this cookie cutter. Oh No! That’s not all I’m going to give you. For the same price, I’m going to throw in a fine steel spatula. A bargain I hear you say? But wait. . . I’m going to make it even better, with this splendid temperature probe, absolutely free. Think that’s great? Wait until you find out that’s I’m also including an apple corer. Now, who wants this wonderful offer now all for only $39.99? What if I said $29.99 or $19.99? Yes, this astounding offer is available to you now exclusively for $19.99, but you have to act quickly. And if you call within the next 5 minutes, we’ll DOUBLE the offer!

14 Kamins, Michael A., Valerie S. Folkes, and Alexander Fedorikhin. “Promotional bundles

and consumers’ price judgments: When the best things in life are not free.” Journal of Consumer Research 36(4) (2009): 660–670.

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This approach is known as the “And That’s Not All Technique” (yup, I’m not making this up!) and it is based on Prospect Theory.15 This theory deals with how individuals make choices in situations where they have to decide between alternatives that involve risk. The theory proposes that individuals frame outcomes which differ from a reference point either as positive (gains) or negative (losses). Consumers are said to be much more sensitive to losses than they are to gains. So, multiple gains are perceived to be more rewarding than single gains of the same amount, and multiple losses are more repulsive than a single loss of the identical amount. According to Thaler (1985, p. 202) “people try to frame outcomes in whatever way makes them happiest,” and thinking about adding individual components into a deal for a fixed price is extremely pleasurable because of the continual reveal of the additive nature of the deal.16 So beware of deals where items are added sequentially, because you will eventually give in as more items are added and the price is reduced even if you do not need the majority of the items offered to you! D. Price Anchoring A few years ago, I lent my younger son my car for the summer while he was attending the Summer school session up at Dartmouth. Everything seemed fine when I called him to ask him how my car was doing (Note: I didn’t necessarily ask him how he was doing) and he told me everything was fine. I took him for his word until I received a letter in the mail from the Hanover New Hampshire Police Department informing me that I had 15 unpaid parking tickets and that a lien was going to be placed on my car if I didn’t pay up. When I got my car back from my son, (or rather when I took a one-way rental car up to Dartmouth on the DAY I got the letter to take back my car), I was shocked to see the condition that the car was in. Let’s just say that it wasn’t in the same condition that it was just a few short weeks previously as both the outer and inner design had been changed, and

15 See Kahneman, Daniel, and Amos Tversky. “Prospect Theory: An analysis of decision

under risk.” Econometrica: Journal of the Econometric Society (1979): 263–291; see also Footnote 16. 16 Thaler, Richard. “Mental accounting and consumer choice.” Marketing Science 4(3) (1985): 199–214.

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not for the better. It was at this point that I realized, I deserved a new car and began my search for a new model. After much online research, I had narrowed my options down to a choice between a Volkswagen Passat and a Nissan Sentra. So, on a sunny Saturday I decided to visit a Nissan dealer in Suffolk County near my home. As I pulled into the parking lot, I noticed five men in dark suits and sunglasses just standing there like vultures seconds after the lion has abandoned its kill. This image troubled me since I knew that I had not accidently stumbled upon a movie set for “Men-In-Black IV.” As I parked my car there was a mad rush by these “gentlemen” to open my passenger side door and pry me out of the car. My wife commented at the time “this is really strange.” Little did she know or anticipate, things got even stranger and very quickly. The first thing one of the “men in black” said was “I saw him first” and I didn’t realize he was addressing little old me! Then he said to me that I looked like a man who had earned the stature in life to drive the 370Z sports car. He pointed to the car, which looked like it came straight out of a James Bond movie and I made the mistake of asking him the telltale question. . . “How much does it cost.” He responded: “Oh you don’t want to know that.” I thought it fascinating that this individual who had just met me in a parking lot of all places actually knew in advance what I didn’t and did want to know! Maybe I shouldn’t care about the price of the car because he was going to buy it for me for my birthday? He then continued: “All that matters to you is how much it costs you each month, and I can get it for you as low as $129.00 per month with our low interest rates on preferred customer loans, and you sir LOOK like a preferred customer!” So I guess all I had to care about now was the monthly charge for the car as reflected on my credit card after I took out a loan from the dealership to buy the car. I assume I should not care that the loan was for 72 months and at that length, the interest rate was rising faster than my temper. The selling (not marketing)17 tactic used here is called anchoring, and for those exposed to it, such an approach can be very deceptive. That is,

17 There is a big difference between the notion of “selling” and “marketing.” Ted Levitt,

in his famous article titled Marketing Myopia argued that: “selling focuses on the needs of the seller, marketing on the needs of the buyer. Selling is preoccupied with the seller’s need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with

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the car salesman was trying to focus my attention (or anchor my cognitive resources) NOT on the price of the car, but actually on the cost per month of my loan, since then I would not supposedly feel the pain as much. Knowing that the car exceeded $50,000 with tax and license clearly would be a turnoff in the mind of most consumers, hence the tactic to redirect focus onto a monthly as opposed to total cost. Such a strategy is similar to the well utilized, “pennies a day.” We have all heard how we can subscribe to say one full year of the Wall Street Journal or Barrons for just “pennies a day.” Indeed this is true since if the yearly cost of such a subscription is say $299.00, then if the paper is printed on a daily basis the per copy cost reduces to approximately 82 cents per day. Gourville (1998, pp. 395) in describing this strategy noted that marketers engage in this tactic to “increase transaction compliance,” or more simply to make the sale.18 That is, marketers reframe the cost of a product from an aggregate one-time expense to a series of on-going expenses, “often in spite of the fact that the physical payments remain aggregated.” Essentially, the use of such a tactic creates a different reference point for the consumer, one that appears to lower the cost of an item. That is because the consumer’s thoughts about price are re-directed to a recurring smaller number as opposed to the total cost of an item. With such an approach the price seems less costly. We now turn to the concept of reference price. E. Reference Prices A reference price is defined as the consumer’s internal standard against which observed prices are compared. The behavioral foundations for the reference price concept lie in psychology and are closely tied to Helson’s Adaptation-Level Theory (1964).19 This theory suggests that stimuli are judged in comparison to internal norms representative of the combined effects of past and present stimulation. So, if you are going to buy a

creating, delivering, and finally consuming it.” Please see Levitt, Theodore. “Marketing myopia.” Harvard Business Review 38(4) (1960): 24–47. 18 Gourville, John T. “Pennies-a-day: The effect of temporal reframing on transaction evaluation.” Journal of Consumer Research 24(4) (1998): 395–408. 19 Helson, Harry. “Adaptation-level theory.” (1964).

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chocolate cake for a friend’s party, you can derive an expectation of what a fair price would be by considering the prices you paid in the past for that type of cake. So let’s try a little experiment, assume that you are interested in purchasing a ticket to see the NBA finals. You have in mind a price that you are willing to pay for a non-“nose-bleed” seat. That is, you have a desire to see the players from the perspective where they are at least a little bigger than ants. You think about your home teams the New York Knicks or the Brooklyn Nets (hopefully you don’t think about either of them for too long), and you remember that last year when you went to Madison Square Garden and you sat in some decent seats in the second tier during the regular season you paid $350 for a pair. Of course this was NOT for the playoffs, and definitely NOT the finals since the last time the Knicks were in the finals was during Johnson’s administration (That’s Andrew not Lyndon), and fuggedabout the Brooklyn Nets. So, you use your recent memory and your expectations to derive an estimate of what would be a “fair” price for a ticket to the finals in a decent section. You use a heuristic such that you multiply the price of a decent Knick ticket ($150) times four, and arrive at $600. As I am writing this, a good ticket for game #3 of the Warrior–Cleveland NBA championship series on stubhub is. . . at minimum $1,900 (not game 7 of course). Now, I suspect for many of you reading the price level asked for the game as mentioned made you catch your breath and for many of you, including myself, this is way beyond what you would have expected to pay for a seat at that game. In fact, you can choose to go with your girlfriend (or wife) to the game or simply take her to Cancún on an all-expense paid vacation for two, inclusive of airfare from Cleveland for approximately the same price. Now marketers know that you have an internal price in mind for a given item, so some of them attempt to influence that price typically in one direction. . . upward, and there are many ways to do this some of which we do to ourselves. Consider for example, attending an afternoon matinee on Broadway. Imagine sitting through a long first act and having a strong desire to drink something just to quench your thirst during intermission. You run down the aisle at intermission to the open bar and ask for a bottle of water, which is given to you promptly at a price of $5.50. Now, you typically would not blink twice at this price, because you realize that this is a “high” class

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establishment and the vendor is the only option available to you to purchase anything to eat or drink. So you begrudgingly accept the price as part of the package of going to a Broadway play.20 Then you decide to buy some M&M’s to munch on. Now strangely, the packaging of the M&M’s are different on Broadway. They are in a cardboard “hard” box instead of in the typical soft paper packaging. The vendor this time asks for $6.00, and you go along with it for the same reasons as above, but now there is an additional reason. You see the only time you have ever seen M&M’s in a “hard” box is at the theater, so the vendor has prevented you from bringing to mind other times that you have bought such a product, even when thinking about possible occasions you have purchased it in a supermarket. In a sense, by selling a common product in an uncommon package, the vendor has limited your ability to derive a reasonable comparative reference price, allowing more freedom in setting a higher price on such a product. Finally, many sellers attempt to manipulate your internal reference price by presenting an external one of their own. For example, certain discount stores often use price tags that indicate two or more prices. The first price, often crossed out by a diagonal line indicates the price the item is supposedly available either somewhere else (i.e., “compare at”) or the price at full retail (i.e., MSRP). Then the store’s price is indicated as “our” price that is usually lower than the external reference price offered. Sometimes, the reference price seems ridiculously high, such as for designer corduroy pants recently advertised on a Macy’s website “originally” for $95 but marked down to $19.00. Now while many consumers may not believe the “original” price, the discount of approximately 80% may be too hard to resist. So if you see me wearing corduroy pants that are two inches too high on my legs, which only fit when I breathe in, you now know why this happened and it wasn’t because I wanted to imitate the late Jerry Lewis although I have been told that I look like him! So how do we as consumers protect ourselves from having our internal reference prices manipulated. The answer lies in the degree to which we are anchored to our own internal reference price. That is, how strongly do we

20 You also say to yourself: “What the heck, I amazingly got these two tickets to ‘Hamilton’

for the cool price of $2,500, so why worry about a $5.50 bottle of water?”

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believe in it? This is a function of the experience we have in purchasing the specific product under issue, and the extent of research we do evaluating and generally accumulating knowledge about competing brands. Such extensive brand search should be the strategy for the purchase of any high priced item or any item where financial, social, physical or time based perceived risk is present. If you conduct such research, you will be a more astute consumer since you will be able to either discount the influence of, or accept the reference price that the seller throws at you!

F. Price–Quality Relationships At Stony Brook University, my graduate students recently ran an experiment where student subjects were recruited and asked to taste a beer that had been poured from a refrigerated steel keg container, identical to what would happen at your local bar & grill. In one keg, the students had added a vegetable food coloring that made the beer darker without impacting its taste, but were accurately told that it was indeed domestic Budweiser. The second keg, contained Budweiser beer as you would buy it at a specialty store that sold kegs and was described accurately as Budweiser and did not have any coloring added. The third keg contained the same Budweiser beer as in the other two kegs, but was described as Belgium Budweiser which was very recently imported into the USA. This description of countryof-origin was not randomly determined, as in 2008, the maker of Budweiser beer, Anheuser-Busch, was indeed purchased by a Belgian company by the name of Inbev. Finally, keg four again contained Budweiser beer, but was described as an imported beer from Germany costing $14.99 per six pack as opposed to $3.99 for regular Budweiser and now sold in kegs. One hundred respondents, who had claimed to be beer drinkers, were then asked to drink one cup of beer (8 ounces) from one of the kegs determined at random, and then to answer a few questions about the beer. Clearly, the experiment could not have required the respondents to drink 8 ounces of beer from EACH of the kegs since then it is not clear if the participants could then put their thoughts clearly down on paper, but then again these are college students so I’m sure that they would have no problem doing this at all. Respondents were asked two questions; first, they indicated on a seven point scale the degree to which they liked the beer from (1)

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TABLE 1: Experimental Findings for the Stony Brook Beer Study

Liking Quality

Dark Bud n = 25

Regular Bud n = 25

“Belgium” Bud n = 25

“German” Bud n = 25

M = 4.80 M = 5.21

M = 2.65 M = 3.24

M = 4.86 M = 5.28

M = 6.12 M = 6.37

totally dislike to (7) enjoyed immensely. They were also asked to indicate the overall quality of the beer from (1) poor to (7) excellent. The findings of the study are presented in Table 1. The data is interesting mostly because the underlying beer is the same across all four experimental cells. When a color additive was applied to the brew (which apparently did not change the taste of the beer), it made it darker apparently suggesting to the respondents that it was a beer of more substance and hence was evaluated more favorably on both “likeability” and “quality” when compared to the “regular” unchanged Budweiser presented in cell 2. Belgium Bud (also despite its description was the good old American version) was rated similarly as high as the “dark” Budweiser. However, when the beer was described as imported from Germany and of high price, respondents rated it highest among the set of four beers after tasting it. The data clearly reveals that consumers can be manipulated by product description, despite the fact that the underlying product in each of the cells was THE SAME. Such a study was first introduced into the marketing literature back in 1968 by J. Douglas McConnell, then a marketing economist at the Stanford Research Institute. McConnell varied the price of a six pack of beer across three different unidentified brands (M at $1.30, L at $1.20 and P at 0.99)21 finding that subjects evaluation of the respective beer became less favorable as the price of the identical beer declined. That is, 56.7% of the words used to describe the most expensive beer were favorable, while that dropped to 47% for the middle priced beer and 36% for the most inexpensive beer. 21 This was 1968 after all. Try and get a six-pack today for 99 cents, and if you do, imagine

what the typical consumer would say about the quality of such a brand. See McConnell, J. Douglas. “The development of brand loyalty: An experimental study.” Journal of Marketing Research 5(1) (1968): 13–19.

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Again, aside from the price as indicated, the beer was identical. So once again, consumers were duped by focusing on price as an indicator of quality. So how can we avoid this price quality evaluative tendency? Research has shown that consumers will be less sensitive to price–quality linkages if the cost of searching for brand information is reduced. As noted by Lynch and Ariely (2000, p. 85): A well-constructed electronic shopping site can provide a vehicle for conveying non-price information related to quality that is superior to the comparable information that can be gleaned from shopping in conventional malls, catalogs, etc. The consequences of better differentiating information should be like the effects of differentiating advertising. Advertising can convey differentiating information that reduces consumer price sensitivity.22

Price sensitivity has been shown to increase when comparative advertising is used between stores offering the same or identical products. Such a situation naturally directs the consumer’s attention to finding a better deal, since all other factors are held constant. However, if consumers are comparing two different product offerings where other information is shown to vary between products, such as country-of-origin, brand name, fat content, calorie content or type of material used, then a simple price/quality inference is more difficult to make. Here, consumers must evaluate based not on a simple heuristic but rather on information involving the weighting of various information inputs, a more difficult job.

22 Lynch Jr, John G., and Dan Ariely. “Wine online: Search costs affect competition on price,

quality, and distribution.” Marketing Science 19(1) (2000): 83–103. Only the words in this sub-section of the paper were included, Lynch and Ariely’s internal references were deleted for readability purposes.

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Chapter 8

Deceptive Products: Consumer Confusion, Secondary Meaning and Dilution

A. Introduction Way back in time, some 30 years ago when Bruce Jenner was famous for having become the 1984 Olympic Decathlon Champion, he appeared in a series of television commercials for Tropicana Premium Pack orange juice. In one of the commercials, he was shown squeezing juice from an orange and pouring it into a Tropicana carton, saying, “It’s pure pasteurized juice as it comes from the orange.” Clearly, the commercial was playing upon Mr. Jenner’s (at the time) chiseled body and hand strength, since few people could take an orange in the palm of their hand and squeeze it, extracting all of its juice.1 The message to be conveyed was that Tropicana, unlike other leading brands, was not made from concentrate. Coca-Cola, which still produces rival Minute Maid, sued. The court found this visual sequence to be false because Tropicana juice was not squeezed from the orange directly into cartons, as the commercial depicted; it was pasteurized and sometimes frozen first. The court also said that Jenner’s qualifying voice-over was insufficient because “pasteurized juice does not come from oranges.” The judge granted an injunction,

1 If you need to pass a few minutes with nothing to do, you might consider trying this, it is

harder than it looks and awfully messy. 109

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and the advertising which conveyed this message was removed from the air.2 B. Consumer Confusion Similarly, in the battle of the handbags, Louis Vuitton sued Dooney & Bourke claiming that the latter’s multi-colored DB bags (pictured to the right in Figure 1) were similar to Louis Vuitton’s (pictured to the left) colorful and successful Murakami bags.3 The argument from Louis Vuitton, based on the Lanham Act’s application to consumer confusion, was that Dooney and Bourke’s product confused consumers into thinking they were made by Louis Vuitton. The case took a long 4 years to come to the conclusion with the judge ruling in favor of Dooney & Bourke. Judge Shira Scheindlin argued that Vuitton’s LV mark used a larger font size and consisted of a “combination of letters and shapes” while the Dooney & Bourke design featured an unadorned DB. Despite the judge’s conclusion that there would be no confusion between the handbags, it is reasonable to understand why Louis Vuitton brought suit in the first place, since at first

FIGURE 1. A Comparison of Dooney & Bourke and Louis Vuitton Handbags Source: Adapted from Dooney & Bourke and Louis Vuitton.

2 Today, if Caitlyn Jenner were to attempt the same commercial, I suspect it would still be

determined to be deceptive even if she were to step on the oranges with her high heels in order to extract the juice. 3 See 454 F.3d 108 (2d. Cir. 2006) Lex: 454 F.3d 108; Louis Vuitton Malletier V. Dooney & Bourke.

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glance and without much thought the bags do seem similar at first look. This leads us to the question as to why one company would produce a product that looks similar to another or present a claim that leads consumers to think something about a product that may not be the case. Clearly, the answer lies in the fact that the infringing company may want to “piggyback” off of the reputation of another brand by confusingly making their product appear similar to that of the other successful brand. If an infringing brand accomplishes such an objective, they can shine in the reputation of the other brand without having to pay the significant cost to develop a stellar reputation themselves. Moreover, if a brand can encourage consumers though visual or other means to make a false (but beneficial) inference about their product, they can benefit from such false inferences up until the point that they are prosecuted for it, if ever. That is, the brand or company that is the victim of another may be the smaller company and may not have the funds necessary to defend their product. Sometimes, as a consumer it is difficult to determine what action to take in order to protect oneself from products that can be potentially dangerous. In this regard, about 10 years ago, I testified as an expert witness in a famous case involving a class action lawsuit relating to the Ford Motor Company and indirectly the Firestone Tire Company. The case literally revolved around the fact that many people had lost their lives or had been injured as a result of rollovers involving the Ford Explorer built between 1990 and 2001. At trial, fingers were pointed at both companies, with testimony claiming that the source of the problem emanated from a high center of gravity for the vehicle itself and Ford maintaining that the tire, specifically the Firestone Wilderness AT tire, had inherent defects that caused the tread to separate from the base of the tire at high speeds.4 Ford internal documents show the company engineers recommended changes to the vehicle design after it rolled over in company tests prior to introduction, but other than a few minor changes, the suspension and track width were not changed.5 Instead, Ford, which set the specifications for

4 See Joseph S. Enoch at consumeraffairs.com (April 16th 2008), “Ford Class Action Settlement Leaves Consumers in the Dust.” 5 Available at: http://www.autosafety.org/ford-explorer-firestone-tire.

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the manufacture of its tires, decided to recommend that the user remove air from the tires, lowering the recommended pressure to 26 psi.6 Low air pressure can lead to increased heat; and heat can damage the tire causing a separation of the tread from the base.7 So as a consumer, do you believe the car manufacturer that its product is inherently safe, or do you believe the tire manufacturer who maintains that their tires are made to quality safety standards? Firestone, in their defense, ultimately replaced 2.8 million of their Wilderness AT tire at a significant cost to the company, both financially and reputation wise, yet if the car is inherently flawed, such an action still does not resolve the problem. My task as an expert witness in advertising during the case was to review all of Ford’s advertising for the Explorer, inclusive of their print ads, television advertisements and brochures handed out at the dealerships in California to determine if Ford ever advertised that the Explorer was a safe car to consumers either implicitly or explicitly. When, I testified to California District Judge David DeAlba that safety was explicitly mentioned in a brochure about the car’s specifications given to consumers at the dealership,8 the opposition’s expert noted that brochures are simply “distribution” and not advertising. To this, the judge strongly noted that this point cannot be argued since California law designates brochures as advertising. In fact, brochures are possibly the most important form of advertising that consumers’ process in their path to purchase, since they are typically the last element of printed information that they consult before making the purchase. The result of the trial and my 2 days on the stand was a case settlement for consumers of four states: California, Illinois, Connecticut and Texas. C. International Branding and Branding Issues The Lanham Act in part, applies to situations where the goods of one company or manufacturer are likely to cause confusion, or to cause

6 Ibid. 7 Available at: http://www.kendatire.com/en/automotive/tire-101/. 8 It was also implicitly prevalent throughout Ford’s print advertising of the Explorer, showing

numerous print and television advertisements where the car would go up mountain roads at speed under difficult driving conditions.

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mistake, or to deceive as to the affiliation, connection, or association with another company or manufacturer with respect to the origin, sponsorship, or approval of those goods. An important restriction of the act is that it cannot however persecute those violators who are operating companies based overseas. Consider the following example. Imagine you decided to go on vacation to mainland China and you came across a store in a high priced mall in Shanghai, with the name “Chrisdien Deny.” The store sold what appeared to be designer items such as high priced shoes and leather goods. It also was very nicely decorated, n’est-ce pas? With images of France interspersed among the merchandise. To top it all off, even the font style and design of the brand name looked coincidentally similar to a famous French brand of high couture, that of Christian Dior. Coincidence? I don’t think so, yet I’m sure that “Chrisdien Deny,” would certainly deny that they were guilty of trade dress infringement. But what is trade dress infringement in the first place? Trade dress is a legal term of art that generally refers to characteristics of the visual appearance of a product or its packaging that signifies the source of the product to consumers.9 As such, trade dress is a form of intellectual property. Now upon seeing this store, consider whether or not you would think that the “Chrisdien Deny” brand was the Chinese subsidiary of the “Christian Dior” brand as licensed for China, or would you think it was simply a knock-off of the Christian Dior name? Either way, my guess is that consumers would be confused about the source of the brand, but since the offender lies across international borders, getting restitution becomes significantly more difficult. There are other international brands out there, which literally might leave you rubbing your eyes in disbelief. Consider the trendy Chinese sunglasses and eyeglass retailer called “Helen Keller” YES, I SAID HELEN KELLER, with the slogan: “You see the world, the world sees you.” Now aside from the fact that Ms. Keller could not see or hear, making “You see the world” quite difficult if you were her, it seems that her name and image makes attractive fodder to attach to of all things eyewear, at least in China. But I wonder if the estate of Helen Keller is pleased that

9 Merges, Robert P., Menell, Peter S., and Lemley, Mark A. Intellectual Property in the New Technological Age, 4th rev. edition. New York: Wolters Kluwer (2007) p. 29.

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her name has been misappropriated to represent of all things an eyeglasses company? However, probably the best example of trade-dress violation by foreign vendors is illustrated by “Johnnie Worker Red Labial Scotch Whiskey?” made by the world famous Scottish brand “Yantai Tianchi Winery Company.” Of course, “labial” may either refer to the lips, or to the female genitalia, let’s hope that the creators of the brand had the former and not the latter in mind, although maybe this was an intended as a subconscious and under the radar attempt to appeal to the male population? Whether or not males were the intended target market, when one examines the color of the packaging (red and gold) as well as the font style and name “Johnnie Worker,” there is clearly one brand that these violators had in mind. . . . Johnnie Walker of course! Note that the use of similar packaging and colors is designed to mimic the “secondary meaning” of the company and its brand and it is illegal in the United States to violate the protectable and distinctive “trade-dress” of the brand.10 While Westerners may think that such brand names are ridiculous, as reported in a New York Times article there is a method to such apparent madness. That is, rather than create distinct branding, local (Chinese) companies have chosen simply to mimic well-known foreign brands. “Chinese brands copy because they believe it enables them to get an easy, quick win,” said Vladimir Djurovic, President of the Labbrand Consulting Company in Shanghai. “They play on the confusion.”11 When reached by phone, a brand manager for the Helen Keller brand of eyeglasses explained to the New York Times reporter that Helen Keller’s personal characteristics were unimportant for her brand image. She stated: “So she’s blind and deaf — her personal shortcomings are not related to the spirit of our brand,” She added: “These products help you love and protect your eyes. Why would that be offensive?” For the case of Chrisdien Deny, the New York Times reported that a representative for the brand

10 A brand’s trade dress is defined as the characteristics of the visual experience of the

product, service or its packaging. Likewise, “secondary meaning” relates to the ability to identify the brand without the reliance on its brand name. 11 Please see the full article by Dan Levin, as published in the New York Times (International Business Section) of December 26th 2014 titled: “Adidos and Hotwind? In China Brands Adopt Names to Project Foreign Flair.”

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apparently denied that the brand was trying to piggyback on the reputation of Christian Dior, which has dozens of stores in China stating: “I’ve never heard of that company,” the representative said. If you traveled to Korea, the brand names do not get any better. Consider the fashion clothing line called “Scat” and the respective magazine featuring it called “Rolling Scat” who “coincidentally uses the stylized font front page mast of the USA magazine Rolling Stone. Yes, we all know what that term means and I’m not going there, but according to the brand website it means Sexy, Cute, and Cat Cat . . . whatever. Moreover, we can all be thankful for the fact that cows don’t fly for the same reason that “scat” does not normally roll. Clearly, the magazine is an attempt to knock-off “Rolling Stone,” as it does its best to copy the “trade-dress” of this magazine defined in general as a product’s physical appearance including its design, shape, color, texture, and size. We will discuss “trade-dress” later on in this chapter. While detecting the falsity of these brand names may be easy for Westerners when visiting foreign countries, when product from such countries comes here and is sold under original brand names on various websites, the detection of real versus counterfeit merchandise is more difficult, and is damaging American commerce. For example, there are now websites sponsored by original manufacturers telling consumers how to detect the real item.12 In addition, there is sometimes a detailed section on counterfeit products, along with images of such inferior quality products on the website of the original company. Canada Goose, a maker of high-quality parkas and jackets comes to mind. D. Secondary Meaning and Trade-Dress Imagine that you were minding your own business on the New York subway and as you looked at the advertising in front of you, the following advertisement as illustrated in Figure 2 below, caught your attention. Now for those of you who are familiar with New York, this is a play on words for a famous slogan associated with the borough of Brooklyn, that appears as

12 For example, for Louis Vuitton products, please see http://servingnotice.com/L8dxn9/

index.html.

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FIGURE 2: Brooklyn Snickers (© Mars, Incorporated. All Rights Reserved)

you leave the borough on a sign adjacent to the Belt Parkway. That slogan is “Fuhgeddaboudit!”13 At first glance, you may not know the source of the advertisement, or even what is being advertised, but with a little thought and the activation of some memory associations based upon your experience as a consumer of candy bars, you conclude that this is an advertisement for “Snickers” candy bar. So, what gave it away? Well to start with, the chocolate brown color which makes up the background for the advertisement represents the color used in the majority of the actual wrapping for the bar. In addition, the slanted dark blue writing and the particular font, are identical to that used for the actual brand name writing on the wrapper (this is called the “trade-dress” of the brand). What Snickers was doing is playing off of their famous “trade-dress” to tease consumers and make them process the advertising in the context of images about the brand that first come to mind. Essentially, Snickers has established “secondary meaning” in that the brand image is so well

13 The slogan shown to those who enter the borough after crossing over the Verrizano

Narrows bridge from Staten Island is “How Sweet It is,” made famous by a famous Brooklyn native by the name of Jackie Gleason.

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known to the general public, through advertising or other exposure, that the image is now identified with a single source. Now Consider the famous brand Coca-Cola, and try to think in your mind what the famous glass bottle looks like. . . .14 now if you can imagine the famous Coca-Cola “HobbleSkirt” glass bottle, but did not see the brand name, do you think that you would associate it uniquely with Coke? That is, outside of the brand name itself, there is a strong “secondary” association of the product with a specific brand. In the case of Coca-Cola, it is the famous bottle shape, in the case of Snickers it is the package color and the distinctive slanted blue capitalized font style. This is part of the intellectual value of the brand. Now imagine you came across the following billboard as illustrated in Figure 3 while driving on the freeway in Los Angeles. Again, here is a company playing off of their famous trade-dress. Are they advertising smiles? Is this an advertisement for a paint company near UCLA? Again, triggering recognition with previous exposure leads most consumers into finally realizing that this is an advertisement for

FIGURE 3: The Inquisitive Smile, with permission from Kraft Heinz Food Company

14 This famous shape of the Coca Cola bottle is known as the “Hobble-Skirt” bottle this

is because the general shape of the bottle was seen to be similar to a dress from the early 1900s. The dress was so incredibly narrow below the knees that it restricted one’s normal movement — causing a woman wearing the skirt to hobble when walking.

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Kraft Macaroni and Cheese. Counting on their strong secondary meaning both in terms of the color that Kraft Foods uses consistently in their packaging and the familiar shape and color of their macaroni, the combination provides a big clue for the consumer as to what is being advertised placing the happily curved macaroni in perspective. The notion is that you or your children will also have a big smile when you consume the product, hence the tag line “you know you love it,” so indulge your desire. So how does all of this relate to how the consumer interprets advertising? The answer is, that we as consumers use various clues to provide us with important information regarding the inferences we make. As Kahneman wrote in his book, “Thinking Fast and Slow” many times the overtaxed and cognitively constrained consumer uses simple heuristics to arrive at inferences. This involves the System I approach to decision-making that we discussed earlier on in this book. Relying on simple heuristics such as color and package font size or style to determine which brand one is looking at is potentially problematic for the consumer if copycats use such factors to deceive you into thinking that they are indeed the brand you are searching for. The solution is to bring other, often contextually based factors linked to the brand into play. Again, as has been mentioned numerous times in this book, this suggests that you as a consumer should take a deeper and more proactive look into your purchase decision by relying upon more information about the product or brand than simple heuristics. For example, a shirt that has the famous “crocodile” insignia of LaCoste, may not be that brand, especially if it is purchased in a context where one typically would not find such a brand sold (e.g., a discount clothing store or an untrustworthy website). Devious marketers are relying upon you to convince yourself that you made a once-in-a-lifetime purchase of a “name” brand for the price of peanuts, yet the old adage is true, in that when it is too good to be true, it often isn’t.

E. Dilution Trademark dilution is a trademark law concept giving the owner of a famous trademark the basis to forbid others from using that mark in different product categories in a way that would lessen its uniqueness. In most cases, trademark dilution involves an unauthorized use of another’s trademark on

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products that do not compete with, and have little connection with, those of the trademark owner. In this sense, it is different than the establishment of confusion, since in most confusion cases the products compete within the same industry or product category. One of the most famous cases of trademark dilution, and clearly one of the most interesting was that of Moseley V. Secret Catalogue, Inc. more famously known as Victor’s Little Secret versus Victoria’s Secret. I suspect now I got your attention, and the case amazingly also got the attention of the U.S. Supreme Court.15 The action started innocently enough! That is, in the February 12, 1998, edition of a weekly publication distributed to residents of the military installation at Fort Knox, Kentucky, petitioners advertised their “GRAND OPENING Just in time for Valentine’s Day!” of their store “VICTOR’S SECRET” in nearby Elizabethtown. The ad featured “Intimate Lingerie for every woman;” “Romantic Lighting;” “Lycra Dresses;” “Pagers” and “Adult Novelties/Gifts.” Id., at 209. An army colonel, who saw the ad and was offended by what he perceived to be an attempt to use a reputable company’s trademark to promote the sale of “unwholesome, tawdry merchandise,” sent a copy to Victoria Secret, who began the action. In making its decision, The District Court rested on the conclusion that the name of the petitioners’ store “tarnished” the reputation of the respondents’ mark, and the Court of Appeals relied on both “tarnishment” and “blurring” to support its affirmance.16 However, the Supreme Court reversed the decision, noting that there was absolutely no evidence of any lessening of the capacity of the Victoria’s Secret mark to identify and distinguish goods or services sold in Victoria’s Secret stores or advertised in its catalogs due to Victor’s actions. Moreover, according to the court, there was no evidence that the presence of Victor’s Little Secret stores harmed Victoria Secret’s reputation.

15 One wonders if his case simply found its way to the Supreme Court, or if the Supreme

Court purposely sought it out to eliminate boredom on the bench. The case is identified as Moseley v. Secret Catalogue, Inc. (01-1015) 537 U.S. 418 (2003) 259 F.3d 464, and was reversed and remanded from the decision made by the district court. 16 Dilution by blurring is defined as an “association arising from the similarity between the mark or trade name and a famous mark that impairs the distinctiveness of the mark.”

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Clearly, when one sees the clothing or (lack of clothing) that the “Victoria’s Secret Angels” wear, in my opinion, it borders on the intimate apparel merchandise that Victor’s Little Secret sells, hence dilution by tarnishing seems a remote possibility. But for the consumer, the crux of the issue is that a distinction must be made between companies who are selling their wares and others who try and copy that trademark or dilute it. For example, if an individual were to create the “Apple” Clothing Company, in order to attach the great brand equity of the Apple brand to the new clothing brand, it may be unlikely that an apparel consumer would believe that Apple clothing was made by the high-tech company, yet the possibility exists, especially if that fictitious company were to name their pants as ipants and their blouses as iblouses. The bigger issue would be that the presence of the Apple line of clothing would dilute the clear and concise image that a consumer may have previously had of Apple, since now they must make room in their mind for the image of Apple clothing when thinking of Apple. Finally, someone who has an idea to parody another company may be guilty of dilution if tarnishment of the original mark has occurred. Some of you may recall the advertising for “Wild Kingdom” which was an animal adventure show taking place typically on safari in Africa, hosted by Marlin Perkins and sponsored by Mutual of Omaha insurance. The defendant in this case spoofed Mutual of Omaha by creating the brand “Mutant of Omaha” supposedly a firm created to insure people in case of a nuclear holocaust.17

FIGURE 4. Mutant versus Mutual of Omaha Source: Adapted from Mutant of Omaha and Mutual of Omaha. 17 See 775 F 2d 247 — Mutual of Omaha Insurance Company v. Novak.

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Figure 4 shows the logo of both firms. The name was applied to shirts, appeared on caps and coffee mugs using a side view of a feathered-bonneted emaciated head as opposed to Mutual of Omaha’s American Indian head. The court maintained that there could be confusion between the two marks, in part because Mutual of Omaha also used caps, t-shirts and coffee mugs to place their logo. Be on the lookout for these knock-offs as they may sell for a lot of money on eBay! As we focus on product deception and potential manipulation, let’s now examine a set of products all of us MUST buy sometime...prescription drugs. Let’s see what big pharma is up to in our next chapter.

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Chapter 9

Marketing Manipulation by the Drug Companies is Enough to Make You Sick!

A. Introduction Early this morning, I awoke to the sound of a phone call at 7:30 a.m. by a telemarketer telling me that I had won a free necklace. But this was not your regular gold or silver necklace, or even the swash buckle kind made of turquoise and silver in New Mexico by the Zuni Indians or by Captain Jack Sparrow. No . . . my necklace had a round charm on it with a button in the middle which I could press if I needed immediate medical attention. The woman on the line went on and on telling me how I needed this necklace and I couldn’t think of how to shut her up until an idea flashed in my head. I simply told her that I “fell down and couldn’t get up” and needed immediate medical attention and the use of my phone to call 911. Instead of telling me that I would have been saved if I had agreed to purchase the necklace weeks ago, she immediately excused herself, got off the line and I went back to bed. Even at the ripe old age of 65, I need my sleep. A day later, I got a post card in the mail, telling me that I could be buried at sea, and aside from the honor of being called “Captain Kamins” the rest of my life, I began to put two and two together. Someone out there, with a mailing list and phone book thinks I am very old and almost about to die, so maybe I better begin to pay a little more attention to the drug company commercials when they come on TV, if I am to at least stand a chance

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of living for the next week or two.1 But as it turns out, pharmaceutical company advertising can be confusing and with the tactic of Direct-toConsumer (DTC) advertising, can motivate consumers to request drugs when they don’t even have any disease. According to a report by CBS News Healthwatch, based on scholarly publications, nearly a third of all adults initiated discussion with their doctors about drugs they saw advertised on television, with approximately half of those adults receiving a prescription.2 Back in 1999, DTC advertising on behalf of big pharma amounted to $791 million,3 while in 2016 it rose almost seven fold to over $5 billion dollars4 Indeed, advertising from the pharmaceutical industry is especially effective in motivating purchase from the perspective of the prescribing doctor, consider the fact that when surveyed by the FDA, 58% of physicians thought that DTC advertising made the drug advertised seem better than it is.5 Consider that those surveyed here were PHYSICIANS and not the potential consumer who arguably is less educated and might be even more susceptible to the effects of advertising! In addition, prescription drugs that are supported with DTC advertising have in the past been shown to grow in terms of the number of written prescriptions by seven times faster than drugs not supported by DTC advertising.6 So, consider this advertisement for the Purple pill (first Prilosec and then Nexium). Here, we see lots of people standing on rocks and looking out to sea while the waves break in the background. We assume that this is somewhere on the beautiful California coast or maybe even Hawaii. This image would make anyone want to go to this place, and then we hear the

1 This was also a motivation to complete the book more quickly. 2 Mintzes B, Mangin D. “Direct-to-consumer advertising of prescription medicines: A

counter argument.” Future Medicinal Chemistry 1(9) (2009): 1555–1560. 3 Porter, Dayna M. “Direct-to-consumer (DTC) pharmaceutical marketing: Impacts and policy implications.” SPNHA Review 7(1) (2011): 51–70. 4 Rebecca Robbins. “Drug Makers Now Spend More than 5 Billion Dollars on Advertising, here’s what that buys.” StatNews.com, September 3rd 2016. 5 FDA website, U.S. Food and Drug Administration, the Impact of DTC Advertising. 6 Sheehan, Kim. Controversies in Contemporary Advertising. Thousand Oaks, California: Sage Publications (2004), pp. 209–215.

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announcer saying: “Do you know about the purple pill called Nexium? (announcer) (1) I know. (person standing on rock #1) (2) I know. (person standing on rock #2) (3) I know. (person standing on rock #3) You should know about it too, ask your doctor about how the Purple Pill can help you. (announcer and end to commercial).” Now, when I first saw this advertisement, I had absolutely no idea what was being sold, but if all of these people took the purple pill and ended up on a rock right on a beautiful coastline in Hawaii or California, then that was better than sitting in my apartment in Long Island with the shades down and the air conditioner on. In other words, the ad got my attention, and as we know in advertising, cognition or awareness is the first component that must be gained if an ad is to have an impact on behavior. That is, one must know about a product before one can buy it. So as a result of seeing the commercial on many different occasions, I went to my doctor and asked him if “the purple pill can help me.” He told me that it could only help me if I had GERD. I told him that I had no German relatives living with me by that name, and he quickly explained that the Purple Pill was a prescription for Gastro Esophageal Reflux Disease, which I did not have. I’d simply have to end up on a rock in California some other way. B. The Case of Rezulin All kidding aside, the fact that nearly a third of consumers initiated a discussion with their doctors about drugs they saw advertised, and that approximately half of these individuals received a prescription is rather alarming.7 It suggests that many individuals are getting prescriptions for diseases that they may not have. Now, while someone who takes cold medicine in order to minimize or prevent a cold may not seem to be engaging in harmful behavior, what if one were to take a prescription for diabetes

7 Ventola, C. Lee. “Direct-to-consumer pharmaceutical advertising.” Pharmacy & Thera-

peutics 36(10) (2011) 669–674; 681–684.

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if they did not have the disease, would that seem benign? It turns out that this actually happened in the case of the prescription drug Rezulin, with a significant percentage of users taking the drug without having diabetes. I know these facts because I served as an expert witness in a class action lawsuit filed against Warner Lambert Company and Pfizer (the company that inherited the drug after it purchased Warner Lambert). Now, during my deposition in this case, the opposing attorney asked me a question along the following line: Do you believe that if X% of users take a prescription drug, but do not have the underlying disease that the drug treats, that this is a small percentage? My answer was that if X% of individuals take a potentially harmful drug that they do not need, then this is a very LARGE number since they are then subject to side effects that they needn’t be. Surprised, he asked me then what in my opinion would be a large percentage when it came to consumers taking a drug that was used for a disease they did not have, and I replied . . . anything over 0%). In this particular case, the problem with taking Rezulin, especially for those who did not need to, was that it was directly linked to 90 liver failures and 63 deaths, and was taken off the market.8 But the question remains, why were so many individuals taking this drug if they didn’t have diabetes in the first place? The answer lies in marketing manipulation. Rezulin was promoted as a drug that could have the potential to PREVENT diabetes and there are many individuals in this country who have been categorized as “pre-diabetic.” In a pre-launch advertisement for Rezulin, the advertisers asked: “Is it possible to specifically treat or even prevent the insulin resistance associated with type II diabetes?” Later in a press release about the drug, the Parke–Davis division of Warner-Lambert claimed that: • Rezulin® is the first anti-diabetes drug designed to target insulin resistance. . . • Rezulin® is the first drug to work at the cellular level to improve insulin resistance directly-enhancing the effects of circulating insulin. . . . Until now, other therapies lowered blood glucose by increasing insulin production or decreasing hepatic glucose output.

8 David Willman. “Diabetes drug Rezulin pulled off the market.” Los Angeles Times, March 22nd 2000.

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These claims were later found to be misleading by the FDA, but it is easy to see how they contributed to making Rezulin one of the faster selling drugs in history, with sales of close to $76 million 4 months post launch. A focus on the positioning of the drug explains why many individuals used it in spite of not having the disease. In order to determine whether one has diabetes, a blood glucose indicator called the A1C is evaluated. This measure tracks the average blood glucose level in one’s body for the previous 2–3 months. If it falls below 5.7%, one’s blood glucose level is considered “normal,” a number between 5.7% and 6.4% is classified as “pre-diabetic” and a level exceeding 6.5% or more classifies one as having diabetes. Imagine if you will, a drug that claims to work “at the cellular level” designed to improve insulin resistance such that the insulin produced by the pancreas can be more effectively and efficiently used to lower circulating blood sugar. In effect, such a drug (i.e., Rezulin) can be easily perceived by the non-knowledgeable consumer as serving to prevent diabetes. That is, such a drug does not simply lower blood glucose and leave the foundational problem untouched, it purportedly works at the “cellular” level to make your insulin work better, preventing and possibly curing diabetes. Therefore, if you are worried about your sugar intake (and don’t have diabetes) and concerned about the potential of getting diabetes, or alternatively are pre-diabetic, why not use a drug that can cure the problem. A significant percentage of those who used the drug reasoned this way, and they, as were the diabetics who used it, were susceptible to the significant side effects (i.e., liver failure and death) triggered by usage. C. How Drug Companies Manipulate You The CDC reports that the percentage of adults using a prescription medicine in the prior 30 days in the United States as 48.6%, whereas those using three or more prescription drugs for designated ailments for the prior 30 days amounted to 21.7% based upon 2010 statistics.9 According to the NIH statistics on prescription drug usage, 52 million people over the age of 12 in the United States have used a prescription drug for other 9 See CDC.gov.

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than its medical purpose in their lifetime.10 This suggests that prescription drug usage in the United States is quite prevalent, and of course as we age, we are more susceptible to disease, and hence more likely to fill a prescription for a drug. It also suggests that many consumers are potentially influenced by advertising to take drugs they do not need. For example, consider the individual who believed that by just talking Rezulin, they had punched a free ticket to indulging in unlimited ice-cream, chocolate cake and other dessert delights simply because the drug “prevented” diabetes onset. The use of DTC advertising has been shown and discussed to have a significant and sometimes surprising impact on consumer behavior (inclusive of motivating some women to ask to fill prescriptions for Viagra and Cialis for themselves).11 Once the decision is made by the consumer to ask for a given drug, or by the doctor to prescribe a need for a drug in the relevant product class, one has to ask, what if anything perked up the consumer’s (or doctor’s) interest in the drug in the first place. Brand name serves as an important influence in consumer drug choice as does packaging, and even the color and shape of the pill itself. Clearly, however, the consumer (or physician) must be made aware of the drug in the first place before they could ask for it, and DTC advertising is a key factor in driving this.

D. The Impact of Brand Name Awareness through advertising of a given prescription drug is enhanced if the brand name of the drug is effective, but what makes for an impactful brand name? Kotler and Keller (2015), in their book on Marketing Management contend that effective brand names must have the following characteristics.12 That is, first they should be memorable, so that when the potential consumer has a need for a product in a given area they can easily recall the specific manufacturer’s brand.

10 NIH Website. This also includes off-label usage. 11 This comes from a personal discussion I had with my local pharmacist. 12 Kotler, Phillip and Kevin Lane Keller. Marketing Management, 15th edition. Upper Saddle

River, New Jersey: Pearson (2015), p. 309.

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But what makes a brand name memorable? Well, the brand name should be short, and distinctive. That is, does it stand out from the crowd in that it is different from the other names in the product area? Importantly, will most people be able to spell the name after hearing it spoken? Consider Keytruda, a drug designed to treat advanced skin cancer. Using a “K” as the first letter of a prescription drug may be problematic since consumers may be confused and think that the brand name actually begins with a “C.” In addition, for this particular brand, the issue as to whether the first syllable of the brand is pronounced as “KEY” or “KAY” is unresolved. The transition from hearing to writing is critical since oftentimes, word-of-mouth (WOM) is important in driving sales, and if you hear something but cannot spell it, the consumer will have a difficult time in tracking down the specific product when they go on the internet to search for it, resulting in the pharmacist filling a prescription for the wrong but similarly named drug (e.g., Celebrex versus Celexa or for example Brilinta versus Brintellix). The latter is a famous case as doctors confused a blood-thinning medication with an antidepressant. Likewise, will the consumer be able to pronounce the name after seeing it written? Not being able to do this or creating a name that can be pronounced differently by different individuals makes brand selection difficult as the pharmacist may not know which brand you are talking about. This of course negatively impacts brand recall, as the target market may all think that they are referring to the same drug, but are not pronouncing it similarly. Consider “Docusate” a prescription drug focused on pacing water as it proceeds through the colon, is it pronounced DOSE-U-SATE or DOCK-U-SATE? A brand name must also be meaningful, in that it should convey some essence of what need the product is filling for the consumer. For example, the brand “Hamburger Helper” essentially communicates what the product does, it adds spice and other ingredients (e.g., pasta) to chop meat to make it tastier and to “Help” the flavoring. But what exactly does the prescription drug “Flagyl” do? Does it flag down hitch hikers in your body? In a sense it does . . . why of course, it kills some of the toughest bacteria known to man (Clostridium difficile). I thought it could alternatively be confused as a drug that helped people who had dizziness and nausea when they had to look up a flag pole. . . Consider the generic drug, pyrazinamide. I couldn’t find any brand name for this one, but would anyone conclude that this

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drug can effectively treat tuberculosis? Well it can! I thought it helped treat individuals who either were unexplainably inclined to light fires next to the Great Pyramid in Egypt, or who had a need to embalm mummies at the Cairo museum. Rodney Dangerfield actually named his dog “Egypt,” supposedly because he left a pyramid in every room! Meaningfulness suggests that the brand name should fit in some way with the product one is selling. If the brand name would fit just as well or better with another product category then the one it currently is recommended for, then keep looking for a better name. Consider for example “Claritin,” (Bayer) an allergy medication. Its name suggests the term clear as in clear nasal passages. However, the first time you heard the name you may not have been clear as to what the clear in Claritin meant, so you needed some clarification, which probably happened the first time you saw or used the product. In a sense then the competing product “Nasonex” is an even better name for the drug since everyone can understand that the drug deals with the nasal passage. Imagine if the manufacturer (Merck) were to derive a brand name as a function of the generic name for the drug “Mo-metas-one.” This sounds like a clue for a baseball crossword puzzle. Finally, to complete the key brands in the category consider Flonase, an allergy medication from Glaxo-Smith Kline. Here, the brand name is indeed clear in terms of suggesting what the drug does, however it can potentially evoke a very unfavorable image in the mind of the consumer, that of a nose that cannot stop flowing. When I think of Flonase, I imagine someone walking around with a box of Kleenex, unsuccessfully trying to stop their nose from excreting fluids on a 24/7 basis. Therefore, the values and imagery that the name communicates to both the public and to the physician community is critical. Now if one were to confuse Flonase with Flomax and in fact take both, then that person would in my perception need both a box of Kleenex and a box of diapers to survive. Consider “Allegra,” a Sanofi product for allergies, while this brand name sounds like a real word, (i.e., Allegro — meaning in musical terms brisk and lively movement), it may invoke in those more musically inclined, the image of someone sneezing quickly in succession. Finally, consider the recent introduction of Xyzal for 24 hour allergy relief. Now, the manufacturer of this drug is sensitive to how consumers pronounce the name of their product. Their slogan (using an educated owl who appears with a monocle) is. . . “Be wise-al use Xyzal.” This approach kills two birds with one Xyzal (excuse the euphemism), that is it helps the

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consumer to correctly pronounce the product’s name, and implies it is wise to take the drug since you are told to do so by an educated owl who hopefully is not sneezing, standing in front of a lot of books in an old mansion. But why is the brand name for a given prescription drug so important a factor to consider? The answer is that it is one element which will typically remain constant in the drug’s lifetime as packaging, price and promotional activity are all subject to change. As noted above, the brand name serves to identify the product and plays a crucial role in building and maintaining customer brand loyalty. Moreover, as the drug landscape becomes more and more crowded with competitive entries, the need for a distinctive and meaningful brand increases. For prescription drugs, brand loyalty is crucial since if one is prescribed a drug which is effective, one is generally hesitant to switch brands. This is because of side effects that might be introduced if such a decision is made and for some drugs such as anti-depressants, the period before a drug’s impact may be fully known can take up to 6 weeks because of the need to pass through the blood/brain barrier. Hence switching brands in such a case can be life threatening. It is important to also consider the need to design a brand name that not only targets doctors but, with the prevalence of DTC advertising, catches the imagination of the consumer. As I tried to illustrate above, a brand name which has meaning ONLY to physicians is not likely to be clear to the average consumer. Consider for example, the brand name “Fosamax,” for a drug designed to strengthen bones in women. How many people out there would know that “bone fossa” relates to a depression in a bone, and make the connection that the drug is designed to fill in these depressions? Clearly, over time as the drug name becomes familiar to the consumer, it takes on meaning but this may only occur after it has spent a significant amount of time in the market. In a book titled “Brand Medicine: The Role of Branding in the Pharmaceutical Industry,” Tom Blackett and Rebecca Robins noted that in the 1980s and 90s there was a trend to name drugs with a brand name that begins with the letter “Z” and “X.”13 These authors contend that pharmaceutical brand names beginning with these letters, look unusual

13 See Tom Blackett and Rebecca Robins. Brand Medicine: The Role of Branding in the

Pharmaceutical Industry. New York: Palgrave MacMillan (2001), p. 160.

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and convey a meaning of power and dynamism and are perceived as being technical and scientific. But the problem with naming one’s brand in this fashion, is that if this is becoming the norm for pharmaceutical brands, then the advantage of such a novelty can quickly fade. Moreover, giving true meaning to words that begin with the letter “Z” or “X” is difficult, except possibly in China where everyone’s last name seems to begin with these characters. The authors further argue that in the future, “we will increasingly experience a shift away from the doctor’s language to the patient’s language.” This suggests to me that drug names will trend to the descriptive as opposed to the abstract in the years to come, and impactful brand names should suggest some benefit of the product. E. Actual Brand Names Let’s first talk about some brand name prescription drugs presented in Table 1, and see how the name itself might subtly induce purchase, possibly even at the sub-liminal level. The interpretation for each name is meant to be explanatory but also highlights some more serious as well as “lighter” associations that consumers may make with the drug when seeing the name.14 TABLE 1: Interpretation of Prescription Brand Names as Purchase Motivators Brand Name Adderall Alprazolam Alunbrig Ambien

Anthim

Purpose

Interpretation

ADHD

I can add numbers easily now, and I can add all of them! Anxiety reducer The Prisoner of Azkaban — Harry Potter swoops you away from any anxiety that you have15 Lymphoma Puts the cause of the disease in the brig (jail) Sleep aid Creates an “ambient” quiet environment; or “am” “bien” (French) or I am going to feel good, if I take this pill. Inhalational anthrax cure Prevents anthrax poisoning through singing or listening to the National anthem (works equally well if you choose to stand or sit). (Continued)

14 I admit that for you to understand some of these “associations” you might have to be

someone of my age. 15 I know that this is a generic name, but I like my description very much, so if you disagree take a Xanex and chill-out.

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TABLE 1: (Continued) Brand Name

Purpose

Antivert Aricept Avandia

Anti-vertigo Alzheimer’s Diabetes

Benicar

Blood pressure

Cardura

Blood pressure

Celebrex

Arthritis

Cialis Concerta

Erectile dysfunction ADHD

Depakote

Controls convulsions

Entresto

Heart failure

Farydak Flomax

Multiple myeloma Urinary retention

Focalin Klonopin

ADHD Anxiety reducer

Levitra Lipitor Lyrica

Erectile dysfunction Cholesterol reducer Nerve pain

Nexium

Acid reducer

Norvasc Pristique

Blood pressure Anti-depressant

Procardia

Blood pressure

Risperdal

Anti-psychotic

Interpretation This drug name couldn’t be clearer! Improves perception, especially if you are Greek. Advanced diabetes drug. I think ADvandia is a better name. Provides hypertension relief or the ability to listen to a CD of Pat Benatar while driving down the 405 with your top down. Provides durable (long lasting) cardiac relief for hypertension. Helps you celebrate as you rid yourself of painful arthritis. Now you can SEE ALICE and make it count! Helps you concentrate, especially if you have aspirations of playing first violin in the New York Philharmonic. If you don’t take it you may end up deprived of medication in North Dakota, when you convulse from the cold. “In god we entresto” — written on all Italian currency; the last thing you read in Rome before you die of a heart attack due to inflation. Tinkerbell’s drug of choice! Flow to the Max and make sure you on not in a canoe without a hand-pump. Helps a person “focus.” You “pin” down your anxiety by finding a gold rush (Klondike) of calm. Levitation, and not a competitor of Houdini. This drug is a lipid gladiator. Helps relieve nerve pain and may help you become a ballerina or write an opera. The Next-generation of stomach acid reducers after Prilosec. Normalizes the vascular pressure. This drug is “mystical” and “pristine” in its effects. Promotes cardiac health, who could be against this? Ignore unwanted whispers by putting them “on the dole.” (Continued)

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Marketing Manipulation TABLE 1: (Continued)

Brand Name

Purpose

Interpretation

Tricor

Triglyceride reducer

Trulance

Constipation

Viagra

Erectile dysfunction

Xermelo

Carcinoid diarrhea

Zoloft

Anti-depressant

This drug reduces your triglyceride count and helps your coronary arteries. Solves the problem by using a sharp and truly pointed object to extract the offensive blockage from the intestine. Viable Growth. Also gets you to flow like Niagara. Switches the pain from New York to Oklahoma City Takes your mood to “lofty” places from the dumps.

F. Packaging Brand image is created and enhanced by packaging, as the package communicates information to the perspective consumer inclusive of the brand name and other product attributes. An important component of packaging is the color of the package and it is used prevalently in the world of marketing to connote differentiation. Consider that Pepsi switched from an emphasis on red to embracing the color blue, to differentiate itself from Coke. In fact Coke most recently changed the packaging (and positioning) of Coke Zero to Coke Zero Sugar in order to convey more clearly to consumers that not only is the product absent of calories, but it is absent of sugar also. Coke research showed that consumers of the old Coke Zero may not have realized this fact. The use of more red in the Coke Zero Sugar brand implies a closer linkage to Coca-Cola tradition and taste. Did you ever think of the sweeteners that you put into your coffee each day at Starbucks? Splenda is yellow, Sweet N’ Low is pink and of course Equal is blue (while Starbucks is of course green). Even the rental car agency you go to differentiates themselves by color, Hertz is yellow, Avis is red, National is green and Alamo is blue! Obviously, color has meaning to consumers in terms of the affect or feeling it elicits. One does not have to go further than the famous studies reporting the suppression of angry, antagonistic, and anxiety ridden behavior among prisoners resulting from the painting of their cells a color later named “Drunk Tank Pink.” According

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to Morton Walker in a book titled The Power of Color, “Even if a person tries to be angry or aggressive in the presence of pink, he can’t. The heart muscles can’t race fast enough. It is a tranquilizing color that saps your energy, even the color-blind are tranquilized by pink rooms.”16 The impact of color on behavior is not limited to pink, however, as previous research has shown evidence that red is perceived to be an exciting color while blue is perceived to be relaxing.17 These findings about color are interesting if one combines the drug’s purpose with the color of its packaging, the brand name of the drug, and possibly even the color of the tablet. Consider for example the drug Saphris. This prescription medicine is approved for the acute treatment of manic or mixed episodes associated with bipolar I disorder in adults, but it also acts (and is used off-label) as a powerful sedative which relieves anxiety. Part of the package design for this drug is a deep blue color and the first part of the name is suggestive of this color. Consider the prefix “Saph,” it is a derivative of the semi-precious gem known as a Sapphire which has almost a hypnotic deep blue color. Hence the color of the package, the name and the usage of the drug are all in alignment in this instance. This is NOT a random effect. Consider sleep aid OTC medications Unisom and Sominex. Both of these drugs use a “blue” theme in their packaging, and for both brands the pill is a shade of blue. Of course both drugs are taken to induce sleep, and the image of blue is consistent with the drug’s purpose, that of relaxation. But what if you wanted a drug to help you stay awake, possibly because you were studying for finals or going on a secret military mission where you had to be alert for a long period of time. The drug for you just might be NuVigil. Note that the word “vigil” is defined as the time period that you keep awake which was reserved for sleep, usually relating to the purpose of keeping watch or praying. NuVigil’s packaging is closely linked to the color orange, showing what hopefully to

16 See Morton Walker. The Power of Color. New York: Avery Publishing Group (1991),

pp. 50–52. 17 Guilford, J.P. and P.C. Smith. “A system of color preferences.” American Journal of

Psychology 122(4) (1959): 389–402. See also Tom, G., T. Barnett, W. Lew, and J. Selmants. “Cueing the consumer: The role of salient cues in consumer perception.” Journal of Consumer Marketing 4(2) (1987): 23–27.

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be an orange/yellow sun shape in motion. As orange is a combination of red and yellow, it is perceived psychologically as an energetic color, mimicking the exact purpose of the drug. G. The Consumer’s Susceptibility to Drug Color and Packaging A recent study in the Journal of Biotechnology (2010)18 reported that the color, shape, taste and name of a tablet or pill can have an impact on how patients feel about their medication. So, if one chooses an appropriate pill consistent in color for example with what it is supposed to treat, then the placebo effect gives the pill’s effectiveness a big boost! In fact, it might even reduce perceived side effects! The effect of pill color on consumer brand choice has even been popularized in the movies. Consider the words spoken by the character Morpheus (as played by Laurence Fishburne) in the movie titled “Matrix.” You take the blue pill and the story ends. You wake in your bed and believe whatever you want to believe. You take the red pill and you stay in Wonderland and I show you how deep the rabbit-hole goes.

These words are entirely consistent with most research on consumers’ perceptual evaluation of prescription drugs. For example, deCraen, Roos, DeVries and Kleijnen (1996) reported that perceived action of colorful pills (which were actually placebos) showed that red, yellow and orange were perceived as more impactful stimulants than pills which were blue and green. The latter two colors were believed to be more effective than the former colors as tranquilizers.19 Moreover, a recent study conducted in the United States showed that capsules were perceived to be more impactful than pills or caplets.20 It is interesting to note that Viagra was launched as

18 Srivastava, R.K. and More, A.T. “Some aesthetic considerations for the over-the-counter

(OTC) pharmaceutical products.” International Journal of Biotechnology 11(3/4) (2010): 267. 19 deCraen, J.M., Roos, Pieter J., deVries, A. Leonard, and Joseph Kleijnen. “Effect of color of drugs: Systematic review of perceived effect of drugs and their effectiveness.” BMJ 313 (1996): 1624–1626. 20 See Buckalew, L.W., and Sherman Ross. “Medication property effects on expectations of action.” Drug Development Research 23 (1991): 101–108.

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a diamond shaped blue pill in 1997, a year after deCraen et al.’s (1996) research was published. While the drug literally became an “overnight” sensation, with sales totaling $1.74 billion in the first year alone, one could wonder why the color blue was chosen? As noted, blue conveys a feeling of calm, such as when one is looking over a calm bay or lake which seemingly is opposite to the feeling that one has before one is motivated to take Viagra in the first place. This fact was not missed by Bayer, the makers of Levitra. Understanding full well the linkage between erectile function and excitement,21 the company created a campaign and pill to figure out “how to beat the blues,” a reference presumably to Viagra’s sky blue tablets. Extensive marketing research concluded that consumers did not resonate with the imagery of Viagra. Results showed that the blue color was in fact too cool and icy and was equated with being sick. After extensive testing, the company developed an orange pill, an extremely vibrant and energetic color. The logo of the brand was an orange and purple flame, and the name “Levitra” subtly suggested levitation which clearly describes the product’s benefit of usage.22 Showing my age, I can recall the first time I realized that color was important in pharmaceuticals. I was a child watching a commercial about Ecotrin, a coated aspirin product, for which the actor Eddie Alpert (of Green Acres fame), noted that a distinctive characteristic of the product was that it was orange. The makers of Ecotrin were on to something, as more recent research would show as noted, that a “warm colored” (red, orange or yellow) package was perceived as containing a more potent drug than a cool colored (blue or green) package. Moreover, dark packaging was assessed as containing a more potent drug than a light one.23 Such effects were also applicable to pill color as discussed above.

21 One does not have to be a genius to figure out that shortly after taking Viagra one’s heart

is going to beat a little faster, and this is not a direct function of the pill’s side effects. 22 So if we consider it a tie between the blue pill versus the orange pill, we should ask, what

color is Cialis? The answer is a bright yellow! 23 See Roullet, Bernard, and Olivier Droulers. “Pharmaceutical packaging color and drug

expectancy.” Advances in Consumer Research 32 (2005): 164–170. This effect is also present for coffee, as darker coffee is typically perceived by consumers as being “richer” in flavor. This was not favorable for consumers’ evaluation of Starbuck’s blond roast!

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Prescription drugs were not always so colorful; indeed, up until the middle of the 20th Century pills were typically both round and white, color was almost non-existent. Today, gel caps can be tinted to any of 80,000 color combinations. The consumer’s perceptual sensitivity in particular to package and pill color, attributing characteristics to pills of different colors, has cynical implications. Such implications suggest that consumers can be easily manipulated to request that a doctor prescribe a specific pill solely based upon pill shape and package color. However, one can also look at these findings with an eye toward Public Policy implications. That is, given that compliance in taking medication strongly depends upon the patient’s perception of the efficacy and effectiveness of that medication, if patients are disinclined to take a pill they consider ineffective simply because of its color or package design, then a change in aesthetics may induce a greater compliance with taking the medication. This is a rather simple change, and from the perspective of a drug company, one that would seemingly be quite welcome. Moreover, for the elderly who sometimes get confused when they take various medications, an addition of color may help them distinguish between the many pills they may take. Let’s now turn toward potentially deceptive selling tactics in our next chapter.

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Chapter 10

Selling Tactics That Have the Potential to Deceive

A. Introduction I recently read a book titled: “In Vino Duplicitas,” by Peter Hellman which detailed the escapades of a wine forger, yes a wine forger. This unscrupulous individual by the name of Rudy Kurniawan, was described in the book as having a virtuoso palate and as having the “best wine cellar in the world.”1 The problem was that he was actually purchasing cheaper more common wines and re-bottling, corking, labeling and selling them for millions of dollars as older rare wines from exclusive wineries such as Domaine Ponsot Clos Saint-Denis when they actually came from Domain De CaCa. Now you ask, how could this happen, given that among those who could afford buying such wines, many customers must have been wine connoisseurs with palates that could shame even Kurniawan? Surely, couldn’t they recognize that the bottle was replicated even if their palate was defective? Not necessarily, if they were impacted by the “confirmation bias,” which we discussed earlier on in Chapter 3 of the book. That is, simplistically, they tasted and saw what they expected to taste and see. But a deeper answer to all of these questions can be found in a short story told by Mr. Hellman at the beginning of his book about an experience he had in Paris some years back. It turns out that I had a similar experience, in the same city more recently, so I’ll relay my personal and similar experience to the reader.

1 Goldberg, Howard G. “Acker smashes auction record.” Decanter (2006).

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I was walking along a quiet street in Paris in the 13th arrondissement when a young attractive woman speaking English with a slight French accent approached me. In her hand she had three coins in cardboard holders that appeared to include a 1937-d three-legged Buffalo Nickel, a rare Silver Dollar and a 1909-s-VDB penny which were each marked at $1,500. She asked me if I were American, and the city I lived in, and then said that she had waited at least 30 minutes to find an American who could possibly appreciate the coins she had apparently found in her apartment looking through letters that her dad had sent her years ago. I stupidly told her that I grew up in Manhattan, and upon hearing this information she explained the she too had lived in Manhattan before her mother had divorced from her dad and taken her to France at the young age of 12. This apparent commonality, of coming from the same place at least for a little while made me more sympathetic to the words she was about to say. That and the fact that she had apparently waited for someone like me to come along to “deliver the goods.” Commonalities based upon religion (in the case of Mr. Hellman’s story), age, ethnic, or other types of identified groups, which serve as the basis for fraud, are consistent with “Affinity Fraud.” That is, the scammer exploits the special trust and friendships that exist within groups of people who have something in common. “Relying on group trust is often so powerful in overcoming people’s skepticism that both the financially unsophisticated and the seemingly sophisticated fall victim to these scams. These people probably fall victim to this type of scan because they allow the trust they have for someone “like them” to substitute for paying attention to the details of what they are getting involved in.”2 So, this young attractive woman, aside from her good looks, had an affinity scam cooking on the burner directed at me, and then things got even worse for yours truly. She said that her father was a coin collector and she knew that the coins she held in her hand were valuable, since he sent them to her years ago. But now her dad was dying of cancer and desperately in need of funds to get the one operation that could save his

2 Perri, Frank S., and Richard G. Brody. “Birds of the same feather: The dangers of affinity

fraud.” Journal of Forensic Studies in Accounting and Business 3(1) (2011): 33–46.

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life. She offered me the coins, valued at $4,500 for a mere 500 Euros. I told her non! Then she unexpectedly threw the coins at me and said “have them” and began to cry, saying it was too late for her father any way. Of course I couldn’t let her give me these coins for free so I gave her a 100 Euro note and she immediately thanked me and dashed away into the night. I actually fell for the old “reciprocity bias,” trick, in that one feels compelled to give something to someone if they are given something for free.3 So what happened to my coins you ask? A few weeks later when I went to the coin shop to see what the coins were worth, dear reader, I found out that they were not worth any more than the paper I am writing these words on and the “silver,” dollar was fake and came from China. But there is more to come. . . . Imagine that you were “lucky” enough (as I was) to have received the following letter from a world famous real estate mogul and current United States President addressed directly to me, bearing the Mogul’s personal logo at the top of the letter and the words “From the Office of Donald Trump.” The letter stated: Success in real estate begins with great training and proven strategies. Without education you don’t stand a chance. I know how to make money in real estate. I’ve been doing it for a long time with a lot of success. My family has been a leader in real estate since my father Fred Trump started building residential homes in New York City 75 years ago. My father was my mentor and he taught me a lot. Now I want to teach you how to make money in real estate. To be my apprentice you need to Think BIG and really want to succeed. More than anything you need to take action. Do You have What It Takes to Be My Next Apprentice? I only work with people who are committed to succeed. I founded Trump University back in 2005 to teach go-getters how to succeed in real estate. My team at Trump University is filled with real estate experts . . .proven

3 See Zajonc and Burnstein. “Structural balance, reciprocity and positivity as source of bias.”

Journal of Personality 33(4) (1965): 570–583.

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winners. We’re the best of the best and we know what works. If you think you have what it takes to be my next apprentice, prove it to me. We’ve trained thousands of real estate investors over the years and we know you will be most successful when you work with a partner. . . If you’re serious about making money and safeguarding your future, learn to invest in real estate. Trump University will teach you how. We’ll give you the best training and the confidence to succeed. If you think you’ve got what it takes to be my next Apprentice, come prove it to me and my team. See you at the top!

While this letter taken alone may have potentially deceptive elements within it, when considered as part of a complete promotional campaign, involving personal selling and up-selling tactics designed in part, to get “students” to purchase the “Gold Elite” program for $34,995 (Note — a savings of $5.00 from the price of $35,000), New York’s Attorney General Eric Schneiderman believed that there was enough evidence to bring a lawsuit accusing the mogul of fraud.4 B. False Designation of Goods So what makes a sales approach deceptive? One factor relates to a “False Description of Goods.”5 So for example, a salesperson tells a perspective client that the furniture that they are planning on buying is solid mahogany and that it will last a lifetime, when in reality it is a mahogany veneer with a plywood base. In reality, the only lifetime this type of furniture can last through is that of a termite. In the case above, Mr. Trump offered programs and courses emanating from Trump University, a “University” whose advertising maintains was created and founded Mr. Trump himself way back in 2005.6 According to an article published in the New York Daily News in 2013, when asked in deposition about the “University” which bears his name,

4 This case was later settled along with two other California based cases when Mr. Trump

became President. 5 Hester, Stephen L. “Deceptive Sales practices and form contracts — does the consumer have a private remedy.” Duke LJ (1968): 831. 6 As a point of reference Dartmouth was founded in 1769 and Harvard in 1636 just a short time before Trump University if you count in 100’s of years!

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Mr. Trump replied that attending Trump University was “no different than going to Harvard.” “They say go to Harvard, great school, blah, blah, blah, and I think this is — except I think we have a higher approval rating than Harvard if you want to know the truth.” “I went to the Wharton School of Finance,” “I know a lot about education.” The comparison to an Ivy league school does not end there as the symbol of Trump University, a “Heraldic lion” is similar to those used at Cambridge University, an English university which served as one of the models for the creation of the Ivy league.7 This provided prospective consumers with a cue suggestive that plunking down their money at Trump University was similar to plunking it down at Harvard, Yale, Princeton, Dartmouth or any other top-rated university.8 So while it is not deceptive to use a “Heraldic lion” as the iconic image of Trump University, the use of the term “University” to describe the home base of the offered program leads one to think of a researchbased institution with a tenure process, which was not characteristic of this business.9 Consider the ruling of the Supreme Court of the State of New York who argued that to be called a “University” in the State of New York, one must have the proper licensure and accreditation, which Trump University lacked. So, while one element of a sales campaign may not be deceptive on its face (e.g., the lion) combining it with another term (i.e., “University”) can give the relevant target consumer the potentially false perception that he/her is applying to a university that rivals an Ivy League institution in terms of the quality of education offered.

7 Note that the acceptance rate of incoming freshman at Harvard according to the latest

statistics is 5.9% while at Dartmouth it is 10.1%. The acceptance rate at Trump University is arguably significantly greater. 8 As my son goes to Dartmouth, anyone sadly familiar with their yearly tuition of approximately $70,000 each year for four (count em) FOUR years would realize that $34,995, the amount Mr. Trump asked for to attend his Gold Elite program, pales in comparison. In this respect Mr. Trump’s price was a relative bargain! 9 In the interest of full disclosure, I served as an expert witness in a California based class action brought against Trump University that settled when Mr. Trump became President of the United States.

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C. Fear Sales Scheme and Fear Sales Tactics — Creating Immediate Need for Purchase Consider the following example, a salesperson calls on a family who live in a condominium complex. The salesperson falsely tells them that they must purchase a certain attachment for the sink in their apartment or they will fail to comply with the CC&R’s (Convents, Conditions and Restrictions) of the condominium association and will be fined monthly. If this is not the case, then such a sales approach is deceptive because in order to gain a sale, the potential target consumer is led to believe a falsehood which relies on a factor or attribute that is salient or “material” in their decision whether or not to purchase the product. Those in sales are famous for motivating purchase by increasing the salience of the need to purchase quickly. This is designed to encourage System I processing (covered in Chapter 1 of this text) where decisions are made quickly, instinctively and emotionally but not necessarily optimally. Yet such tactics cannot be considered deceptive on their face (unless a bald-faced lie as in the above example is involved in motivating purchase) since they simply establish the need to purchase quickly. Deception only potentially comes into play in part if because of such tactics, the potential buyer misses key factors that if observed when not under time pressure, would have made them change their mind about purchasing or not.10 D. Phony Gift Schemes and Upselling Consider the following example, a target population is identified in a community who are to receive a free gift of two tickets to an investment seminar that is designed to increase one’s financial knowledge and make the attendee investment savvy. However in reality, the “free” tickets to the seminar are simply an approach to get the individuals in the target market to show up at the same place (typically a luxury hotel) at the same time so that they can be sold a more extensive series of lectures with the provider. Now, on the surface one can always say no! to the offer of further engagement with the company for a fee, yet the first “FREE” session is 10 Consumers can also be deceived by factual information presented in a deceptive or

confusing way.

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always presented as part of a bigger whole, such that the decision not to continue, even at a financial cost, is positioned as one’s decision to abandon the need for completion (See the Zeigarnik Effect as discussed in Chapter 5 of this book and the need for closure). This is extremely hard to do and gets harder once one is induced to purchase the next step in the process that typically increases in price as one becomes more and more involved in the offerings. Moreover, once you have invested time (and ultimately money) in an approach, the “Sunk Cost Fallacy,” as discussed in Chapter 3 as a form of cognitive bias, ultimately keeps you on the same path, even as losses potentially accumulate. E. Bait and Switch Many years ago I can remember begging my mother to let me buy a color TV so that I could see a new series titled “Batman” which debuted in January of 1966 on ABC, or more specifically on your favorite “Bat Channel.” I had seen an advertisement in the Daily News from a now defunct electronics firm called “Friendly Frost” showing a 13 color television for $59, but only available at select stores and in limited quantities at each store. The sale was to begin at 9 a.m. on a Monday (December 20th 1965) and there was a Friendly Frost offering the item only eight blocks from my apartment in Washington Heights. I tore out the advertisement from the newspaper, showed it to my mother and convinced her that we needed the television (the first color television in our home), since now she could see the Andy Williams Christmas Special in color and gaze into Andy’s green eyes. So, at 5 a.m. I got up, brushed my teeth quickly, bundled up, and ran all the way to 181st expecting to see a large crowd in front of the Friendly Frost store. I got there at 5:20 a.m. and to my surprise, I was the only one there when I arrived. People came by in dribs and drabs and as the doors opened exactly at 9 a.m., I was the first customer in the store. I immediately blurted out to the salesperson who asked me what I wanted: “I’ll take the 13 GE color television please for $59.” To my SHOCK, the salesperson told me that they had just SOLD OUT of the item? Being 12 years of age, I didn’t want to cause a scene, but it did occur to me that it was impossible to be sold out of an item on the first day of the sale when the FIRST customer enters the store and asks for the special deal! Before I could even say anything, the salesman said: “But you are in luck, we have an

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unadvertised special here, a 19 Sylvania color television for only $109.00, it’s our last one and I am offering it JUST to you.”11 He continued, “just think the price is less than TWICE the GE, but the viewing area in terms of square inches is more than twice the GE!” Well, I did the math and indeed, he had a point, the latter had 169 square inches of viewing space, while the more expensive television had 361 square inches. I purchased the 19 television after calling my friend Jeff to come to the store with an extra $50.00 and an additional pair of arms to help me carry it eight blocks back home.12 This was my first and only victimization to the old “Bait and Switch” scam, where an unsuspecting consumer is encouraged to purchase a substitute good, in an attempt to make consumers satisfied with the available stock offered, as an alternative to a disappointment or inconvenience of acquiring no goods (or bait) at all. This “switch” provides a seemingly partial recovery of sunk costs: https://en.wikipedia.org/wiki/Sunk_costs expended trying to obtain the bait. The game is played by the seller by denying the consumer access to or exposure to the original product or service advertised and desired, but instead demonstrates a more expensive product or a similar product with a higher margin. This “scam” is illegal in the United States, yet it is quite prevalent not surprisingly. Finally, because I felt so bad that I was scammed, I reasoned that it was a good thing that I purchased the larger television because that allowed me to see New York Rangers games more clearly and for my mother to gaze at some bigger green eyes. This rationalization of the choice of a less than optimum alternative resolves the cognitive dissonance which is defined as the mental discomfort or psychological stress experienced by a person who is faced with a difficult decision choice. I’m sure you the reader has experienced such dissonance when considering the purchase of a high-ticket item. Every time I am in this situation, I end up thinking

11 The math does work out. . . 19 × 19 equals 361 and 13 × 13 equals 169. Therefore the 19 screen is indeed twice as big as the 13 screen. 12 My father threatened to bring the television back and “put the vendor out of business” but

my mother argued that we needed a bigger television set anyway, and that an “eagle would need contact lenses to clearly view the 13 GE set.” I must admit, this made me feel a little better for having been scammed, and maybe that was her plan all along.

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about the unchosen alternative and then over time my mind serves to discount that alternative by finding fault in it, or alternatively elevating the option I chose.13 F. Sale Pricing If a retailer or salesperson claims that they are selling an item at a supposed reduced price, despite never having sold it at the “full” retail price, this is a deceptive selling practice. For example, let’s say that Macy’s claims that they are selling Calvin Klein suits for $199.00 down from the usual regular price of $399.00. If Macy’s however NEVER sold such a Calvin Klein suit for $399.00 previously, but instead wanted their consumers to think they are getting a sale price at $199.00 then the store is guilty of pricing its product in a deceptive way and may be subject to a lawsuit. To combat this, consumers should develop a working knowledge of the pricing history of an item they are interested in purchasing so that they know what price is a “deal” and what price is not, especially a high priced item. If it helps, keeping a diary of price history may help especially for the items you are particularly interested in acquiring. A recent example of this tactic was recently illustrated by the company who makes “My Pillow,” I’m sure many of you have seen the incessant advertising by a man with a mustache who tells you his name (Mike Lindell) and asks you to try his pillow for a great night’s sleep. All of the offers typically involve a “buy one, get one free,” which is known in the Marketing field as a BOGO. However, if you ONLY sell your product as a BOGO, effectively a case can be made that the true price of one of the item’s is actually really half of the price as advertised for the BOGO, since you never actually receive one unit for the advertised price, but two! This issue caught the attention of the Better Business Bureau (BBB) of Minnesota and North Dakota in 2017, resulting in their concluding the following: “Among other issues, BBB has attempted to persuade MyPillow to discontinue their ‘buy one get one free’ (BOGO)/other discount offers without success,” said Dana Badgerow, president and CEO of BBB of

13 See Leon Festinger. “Cognitive dissonance.” Scientific American (1962): 93–106.

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Minnesota and North Dakota. “Continuous BOGO offers, which can then be construed as an item’s regular, everyday price, violate not only BBB’s Code of Advertising — which all BBB Accredited Businesses agree to abide by — but also other state and national organizations’ rules.”14

While the BBB is not saying that “My Pillow is not a great product,” they are saying that the anchor price for the BOGO, which is considered by the consumer to be the price for one pillow while receiving the benefit of two, serves as an incorrect anchor for the true price of the item. This serves to artificially inflate the consumer’s perception regarding the value of the deal that they are getting from the company and arguably makes them more likely to purchase the item than they normally would be. Similarly, if a company wants to highlight their cheaper price over the competition, they must be certain that the competition is selling both the same item (e.g., by model number) and that they have sold enough of it at the higher price to make the company’s price a legitimate “deal.” For example, if the competitor is offering a specific model of HD television for an inflated price, but hasn’t actually sold any televisions at that price, then the “cheaper” price isn’t really cheaper at all, and could be considered a deceptive pricing tactic. Finally, as a consumer one must be cognizant of “free” with purchase offers. For example, offering a free tote bag with your purchase of $100 of Lancôme make-up is not, by itself, a violation of the law. But if you raise the price of the make-up in order to compensate for the gift of the free tote bag, then you are not really offering a free tote bag and the action is questionable. Additionally, if you normally provide a service, like free shipping, with purchase, but you eliminate that free service because you are including the “free” tote bag, you are not really offering the tote bag for free and are again are engaging in problematic behavior. Likewise, an increase in price of the make-up to compensate for the “free” shipping can also be deemed to be deceptive, false and misleading.

14 Please see the following Internet address for more on this story. Available at: https://

www.bbb.org/minnesota/news-events/news-releases/2017/01/mypillow-bbb-accreditationrevoked/.

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G. Price Lining This deceptive approach may seem at first glance to be simply a pricing tactic, but while it does indeed focus on price, it can be utilized in a personal selling context to motivate purchase of a good you may not originally have intended to purchase. Price lining is defined as a process utilized by retailers of separating goods and services into different cost categories in order to create various quality levels in the mind of the consumer. In order for price lining to be effective, the seller must put sufficient price gaps between categories to signal prospective buyers of quality differentials between the lines, yet also make sure that there is some overlap between the categories. Consider the following example: a prospective customer enters a large department store with the intention of buying a relatively low priced suit for around $159.00. The salesman shows the customer a suit for around that price and tells him/her that a price of $159.00 is the top of the line for inexpensive suits made in China, whereas for the same price “you can purchase a European made suit from our European collection.”15 This accomplishes two objectives for the seller, it establishes that even when paying $159.00 the customer is still getting an “inexpensive suit,” and secondly it suggests that for the same price the customer can select from a rack of better quality European suits. However, the European suits may start at $159.00 and go up to a price of $359.00. From the perspective of the seller, this higher price range that he/she has now switched you into enables the vendor to have you at least consider a suit costing $359.00, for after all who wants to purchase (or for that matter be seen) in the cheapest suit in a given price range? In addition, the creation of the price line from $159.00 to $359.00 puts higher and lower priced suits into one neat container under one

15 There has been many research studies in marketing which show that “country-of-origin”

is an important and salient indicator or cue for judging quality. See for example, Martin, Ingrid M., and Sevgin Eroglu. “Measuring a multi-dimensional construct: country image.” Journal of Business Research 28(3) (1993): 191–210; and Nagashima, Akira. “A comparison of Japanese and US attitudes toward foreign products.” Journal of Marketing 34(1) (1970): 68–74. If you do not want to read these articles, then consider the following: it is generally perceived in the United States that if you want great quality beer, you go to Germany and if you want great quality wine you go to France. Yet buying French beer and German wine seems like something only the village idiot would do!

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common category (e.g., European suits), which supposedly the consumer should think he/she now has access to. Price-lining is a deft sleight-of-hand that moves the consumer into the consideration of higher prices ranges, by almost shaming you into doing so. H. Protecting Yourself from Various Deceptive Selling Tactics As has been stated many times in this book, the consumer can avoid being manipulated by simply coming into the situation prepared, and by having a keen understanding of the product they wish to buy and the price they wish to pay in advance. Let’s take an example of bidding on eBay. Suppose that you are interested in the purchase of a signed copy of Harper Lee’s classic novel “To Kill A Mockingbird” in anticipation that its price will rise given the recent release of the sequel “Go Tell A Watchman” and her recent passing. Prior to bidding on the item, you make a promise to yourself that you will not make a bid in excess of $1,000. However, 30 seconds before the end of the auction, someone else makes a bid that exceeds yours and you think about overbidding that person to win the auction. First ask yourself a question . . . is your goal to win the item of interest at any price or is it to win at a price at or below your reserve price (i.e., the price for which you truly value the item)? If the answer is the former, you are susceptible to deceptive and influential sales tactics since the ultimate goal of all of these tactics is to get you to purchase something you initially didn’t plan on purchasing and/or to make you pay more than you wanted for an item that you planned to buy. Plan ahead and stick to your guns! and don’t make yourself a victim.

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Chapter 11

Deceptive Advertising and Promotional Techniques

A. Introduction When I was a young boy, I used to anxiously await the third Friday of the month because “Uncle” Eddy down at Eddy’s candy store on 172nd street and Broadway got in the new issues of Spiderman, the X-Men, the Fantastic Four and the Avengers. All of these of course were Marvel Comic books, and if I was smart enough then, I would have saved all of them, put them into an air tight vault and sold them 50 years later to insure that I had a well-funded retirement. Well as it happens, I did indeed save them, but alas when I moved out of my messy room, and into a new apartment with my wife, my mother thinking that I had left a box of garbage behind threw them all out. All that was left was the memories, and here is one of them. Take a good look at the advertisement in Figure 1, I know that I did maybe hundreds of times when I was a kid because never fail, it appeared in many of the Marvel and DC comics that I purchased. Note that the advertisement promises at first glance, the ability to have X-ray vision. However, in smaller font size it actually uses the word “illusory,” and in even smaller font size that an eagle would need contact lenses to read, it says “A Hilarious Laughingly Funny Illusion.” However, may I also bring to your attention, the notion that the person illustrated on the right of the advertisement who looks like he is looking through a coke bottle to see and is possibly guilty of supreme geekiness, is actually looking through someone’s hand. At first, I didn’t believe it, even at second, third, fourth and fifth look, I didn’t believe it but then after multiple exposures 151

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FIGURE 1: X-ray Vision

I decided to squint to the best of my ability and read the text. It said: “See through fingers-through skin- see yolk of egg (sic)- see lead of pencil(sic).” Many many amazing astounding illusionary “X-ray” views yours to see ALWAYS — when YOU wear Slimline “X-ray Specs.” Now I did not need to see “yolk of egg” or “lead of pencil,” but as I moved slowly toward puberty, I did have a growing need to see “shape of girl” under the dress and I thought that short of being arrested on indecency charges, these glasses would get me where I wanted to go. So not exactly knowing what illusory meant, I saved my excess allowance for four weeks and sent away for the glasses, all the while instilling in my mother’s mind a cover story that I was straining to see the blackboard and therefore needed glasses. Well, two weeks later, around the time that the glasses were supposed to arrive in the mail, you can bet that every day at 3 p.m. when school let out, I was the one to retrieve the mail so that my parents would not notice that the shipment I received came from “X-ray Department 14” from the Rembrandt Company of Newark, New Jersey on 285 Market Street. Now it never occurred to me that real X-ray glasses would certainly cost more than $1 (even in 1963), nor that the technology was not yet advanced enough to put X-ray’s in lenses. Nor did I even care about the

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risk of radiation I was likely to receive, similar to what the “Radium Girls,” were exposed to when they painted the dial of watches. What I wanted to do was expose the girls I was looking at! Immediately upon receipt, I went into my room, closed the door and put the glasses on. Instead of being able to look through a wall, I walked into a wall. It was at this point that I realized, X-ray glasses and all, that I had been a victim of deceptive and false advertising, at an innocent and young age. B. The Lanham Act in False Advertising The Lanham Act is the primary Federal Statute of trademark law in the United States governing and prohibiting trademark dilution, trademark infringement and false advertising: As written, the act establishes the following as law, with part (b) below relevant to the issue of false advertising: Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which: (a) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or (b) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.1

However, to establish in federal court that an advertisement is indeed false, a plaintiff must prove five characteristics about the advertisement in question: (1) a false or misleading statement of fact has been made about the advertiser’s own or another person’s goods, services or commercial

1 See U.S. code, Title 15, Chapter 22, Subchapter III, § 1125.

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activities; (2) the statement either deceives or has the potential to deceive a substantial portion of the target market; (3) the deception is also likely to affect the purchasing decisions of its target market, which addresses its “materiality;” (4) the advertising involves goods and services in interstate commerce and (5) the deception has either resulted in or is likely to result in injury to the plaintiff. C. Comparative Claims So, what is most interesting in the discussion above is that a statement made in advertising does not have to be false to be impactful and therefore prosecuted, but rather can be true but lead to misleading inferences made and relied upon by the consumer. So, this notion most closely relates to a movie made by a former California Governor by the name of Arnold Schwarzenegger titled “True Lies.” At this point, the reader might be confused and ask, how can something that is true mislead anyone? The answer is. . . easily! Imagine that you were watching television and an advertisement came on conveying to you information about a head-to-head comparison between two headache pain relievers (pun intended). So as not to disparage anyone, let’s call the pain relievers “Burst” and “Jackhammer.” Consider the following data in Table 1 relating to consumers’ preference for one brand versus another in a head-to-head headache test. Imagine that 100 consumers who had frequent headaches were recruited into a clinical study and were told to randomly use one brand to relieve the first headache they experienced and when the next headache came upon them, to then

TABLE 1: Comparative Results of “Head-to-Head” Comparison between Burst and Jackhammer Result Burst is much better than Jackhammer Burst is better than Jackhammer There is no difference between Burst and Jackhammer Jackhammer is better than Burst Jackhammer is much better than Burst Total

% Who Agree 14 19 34 22 11 100%

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use the other brand. After thinking about the pain reducing effect of each of the brands they were then asked to categorize their experience in the framework of the effectiveness of one brand versus the other according to the five categories listed in Table 1 above.2 Now, here you are in your living room listening to the advertisement for Burst as the spokesperson happily says: “In a clinical study conducted in an independent laboratory, subjects (note he did not say consumers, so as to make the results seem more scientific),3 were found to experience that Burst was significantly more effective in treating pain that causes headaches than is Jackhammer. In fact, over two-thirds (67%) of those surveyed, a clear two-thirds margin, said that Burst was as good as or better than Jackhammer in relieving the pain that causes headaches.” Now, if you the reader “do the math” you will see that this 2/3 claim is indeed supported by the data and in fact is TRUE. In fact, if you don’t do the math or if the numbers underlying what is said by the spokesperson are not presented you would most likely conclude that Burst is a far superior pain reliever for headache pain than is Jackhammer. But you would be dead wrong! Arnold. . ., you have been influenced by “True Lies.” In fact the very same data shows that exactly 67% of those surveyed believe that Jackhammer is as good as or better than Burst in relieving the pain that causes headaches. In fact, if you “do the math” you will see that Jackhammer and Burst were considered to be EQUIVALENT in effectiveness in relieving headache pain. This is because the data shows that 33% felt that Burst did better than Jackhammer (add the data in the first two rows of Table 1 together) and that 33% felt that Jackhammer did better than Burst (add the data in rows 4 and 5 of Table 1 together). So where does the deception come in and how does it magically appear? Quite simply, if a given manufacturer claims row three for its own (e.g., the row that states “There is no difference between Burst and Jackhammer”), one achieves the majority result or 2/3 finding. The lesson here is not to rely upon what is said, but rather if the purchase decision is important enough, ask for access to the data underlying the claim. Now let’s move from this

2 Note that the data as collected for each of the categories is presented in column 2 of the table. 3 This is my hypothetical example, and I can make it as deceiving as I want it to be, you are free of course, to embellish it.

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hypothetical example illustrating that facts can be misleading to a real world example of data manipulation as reported by Bruce Buchanan and Doron Goldman in an article published in the Harvard Business Review almost 30 years ago.4 Doron was an undergraduate student of mine many years ago at NYU, who eventually studied for his Doctorate at the Stern School, combining his business knowledge with a Juris Doctorate. The authors report on a court case involving R.J. Reynolds Tobacco Company suing Loews Theaters. At first glance this seems like a strange lawsuit involving a cigarette company suing a hotel/heater chain, but a closer inspection shows that Loews was the maker of Triumph cigarettes through its subsidiary Lorillard which was spun off from the company in 2007. The suit involved R.J. Reynold’s Winston Lights brand that was the focus of comparative advertising from Loews’ Triumph. Evidently to support a claim against Winston Lights, Triumph cigarettes conducted a consumer survey that asked four major questions relating to “preference,” “better taste,” “amount of taste” and “satisfying quality.” On the first two of these questions, Triumph scored a majority preference over Winston Lights, but on the attributes of “amount of taste” and “satisfying quality” it did not. Triumph, however, based its advertising claim on the results of the first two questions and largely ignored the others, hence the basis for the lawsuit. According to Buchanan and Goldman: “The court found that Triumph had “failed to establish a basis” on which to disregard the results of the last two questions, since these also asked about the relative quality of the two brands. It also held that “failure to disclose a material aspect of the results, relating to taste, under the circumstances is misleading.” Once again, only partly revealing the data and presenting only part of the truth ignores the rest of the results leading the consumer to make false inferences regarding the basis for his/her judgment. Buchanan and Goldman term this tactic “Cherry Picking.” D. False Advertising Claims Involving Ingredients Recently, NBC Business News announced that if you drank Red Bull Energy drink in the past 12 years, you may be entitled to a payment of

4 Please see Buchanan and Goldman. Harvard Business Review. 89 (1989): 38–53.

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$10.00 because a class action lawsuit5 was settled regarding Red Bull’s famous slogan and advertising, that “Red Bull Gives You Wings.” In the lawsuit directed against the company, the plaintiff did not sue Red Bull because he remained “wingless” and therefore could not fly, after he drank the beverage, but rather the suit involved “false advertising” in that (as contended) the drink did not boost one’s energy beyond the amount that a regular cup of coffee would. It was maintained that the advertising led the reader to make such a conclusion. Relevant language from the lawsuit read as follows: Even though there is a lack of genuine scientific support for a claim that Red Bull branded energy drinks provide any more benefit to a consumer than a cup of coffee, the Red Bull defendants persistently and pervasively market their product as a superior source of “energy” worthy of a premium price over a cup of coffee or other sources of caffeine. Such deceptive conduct and practices mean that [Red Bull’s] advertising and marketing is not just “puffery,” but is instead deceptive and fraudulent and is therefore actionable.

In settling the lawsuit, Red Bull agreed to discontinue the use of the slogan but made it clear that their position remains that their advertising was not deceptive stating: “Red Bull maintains that its marketing and advertising have always been truthful and accurate, and denies any and all wrongdoing or liability.” Notice that the plaintiffs’ made the argument that the Red Bull advertising, “is not just puffery, but is instead deceptive and fraudulent.” The distinction made that the advertising is characterized as “not just puffery” is critical to the case because “puffery” is not actionable in a court of law and is representative simply of exaggeration without any basis in fact. Puffery is defined as: “A promotional statement or claim that expresses subjective rather than objective views which no ‘reasonable person’ would take literally.”6 So for example, when I was newly married, a pizza store

5 This was a class action lawsuit brought forward under the plaintiff’s name of Benjamin Careathers. 6 See Newcal Industries, Inc. v. IKON Office Solutions, 513 F.3d 1038, 1053 (9th Cir. 2008).

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near my home in Sheepshead Bay Brooklyn, had the following on their take out boxes of pizza: “you have tried the rest, now try the best.” This is a fine example of puffery since “the best” is a subjective term, and it is not clear on what dimension or set of attributes the product is indeed the best nor what are the geographical boundaries …Brooklyn, New York State or the United States! Believe me there is a BIG difference between Brooklyn and the rest of the United States! Moreover, even if I believed that the pizza was horrible, it would be unreasonable for a “reasonable” consumer to claim that they relied on this claim and expected to be served the “best” pizza in the world. The term “reasonable consumer” and what such a person would infer, is key in court actions since this is typically the standard by which the interpretation of advertising claims is judged against. Finally, I have seen a lot of advertising recently for a new supplement called Prevagen. The product claims that it “Improves Memory” as well as leading to a healthy brain function, sharper mind and clearer thinking. I am not saying that this company is guilty of false advertising, but the claim is on its face so strange, that it may not be believed. Evidently, the secret ingredient that underlies the effectiveness of the product is apoaequorin, an element supposedly only found in jellyfish and is part of the mechanism or chemical reaction that allows them to glow. Now while it may seem interesting to the consumer that the supplement contains an element that is unique to jellyfish, the key issue that remains unanswered is why would such an element be linked to memory? Here revealing the underlying data, possibly in an advertisement would be important for credibility, and I have not yet seen such an advertisement. Frankly, I have also not seen many jellyfish who can remember where their last meal came from. Indeed, when one thinks of animals who are famous for their thinking ability or even their memory, the jellyfish is typically not on the top one’s list. Now if Prevagen made the claim that they contained an element that only elephants have, I would be more likely to believe them since elephants are famous for their memory, so until it is shown that a jellyfish named Fred wins the South Florida spelling bee, I’m holding off on buying Prevagen, even if it is shown that if I take it my brain would glow in the dark!

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E. A New Wrinkle on Deceptive Advertising Claims “If Botox were lethal, half of Beverly Hills would be dead and the other half would be suicidal,” said Dr. Ava T. Shamban, a cosmetic dermatologist in Santa Monica. In my role as an expert witness, I have been deposed over 50 times and have testified at trial (both Federal and State court) 10 times. Twice over my career, I have been involved as an expert in marketing in civil actions against Allergan, a large pharmaceutical firm based in Troy-Hills New Jersey who is probably most famous for their marketing and development of Botox and Botox Cosmetic. In the first case I was hired by Klein Becker, the makers of Strivectin, an anti-aging cream, who were sued by Allergan over their slogan “Better than Botox?” Obviously, such a slogan did not sit well with Allergan, since there was apparently evidence that Klein-Becker’s positioning of Strivectin as going head-to-head against Botox was taking sales away from this powerful brand. However, Strivectin countered by arguing that the slogan “Better than Botox?” was defensible for three reasons. First, it was claimed that it was not an expressly made claim but rather it simply asks a question of the consumer. . . that is, is our product superior to Botox? According to Klein-Becker, the ad did not necessarily suggest an answer. Secondly, the term “Better than Botox?” was claimed to be simply puffery. That is, better in what respect? Finally, Klein-Becker could take the position that their product was better than Botox because it was not injected into the body as a potentially poisonous substance, but rather applied as a topical cream and hence potentially less dangerous. As you can imagine, Allergan took great exception to this position, maintaining that if you topically apply something to the face to “relax” wrinkles and it has minimal or no effect, can you argue with a straight face (pun intended) that it is better than another product, especially one to be known to be as effective as Botox? Now as an aside, in this case the attorneys asked me to do a survey, asking Botox Cosmetic consumers what they thought was the key ingredient of Botox Cosmetic, purportedly to show that Botox Cosmetic consumers were not well educated about the product they were buying. In reality,

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Botox and Botox Cosmetic are drugs made from a neurotoxin produced by the bacterium Clostridium botulinum called botulinum toxin. It is one of the most powerful neurotoxins in the world and is used to medically treat certain muscular conditions and when applied to the face, can cosmetically remove wrinkles by temporarily paralyzing muscles. According to Nigam and Nigam (2010),7 doses of Botox are measured in mouse units, yes mouse units (which is the amount of toxin that kills 50% of a group of 18–20 g female Swiss–Webster mice).8 Now, one would expect that the #1 answer that Botox Cosmetic consumers would give to the question, “What is Botox made of” would be some form of neuro-poison or substance that blocks nerve endings from receiving signals from the brain. However, the most frequently given answer that I received was surprisingly, “elephant urine.”9 Where such a response came from, I have no idea, but I suspect it reflects a rumor that circulated on the internet about the product.10 The second case that I appeared in as an expert witness, against Allergan featured Dr. Arnold Klein as a defendant. Dr. Klein, was known as a Beverly Hills dermatologist and a close acquaintance of both Elizabeth Taylor and Michael Jackson. He was also an opponent of Allegan who manufactured Botox. Presumably, Dr. Klein was partly responsible for Allegan getting a “black box” warning for their product Botox in 2009 because of a rare but potentially life-threatening complication involving the drug when the effects of the toxin spread far beyond the injection site.

7 Nigram, P.K. and Anjana Nigam. “Botulinum toxin.” Indian Journal of Dermatology 55(1)

(2010): 8–14. 8 Why female Swiss–Webster mice are required for this test, instead of say mice from a

fieldhouse in New Jersey is beyond the technical expertise or comprehension of this author. However, the Swiss–Webster mice presumably have a greater preference for Swiss cheeses than those located in New Jersey, and may be good at writing dictionaries. 9 I’m aware of giving someone a compliment by saying that “you have porcelain skin,” however at least in this country, the statement, that “you have elephant skin,” is surely not going to be taken very kindly, or get you a second date. 10 Clearly injecting elephant urine in anyone’s face would probably have the ability to change one’s appearance and for that matter would definitely end a lot of your friendships and increase your penchant for eating peanuts. However, if anyone looked at an elephant’s wrinkled skin, one would naturally have to wonder how such a rumor began.

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The New York Times described the case involving Dr. Klein in the following way in their feature article dated October 3rd 2004 titled: “Botox Lawsuit is Raising Eyebrows:” He is a Beverly Hills doctor known for pioneer work in cosmetic Dermatology and for a star-studded patient list, where “Michael” is for Jackson and “Elizabeth” is for Taylor. She (the plaintiff) is an A-list Hollywood wife, active in the right philanthropies and Democratic party politics, and married to a famous movie producer. But after a doctor-patient relationship of more than 20 years, Arnold W. Klein and Irena Medavoy are facing off in a medical malpractice trial in Los Angeles Superior Court that has tongues wagging as much about the players as about what they are fighting over: Botox . . .there is more than passing concern about the issues Mrs. Medavoy’s lawsuit has raised, including “off label” uses of approved drugs, and the sometimes cozy relationship between doctors and drug makers.

The lawsuit revolved around the fact that Dr. Klein administered a dose of Botox to Mrs. Medavoy to treat her for an off-label usage of the drug, that of migraine headaches without warning her of the risks or disclosing that he was a paid consultant for Allergan. Botox, similar to any other drug, is approved by the Food and Drug Administration (FDA) only for specific uses for which the drug is considered to be “safe and effective,” and any use of the drug outside of such approved uses is termed “off- label.” Yet, such “off-label” usages of a drug are quite common among medical practitioners. In the case of Botox Cosmetic, the drug was initially only approved for “glabellar lines,” the vertical lines between the eyebrows. Yet it was applied for a migraine headache, resulting in apparently for Mrs. Medavoy, the worst headache she ever experienced in her life up to that point (“like somebody put a three-sizes-too-small helmet on you.”)11 In this case, I was engaged to conduct a survey of Botox Cosmetic patients, to determine the inferences they made, particularly with respect to the uses of Botox Cosmetic, when shown a series of Botox Cosmetic 11 See Navarro, Mireya. “Botox lawsuit is raising eyebrows.” New York Times, Fashion and Style, October 3rd 2004.

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DTC advertisements. Specifically, in September of 2002, the FDA sent Allergan a letter regarding several Direct-to-Consumer (DTC) promotional and broadcast pieces which advertised the product as follows: It seems like everybody is talking about Botox Cosmetic, the highly effective, non-surgical procedure that can dramatically, reduce your toughest wrinkle within seven days.

According to the FDA: This statement is prominently presented at the beginning of the patient brochure, and is misleading because it does not emphasize that this is a temporary procedure. In addition, the term “toughest wrinkle,” does not adequately specify the approved indication for use and misleadingly suggests that Botox Cosmetic is for use in all tough wrinkles. Please immediately cease distribution of these, and similarly worded materials and revise these statements to clearly emphasize the temporary duration of this product and to appropriately identify the approved indication for use, e.g., “those tough lines between your eyebrows.”

So, my survey exposed users and potential users of Botox Cosmetic to advertisements from Allergan which made the “toughest” wrinkle claim and simply asked these respondents what they believed the advertisement was referring to when it mentioned one’s “toughest wrinkle.” Please see Figure 2 for the potential wrinkle candidates. The results of the survey were fascinating, that is, I received five main answers each essentially receiving approximately 20% of the vote, characteristic of a rectangular distribution. That is, relatively equal mention between the Glabellar line (also known as frown lines), the horizontal forehead lines, crows’ feet, nasolabial folds and marionette lines (my personal favorite). This survey therefore showed, that when an advertised claim is made that one’s product can “reduce your toughest wrinkle” this brings to mind at a relatively equal rate, five different wrinkles on the face for those who purchase Botox Cosmetic. Therefore, such an advertisement, by mentioning the term “toughest wrinkle,” and letting women rely upon their interpretation of the term, is effectively advertising off-label applications of the product without mentioning each specific wrinkle by name. I would agree there are certain cases where it is too difficult to tell where one’s “toughest wrinkle” is located on one’s face, as the illustration

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FIGURE 2: One’s Toughest Wrinkle

in Figure 3 shows on the next page. However, hopefully one gets some form of treatment before it gets to this point! F. Deceptive Brand Names Way back in 1919, the United States Supreme Court decided that the use of a federally registered trademark (i.e., brand), could be a deceptive practice in violation of a consumer protection statute. In a landmark case, the United States Department of Agriculture challenged the use of the trademark “Creamo” to identify margarine that contained no cream because it leads to the deceptive belief on behalf of consumers “that cream is a substantial ingredient of the oleomargarine.” The company contended that because the designation “Creamo” had been sanctioned as an appropriate trademark by the Patent Office (then part of the Interior Department) it could not

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FIGURE 3: Tough Wrinkles

be deceptive. However, The Supreme Court disagreed. Essentially, the company (Blanton Manufacturing) got “creamed.”12 Brand names are important to both buyers and sellers. For buyers, the brand name and its reputation serves as a promise of consistent, though not necessarily high, quality when a repeat purchase is being considered. It serves as a “chunking,” attribute it that it conveys or implies a lot of information to the consumer at once in the form of a brand name. For sellers, the brand name or trademark identifies and distinguishes their goods from those of other sellers and enables the construct of “brand loyalty,” to develop. So, the naming of a brand is critical especially if it conveys or implies false or misleading information to the target market. Consider the following: Isn’t it obvious that if you smoke a “Light” cigarette as opposed to the “regular” version of the brand, you would 12 See Brougham v. Blanton Manufacturing Co., 249 U.S. 495 (1919).

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inhale less tar and nicotine, and hence the name “Light” makes literal sense? According to numerous state-based class action lawsuits against cigarette manufacturers, the obvious is not necessarily the truth. This is because the filters in low-tar/low-nicotine cigarettes often include vent holes which, when open, allow air to enter and dilute the smoke. However, many smokers cover these holes with their lips and fingers. In contrast, when tested by a machine, typically the holes are unobstructed and artificially low measurements of tar and nicotine are obtained. So, therefore, for many smokers, although the package may indicate that a “light” cigarette is lower in tar and nicotine than a regular version of the same brand, and rightly so, the actual amount that a smoker ingests of these chemicals could be the same as if they were smoking a regular cigarette. But let’s say you are trying to escape this litigious world, so you and your young child sit down in front of the television set to relax and watch an educational program on the “History Channel.” Imagine that the first program that is shown is something called “Chasing Tail,” followed by Pawn Stars, “American Pickers” and “Sex in the Ancient World — Pompeii.” Do you see a trend forming here? By the names of these shows, you begin to believe that your living room has been transformed into a sleazy Las Vegas lounge, indeed what happened to those historical, educational and exciting programs or movies such as “Lawrence of Arabia,” “Patton” and “How the West Was Won?.” By showing these programs within the broader brand name of the “History Channel,” the viewer attempts to link the content of such programs to history, essentially doing the job of the programmers for them. However, this attempt to “frame” the programs can only go so far, because as the content deviates further and further from history, the target audience experiences a greater propensity to abandon the channel entirely, as it becomes more and more difficult to accept the programming as consistent with one’s expectations as to what a “History” channel should reasonably present. Essentially, the image of the “History Channel” can become unclear and diluted.13

13 Until proven wrong, it is my belief that Sex in the Ancient World was probably similar to

sex in the Modern World, although arguably in Pompeii when Vesuvius exploded, I would admit that sex was probably “hotter,” than it is now.

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G. Negative Price Options and More So you give up on watching the History Channel and decide to get in touch with your Aunt Florence who you haven’t spoken to for 3 years. Knowing that you have lost most, if not all of her recent contact information, you go to “People Search” to do a quick check on her address. There you are given two options to get a “People Search Report,” where you can get important information about her, like telephone number, date of birth and current address for the special price of $0.95, and as indicated, a whopping 75% discount from the regular price. All you have to do to begin the process is press the high chroma orange button which states “Add to Cart.” However, just below this button and in very fine light gray print which blends into the background of the webpage, that a hawk would need bifocals to read, is the text that states “Special Price With Intelius Offer Learn More.” The other option directly below the first is to simply pay the “Regular Price” of $3.95 by pressing the light green button that also says “Add to Cart.” One’s tendency is to click the top button above as opposed to the bottom below for three specific reasons that are all linked to automatic or (System I) processing as discussed previously in Chapter 1 of this book. First, the price of the top option is lower than the one on the bottom of the page and consumers are typically attracted to lower price “deals” and better value for the money.14 Second, consumers, and humans in general for that matter, tend to gravitate to the button that is higher on the page which happens to be closer to the description of the product as offered because of primacy considerations linked to the “serial positioning” and “order” effect.15 Finally, high-chroma colors are colors that have a distinctive and intensive bright hue, and are more attention getting than a lower-chroma green.16 This is why the Ferrari is typically produced in a fire engine red

14 See Blattberg, Robert C., and Kenneth J. Wisniewski. “Price-induced patterns of

competition.” Marketing Science 8(4) (1989): 291–309. 15 Kardes, F.R. and Herr, P.M. “Order effects in consumer judgment, choice, and memory:

The role of initial processing goals.” NA — Advances in Consumer Research 17 (1990): 541–546. 16 Gorn, Gerald J., Amitava Chattopadhyay, Tracey Yi, and Darren W. Dahl. “Effects of color as an executional cue in advertising: They’re in the shade.” Management Science 43(10) (1997): 1387–1400.

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color and images of Las Vegas are typically shown in bright engaging colors. It is actually beneficial for a company, or a vacation city, to utilize high-chroma colors in their advertising or product composition if such a product is linked with or known for excitement.17 At this point, the reader may not think twice about a seller’s use of the above marketing tactics, and may not even find them to be deceptive. However, as usual there is more to the story that we will not cover here relating to what happens as you proceed through the purchase process. Indeed, if you click on the heavily discounted button you may have actually purchased another offering in addition to what you believe that you have purchased, and not necessarily from the same company whose website you visited initially. Such a strategy is called “Negative-option pricing.” Such an approach makes purchase the default action for consumers, effectively shifting the burden of effort in the sales process from the seller to the consumer. In traditional markets, it is the burden of the seller to convince the buyer of the value of the goods or services offered for sale. However, under negative-option pricing, the default assumption is the opposite, making it the responsibility of the consumer to take action to stop payment if he or she feels the good or service is not worthwhile. In some cases, the consumer may not even be aware that he/she has actually made a purchase. This purchase process was highlighted in a class action lawsuit brought against Intelius in the state of Washington, for which I appeared on behalf of the class as their marketing expert. The lawsuit was effectively resolved with Intelius denying the allegations, but agreeing to offer refunds to consumers through a $10.5 million dollar class action lawsuit settlement.18 H. Two-Sided Advertising Most advertising that the consumer is exposed to is “one-sided” in nature in that the seller typically says only positive things about their product.

17 Aside from Hue and Chroma, color varies as a function of “value.” Value is defined as

the lightness or darkness of the color. When something is given a pastel value, this is linked to relaxation for the consumer. Again see, Gorn, Chattopadhyay, Yi, and Dahl (1997). 18 See Keithly v. Intelius, Inc., et al., Case No. 9-cv-1485RSL, U.S. District Court, Western District of Washington, Seattle.

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This is because there is a general fear in the advertising world today that if one were to say something negative about one’s product not one consumer would ever buy it, this is called, “two-sided,” advertising. But every story has two sides, and it turns out that if only positive things are said about one’s product, the more the advertiser exaggerates product claims, the more likely the consumer is apt to believe that the product cannot do what is claimed. When this happens, the consumer has experienced a “contrast” effect in that when compared to what the advertising says about the product, product performance is rated even more unfavorably than if nothing was said about the product at all.19 Contrast occurs quite often when some product, service or event is touted as the greatest experience that the consumer is ever going to have, or for example as a life changing product or event. When one compares the product experience with what one expects (typically derived from what is claimed in its promotion), the experience traditionally can only pale in comparison, and contrast occurs. As an example of this contrast effect, when I was a teenager and first went to Naples, Italy I was told the famous saying: “See Naples and Die,” meaning that you have seen the most beautiful thing on earth, so now you can die and feel fulfilled. With such high expectations, I ran to see Naples rushing through Florence, Rome, Cinque Terra and Sorrento like they didn’t exist. When I got there and saw laundry hanging off of high-rise buildings, I experienced the biggest contrast effect of my then young life leading me to exclaim, “I died when I saw Naples.” In reality, there are few products or experiences which memorably meet or exceed expectations. The first iPhone could be one example of such a product, and maybe your new fire engine red Maserati. Now before I discuss an approach which when cleverly utilized can make consumers evaluate the product or service experience as consistent or better than their expectations for a wider range of exaggeration, I need to prove to you that you have well-formed and anchored expectations for a wide range of phenomena. To prove this, we need to go back in time

19 Contrast is part of the Theory of Assimilation — Contrast proposed by Muzafer Sherif

and Carl I. Hovland. Social Judgment: Assimilation and Contrast Effects in Communication and Attitude Change. New Haven, CT: Yale University Press (1961).

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almost 30 years ago to late 1990 when I used to take my now older son to the local park for a ride in the swing when he was about one year old. Every time I did this, I encountered other parents, mostly moms who would typically make two comments. The first was, “I wish that I had a husband who would take the baby to the park every day,” and secondly, “how old is your child”? As I am a marketing strategist, I knew that most of the mothers had already developed an answer to this second question based upon how big my boy was as well as his level of verbal skills. That is, they had developed clear expectations regarding how a child looks and acts at a certain age, calibrated to within weeks. So to annoy these moms, I would always say that my child was three months younger than he was. When I gave that response, each and every mom, no exception, would open their mouth,. . . gasp, and say in complete surprise, “he’s SO BIG for that age, and he TALKS SO FLUENTLY. . .” In response, I would tell them that he told me he was thinking of bypassing kindergarten to go directly to Harvard. The kicker was, watching the moms looking angrily at their own kids and wondering why he/she couldn’t say anything and why he/she was so short. I often feared that they would give their kid a wallop when they got home. Now back to two-sided advertising. While this technique may be valuable for the advertiser, since they can get the consumer to swallow the sales spiel “hook, line and sinker” even when exaggeration is great, it is dangerous for consumers, since the end result is that they may have a tendency to buy into the advertisers’ claims under the condition when the claims are not actually true. Such an approach is called “twosided” advertising and was the focus of my dissertation research at New York University in the early 80s.20 Advertising that is “two-sided” states favorable characteristics of a product or service on specific important attributes but then says something negative about the product on an unimportant attribute.21 It turns out that saying something negative on

20 See Kamins, M.A. and Assael, H. “Two-sided versus one-sided appeals: A cognitive

perspective on argumentation, source derogation, and the effect of disconfirming trial on belief change.” Journal of Marketing Research 24(1) (1987): 29–39. This represented the published form of my dissertation research. 21 See Etgar, Michael, and Stephen A. Goodwin. “One-sided versus two-sided comparative message appeals for new brand introductions.” Journal of Consumer Research 8(4) (1982): 460–465.

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FIGURE 4: Example of Two-Sided Advertising

a relatively unimportant attribute makes the consumer more likely to believe what is favorably said about the product. That is, the consumer’s evaluation of the product tends to run consistent with one’s expectations as expectations rise to increasingly higher levels. Consider Volkswagen’s famous advertisements from the late 60s and early 70s as shown in Figures 4 and 5. Both advertisements “admit” that the car is ugly, but counter the claim by refuting it. This is done by framing the car’s looks in the context of durability (i.e., lasts longer) and quality (that the looks are only what is seen on the surface). Such ads are called two-sided refutational ads because they introduce a negative claim and then immediately refute the claim in light of another (favorable) claim. The approach is impactful because the attack (that the car is admittedly ugly) is presented in weakened form not unlike a disease for which the germs are introduced into the body in weakened state when you get an inoculation. In fact, “Inoculation Theory” originally introduced by McGuire (1961), serves as the theoretical foundation for the effectiveness

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FIGURE 5: A Two-Sided Refutational Advertisement

of such an appeal.22 In the Volkswagen case, the consumer is told that the car may be perceived by others (who are not in the know) to be ugly, but they will be calling it ugly for a long time because it’s going to last a very long time. Now what’s more important, durability or looks? To Volkswagen

22 McGuire, William J. “The effectiveness of supportive and refutational defenses in

immunizing and restoring beliefs against persuasion.” Sociometry 24(2) (1961): 184–197.

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owners who think the car is cute, (and I am one of them who currently owns four Volkswagens), you are preaching to the choir. Now, if one were to use a two-sided appeal and not use refutation, (known as a two-sided non-refutational appeal) the appeal may be viewed as more credible (since the advertiser is expected to derogate or defend any weakness about the product that is made evident), but it does not counter the negative because no attempt is made to refute it.23 The study I conducted to examine two-sided non-refutational appeals involved a supermarket basket of goods where 100 items were selected randomly each week and then the prices at four different local Southern California supermarkets were totaled and revealed to customers. The company that sponsored the research (Ralph’s), a famous supermarket in Southern California, was very pleased with the results for the first week of the study as their total came out as the lowest among the competition. However, in the weeks that followed this was not always the case. One of the upper-level managers at the company relayed to me that during the weeks in which Ralph’s was NOT the lowest price, they received more letters congratulating them for being an honest company. The problem was however that during these weeks their sales dropped as consumers chose lower price over honesty and shopped at the competition! The solution for this problem, was for Ralph’s to emphasize other qualities that they had that other local supermarkets didn’t (such as farm fresh vegetables and better specials and coupons), but once they did that, this introduced a form of refutation regarding the fact that they did not have the lowest price all of the time. Two-sided appeals are rare, but when you encounter one in your role as a consumer be wary that your feelings of warmth toward the advertiser may come at a cost. That is, while the advertiser may seem truthful because they are revealing a negative product attribute, think to yourself, what favorable attributes about the product do they want me to accept on their face?

23 Kamins, Michael A., and Lawrence J. Marks. “An examination into the effectiveness of

two-sided comparative price appeals.” Journal of the Academy of Marketing Science 16(2) (1988): 64–71.

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I. Consumer Defense to False and Deceptive Advertising In a lot of the examples that I discussed above, the advertiser made an express statement or implied something about their product or service which the consumer assumed was true and accepted at face value. For example, Allergan’s claim that they could “dramatically reduce your ‘toughest’ wrinkle within seven days” or Strivectin’s tagline “Better than Botox?” at first glance allows the System I “thinking fast” consumer, respectively, to relate the initial claim to apply directly to what THEY believe is their toughest wrinkle, and alternatively for the second claim, to interpret a question as if it were a definitive statement. This of course can be problematic, to say the least. The lesson learned here is that consumers should think more deeply about what is actually being said in the advertisement before running off and making conclusions. Speaking of running off, in yet another example of advertising deception, Skechers shoes made a rather Sketchy claim when it unlawfully marketed its line of rocker-bottom shoe products including Shape-ups, Tone-ups, and the Skechers Resistance Runner as providing certain health and medical benefits that were not adequately proven by scientific evidence. Skechers claimed that its toning shoes caused consumers to lose weight, burn calories, improve circulation, fight cellulite, and firm, tone or strengthen thigh, buttock and back muscles and that its products also reduced stress and improved sleep. However, these claims were not substantiated by credible evidence. The company was sued by the New York State Attorney General and resolved the lawsuit with a $40 million dollar nationwide settlement.24 But in this case, one look at their celebrity spokesperson as she passed you on the street would have served as evidence for me to determine that the claims made by Skechers about their product was false. Indeed, Kim Kardashian is not very believable as a cellulite fighter, and when it comes to the ability to strengthen buttock and back muscles, let’s say that for this

24 Please see https://www.ftc.gov/news-events/press-releases/2012/05/skechers-will-pay-

40-million-settle-ftc-charges-it-deceived.

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product there was no spokesperson bigger that the company could have hired than Kim! Now let’s turn in the next chapter to advertising which has never been accused of stating the truth and there is no reason to think that this changed in the prior election year or for that matter ever will! Indeed, we now focus on Political advertising — buckle your seatbelts …

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Chapter 12

Political Advertising and Deception

A. Introduction You mean to tell me that politicians may not be necessarily honest in their advertising campaign for office? Well, I’m sure that I’m not telling you anything that you don’t already know! But here are some Presidential campaign advertising slogans that you may not know and which can be judged for their truthfulness after the fact. Let’s play a game, I present the slogans and you guess the President (the answers will be presented in the footnote below, and please do not read the next paragraph before you have finished this exercise). Consider the following: (a) “Happy Days are Here Again;” (b) “He Kept Us Out Of War!” (c) “Vote Yourself A Farm;” (d) A Chicken in Every Pot, and a Car In Every Garage;” (e) “Not Just Peanuts;” and (f) “A Stronger America.”1 Now why were these slogans particularly questionable in their veracity? Well the first slogan was introduced by Roosevelt in the 1932 election, and only seven short years later, the world was at war again, now of course we cannot blame FDR, indeed, who knew the degree to which Hitler endangered the world back in 1932? Wilson used the slogan “He Kept Us Out of War” in 1916, but then 2 years later we entered the war and suffered significant casualties. Lincoln’s promise of a farm, I’m sure, was 1 The answers are respectively: Franklin Roosevelt, Woodrow Wilson, Abraham Lincoln,

Herbert Hoover, Jimmy Carter and finally John F. Kerry. Ok, Ok, I know that Kerry was never elected President (to date), but I thought the slogan was interesting in light of his role as key negotiator for the nuclear deal with Iran! 175

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not realized by many as the U.S. was engaged in the civil war that began in 1860, when this campaign slogan was in use. Even if you got a farm, if it was anywhere near Gettysburg, then then farm was probably full of dead horses and sheep and lots of cannonballs! Hoover’s promise in 1928 of chickens and cars seemed to dissolve before everyone’s eyes as the U.S. entered the “Great Depression” in 1929. Finally, the slogan “Not Just Peanuts” was used by Jimmy Carter in the 1976 election. Although it does not convey much about Mr. Carter, aside from the fact that he should not be identified as simply a peanut farmer, my son’s response to the slogan included the following innovative addition to it “Not Just peanuts . . . just nuts.” Of course I could have included the slogan “Make America Great Again,” but if I did, then half of the population would probably refuse to read this book given the division in the country after President Trump’s election. On the day that Sarah Palin endorsed Donald Trump for President, the New York Daily News headline blared out “I’m With Stupid, as Figure 1 illustrates.”2 Now, Michael Ramirez, a former Pulitzer prize winning cartoonist for the Conservative Republican leaning newspaper Investor’s Business Daily, used the same saying for his cartoon showing Hillary with the arrow on her Trademark “H” pointing upward to her instead of sideways in Figure 2. It’s not hard to see by the image, whether or not Mr. Ramirez was favorable to Hillary achieving the highest office in the land. The latter use of the saying “I’m With Stupid” may have been triggered by Ms. Clinton’s own campaign slogan: “I’m With Her.” which replaced her prior use of “Hillary For America” which she used at the beginning of her campaign in 2015. At the close of her campaign, she used varying campaign slogans. Consider: “Fighting For Us,” which was countered by Mr. Trump who stated that it is unclear who the “Us” in “Fighting for Us” is, implying that it was indeed Hillary and Bill. Mr. Trump maintained that if Ms. Clinton really cared about the electorate, she would have used the slogan “Fighting For You.” She also utilized, “Stronger Together,” and “Breaking Down Barriers.” However, when you are not consistent in the

2 The New York Daily News has been adamant about its dislike for Mr. Trump before and

since the election.

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FIGURE 1: Anti-Trump Headline from Daily News

message that you send, the message that you wish your target market to understand about you gets diluted. On the Republican side, Mr. Trump’s use of the slogan “Make America Great Again,” can be critiqued because it assumes something that may not

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FIGURE 2: Follow the Arrow UP with permission from Michael Ramirez and Creators Syndicate, Inc.

be true in the first place . . . that is, did America really lose it’s greatness? However on the plus side, it is clearly a call to action, whereas “Stronger Together” is not. For example, standing together on the top of Mt. Everest may not help you in a big snowstorm when the oxygen supplies are ebbing away, and the night has begun to fall along with the ambient temperature. Whether or not you take a liking to the slogan, Trump’s marketing advantage over Hillary was that he kept his slogan constant throughout the campaign, whereas Hillary had many reincarnations inclusive of the channeling of Eleanor Roosevelt with her announcement for the Presidency on Roosevelt Island.3 My vote for the BEST campaign slogan of the 2016 Presidential campaign was “Feel the Bern” since the enthusiasm and youthful energy

3 It is indeed difficult to separate your feelings for the candidate from your feelings for the

campaign slogan. Sometimes the slogan fits the candidate, for example, how could Hillary ever have a hat that said “Make America Great Again,” she would look “goofy” in it and according to Mr. Trump, that moniker is reserved for Elizabeth Warren.

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of “Uncle” Bernie Sanders could not be denied and his campaign slogan said all of that in three short words. My vote for the worst campaign slogan of 2016 was Jeb! clearly if anyone deserved an exclamation point of excitement at the end of his name, Jeb seemed ill fitted for this designation.4 He and Ben Carson both seemed a bit on the drowsy side. Finally, a campaign slogan should represent what the candidate stands for in a few short words. Therefore, “Make America Great Again,” does well and “Jeb!,” again falls on his face literally and figuratively. In today’s world, political campaigns, especially those of national stature (like that of a Presidential campaign) seem to require more than just political advertising, slogans, hand shaking, appearances and political rallies. It seems as if every candidate has to write a book to create exposure and build their credibility. More importantly, in a society enamored with reality television and hard-core news morphing quickly into the realm of entertainment, the notion that traditional political advertising can maintain the impact that it has had in past elections is up for debate. This is especially true of the 2016 election where now President Trump utilized his fame as a television reality show favorite to his advantage in his run for the Presidency. To this effect, I recall Anderson Cooper saying early on in the campaign that Trump has incredulously achieved significant exposure despite not spending a lot on advertising. He didn’t have to! If Mr. Cooper just stood back and thought about Mr. Trump’s rise in the polls, he would have realized that his channel (CNN) and those at Fox and MSNBC were responsible for giving Mr. Trump hours and hours of air time early on in the campaign that other candidates were not privileged to simply because of the entertainment value of Mr. Trump and the money linked to increasing audience size. The “news” stations created the situation, and for CNN and MSNBC, complaining about the result (as they seemingly do every day now) is a bit too late. We live in a world where “entertainment” seems to rule rather than substance, and those who talk before thinking actually may have an advantage over those who think before talking. So, is it any surprise that a given candidate who appeared for long periods of time almost every night

4 Mr. Trump caught onto this characteristic early quickly naming him “low energy,” so that even when Jeb got excited, Mr. Trump could get away with congratulating him on his burst of enthusiasm, often telling him to see if he could keep it up for a longer period of time.

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early on in the campaign on both more liberal MSNBC and CNN, and more conservative Fox, won the election? Back in Chapter 5 of this book, I discussed the process through which advertising becomes impactful, that of the “Hierarchy of Effects” first proposed by Lavidge and Steiner (1961).5 These authors proposed that advertising works by moving the prospective purchaser through the following stages: unawareness => awareness => knowledge => liking => preference => conviction=> purchase. This can be alternatively viewed as moving the prospective consumer from cognition to affect or feeling and finally to action or purchase. So think about it, since Mr. Trump dominated all other candidates in awareness, not only because of his fame as a reality television personality, achieved mostly through the television show “The Apprentice,”6 but also because of all of the media attention given to him, he had a head start in the hierarchy relative to the competition in creating preference, and this in part explains the Trump phenomenon and the Trump Presidency. The importance of exposure in advertising and promotion as a prelude to shaping attitudes and preferences is well illustrated through the work of Frank Luntz. Mr. Luntz is an American political consultant and public opinion wizard who uses survey/marketing research to determine the best way to communicate through the use of words, the message wished to be conveyed. The title of his first book: “Words That Work: It’s Not What You Say, It’s What People Hear,”7 essentially reveals the key to his success. Working for Republican causes, he advocated the use of vocabulary designed to produce a desired effect in terms of consumer belief including the re-positioning of estate taxes as a “death tax,” to cast a deathly pale on the public’s view of estate taxes and the more relaxing framing of tax relief instead of tax cuts.

5 Lavidge, Robert J. and Gary A. Steiner. “A model for predictive measurements of

advertising effectiveness.” Journal of Marketing 25(4) (1961): 59–62. 6 This show established Mr. Trump as a “take no prisoner” hard driving and shrewd, calculating businessman. It served to clearly define his image and what he stands for, for good or for bad, an advantage he has over other candidates who many believe are untrustworthy and hiding their true beliefs and nature since they are viewed as part of the political hierarchy. 7 New York: Hyperion (2007).

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Amazingly, Seth Stephens Davidowitz (2017),8 reports on a study conducted by two economists in the highly respected journal Econometrica.9 Using the 2005 Congressional Record as a source, these researchers identified those phrases used most often by respectively Republicans and Democrats (i.e., partisan phrases). They then turned their attention to digitized newspapers and counted how frequently a set of 1,000 partisan phrases appeared in these newspapers in order to gauge the respective paper’s political slant (i.e., which measures the frequency with which newspapers use language that would tend to sway readers to the right or to the left on political issues). They found that using this methodology, the Daily Oklahoman from Oklahoma City was the most Conservative with the Washington Times not far behind and the Tri-Valley Herald from Pleasanton was the most liberal with the San Francisco Chronicle not far behind. While this may not be shocking, if someone came to visit their Uncle Fred say in Oklahoma City, unbeknownst to him, the paper they were reading would use language designed to shape their opinion in a certain way, and if they took the writing to heart and read the paper often enough, they could be manipulated. Political advertising and the increasing politicizing of our media has not been welcomed with open arms by society at large, and the former has often been accused of “selling candidates like soap.” Such advertising has also been perceived to create candidate images which bear no relation to reality and for the destruction of the political system by emphasizing candidate personalities over substantive issues.10 More recently, political advertisers have been accused of using “negative” approaches to advertising much more frequently than in the past. Possibly to counter what is a disturbing trend, the latest euphemism is to call a political “attack” ad a “contrast” advertisement. Now a “contrasting” political advertisement is not necessarily a false ad, it is traditionally defined

8 Davidowitz, Seth-David. EveryBody Lies: Big Data New Data and What the Internet Can

Tell Us About Who We Really Are. New York: Harper Collins (2017). 9 Gentzkow, Mathew and Jesse M. Shapiro. “What drives media slant? Evidence from U.S.

daily newspapers.” Econometrica 78(1) (2010): 35–71. 10 See Garramone, Gina M. “Voter responses to negative political ads.” Journalism and Mass Communication Quarterly 61(2) (1984): 250.

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as an advertisement that mentions one’s opponent.11 By such a standard, we have seen a dramatic increase in negativity in Presidential advertising which has risen from a mere 10% of all political advertisements during the Nixon/Kennedy dogfight, to an average of almost 90% as Clinton faced off against Trump in 2016. In fact, on average, it was estimated that 96% of ads run by Clinton’s campaign were negative toward Trump, and 83% of the Trump campaign’s spots were negative toward Clinton according to CNN.12 But the negativity of these numbers should be compared to the previous king of Presidential campaign negativity. According to the Wesleyan Media Project, in 2012, Barack Obama ran the most negative campaign in recent Presidential history, with 58.5% of his broadcast and cable ads being judged negative.13 That eclipsed the previous leader, George W. Bush, who scored 55.4% negative. The 96% negativity of the Clinton campaign and the 83% negativity of Trump’s campaign make Obama and Bush appear to be boy scouts. According to the authors of the book: “The Positive Case for Negative Campaigning,” advertisements that are overly positive deprive voters of the full range of information that they need to make up their minds. While negative information has indeed been shown to have a greater impact on overall satisfaction and repurchase intention than positive information (Mittal, Ross, and Baldesare 1998), this depends to a great part on the source of the negative information which impacts its credibility.14 Listening to one candidate disparage another should be viewed and processed with a great deal of suspicion. However, if a candidate were to describe their limitations, that would present itself in the form of a two-sided appeal, which as discussed in Chapter 11 of this book, would be perceived as quite trustworthy especially if these negatives were left out there and not

11 See Mattes, Kyle and David P. Redlawsk and their book titled: The Positive Case for

Negative Campaigning. Chicago, Illinois: University of Chicago Press (2015). 12 “Negative ads dominate in campaign’s final days,” (2016) by Gregory Wallace, November 8th . 13 See the website: MediaProject.Wesleyan.edu 14 Mittal, Vikas, William T. Ross, and Patrick M. Baldasare. “The asymmetric impact of

negative and positive attribute-level performance on overall satisfaction and repurchase intentions.” Journal of Marketing 62 (1998): 33–47.

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refuted.15 However, if such negatives were game-changers, that candidate then could never get elected to office, hence the tendency NOT to use such a strategy and to avoid negativity about oneself is pursued at all costs. Mattes and Redlawsk (2015) argue that useful decisions are rarely made by comparing the positives of what’s proposed, offering the following observation: Is it really worse to have a candidate attack an opponent on issues, when the attacks are accurate, than it is to have that same candidate make false statements about his or her own record in presumably positive ads?

However, in my opinion one should consider the situation that is 180 ◦ opposite to that discussed. That is, I think that it IS WORSE to have a candidate attack an opponent on issues where the attacks are inaccurate, than to have that same candidate make true statements about his or her own record. The differences between our two positions is that Mattes and Redlawsk (2015) make the assumption that the candidate is more likely to lie about himself whereas, I believe he/she is more likely to lie about others since the latter behavior is seemingly more the accepted and traditional norm in American politics than is the former. In any event, Merritt (1984)16 argues that negative political advertising evokes negative affect toward both the sponsor and the targeted opponent. Furthermore, Garramone, Atkin, Pinkleton and Cole (1990)17 found that negative commercials may lead to greater candidate image discrimination between sponsor and target and greater attitude polarization than their positive counterparts. However, negative versus positive commercials did not differ in their effects on involvement in the election, communication behavior regarding the election and likelihood of turning out to vote

15 I can guarantee that Mr. Trump will not be discussing negatives as they relate to himself

anytime soon or in our lifetime. 16 Merritt, Sharyne. “Negative political advertising: Some empirical findings.” Journal of

Advertising 13(3) (1984): 27–38. 17 Garramone, Gina M., Charles K. Atkin, Bruce E. Pinkleton, and Richard T. Cole. “Effects

of negative political advertising on the political process.” Journal of Broadcasting & Electronic Media 34(3) (1990): 299–311.

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in the election. Moreover, negative political advertisements, similar to rumors that are counter to one’s beliefs, are not believed or processed by those who support the target of such negativity (Einwiller and Kamins 2008).18 Therefore, the main influence that “contrast advertisements” have on an election is on those who are undecided and oftentimes, convincing those undecided individuals can serve to turn the election in one’s direction. So why might such advertisements work to influence the undecided population? We turn to this issue in the next section of this chapter. B. Why Negative Advertising Can Be Impactful Back in Chapter 3 dealing with cognitive biases, we focused on the “Negativity Bias,” which is characteristic of the tendency for humans to more likely recall and give greater weight to negative statements, events, characteristics and objects than they do for positive factors. So in a political ad, or any ad for that matter, when we hear a negative statement about a person, product or object, we tend to remember and recall it more vividly and more easily than a positive statement. Part of this effect is because we expect companies and politicians to make favorable statements about their products and themselves, so a negative statement attributed to the self stands out more in the communication and in one’s memory. This is in part, the basis for the effectiveness of two-sided advertisements as presented in Chapter 11. Second, negative ads are said to be more complex than positive ones in that every such ad has at least an implied comparison. For example, imagine if Lindsay Graham were to say that Donald Trump is not a “Mainstream Republican.” Then by implication he is maintaining by default that he (Lindsay Graham) is a Mainstream Republican. The notion of what a “Mainstream Republican” indeed is then needs to be addressed and clarified in the receiver’s mind, and this complexity typically makes the reader

18 Einwiller, S.A. and Kamins, M.A. “Rumor has it: The moderating effect of identification

on rumor impact and the effectiveness of rumor refutation.” Journal of Applied Social Psychology 38(9) (2008): 2248–2272.

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process the information more attentively and at a deeper level, leading to a greater impact on recall and possibly decision-making. C. The “Sleeper” Effect I know what you are thinking . . . no I’m not talking here about Ted Cruz’ filibuster when he read “Green Eggs and Ham” on the floor of the United States Senate.19 Actually, the “sleeper effect,” has been discussed at length in the Psychology and Marketing literature.20 My co-author on many academic papers, (and fellow doctoral student at NYU back in the days) Dr. David Mazursky wrote a seminal piece on this subject with Dr. Yaacov Schul when both were professors at the Hebrew University in Jerusalem. In their paper Mazursky and Schul (1988) noted that in many cases, persuasive messages are often paired with discounting cues that suppress immediate attitude change.21 Such examples that are reflective of marketing applications involve remedial advertising (e.g., Mazis and Adkinson, 1976) as well as political advertising (Lariscy and Tinkham 1999) and the use of two-sided appeals (see footnote 10 of Chapter 4).22 Research has shown that, over time, the “Sleeper Effect” is caused because the message and the discounting cue become dissociated from one another resulting in the message having a greater delayed than immediate impact on receivers’ attitudes. This phenomenon seems both empirically contradictory and theoretically counter-intuitive since typically the effectiveness of a message erodes over time due to a variety of factors inclusive of diminishing recall. 19 Many believed that this reading encouraged more intellectual debate than on the average

day in the United States Senate. Thank god for Dr. Suess what else is better to read than “Green Eggs and Ham?” 20 This effect was first coined in the research of Hovland, Lunsdaine and Sheffield (1949). 21 Mazursky, David, and Yaacov Schul. “The effects of advertisement encoding on the failure to discount information: Implications for the sleeper effect.” Journal of Consumer Research 15(1) (1988): 24–36. 22 See Mazis, Michael B., and Janice E. Adkinson. “An experimental evaluation of a proposed corrective advertising remedy.” Journal of Marketing Research 13(2) (1976): 178–183; also Lariscy, Ruth Ann Weaver, and Spencer F. Tinkham. “The sleeper effect and negative political advertising.” Journal of Advertising 28(4) (1999): 13–30.

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FIGURE 3: British Political Advertisement

At this point in the book, I’m sure that I am putting you to sleep because the description of the effect uses a bit too much academic terminology which when one reads too often works better than Sominex to put you quickly into deep slumber. So how can the “Sleeper Effect” be described using a real negative political advertisement as an example? Consider the advertisements in Figure 3 against Gordon Brown, supposedly created and sponsored by the opposing Tories. Over time, consistent with the Sleeper Effect, a message is likely to become disassociated from its sponsor. So when an Englishman (or woman), first saw this ad, they would be expected to dismiss it as being “just politics.” Then, typically several weeks later when that same person is making their voting decision, something in their mind recollects this negative information. Gee, where and from whom did I hear that Gordon Brown mishandled pensions? Where did I hear he doubled the national debt? While you may have forgotten when or where or from whom you heard such negative information, it still is being processed while amazingly maybe not even be believed. This is a case where information that may not

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be believed still has an impact on behavior similar to the case of rumor. If you don’t believe this consider the following. Suppose that you heard a rumor that your neighborhood McDonald’s was serving worm meat in their hamburgers instead of pure beef? Would you believe it? Probably not! Would it impact your choice of where you go when lunchtime comes? Probably yes! In fact, this very rumor was the subject of an academic article about rumor detailing the impact of such a rumor in the Chicago area back in the 1980s.23 So negative political advertising can have a dramatic impact on one’s campaign due to the Sleeper Effect, but again, only for a select group of individuals. For example, those who wanted to vote for Gordon Brown simply would cognitively block the advertising. Those against Mr. Brown would simply have their negative expectations about him confirmed, and the ad would have no impact. It is the undecided group who are most impacted and, as said earlier in this chapter, this group is often large enough to decide an election either way. Finally, how does one counteract such a tactic? As the politician who is the victim of the campaign, Lariscy and Tinkham (1999) maintain that a direct counter-offensive should be launched as quickly after the attack as possible using frequently repeated rebuttal messages designed to call into question the credibility of the attacker. An alternative approach would be for the target of the attack to use his/her own negative campaign, however this then develops into an unending spiral of negativity, like what is shown in Figure 4 below and descriptive of the 2016 political campaign. For the voter, negative campaigns have their biggest impact upon you when you are undecided and in the information seeking stage. It is best to remain unemotional if you can because negative campaigns feed upon negative emotions. If you can only recall the criticism but not the source, be wary and be particularly suspect of negativity without any basis in fact, but rather in puffery (or exaggeration). For example, in 2009, Jeff Corzine ran for the governorship of New Jersey and lost in a campaign between three candidates that the New York Times called “an ugly new Jersey contest for

23 Please see the article about rumor by Tybout, Alice M., Bobby J. Calder, and Brian

Sternthal. “Using information processing theory to design marketing strategies.” Journal of Marketing Research 18(1) (1981): 73–79. Although few people admitted to believing the rumor, sales in McDonald’s restaurants were down by as much as 30% in the affected area.

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FIGURE 4: Cooper versus Ali?

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governor.”24 One print advertisement that he used against Mr. Christie, showed a picture of the future governor standing against a chain link fence with the text “CHRIS CHRISTIE One set of rules for himself Another for everyone else.” Clearly it is difficult to prove this contention, and this can simply be evaluated as an exaggeration without substance, or puffery. The New York Times also reported on another negative Corzine advertisement during his campaign that one could arguably maintain hit below the belt. Here the New York Times wrote about a television ad Gov. Jon S. Corzine used which “shows his challenger, Christopher J. Christie, stepping out of an S.U.V. in extreme slow motion, his extra girth moving, just as slowly, in several different directions at once. In case viewers missed the point, a narrator snidely intones that Mr. Christie “threw his weight around” to avoid getting traffic tickets.”

24 See, “Corzine points a spotlight at his rival’s waistline” by David M. Halbfinger, New York Times, October 7th 2009, New York Region.

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Manipulative Marketing Research from Questionnaire Design to Results

A. Introduction In June of 2016, the British people voted by referendum to leave the European Union by 51.9% to 48.1%, thereby rejecting the advice of the Westminster party leaders and essentially taking a plunge into the political unknown. “The Guardian,” a British daily newspaper, reported that the decision in favor of “Brexit” “followed a bitterly close electoral race, and represented the biggest shock to the political establishment in Britain and across Europe for decades.” They concluded that the decision by the electorate will “threaten the leaderships of both the then Prime Minister, David Cameron, and the Labour leader, Jeremy Corbyn.” Other aftershocks of the decision included a highly likely chance of the drafting of a second Scottish referendum asking for independence from the United Kingdom, instability of the British pound on world markets and a devaluation of British companies on foreign exchanges. Indeed, within hours of the passing of the Brexit referendum, all of these events occurred, inclusive of David Cameron’s announcement that he would step down as Prime Minister in October of 2016 and Angela Eagle’s challenging Jeremy Corbyn as leader of the Labour Party. One would think that with a vote as important as the Brexit referendum, the ballot itself which served as the basis for the decision would be carefully thought out before it was presented to the British people. The ballot as designed is presented in Figure 1. 191

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FIGURE 1: A Biased Ballot

At first glance, the ballot appears to be fine, in the sense that individuals are told that they should VOTE ONLY once, and are given each of the following choices (i.e., “Remain a member of the European Union,” or “Leave the European Union”). Since EACH voter is given ONLY one ballot, they would not realize that the choice of remaining a member of the European Union always was presented as the top choice. Why would this matter, you say? Interestingly, in his pioneering research done in 1946, Solomon Asch demonstrated the presence of a “primacy” effect in that subjects were found to hold a more favorable attitude toward a person described as “intelligent–industrious–impulsive– critical–stubborn–envious” than described as “envious–stubborn–critical– impulsive–industrious–intelligent.”1 The position of two different sets of adjectives significantly influenced the subjects’ attitudes toward the person. Note that in this prior example, in the first sequence three favorable trait characteristics were followed by three negative ones, while in the second 1 Asch, S.E. “Forming impressions of personality.” Journal of Abnormal and Social

Psychology 41(3) (1946): 258.

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case the reverse sequence was used, and it was the reverse sequence which was evaluated significantly more negatively. Cognitive psychologists argue that a primacy effect is mainly due to the fact that the first items one is exposed to has less competition from other items for limited memory space (Waugh and Norman, 1965).2 Indeed, many researchers in marketing and psychology have found primacy effects to be important for advertisers seeking attitudinal change and favorable attitude toward their products (e.g., Haugtvedt and Wegener (1994)).3 Such effects have also been evident for purchase intention and perceived performance of a product (Buda and Zhang (2000)).4 Consider the vast number of companies and services that are named “AAA” so that their company name appears first in the phone book listings. Now the astute reader might say that voting behavior or exposure to candidates is a different animal than exposure to advertising. Clearly then these readers are not familiar with Anthony Weiner, a former candidate for the Mayoral office of New York City, and as of November 6th or before inmate at a correctional institution where “exposure” takes on a whole different meaning! Seriously, several models of voting behavior have been proposed over the years by political scientists and cognitive psychology researchers. For example, Kelley and Mirer (1974) state the case for a memory-based model of voter choice. That is, the voter is said to canvass the likes and dislikes of the leading candidates and major parties involved in the election. Weighing each like and dislike equally, he/she votes for the candidate toward whom there is the greatest number of net likes versus dislikes.5 Lodge, McGraw and Stroh (1989) alternatively propose a competing model

2 Waugh, Nancy C., and Donald A. Norman. “Primary memory.” Psychological Review

72(2) (1965): 89. 3 Haugtvedt, Curtis P., and Duane T. Wegener. “Message order effects in persuasion: An

attitude strength perspective.” Journal of Consumer Research 21(1) (1994): 205–218. 4 Buda, Richard, and Yong Zhang. “Consumer product evaluation: The interactive effect of message framing, presentation order, and source credibility.” Journal of Product & Brand Management 9(4) (2000): 229–242. 5 Kelley, Stanley, and Thad W. Mirer. “The simple act of voting.” American Political Science Review 68(02) (1974): 572–591; Lodge, Milton, Kathleen M. McGraw, and Patrick Stroh. “An impression-driven model of candidate evaluation.” American Political Science Review 83(2) (1989): 399–419.

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of the candidate evaluation process, namely the online or impression driven processing model, where processing occurs as information is encountered. If processing and ultimately evaluation occurs as information is encountered, then the candidate whose name is first on the list (or in the Brexit case, the choice on the top of the list) is the preferred choice. Again, the astute reader may argue that the primacy effect is NOT supported by the Brexit vote, since the choice of the electorate was to leave and not to stay, and stay was the choice on the top of the ballot. This observation is correct and only suggests that a preference to leave the EU may have actually been more strongly revealed among the electorate had the ballot been counterbalanced where half of the ballots would have had “stay” as the top choice and the other half “leave” as the top choice. B. Revealing the Alternative Consequences of the Issue Imagine for a moment, that the Brexit ballot looked as follows in Figure 2. The difference from the actual ballot that was utilized in Figure 1 is that each of the choices are embellished with a rather humorous commentary on the rationale and meaning of each choice. While clearly such a ballot would not and could not ever be utilized, choice decisions in any decision situation are strongly influenced by emphasizing the consequences of one’s choice. For example, in many states inclusive of California, there are many referendums and propositions that are voted upon on Election Day. Oftentimes, each party sends along to the prospective voter a pamphlet which details the direct implications (from the party’s perspective) of voting either yea or nay on the issue. Imagine that the Brexit vote were taken again say 2 days after the initial vote with voters having already experienced volatility in the pound sterling, the renewed threat of Scotland seceding from the Union, and the weakening of the Labor leaders position, along with the resignation of David Cameron. Clearly, the time and the events occurring when data is collected strongly influences the outcomes. Indeed, this is known as a “history” effect in marketing research, which is described as: “The effect of extraneous variables as a result of an event that is external to an experiment occurring at the same time as the experiment.”6 6 See the text, Marketing Research by Govind Chand Beri, 5th edition. New York: McGraw-

Hill, p. 86.

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FIGURE 2: An Obscene and Biased Ballot?

C. Question Format Biases I recently decided to purchase a car for my younger son who was going off to college and planned on living off campus. As my son considers himself to be a bit of a “bon vivant” with a touch of European flair (his mother is French), he decided that he wanted to purchase a Fiat. Fiat is an Italian car manufacturer which has recently been reintroduced into the U.S. market after having been absent since 1983. Back then, the reputation of the brand was not stellar leading to many jokes about its quality such as the joke on the street that “FIAT” stands for “F ix It Again T ony,” however my son is much too young to remember this. In any event, when we arrived at the dealership we were asked to fill out a short questionnaire about our driving habits, previous cars owned, as well as attributes that we valued in a car such as style, comfort, quality and safety. One of the first questions included on the questionnaire asked about our degree of agreement/disagreement with the following statement: “I intend to purchase a car this month,” Do you agree? (Agree) 1–2–3–4 (Disagree). Interestingly, such a four point scale forces the respondent into making a choice which is either

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tilted toward the negative or the positive. Clearly, since the questionnaire is presented to the respondent at a car dealership, the likely response is 1 or 2, and hence by responding in that manner, one begins to see oneself as an individual who is getting closer to pulling the trigger and commit to purchasing a car as opposed to committing to Bellevue state hospital. Imagine, however, that the question was formatted as follows: “I intend to purchase a car this month,” Do you agree? (Agree) 1–2–3 (Disagree). Here the respondent is given the opportunity to respond with a neutral answer by choosing “2” and hence may not see him/herself as ready to make such a purchase. Therefore, reducing the scale by simply one unit can lead to the consumer making a different choice. Bias can also be introduced in this particular question by changing the decision time-frame. Imagine being asked at the dealership upon arrival, “I intend to purchase a car today,” “Do you agree?” (Agree) 1–2–3–4 (Disagree). Now this question has the possibility of turning off the respondent or potentially (depending upon how it is answered) making the consumer see themselves as someone who makes impulse decisions, and therefore more likely than when they walked into the dealership of purchasing a new car on that day. I found it interesting that a later question on the questionnaire asked if we were familiar with anyone who had gotten into a car accident and had been injured. This was followed by a question which asked the respondent to rate how important it was that the car had various characteristics of which “safety” was included. Obviously, the sequence of having asked the previous question regarding accident awareness, served to trigger the typical respondent to identify “safety” as a critical attribute that the car should excel in. This is similar to asking someone how many miles per gallon their present car gets on the highway and then finding out that gas mileage is enhanced in terms of serving as an important attribute in their decision of which car to buy. The purpose of the approach taken in the questionnaire was then clear when the salesman showed us a newspaper article declaring Fiat as the safest car in New York.7

7 Interestingly, a month after I purchased the car, Fiat announced a recall of 1.1 million automobiles in the United States because of unexpected “rolling” when the transmission is not used properly, Fix-it-again-Tony?

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Aside from using the questionnaire to enhance the importance of safety, one can ask, does the process of asking questions at all influence behavior? The section below addresses this issue.

D. The “Mere Measurement Effect” You have finished your shopping about an hour ago, and find yourself sitting in the mall waiting for your significant other to pull herself away from the clothes rack at H&M when all of a sudden, you are approached by a neatly dressed market researcher with a clipboard and a questionnaire. He politely asks: “Hi Sir, would you mind filling out this 2 page questionnaire about your purchase behavior, you can win a $25 Amazon gift card certificate.” Bored out of your mind, you agree and spend the next 15 minutes filling out what appears to be silly questions such as the following: “When will the next new (not used) CAR (not truck or van) be purchased by someone in your household?___6 months or less; ___7–12 months; ___13–24 months; ___25–36 months; ___over 36 months; ___Never.” Unbeknownst to you, it turns out that there were two versions of the questionnaire you filled out, one with the car question on it and the other (the control) without. About 6 months later, the marketing researcher then reported, that the group of individuals who were asked the purchase intention question for the car were 37% more likely to have actually purchased a car, relative to the control group who were not asked such a question (The actual percent of those who purchased the car in the “question” condition was 3.3% versus 2.4% in the control condition). Not only is this result amazing, it has been replicated many times using different purchase intention questions and different populations. The first study finding this effect, as discussed above, was conducted over 20 years ago by a young researcher from NYU, my alma mater, named Vicky Morwitz along with two researchers from the Wharton School,8 who first observed this effect and coined its’ name as the “mere measurement effect” a name

8 Morwitz, Vicki G., Eric Johnson, and David Schmittlein. “Does measuring intent change

behavior?” Journal of Consumer Research 20(1) (1993): 46–61.

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that honored the mere exposure effect discovered by Zajonc and initially discussed in Chapter 3.”9 I must admit that this effect is extremely disturbing, since it suggests that if you answer a question that simply asks you about your intentions, there is a greater probability that those intentions will become a reality. So be careful about what questions you answer and try to remember this effect. But there are some people out there who think this effect is better than wonderful. For example, my geeky friend who is a divorced, balding, short, portly built marketing professor told me recently that he thought Morwitz’ article was the best article he ever read in the history of marketing. He told me that he goes to different singles mixers at his synagogue every week and always “bumps” into an attractive Brooklyn Decker look-alike (personally, I think he bumps into her on purpose although arguably it is hard to avoid her). He said that each time he meets her, he asks her the following question, no it’s not whether she would go out with him, rather it is how likely is it in the next 3, 6, 9 or 12 months that you will go out with a portly, short, balding, divorced marketing professor. The result is, she still hasn’t said yes, but he says that Morwitz’ research suggests that eventually she will. Good luck to him! E. Written Framing of the Choice Alternatives Research has shown that labeling influences consumer decision-making and choice. Consider choosing between the purchase of ground beef that was alternatively described as being either “75%” lean or “25%” fat. Now if a butcher gave you both packages in sequence, there is a high probability that you would recognize that the ingredients contained in one is the inverse of the other. Simply said, if meat is 75% lean then it must contain 25% fat. However, in marketing and in survey research, the seller typically has the option regarding the way in which they want to present their product to the target market. Just consider the fact that when I was a kid, “Hi-C” fruit juices were described as containing 10% fruit juice which is a lot better than saying they contained 90% water or possibly x% chemicals!

9 Zjonc, Robert B. “Attitudinal effects of mere exposure.” Journal of Personality and Social

Psychology Monograph Supplement 9(2) part 2 (1968): 1–27.

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So the question to be asked is that if consumers were surveyed and asked about their purchase intentions regarding ground beef that was either 75% lean or alternatively 25% fat, would they be astute enough to be indifferent between the options? Research by Levin (1987) shows that they are not.10 Not only did respondents significantly favor the 75% lean beef, but their evaluations revealed that their perceptions of the beef was of being less greasy, better tasting and of higher quality when the beef was described in terms of percent-lean rather than percent-fat. It is only when the consumer actually tries the product that the initial framing effect is mitigated (Levin and Gaeth 1988).11 That is, ground beef containing 25% fat was found to be just as tasty as beef that as 75% lean when actually consumed. This framing effect is particularly problematic when choices are made in terms of health options, and it is problematic even when it is the doctor making the recommendation. For example consider the doctor’s decision as to whether or not to recommend that a patient undergo an extremely risky quadruple bypass operation. When the risk of survival for the operation was presented as having a 90% chance of success, as opposed to a 10% risk of mortality, doctors were found to be significantly more likely to recommend the operation for their patient (Marteau, 1989).12 Here, of course the framing effect cannot be mitigated by experience as the operation, if undertaken, either leads to the desired or undesired result. F. Visual Framing of Choice Behavior: A Focus on Color Approximately 20 years ago, four authors in marketing published a seminal paper discussing the effects of color as an executional cue in advertising.13 What was most fascinating about the paper was that its findings were

10 Levin, Irwin P. “Associative effects of information framing.” Bulletin of the Psychonomic

Society 25(2) (1987): 85–86. 11 Levin, I.P. and Gaeth, G.J. “How consumers are affected by the framing of attribute

information before and after consuming the product.” Journal of Consumer Research 15(3) (1988): 374–378. 12 Marteau, Theresa M. “Framing of information: Its influence upon decisions of doctors and patients.” British Journal of Social Psychology 28(1) (1989): 89–94. 13 See Gorn, Chatttopadhyay, Yi and Dahl. “Effects of color as an executional cue in advertising: They’re in the shade.” Management Science 43(10) (1997): 1387–1400.

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counterintuitive in the sense that while most of us would believe that the actual color of a product or brand would most greatly impact our feelings about the object, the actual color (or hue) was NOT found to be the driving factor influencing evaluation. Rather, other components or factors that make up the color of an object were found to be even more influential in influencing your perceptions of that object. If you recall, we briefly discussed the impact of color on judgment back in Chapter 8 of this manuscript. So, is color truly impactful in the consumer’s brand choice? Let’s examine a day in my life (while I sound like Paul McCartney here, I certainly don’t sing like him). When I get up, I take a drive in my rented red Ferrari (I wish), and have a cup of coffee at Starbucks. When I went to the rental car location, I could have rented from the yellow company (Hertz), the red company (Avis), the green company (National) or the blue company (Alamo). As I arrive at Starbucks, I have a choice of putting in real sugar or artificial sweetener, I choose the latter since I must save some calories when I eat the accompanying lemon loaf. The sweetener comes in pink (Sweet‘N’ Low), blue (Equal) or yellow (Splenda). I always put in “two pinks and one yellow, and I have trained the Starbucks barista’s to use colors instead of brands, after all it is easier for both of us.14 I get back in my car and go to Stony Brook University where everything is Seawolf red, but I am used to this as USC, my prior place of employment was cardinal and gold and there we learned to hate powder blue and gold since those were the colors of UCLA.15 On the way home from work, I pass a construction site and there is a John Deere tractor in traditional green and yellow along with a Caterpillar earth mover in nothing else but bright yellow followed by a Kubota track loader in orange. Finally, I get home and open a can of beer, I know it is a Heineken as the bottle and packaging is green, while LaBatt is blue and Corona is yellow like the beer itself and the lemon that goes inside. Now you might ask, when it comes to color, what possibly could have more of an impact on my perceptions than the actual color (hue) of that

14 You should see the strange stares I get on line at Starbucks every morning. 15 No, I’m not referring to the University on the corner of Lexington Avenue.

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object? Well, let’s do a little exercise to explain what I mean. I want you, the reader to think about the Alfa Romeo Spider. Now, I give you the right to fantasize that Alfa Romeo has given you a car for free, with the only requirement that you name the color you want the car to come in.16 To show that I am possibly psychic, I’ll present you with the image of the Alfa Romeo Spider on the next page of this book in Figure 3 and bet that the color of the car as presented represents your preference or close to it. Now that you have imagined the car. . . turn the page. So was I right? Were you thinking about a bright yellow as the color of your car? Well, if not, I bet it was an intense red. While we can describe the car in your mind as intense yellow or possibly brilliant red, strictly using the car’s hue (or pigment) alone would do injustice to what is really impacting your impression of the car in your mind. So what other components of color “drive” our car preference then if it is not hue alone? A second dimension of color relates to its “value.” This component is defined as the degree of darkness or lightness of the color relative to a neutral scale that extends from pure white to pure black. Low-value colors are said to have a “blackish” quality to them as if the color black was mixed into the pigment. Alternatively, high-value colors have a “whitish” quality to them giving the mix a pastel and dreamy look, (think of the paintings of Renoir), as if the color white was blended into the mix. Gorn, Chattopadhyay, Yi, and Dahl (1997)17 hypothesized and showed that high chroma is more closely linked to eliciting impressions of excitement rather than relaxation, whereas high value is more closely linked to eliciting feelings of relaxation as opposed to excitement.18 As the image of the Ferrari and that of the Alfa Romeo Spider naturally evoke excitement, as in James Bond kind of excitement, it is clear that

16 You are also free to imagine who you might have sitting next to you on a date and I

guarantee you that this person would NOT look like the date you would have if you were driving a 1956 Rambler station wagon. 17 See, Gorn, Gerald, Amitava Chattopdadhyay, Tracey Yi, and Darren W. Dahl. “Effects of color as an executional cue in advertising: They’re in the shade.” Management Science 43 (1997): 1387–1400. 18 The authors also argue that excitement and relaxation represent independent dimensions of arousal based upon the research of Smith and Apter (1975).

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FIGURE 3: 2016 Alfa Romeo Spider

any color chosen for the exterior of the car should be consistent with this impression. Therefore, it is important for both cars to utilize colors which are high in chroma. Going back to the images shown above, I’m sure this is what you had in mind when you imagined what the car would look like. This is also the reason that advertisements for Las Vegas as a tourist destination often use high-chroma images of the Las Vegas skyline to get you even more excited to go there and happily lose your money! Similarly, products that wish to convey an image of relaxation should use high “value” in the imaging of their product giving it that dreamy pastel like aura, such as never ending vistas at resort locations in relaxing venues such as Molokai at sunset overlooking the sun sinking into the blue Pacific. If we layer on to high chroma’s linkage to excitement the finding that the color red is also linked to excitement (LaBrecque and Milne, 2012), this suggests that you the consumer can be more convinced that a brand is exciting if it is presented in a high chroma red.19 Alternatively, blue 19 Labrecque, L.I. and Milne, G.R. “Exciting red and competent blue: the importance of

color in marketing.” Journal of the Academy of Marketing Science 40(5) (2012): 711–727.

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has been identified as being both relaxing and competent (Guilford and Smith 1959).20 Therefore if the goal of the advertiser is to convince the consumer that their product is relaxing and competent, the product should be tinted in a high-value blue. Such an approach would be impactful for “Ativan,” a benzodiazepine whose usage is prescribed to reduce anxiety. One look at the packaging shows a high-value blue color. Alternatively, the methamphetamine utilized by the Third Reich and partly responsible for the success of the German blitzkrieg through the Ardennes forest in the second world war, featured a healthy usage of red in its packaging.21 Therefore, the recommendation here is to use color in a way that emphasizes the characteristic of the product that the marketer wishes to convey. That is, there should be congruence between product image and the feelings that usage of a specific color evokes. This suggestion for the seller explains why making Viagra a blue colored pill with blue packaging is inconsistent with its purpose of usage, while the bright orange flame used by Levitra is more product color appropriate. That said, the consumer should become more aware of how color influences product preferences, since product usage should be driven by need not by manipulation. G. Visual Framing of Choice Behavior: A Focus on Background Imagery and Experimental Design Usage A two-cell experimental design study recently published in the online journal of Technology Science by Jay Hoofnagle and Eduard Meleshinsky (December 2015)22 examined the effect of background image in advertising on consumers’ perceptions regarding the expertise of the spokesperson in what the authors called an “advertorial.” According to the authors’, an “advertorial” is simply an advertisement disguised as editorial content. In

20 Guilford, Joy P., and Patricia C. Smith. “A system of color-preferences.” The American

Journal of Psychology 72(4) (1959): 487–502. 21 The book “Blitzed,” (2017) by Norman Ohler devotes many chapters to this drug named

Pervitin, and its impact on the German populace and the Wehrmacht. The name “Pervitin” seems appropriate for the perverted Wehrmacht who used the drug. 22 Please see “Native advertising and endorsement: Schema, source based misleadingness, and omission of material facts,” by Chris Jay Hoofnagle and Eduard Meleshinsky. Journal of Technology Science, 15th December 2015.

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today’s social media-driven world, such an advertorial could appear in a blog or on a webpage using the term “sponsored content.” When consumers encounter an advertorial, they are subject to two levels of potential deception. The first is a lack of understanding that the communication is sponsored material similar to an advertisement. Hence, they may approach this material with their defenses down, and may be more strongly influenced by its content. Secondly, even if they believe that the advertorial is sponsored, the consumer’s perception regarding who is the sponsor could still be compromised. Hoofnagle and Meleshinsky (2015) studied advertorials in the context of a larger study designed to examine the targeting of consumers based upon vulnerability. Of specific interest in their study was the examination of two different advertorials for weight loss (diet) pills, both identical except for the background behind the spokesperson for the sponsored product. In each case, the spokesperson, a blond woman, is wearing a white oxfordstyle shirt, and what could be perceived as a lab coat. She is not identified however as a medical expert nor is she carrying or wearing any medical equipment such as a stethoscope. For each of the two advertisements she is quoted as saying: “While the pills do cause rapid weight loss (no doubt about that), most people buy them as ‘speed’ pills.” The only difference between the two advertorials is that in one case, the endorser appeared in front of a white background, in the other she appeared in front of what could be perceived as shelving holding a bluetoned set of products. Interestingly, across both conditions 27% of those surveyed when asked: “Was the material on diet pills written by journalists and editors working for the website, or by someone else?” thought that it was written by journalists and editors and therefore was perceived as an informative article as opposed to a persuasive communication. The images of both advertorials are shown as below in Figure 4. Respondents were then asked: “What job does the person in the picture have?” Results varied significantly as a function of the two conditions. Around 32% thought her to be a model in the white background condition, while this number reduced to 18% in the blue product background. Interestingly, when the blue products were behind her, a majority of those surveyed (60%) believed that she was a medical professional, whereas when

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FIGURE 4: Two Different Advertorials

she appeared in front of a white background the number was reduced to 23%. These are significant differences! If we are to assume that a “medical professional” holds some degree of credibility and sway with the general public (specifically as compared to the attribution that she is a model), then we can conclude that the background behind her, since it was the only component between the two different advertisements to vary, contributed to the effect or even caused it. However, an astute reader will notice that the background itself varied two different design components, that of the color (i.e., blue versus white), and that of the presence or absence of product shelving behind the spokeswoman. Hence, we can conclude that the background impacted one’s belief in her credibility as a spokeswoman, but we do not know whether to attribute this to the product shelving, the color blue or an interaction between them. My money however is placed on the products, since such an image places

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her within the context of various medicines, most likely leading to the conclusion that she is some form of medical professional. Whatever the issue with the authors’ experimental design, the study reveals issues at two levels that threaten the consumer from making correct inferences from the viewing of advertisements. First, many consumers were found to incorrectly consider an advertorial nested in a simulated blog to be editorial in nature despite a disclosure (small heading above the story indicating it was “sponsored content”). To address this, the authors’ suggested that in addition to more clearly labeling the internet content as advertising, the FTC could follow the lead from promotional efforts taken over 100 years ago where embedded in the content itself are specific labels in the advertising that describe it as an “Advertorial.” Such an approach was actually taken in the newspaper titled the Rotarian back in 1914 and repeated in the Atlantic as far back as 1951 where the content of publicity appearing as an editorial was described as an “Atlantic Public Interest Advertisement.” Secondly, as the authors’ note, the FTC is well aware of the fact that consumers have a potential to identify endorsers in medical garb as doctors, specialists, nurses or simply medical practitioners. Hence, in its 2009 guidelines it specified the following: Whenever an advertisement represents, directly or by implication, that the endorser is an expert with respect to the endorsement message, then the endorser’s qualifications must in fact give the endorser the expertise that he or she is represented as possessing with respect to the endorsement.23

This probably explains the approach taken in the commercial that we all are familiar with regarding a diarrhea medication. Here, the spokesperson appears on camera with a white-coat, takes off his glasses and speaks directly into the camera with the following words: “I’m not a doctor but I play one on TV,” He then goes on to recommend a specific pharmaceutical to the consumer. So in a sense, the mention that the individual is not a doctor, but rather plays one on TV, still is thought by the advertiser to influence the consumer because of his role on TV and not his role in life.

23 Please see 16CFR 255.3.

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If you believe that the consumer would be insulated from such an effect, you may be right, but yet reconsider the study discussed above, a simple research design approach such as the use of a shelf of medications behind the spokesperson led to almost a tripling in the consumer’s inference that the spokesperson was a medical professional. Quite amazing indeed! Enough to give the consumer . . . . diarrhea! or worse.

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Chapter 14

Winning Strategies for Online Purchases (eBay, Priceline and StubHub)

A. Introduction As we have seen in this book, humans as a group generally behave in certain predictable ways that are often influenced by cognitive, memory-based or social biases. If you are aware of such biases, and can avoid behaving as the majority behaves in specific purchase situations, you can often outmaneuver others, particularly when prices of goods are not set in stone. While you might be thinking that prices are ALWAYS set in stone, this is a false assumption. While the supermarket may not be willing to bargain with you regarding a can of peaches or a bunch of grapes, consider the opportunity you have to buy for less when bidding for a product on eBay or when offering a bid for a hotel or car on Priceline. Even ticket prices on StubHub change the closer you get to the event, and believe it or not, when buying a stock, it may not be wise to purchase after it has gone up significantly since it may be due for a quick drop. A simple examination of stock prices on Thursday, October 5th 2017 for MannKind (MNKD), a company that makes an inhaler to counter type I and type II diabetes, illustrates this point. After having risen in price in the prior 3 days from a level of $2.05 to $3.54 at the close of business on Wednesday, October 4th (a respective rise of 13%, 19% and 26% on each of these 3 days), the stock opened at $3.62 on Thursday. Within less than 2.5 hours, had risen to an 18 month high of $6.48, only to close below $5.00 on the same day. I had seen that pattern many times before, and hence sold half of my shares 209

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(which I bought on Monday) near the top price. The purchase was triggered, through a “System I,” sensitivity to price and volume movements that I had observed after almost 40 years of losing in the stock market . . . seriously I had seen such a trend before, knew I could ride it up, but also realized that I had to sell on a hair trigger. While I cannot teach stock trading by emotion, let’s see how we can develop winning strategies that are more cognitively anchored in various commercial marketing scenarios. Let’s take a specific example. Consumers are often tempted for the need for closure. This was covered by an examination of the Zeigarnik effect in Chapter 5 dealing with memory biases. In our fast paced and entitled society, when we want something we often want it now and not later. Consider the purchase of a relatively recent “hot” new book such as “Flash Boys,” written by Michael Lewis and focusing on high-frequency trading. When the book first came out in hardcover on March 31st of 2014, a high profile debate between Brad Matsuyama (IEX Group President), William O’Brien (BATS Global Markets President) and Michael Lewis among others aired on CNBC 2 days later. Both Mr. Matsuyama and Mr. O’Brien have different positions on the benefits or disadvantages of high frequency trading and were mentioned as protagonists in the book. The debate was described by YouTube as “The Fight That Stopped New York Stock Exchange (NYSE) Trading.” My friend who works at Reuters called me on my cell phone and told me that I had to buy the book, and I listened to him, purchasing the book immediately at an airport bookstore for the full price listed on the inside cover of $27.95. Now, I’m not going to say that it wasn’t only a great read, it was everything I thought it would be and more. The problem was that I first opened the book a month after I bought it, and finished reading it a full 3 months after the book came out. So why did I run to buy it when it first came out? Well because I had to have it even though I knew I had no time to read it since there were two books on my list ahead of it. Even worse is that if I had waited just 2 days later I would have saved 30%1 since Barnes and Noble put it on their best seller list just 48 hours after it was released.

1 Actually 40% since I get 10% additional for being a member. That comes to $11.18 plus

the tax on that amount!

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To add salt to the wound, the price of the book on Amazon a week before I began to read it was only $10.48 new and $10.00 used. So, I paid three times the amount for the book, for the right NOT to read it on the day it came out. The premium that I paid represented an itch that had to be scratched but also an example of the human desire to have something that is new rather than old. The basis of this need is anchored in a requirement for stimulation or arousal that is based upon a focus on a deviation from what is familiar.2 To test this effect, I recently gave my undergraduate students a choice between viewing an Academy Award Winning Best Picture titled “The Apartment” starring Shirley MacLaine and Jack Lemmon or Draft Day, a poorly rated but very recent comedy dealing with the Clevland Browns draft decisions starring Kevin Costner and Jennifer Garner. Even though “The Apartment” was also a comedy and even though it was critically acclaimed, all 53 of my students chose to see Draft Day.3 When I asked why, in general they said that “The Apartment” was an old film which wasn’t relevant to them today. I then repeated the experiment again, giving the students a choice between viewing 22 Jump Street starring Jonah Hill and Channing Tatum, a sequel to 21 Jump Street, or the “The Internship” starring Owen Wilson and Vince Vaughn. Both movies were rated similarly at the time they came out but 22 Jump Street at the time of the experiment was recently released while “The Internship” had been released about a year ago. The students’ preference (for those who had not seen either movie) was 85% in favor of the Tatum/Hill film as opposed to that of “The Internship.” So, the lesson is that films and books do not have a long shelf life evidenced by the typical 40% drop in ticket sales from the first week a given film comes out to the second week after release and the length of time new movies stay in theaters appears to be shortening. Waiting therefore brings

2 See van Trijp and Johannes Cornelia Maria. “Variety-seeking in product choice behavior:

Theory with applications in the food domain.” Dissertation, Waginengin University, The Netherlands, 1995, also van Trijp, Hans CM, and Ellen van Kleef. “Newness, value and new product performance.” Trends in Food Science & Technology 19(11) (2008): 562–573. 3 You really have to be pretty desperate for entertainment if you choose to watch a movie about the Cleveland Browns drafting football players, just look at their record … does Johnny Manziel come to mind? Thank god they drafted in front of the N.Y. Giants in the 2018 NFL draft. If anyone else had that honor, the Giants would not have been able to draft SaQuon Barkley.

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rewards for the consumer, a lower price in terms of books and a greater chance to be able to view the film at the time and theater you wish in the case of movies. Let’s now investigate some eBay strategy that allows you to benefit from “hard wiring” that other consumers may suffer from. B. The Loser and Winner’s Curse Bidding on eBay can be a rewarding experience if you know what you are doing and a disaster if you do not. According to Ariely and Simonson (2003), there are two types of regret that one can experience when bidding in an auction.4 The first is called the “Loser’s Curse” and represents the occasion where the bidder did not bid high enough to win the auction, and hence experiences regret that they should have bid higher to overcome the competition. It is this type of regret that is played again and again in your head, as you tell yourself, “If I just made one more bid I would have won the item.” Interestingly, this is not necessarily true because eBay is structured as a second price auction. That is, the winning bidder only has to bid a required increment higher than the second highest bidder in order to win the auction, and this higher increment plus the second highest bidder’s maximum bid is revealed as the winning bid. Let me give you an example. Suppose that the current price of an item that you wish to win is $25.00 and that this price truly reflects the highest price the current leader wants to pay for the item. If you decide to bid $35.00 to make sure that you win, eBay will only show your bid as $26.00 since the increment required to exceed the current leader’s maximum bid at these price levels is only $1.00.5 But suppose that the present leader who seemingly bid only $25.00 indicated internally in their bidding on eBay, that the maximum that they were willing to bid was $30.33. If you bid $35.00, eBay would then reveal your bid as $31.33, since you must exceed the maximum amount the prior leader would bid by an increment of $1.00, again at these prices. If no one 4 Ariely, Dan, and Itamar Simonson. “Buying, bidding, playing, or competing? Value

assessment and decision dynamics in online auctions.” Journal of Consumer Psychology 13(1) (2003): 113–123. 5 This increment changes by getting larger as the dollar amount of the bid gets higher. For example, the increment for a $100 item is presently $2.50. Hence only bids of $102.50 or more would be accepted if you wanted to bid higher than a winning price of $100.

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TABLE 1: Current Price $0.01–$0.99 $1.00–$4.99 $5.00–$24.99 $25.00–$99.99 $100.00–$249.99 $250.00–$499.99 $500.00-$999.99 $1000.00–$2499.99 $2500.00–$4999.99 $5000.00 and up

Bid Increment $0.05 $0.25 $0.50 $1.00 $2.50 $5.00 $10.00 $25.00 $50.00 $100.00

ever bid again, you would win the item for $31.33, and the former leader would think that they lost the bidding by an increment of $1.00. What they would NOT realize is that you had a hidden maximum bid of $35.00 and they would have had to exceed that hidden maximum to win the item. This false perception that you came close to winning (losing by only $1.00) only serves to increase the frequency and intensity of the loser’s curse. Above, in Table 1, is the current bidding increments dictated by eBay as a function of the current bid price in the auction. So what to do? EBay offers you an alternative to bidding for those who are sensitive to losing and who want to avoid the loser’s curse. That is you can “Buy It Now,” as some sellers offer you the opportunity to buy the item for a set price. However, University of California-Santa Cruz researchers have found that this set price is typically significantly higher than the price paid for identical items sold in an auction context.6 This is because bidders are paying a premium for the right to block others from purchasing the item, and for the right to win the auction immediately. That is, instant gratification costs money. Other researchers report that the “Buy It Now” price serves as an external reference price for the item. That is, by setting it at a high amount,

6 See Anderson, Steven T., Daniel Friedman, Garrett H. Milam, and Nirvikar Singh. “Buy It Now: A hybrid internet market institution.” UC Santa Cruz Economics Working Paper 565 (2004).

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the seller is signaling to the buyer an inflated worth of the item.7 Similarly, in fact, I conducted a series of 176 auctions on eBay during 2004 along with two other researchers from the University of Southern California, where I manipulated the presence or absence of the requirement of a minimum bid in the auction (the requirement that the first bid must meet or exceed this level) or a reserve price (i.e., the price level the auction must exceed before I was willing to sell the item).8 Both the minimum bid and reserve price served as lower price anchors,9 providing information to potential bidders regarding the worth of the item for sale. For example, the reserve bid tells the buyer the price at which I, the seller, would be willing to sell the item, and if you think about it, why should a buyer pay more than the price the seller is willing to sell the item for? Interestingly, those auctions that did not have a minimum bid requirement or a reserve price sold for the average highest price, and for the consumer, these could be the items to avoid. The reason for the high price in this case is that the elimination of minimum bid requirements and reserve prices allowed everyone to participate in the auction unconditionally starting with the price of a penny. This gets the bidding process going like a snowball as everyone tries to top the competition with the first bidder thinking/dreaming that they can buy the item for a ridiculously low price like a penny. This creates a bad selling environment for the purchaser, since they are bound to go up against a lot of competition and will generally pay higher for the good relative to an auction which features a minimum bid or reserve price. In fact for items which had no reserve price, the lack of a minimum bid requirement resulted in a 27% price premium for identical sold items.

7 See Leszczyc, Peter TL Popkowski, Chun Qiu, and Yongfu He. “Empirical testing of the

reference-price effect of buy-now prices in internet auctions.” Journal of Retailing 85(2) (2009): 211–221. 8 Kamins, M.A., Dreze, X., and Folkes, V.S. “A field study of the effects of minimum and reserve prices on internet auction bids.” Journal of Consumer Research 30(4) (2004): 622– 628. 9 I set the minimum price of the item offered for sale (coins) at $2.00 typically below the true value of the coins. In addition, I set the reserve price at approximately 60% of what the item was worth. I did this because I wanted to sell the items and was studying the price at which they were sold for.

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But before we give up on bidding for an item that has a “Buy It Now” option, let’s consider the following. Sometimes sellers are lacking knowledge that you may have, and if you see an item offered for sale that you value at a significantly higher amount than the “Buy It Now” price it is being offered for, DO NOT hesitate to buy it. In addition, oftentimes bidders will hesitate to bid on an auction that has a minimum bid requirement. People simply do not want to be told that they have to bid a certain amount and have psychological difficulty in being required to make a high first bid. This provides an opportunity for a clever buyer. For example, I consider myself to be an expert in Indian pennies. I know how to grade their condition and I know their value since I am an amateur numismatist. One day, I was looking on eBay for an 1877 Indian penny. There were only 852,000 of these pennies minted and in the condition of “Very Fine,” Coin World, a trusted publication in the numismatic arena, values the penny at . . . $1,575.00. I came across an 1877 in what I considered to be “Very Fine” condition but the seller wanted a first (or minimum) bid of $800.00. No one had bid so I watched the auction like a hawk, maybe six or seven times a day each day until the final day of offering came along. With 12 hours left to go in the auction, still no one had bid. Now, you must understand that the first person who bids “breaks the ice” for others to bid. Why? Because it is a significantly harder jump to go from $0 to $800.00 than it is to bid the next required increment of $10.00 once $800.00 has been bid (which eBay requires at that level of bidding). Hence the best strategy to pursue is to hold off from bidding until the last possible second, so that other potential bidders are left with little time to realize that a bid has been placed, and also little time to react. The strategy that accomplishes this objective is called sniping, or bidding at the last possible second (more on that later). So with two seconds left in the auction, I bid the required minimum of $800.00, no one else bid and I won the auction for that price. The second type of regret is called the “Winner’s Curse,” The famous University of Chicago Economist, Richard Thaler first coined this term in 1988,10 describing this form of regret as having paid more than anyone else for the item. Actually, when you think about it, the good news with this type

10 Thaler, Richard H. “Anomolies: The winner’s curse.” Journal of Economic Perspectives

2(1) (1988): 191–202.

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of regret is that you won the auction! The bad news is that you were the one who paid more for the item than anyone else on the planet! This means that either you have different information than others regarding the item, or quite simply you may have become too emotionally involved in the notion of winning the auction at all cost, that is, winning for the sake of winning. One way to win an auction at a reasonable price however is to “snipe,” and such a strategy can be exhilarating if you are the one doing it, and downright depressing if you are on the receiving end. Consider what happened to me not so long ago. Forty years ago, I began a collection of Standing Liberty Quarters. I completed the collection quickly with the only exception being the elusive 1918/7-s overdate.11 The hole remained in my collection until recently when I noticed that this coin was up for sale on eBay. Seven days before the auction closed, I bid $2,500.00 for the coin, making sure that I did not tell my wife! I watched the auction on a daily basis and on the day the auction closed, I held a vigil in front of the computer screen with it becoming a non-stop obsession. With one hour to go, I was still the top bidder. Thirty minutes passed, then 45, and finally with one minute left in the auction, my name was still there in “lights” as the leading bidder! In my mind, I could literally see myself putting the coin into the one remaining slot in the coin book and accomplishing a life’s dream.12 He started the final count-down, 10 seconds remaining, nine, eight, seven, he could almost taste victory! Three, two, one and what’s this? Someone else had placed a bid at the last possible second, and the dream faded into a harsh and empty reality. I felt like a “deer in the headlights!” I had no time left to react except to watch in shock as the auction closed with another person’s name as the winner and the hole in the coin book getting bigger and bigger with each passing second. There would be no celebration, and no closure to my collection, as I had just been “sniped.” Sniping is a strategy of placing a bid on an item in the very ending stages of an auction with a predetermined ending time in an attempt to win the auction. Such a strategy conceals the intentions of the bidder until the last moments of the auction and minimizes the possibility of other opposing

11 This coin, has the “8” imprinted over the “7” on the date and is extremely rare. 12 The need for closure is great as we discussed in Chapter 5 when explaining the Zeigarnik

effect.

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bidders submitting higher bids due to the short period of time left to respond to one’s bid. In 2011, I conducted a study with AviNoy, David Mazursky, and Yael Steinhart, all Israeli researchers with ties to the Hebrew University, to better understand sniping as a strategy.13 We found that sniping is utilized as a strategy significantly more often when there is more interest in the auction either in terms of viewers or actual bidders and when more information about the bidders is provided.14 Therefore, we quickly realized that sniping can be described as a social phenomenon whose incidence is influenced by social cues. Yes, there are those individuals who participate in eBay and who develop strong feelings about other bidders. Some of these individuals do not hesitate to bid against someone else at the last moment or before not because they want to win the item, but rather because they want to prevent YOU from winning it! This is true even though bidders typically cloak their names using bidder identities that they come up with. For example, my identity is DavidJosh, but that said, what’s to prevent someone to have just as strong a desire to beat DavidJosh as to beat Michael Kamins? As I said many times in this book, we as humans are not always logical, counter to what the typical economist thinks as evident in the “rational man” theory! The use of sniping helps to avoid the pitfalls of competitive auctions where your own bid can encourage bidding from other bidders. That is, if you did not place a bid, other bidders may not have placed a bid (especially if they were already winning!). Indeed, Marcoux (2003) actually discusses different types of bidders (e.g., stalkers, nibblers, etc.) who use others’ participation or interest in an auction as a cue, lending further support for the belief that sniping could be motivated by social dynamics which occur in the auction environment.15 Bidding late however has the advantage of ensuring that the competitor’s access to your information when formulating their bid is limited. As Marcoux (2003) further notes, if the sniper is known to the bidding community or is known as an expert, they may not want to give 13 Kamins, Michael A., Avi Noy, Yael Steinhart, and David Mazursky. “The effect of social

cues on sniping behavior in internet auctions: Field evidence and a lab experiment.” Journal of Interactive Marketing 25(4) (2011): 241–250. 14 In eBay each bidder uses a pseudonym identity which typically is not one’s real name. However, in certain auctions characterized as “private” each bidder’s “name” is not visible. 15 Marcoux, Alexei M. “Snipers, stalkers, and nibblers: Online auction business ethics.” Journal of Business Ethics 46(2) (2003): 163–173.

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away their interest in the auction at an earlier point in time, since this may trigger others to enter, especially if they value the participant’s reputation as a connoisseur of the product area. For example, I recently bid on a roll of Buffalo Nickels (nickels minted in the United States between 1913–1938). I bid a maximum of $35.00 to exceed the previous leader whose bid was $25.00. EBay then placed my bid at $26.00 (the prior leader’s highest bid plus an increment of a dollar). Immediately, a “nibbler” came along and bid seven straight times at one dollar increments, setting the price at $33.00. If I had sniped at the last moment, the nibbler probably would not have been motivated to bid above my bid since he/she would not have had time to even place a single bid! Most probably, sniping would have ensured that I win the item for $26.00 instead of $33.00 (e.g., $25.00 plus an increment of $1.00). In addition, why do people nibble? They do so because if you allow them to bid in small increments, it is easier psychologically to bid a higher amount than to do it in one swoop or jump. The best strategy is simply to bid your reserve price (that is, the price at which you value the item) and call it a day! If you win, you win. If you lose, you lose, and the emotion which often drives irrational bidding is taken out of the bidding process. C. How to Increase Your Chances of Winning on eBay In this section, I will present some ideas that will make your bidding strategy more impactful. Imagine you are bidding on a hockey jersey from your favorite team with your favorite player’s name on it. You know that in the sporting goods store, the jersey goes for $109.95. So expecting to get it for less online, you place your bid on eBay for $40.00 and plan to raise the bid if it is exceeded by a competitive bidder. This strategy is problematic for many reasons. First, you should bid only ONCE on eBay, and that bid should represent the maximum amount you are willing to pay for the item, no matter what happens in the auction. This is because if you enter the auction with no solid understanding of the maximum amount you want to pay, you are susceptible to emotionally reacting to what happens in the auction rather than logically bidding on what the item is actually worth. For example, say that with an hour left in the auction, another bidder whose handle on eBay is “I Win Everything” bids above your bid. You might say to yourself, “You THINK that you win everything huh, I’ll show you. . .” So you bid above Mr. “I Win Everything.” Sure enough that bidder bids

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above you, you bid above him and you are quickly engaged in an emotional price war, bidding so that the other bidder does not win rather than bidding to win the item for a reasonable price that you actually want to pay. Before you know it, you will suffer from the winner’s curse in that you were the only one to bid so high for an item that was not worth it! Do not let the auction dictate the price you want to pay for the item, set the maximum amount you are willing to pay BEFORE the auction begins and bid ONLY once at that level. As I said earlier in this book, my dad was an auctioneer and as a child I heard him say many times, always wait till the end of the auction to bid because every bid that you make that is countered, is used against you. That is, your own bid elevates the price and if you make 20 such bids, you effectively have raised the price 20 separate times with 20 separate responses irrespective of what the competitors do. In addition, say that you are willing to bid up to $100.00 for the hockey jersey, this of course is a round number and therefore is likely to represent the maximum amount that other bidders would be willing to pay for it. If you place a maximum bid of $100.00 for the jersey, there are likely to be many other bidders who bid EXACTLY that amount or slightly above or below it. This makes the probability of winning with a bid of $100.00 very remote. However, if you were to bid an odd amount that nominally exceeds the $100.00 valuation (say $102.73), you have greatly increased the probability that no one else will have the same bid, and therefore your probability of winning will increase. In addition, bidding below an even number of significance . . .say $99.21 is likely to get you to LOSE the auction, since others will be motivated to exceed it and bid a round number. Again, avoid the lemmings and what we described earlier in Chapter 3 as the cognitive biases called the “Bandwagon Effect” or “Herd Behavior Bias.” There are other ways to increase your chances of becoming the winning bidder on eBay. For example, always try to bid on an item where the auction ends at odd hours of the day (e.g., late evening/early morning on the West Coast of the United States) because there is a lower amount of active bidders at those hours, and therefore a greater chance of your winning the auction.16 16 Note that bidders can always place electronic bids with companies who give the bidder the

opportunity to “snipe” with a certain amount of seconds left in the auction. This can occur

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In addition, one always has the option of bidding against oneself. For example, say that I really want to win the auction for the hockey jersey. What I can do is create a “roadblock” as follows: I bid $90.00, again at $95.00 and finally at $102.73. When an opposing bidder clicks on the “history” section of the auction, they will see my handle “Davidjosh” as the leading bidder, with three bids one under the other. Although the value of each bid is not visible, this pattern suggests to other bidders that they are going to have to bid high to win, since I am indicating a determined desire to win at any cost as I am presenting to the competition the need to jump over three separate bids in order to become the price leader in the auction! I learned this strategy at a young age when I wanted to win what I thought to be a golden starfish pin for my mother. She knew that there was going to be an auction in class, as everyone was told to bring an item of jewelry that we could bid on. However, she only sent me with a quarter. The bidding for the starfish began at 7 cents and quickly rose to 18 cents in increments of a penny with many different kids participating and nibbling. Quickly realizing that I was about to lose the auction, penny by penny, I screamed out (“A Quarter!) loudly and clearly, jumping all other bidders by seven cents and signaling my desire to win the auction at all costs. The result was that I won the auction for a quarter and my mother loved the story of how I won better than the item I won. See, auction strategy was in my blood been as a child, like father like son! D. Strategizing on Priceline The concept of “naming your own price” for travel related products should instantly pique the interest of the consumer, and clearly such a slogan has helped Priceline become a great success in the United States and the world. One need only look at the lofty level of their stock price which has consistently moved in an upward trend. Clearly, in reality, one cannot name ANY price since the seller has the option to accept or reject your offer, so the consumer is left to figure out a creative strategy not just to win, but to win at a price significantly lower than if they were to pay retail. Priceline started back in 2,000, when travelers could name their price for at any time of the day. But sniping electronically takes all of the fun out of placing your finger on the button personally and defeating the competition with one push of a button!

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airline tickets, hotel rooms, car rentals and vacation packages. While the purchaser can select a general location, quality level and price for a hotel room, rental car company and/or airline, the exact location of the hotel and the exact flight itinerary is disclosed only after the purchase had gone through, with no rights to cancel. For those who are less adventurous, this can be scary, so from a marketing strategy perspective, Priceline appeals to the segment of consumers who are risk takers. Focusing on hotel bookings, more recently, Priceline offered an option where the consumer could purchase the hotel at a higher price than naming one’s own price, but in this option the hotels were known in advance (similar to Hotels.com). More recently however, the company developed the “Express Deal” option where choices are revealed to the consumer at deep discounts (in terms of the star level rating of quality and area), but the name of the hotel is only typically revealed if the choice is accepted and one’s credit card is charged. For example, such a deal would be described as a 4∗∗∗∗ hotel in Midtown East (New York City) for, say, $189.00. With all of these ways to purchase a hotel room, the decision regarding what to do seems almost impossible to solve. But there is a way to avoid cognitive biases, and even use such biases in your favor when using this site. Remember this! On Priceline, more is not always better! Now what do I mean by this? Did I ever tell you about the time that I got a 4½ star hotel room in a prime area of New York City for $139.00 a night on Priceline? This example will detail an effective strategy that you should follow when you book from this site using hotels as an example. Well, I started out indicating that I would only accept a five star hotel in Manhattan for the dates I wanted, and I selected only one designated area of the city that I would accept for the location of the hotel, specifically “Midtown East” (at this writing, Priceline has 32 possible areas of New York City that you can select either all at one time, or individually and sequentially). I bid $115.00 for the hotel room and was promptly rejected, and my credit card was not charged. I should note that some people will accept all areas in the city as possible areas for their hotel location thinking that they have a better chance of getting a room, under the false cognitive assumption that bigger (more areas) is better. These individuals usually end up at the airport for a price well in excess of what they could get on their own by contacting the hotel directly.

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The issue here, however, is where the hotel is located and the price paid, not if one can find a room. Some people may even be ashamed of bidding a low amount for a room, possibly thinking they might insult William Shatner or their mother? These people usually also end up at the airport at a rate higher than could have received if they went directly to the hotel and avoided Priceline entirely! Now back to our story, after I had placed my first bid and had been rejected, I had a dilemma since you must either change your selected dates for your stay, change your acceptable hotel rating star level or add another area of the city that is acceptable to you before you can bid again. I had to decide what to do next and my dates were NOT flexible. I then carefully selected another area I would entertain as a possible neighborhood that the hotel could be in (e.g., “Chelsea”) and submitted a bid that was $3 higher than the prior bid of $115.00 at $118.00. Again, I was rejected. I then did the same thing adding seven more areas sequentially, with still no luck. At this point my hand was tired and the bid was up to $136.00. I had been rejected eight straight times but I had no fear and remained hopeful. What I did next was a change in strategy. I indicated that I would accept a 41/2 star hotel in addition to the five-star, and bid $3 higher at $139.00. I submitted my bid and sure enough Priceline came back with the wonderful result that “MY HOTEL IS IN THE BAG.” I had won the Waldorf Astoria for $139.00 ladies and gentlemen. That’s the Waldorf Astoria, not some hotel in Astoria Queens called the Waldorf. This took patience and an understanding of how the system works. I will admit, that Priceline is not for the person who must know in advance where the hotel is going to be and how many stars it has. The Internet giant is attractive to those who like to be surprised and those who accept risk. When I tell my friends of my conquests on Priceline, they always come back with the line: “But you could have been put into a bad neighborhood,” to which I respond: “How many 5 star hotels do you know in bad neighborhoods?” Thankfully, the answer is very few.

E. Tickets to the Big Game I must admit that I am a BIG fan of the Los Angeles Kings. Six years ago when they won the Stanley Cup for the first time in franchise history, tickets

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for the deciding sixth game against the New Jersey Devils were going for over $1,000 at the last minute. I didn’t have that kind of money so I sat home with a bottle of champagne and celebrated their victory. However, 2014 was different. I was armed and ready to deal with the series against the New York Rangers from two different directions. First, I had saved a little bit of money each week (approximately $20.00) to put in a fund to buy Stanley Cup tickets for myself and my two sons. As approximately 100 weeks had passed since their victory in 2012, I had over $2,000 in the fund. Secondly, I had read a scholarly article by Ariely and Simonson (2003) which indirectly addressed the issue of when to buy tickets to the big game.17 In their article, they examined the pricing of tickets to the 2,000 Rose Bowl game featuring Stanford against Wisconsin won by the Badgers 17-9. As the playing of the game approached game time, they found that when tickets were purchased earlier they went for more money because those who were more interested in going to the game were likely to bid earlier and were willing to pay higher prices to ensure that they would have tickets, it was THAT important to them and of course, they were not risk takers. So, assuming that the last minute would yield the best price, I waited until 4 hours before the game started, and a strange thing happened, over the last 12 hours prior to the start of the game, prices began to rise to levels that were even higher than those evident 3 days before the big game . . . but why? The reason is that the number of tickets available for sale rose up to about 12 hours before the game started. Then, the cheapest tickets available were scooped up until very few remained, and they were the expensive ones and doesn’t my wallet feel the pain! The moral of the story is to carefully monitor ticket prices on the last day of the big game and when the quantity available begins to decline, then . . . . strike as the price then is likely to rise. Ziv Carmon and Dan Ariely (2000, p. 360) also discovered that in relation to tickets for important events (in this case the NCAA “final four” basketball game) buyers and sellers value the tickets differentially but more

17 Dan Ariely is not only a well-respected scholar, he is also the author of many popular

books inclusive of “Predictably Irrational,” a New York Times best-seller for many weeks. The Ariely and Simonson reference is Ariely, Dan, and Itamar Simonson. “Buying, bidding, playing, or competing? Value assessment and decision dynamics in online auctions.” Journal of Consumer Psychology 13(1) (2003): 113–123.

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importantly that the respective valuation is based upon different factors.18 That is, “buyers tend to focus on their sentiment toward what they forgo (typically, the expenditure) and buying prices are thus heavily influenced by variables such as salient reference prices, thus price differences not percentage differences matter.” By the same token, sellers tend to focus on their sentiment toward surrendering the item, and selling prices are hence more heavily influenced by variables such as the endowment effect (as previously discussed) and the benefits of possessing the item. Hence, buyers should be particularly sensitive to price, and therefore tickets which have a small differential advantage in price should be highly valued by the buyer.19 Likewise, the seller suffers from the “Endowment Effect” bias discussed in Chapter 5. That is, the seller (owner of the item) is most likely influenced by the perceived value that owing the item conveys to the bearer, and this effect reflects itself in the fact that the seller often demands much more to give up the object than they would be willing to pay to acquire it. Hence, the strategy that the buyer should pursue in a one-on-one negotiation with the seller would be to attempt to discount the perceived value of ownership, weakening the endowment effect. For example, if the seller is offering Stanley Cup tickets for the Kings, stating a high price because going to the game is a “once-in-a-lifetime” opportunity, one can argue back that the Kings won 2 years ago and hence seeing them win again would happen technically at least “twice-in-a-lifetime,” and therefore the second championship experience is not as valuable as the first. I unfortunately had not written this book yet and had therefore not read it so I bought my tickets on StubHub in an impersonal exchange process, waiting till the last minute to purchase with the result of “paying through the nose,” for nose-bleed seats.

18 Carmon, Ziv, and Dan Ariely. “Focusing on the forgone: How value can appear so different

to buyers and sellers.” Journal of Consumer Research 27(3) (2000): 360–370. 19 My tickets to the Kings game cost me $600 a pop! Even at these levels a difference of

$25.00 is still $25.00 especially when all other tickets are all in excess of $600.00. Looking at this discount as a percentage would make the effect less dramatic since $25.00 is only 1/24th of $600 or approximately 4%. Twenty-five dollars is however 25 dollars any way you look at it!

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Chapter 15

Wrapping It All Up

From the very beginning of this book, we have seen that the consumer can, at various times, be subject to marketing manipulation, ranging from tactics taken by the marketer to environmental stimuli, to feelings and exposure to marketing stimuli one had as a child which now impact decisionmaking in the present. At the root of this susceptibility to marketing manipulation is the consumer’s tendency to utilize System I (or automatic) processing in decision-making (as discussed in Chapter 1) as well as the fact that oftentimes, once a decision is made, the consumer tends to follow the same decision rules resulting in brand loyalty as a consequence of inertia. The underlying cause for automatic cognitive processing and inertia are derived from the fact that the consumer is a “cognitive miser” and tends to avoid making significant effort in brand choice due to an ever-increasing complex environment bumping against one’s fixed cognitive resources.1 Consider that System I processing is tailored to avoid cognitive complexity. That is, it is automatic, fast and often unconscious, with the upside in that it requires little energy or attention, but with a downside that is prone to biases and systematic error. Consider the following example. My dad never failed to play the state lottery twice every week. He played the game where one chooses 6 numbers 1 Swait, Joffre, and Wiktor Adamowicz. “The influence of task complexity on consumer choice: A latent class model of decision strategy switching.” Journal of Consumer Research 28(1) (2001): 135–148.

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out of 49 that are picked, and if one guessed correctly all six, or five of six of those numbers plus the bonus, one could win millions of dollars. Just for the record, my father never won more than five dollars, but that’s another story for another day. One day I asked him how he choose his numbers to play and he told me that he played the same numbers every time, 02, 11, 17, 22, 26, 52, because those numbers represented both my and his full birthday. I made the mistake of innocently asking him why he played the same numbers, since for me that would be somewhat boring. His response was surprising. He said that in his opinion there are two “moving” parts to the lottery, the first part are the numbers that he chooses, and the second part are the numbers that the computer chooses. So, according to his logic, it would be more difficult to win if he were to constantly change the numbers that he chose because then there would be “variability” on both sides of the coin, by keeping his numbers the same, he said that he at least controlled half of the variability in the game. That is, he thought that if his numbers were to change, in light of the fact that the computer’s numbers change every week, his chances to win would be next to nothing. I carefully explained to him that his chances to win whether he changed his numbers or not were identical and are indeed next to nothing anyway. This is because the numbers are chosen randomly and therefore he has absolutely NO control over the result whether or not he changes his numbers or keeps them the same. My father, who was a very smart guy and who spent his working life as a sharp businessman in the role of an auctioneer and appraiser, dismissed my logic as idiotic, and to keep the peace I told him to continue on with his approach and of course I wished him bonne chance.2 This example illustrates both the problem of inertia and that of System I processing. The fact that my father consistently choose the same numbers to play in the lottery, in a brand context, represented the fact that many of us think through our purchase decision the first time we purchase a product in a category. So for example, when we first choose an airline frequent flyer program to use, we may consciously consider the available perks offered, how many

2 I actually told him that I would teach him probability theory since I taught Statistics at

the University, but he told me that he had no time for that theoretical stuff, he had to make money.

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miles we have to fly to get those perks, pricing, the convenience of the flight schedule the airline offers, other companies giving reward miles associated with that airline, and the closeness of the airport to our home, among other factors. Then, we typically choose the airline that we want to accumulate miles on and become somewhat brand loyal to that airline. For my dad, the analogy would be that he had to consciously choose which numbers to play in the lottery, the FIRST time he played, then he played the same ones over and over. The airline is hoping that once you choose their airline, you will continuously fly them again and again in order to accumulate miles as you become brand loyal. That is, they are making it harder and harder for you to switch airlines therefore encouraging inertia (since you are accumulating rewards as the miles increase), and they are making your decision automatic (System I) as a light goes off in your head that says “MILEAGE” every time a chance to fly presents itself whether for business or pleasure. In fact, the MORE miles you accumulate, the harder it is to switch companies. So, how does one break out of this never-ending trap of inertia disguised as brand loyalty and System I (automatic) processing . . .in other words, how does one escape from becoming part of Zombie World Part I? The answer lies in actions that YOU, the consumer, must periodically take, but indeed sometimes events occur that are initiated by the company which force your hand. Let’s examine the second situation first. I will admit to you all that I was a United Airlines loyalist, I was guilty of inertia and System I processing beyond belief! Every credit card that I had was linked to United’s “Mileage Plus” program, I used a telephone service that was linked to UA miles, I stayed at hotels that offered miles and even shopped at a specific store exclusively (Von’s) when they offered 125 United miles for every $1,000 worth of groceries purchased. I was a United addict. Now, you might ask if I ever used the miles I accumulated to exchange for free flights for myself and my family? The answer was yes but begrudgingly, why begrudgingly? Well, because I took pride in how many miles I accumulated in my Mileage Plus account, and it was painful to see that total reduced! I know, I need to make an appointment with a shrink as soon as possible, but hopefully he/she is affiliated with the United Mileage Plus program and I can get credit for the thousands of dollars I am about to pay. Now, one day a couple of years ago, United announced that they had made the strategic decision to abandon New York’s John F. Kennedy airport

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in favor of Newark (which they called New York).3 This decision had a significant impact upon me because the vast majority of my travel was between Stony Brook University and Los Angeles where I still live.4 I was left with the option of flying out of LaGuardia and stopping across the country in either Denver or Chicago, or driving to New Jersey from Suffolk County, a drive that could exceed 2.5 hours.5 Guess what? I rejected both options and for the first time in 20 years did a thorough analysis of which airline I should give my business to from now on. United’s decision forced me to break out of my state of inertia and to engage in System II as opposed to System I processing. I actually created a worksheet which had 9 columns of different attributes that I considered (e.g., In and out of Kennedy, nonstop coast-to-coast, convenience of flight schedule, international access, great frequent flyer program, ability to transfer my 1k Mileage Plus status, etc.) and 8 rows representing each of the different airlines that I considered (e.g., American, Delta, Virgin America, Jet Blue, Alaska, etc.). When the smoke cleared, I chose American because they fit most of my criteria and, most important of all, accepted my record as a million mile flyer and my 1k status (100,000 miles of flying in the most recent calendar year). I felt good about making this change even though it was initiated by circumstances unique to the airline and not by myself. It motivated me to examine other areas in my life where I am expending lots of dollars while remaining loyal to brands that I have not changed for years. For example, when my last of five Honda’s reached the end of the road, I actually opened up my eyes to considering a different brand, and for the first time purchased

3 As a native New Yorker and Brooklynite, I can personally tell you that New Jersey is not New York no matter what label you use . . . fuggedaboutit. 4 I might as well add this topic of why I work in New York and live in Los Angeles to my visit with the shrink. 5 This is the reason that United’s new advertising, attempting to position Newark Liberty as closer to New York than Kennedy airport is destined for failure. Showing cabs with timers on their roof showing the exact time to Newark versus Kennedy from that point, is ridiculous. As one weary traveler commented in response to this campaign, “Putting a half-hour of time savings on the roof of a cab to show the advantage of going to Newark vs. JFK, is enough to make me bend over laughing. Traffic conditions in NYC can change in a New York minute, and the tolls to Jersey are really what kill you, United conveniently leaves this out.”

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a Volkswagen (non-diesel) and have been pleased with the decision.6 We should all reconsider our loyalties at some point in our purchasing life since inertia and System I processing can counteract our getting the best offering on the market. Making the effort to break the constraints of inertia and to avoid System I processing can be as simple as changing your purchasing habits. Consider the situation when you are interested in purchasing a “new” used car. Most people pick up the newspaper and look into the classified section to see what cars are available locally at a reasonable price and with low mileage. However, such an approach is limited both geographically and in the options considered and is sure to result in a purchase that is less than optimal. Consider forcing yourself to think through your typical approach by purposely eliminating the newspaper as a source of information. Eliminate the newspaper in my search for a used car you say, are you crazy? No, I’m simply requiring you to break the mold. Consider the online site “Autotrader.com.” This site allows you to find both used cars and new cars at a price that YOU can specify and, most importantly, it is linked to cars available in the entire United States. With the site, you can set search specifications such as make and model, maximum price, certified, less than a certain mileage, automatic versus manual among other factors. In 2013, I used this site to purchase my 2010 Volkswagen Passat Wagon. Prior to the beginning of the search I told my son David, that we would go anywhere in America (except Hawaii and Alaska) to purchase the car, if the deal that was revealed was at least $2,000 less than what we could get in Los Angeles. What made this approach even more worthwhile was that I had two free tickets to go anywhere in the United States courtesy of . . . . you guessed it . . . United Airlines. Hence, what might have been a boring and unproductive search via the newspaper turned into an exciting adventure with our destination determined by the results of the computer search. The “best” car using Auto Trader was found to be offered by Momentum Volkswagen in Houston. We went there, and the rest is history! Another way to break the mold is to think more broadly in terms of who sells used cars. Using our System I “automatic” thinking cap, of course we

6 I bought 5 Honda’s from 1984 until 2013 and presently I own 4 VolksWagons.

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first think about private individuals and then used car dealers and car dealers in general, but if we begin to deliberate on this question and use System II processing, we realize that those who rent cars also sell cars especially when they need to welcome in the next year’s model. This event occurs typically around late August as the New Year model is typically introduced. So, for my most recent used car purchase, I looked online at Hertz and Avis in late August of last year for a 2013 Tiguan. Hertz, since it has the reputation of being the largest rental car service in the world, I suspected would not be the best place to buy a used car since the car chosen would probably have been driven by more people than those renting from Avis and hence have more mileage.7 This turned out to be true, so I purchased my 2013 Tiguan for approximately $5,000 less than others offered it for from Avis, and it had 28,878 miles, not too shabby a purchase. In case you are wondering, the car has stood up to the test of time. Another example that involves breaking the mold involved a conversation that I had with an eBayer who was selling an 1877 Indian penny in fine condition. He offered it for sale with a minimum bid of $750.00.8 He could NOT sell the coin and listed it four times in a row, each for a period of seven days without success. I contacted him and told him that the reason he could not sell the coin was because he made it extremely difficult to get anyone to bid on it. That is, to initially bid on the coin, one had to place a bid of $750.00. I told him to offer the coin, without a minimum bid and without a reserve price (i.e., the price that when reached instructs eBay to sell the coin). His reaction was anger, he told me that I was crazy and that if he didn’t use the tactic of a minimum bid and a reserve he could end up selling the coin for a penny, at a tremendous loss! I explained to him that the chance that the coin would sell for a penny equaled the chance that Hillary Clinton would appear as a speaker at the Republican National Convention. To emphasize my advice, I engaged him on a gamble. I told him that I would guarantee a price of $750.00 if he would put the coin up for sale with no minimum and no reserve and I promised

7 Some of you may recall Avis’ famous two-sided refutational slogan of “We’re #2 so We Try Harder.” 8 The coin was actually worth $825 in the condition he was selling it.

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him that I would not bid on it so as to rig the results. So, if the coin sold for $550.00, I would pay him $200.00 to make up the difference. However, if the coin sold for more than $750.00 he would pay me the difference. He agreed, the coin sold for $818.67 and I received a check in the mail for $68.67. Now I tried the same approach when I found a baseball card with the image of Yoenis Cespedes on the front and the statistical record and name of Daniel Murphy on the back. I told my wife that this was an incredible find and that we could retire for life just as soon as I put the card up for sale on eBay. I carefully took a picture of the front of the card and the back, set the auction for 10 days and started it off at one penny with absolutely no reserve. I wrote in the description of the auction that this was the “FAMOUS” Cespedes/Murphy error card, but I had no idea if this card was valuable or if the Topps Company had mistakenly issued many of them. I couldn’t wait to see the price rise and rise in the auction. Well, guess what, I received a first bid of a penny, 3 minutes after I listed the auction and despite looking at the auction over 200 times, the final bid . . . . . remained at a penny. In my email to the winner, I told him not to pay and that I would spring for the free stamp. So, when my wife asked me where we were going to retire with the proceeds of the auction, I told her I didn’t even make enough money for us to buy a tent so that we could sleep on the streets, or for that matter, the anchors to pitch the tent. So what was the difference between selling the Indian penny with no minimum and no reserve versus the Cespedes/Murphy error card? The difference is that there is a strong market among coin collectors for the 1877 Indian penny. Hence, selling it without a reserve or a minimum bid is not risky because on eBay, given the number of participants on the auction site, the final price should reach the market price. However for the baseball card, this was an undefined entity in terms of value and hence if it was NOT in demand, it could sell for one penny, as it did. So the lesson is, if you are going to sell an item without any protection in the form of a minimum bid or a reserve price, make sure that the item has a defined market. If it does not, you may sell it for a lot less than it is worth, or at least a lot less than you expect. So in closing, the best way to avoid marketing manipulation is to anticipate that you could become a victim if you are not engaged in what’s happening around you. While thinking automatically has the advantage of

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simplifying your life, it also sets you up to mindless behavior which sets course directly into dangerous waters (or knee deep in soup). Consider Brian Wansink’s research on mindless eating behavior. In one experiment where subjects were asked to consume as much soup as they wanted, those who were given self-refilling soup bowls that filled secretly as they ate, consumed 73% more soup relative to those subjects exposed to regular soup bowls. Surprisingly, the former group reported that they did not believe that they had consumed more soup than the other group nor did they report that they were more sated than those who had eaten from normal bowls.9 As perception becomes one’s reality, remove the automatic controls on your behavior so that marketing manipulation does not become your reality, and you do not end up in the soup.

9 Wansink, Brian, James E. Painter, and Jill North. “Bottomless bowls: Why visual cues of

portion size may influence intake.” Obesity Research 13(1) (2005): 93–100.

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Index

attack ad, 50 attribution theory, 66 automatic processing, 25 Autotrader.com, 229 availability heuristic, 11, 72 Avengers, 151 Avis, 200, 230

A A1C , 127 a fear appeal, 78 A Million Ways to Die in the West, 77 ABC, 145 Academy Award, 211 adaptation-level theory, 103 advertising, 1–3, 8–10 advertorial, 203, 206 affect, 180 affective, 5 Agida, 66 Alamo, 200 Alaska, 228 Alfa Romeo Spider, 201 Allergan, 159–160, 162, 173 Alpert, Eddie, 137 Amazon, 197 American Pickers, 165 American University, 93 AMTRAK, 93 anchoring, 27, 102 anchoring effect, 27–28 And That’s Not All Technique, 101 Anheuser-Busch, 106 Animal House, 54 Ardennes, 203 Ariely, Dan, 20, 97 Asch, Solomon, 192 Assael, Henry, 64, 85 Ativan, 203 Atlantic, 206

B Baader–Meinhof Effect, 47 bachelor, 37 bachelorette, 37 Bait and Switch, 146 ball point pen, 64 bandwagon effect, 32, 219 Barcelona, 71 Barnes and Noble, 210 barriers to entry, 88 Barrons, 103 base rate, 36 base rate fallacy, 34 Batman, 145 BBB, 148 Belt Parkway, 116 Belushi, John, 54 Bernard M. Baruch College, 4 Belushi, John, 54 Better than Botox, 159, 173 Beverly Hills, 159–160 binge eating, 49 Black Hole Bias, 45 233

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234 Blackett, Tom, 131 Blanton Manufacturing, 164 blurring, 119 BMW 5 series, 43 BOGO, 100, 147–148 Bond, James, 102, 201 Botox, 159–161 Botox Cosmetic, 159, 161–162 brand, 117–118, 163 brand loyal, 38, 164, 225, 227 brand name, 76, 108, 128–129, 164 branding, 112 Brexit, 191, 194 Brilinta, 129 Brintellix, 129 Britain, 191 British Pound, 43 Broadway, 105 Brooklyn, 116 Brooklyn Nets, 104 Brown, Gordon, 186–187 Buchanan, Bruce, 156 Bud-Light, 69 Budweiser, 106–107 Buffalo Nickel, 140, 218 Bumble Bee, 63 bundle, 19, 98–99 Burger King, 2 Buy It Now, 41, 213 Bynes, Amanda, 90 C 2005 Congressional Record, 181 Cairo museum, 130 California, 112, 125, 194 calorie content, 108 Calvin Klein, 19, 147 Cambridge University, 143 Cameron, David, 191, 194 Campbell’s soup, 76 Canada Goose, 115 Cancún, 104 Captain Crunch, 2 Captain Jack Sparrow, 123 Cardio-Scan, 34–35

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Index Carson, Ben, 179 category prototype, 76 Caterpillar, 200 CBS News Healthwatch, 124 CDC, 127 Celebrex, 129 Celexa, 129 cereal, 62 Cespedes, Yoenis, 231 Chasing Tail, 165 Chelsea, 222 China, 149 Chiquita Banana, 2 choice behavior, 199 Chrisdien Deny, 113 Christian Dior, 113, 115 Christian Mingle, 60 chroma, 17, 201 chunking, 164 Cialis, 128 Cinque Terra, 168 Claritin, 130 class action, 12, 167 class action lawsuit, 157 Clippers, 55 Clinton, Hillary, 50 Clooney, George, 66, 97 Clostridium botulinum, 160 Clostridium difficile, 129 CNBC, 210 CNN, 31, 179–180, 182 Coaster Boy, 91 Coca-Cola, 63, 76, 109, 117 Cochran, Johnnie, 53 cognition, 71, 80, 82, 125, 180 cognitive, 4–5 cognitive bias, 11, 23, 27 cognitive dissonance, 48, 146 cognitive effort, 21, 85 cognitive mechanisms, 25 cognitive miser, 86, 94, 96, 225 cognitive resources, 103 Corzine, Jeff, 187 Coke, 117 Colgate, 76

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Index color, 128, 199–200 Cooper, Anderson, 179 comparative advertising, 108 Conan the Barbarian, 69 confidence, 58 confirmation bias, 36, 47, 139 Connecticut, 112 consumer, 16 consumer behavior, 85 consumer biases, 11 consumer confusion, 110 consumer reports, 65 consumption behavior, 48 consumption patterns, 38 contrast, 168, 181 Corbyn, Jeremy, 191 Cordoba, 71 Corona, 200 Costner, Kevin, 211 country-of-origin, 106, 108, 149 Cramer, Jim, 67 Creamo, 163 Crisco Shortening, 76 Cruz, Ted, 185 Cruz, Penelope, 65 cue, 16–17, 49, 149, 217 D Daily News, 145 Dangerfield, Rodney, 130 Dartmouth, 101, 143 Dartmouth College, 54 death tax, 42 deception, 154–155 deceptive advertising claims, 159 decision process, 13 decision-making, 4–5, 7, 11, 13–14 Decker, Brooklyn, 198 degenerative myelopathy, 44 Delta, 228 Democrats, 181 denomination effect, 38–39 diabetes, 45, 126 dilution, 118

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235 direct selling, 99 Direct-to-Consumer (DTC), 124, 128, 162 Docusate, 129 Dooney & Bourke, 110 Draft Day, 211 durability, 170 E e-commerce, 72 Eagle, Angela, 191 Eastwood, Clint, 77 eBay, 6, 13, 32, 34, 40, 43, 50, 58, 72–74, 88–89, 121, 150, 209, 212–214, 216–219, 231 egocentric bias, 72–73 emotions, 4–5 endocrinologists, 89 endowment effect, 39–40, 48, 224 entry barriers, 76 equal, 200 Escalation of Commitment, 43 Europe, 191 European Union, 191–192 Exubera, 89 F fading affect bias, 74–75 fair price, 104 false advertising, 153 false advertising claims, 156 false and deceptive advertising, 173 false consensus effect, 58–59 false negative, 34 false positive, 34 Fantastic Four, 151 fat content, 108 Ferrari, 200–201 Fiat, 195–196 final four, 223 Firestone Tire Company, 111–112 First-Mover Advantage, 76 Fishburne, Laurence, 136 Flonase, 130 Florence, 168 focal item, 99

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236 Fonz, 41 Food and Drug Administration (FDA), 7, 89–90, 124, 127, 161–162 Ford, 111–112 Ford Explorer, 111–112 Fort Knox, 119 Fox, 179–180 frame, 165 frame of reference, 46 framing, 75, 170, 203 framing effect, 41–42, 71 France, 113, 140 franchising, 99 Freeman, Morgan, 77 Friendly Frost, 145 Frontline interview, 41 Frosted Flakes, 2 FTC, 15, 206 G Gardner, Meryl, 80 Garner, Jennifer, 211 GE, 145–146 Geico, 79–80 GERD, 125 Germany, 107 Gershwin, George, 49 Gestalt psychology, 82 Gettysburg, 176 glabellar lines, 161 Glaxo-Smith Kline, 130 Gleason, Jackie, 116 Goldman, Doron, 156 Graham, Lindsay, 184 Great Pyramid, 130 Green Eggs and Ham, 185 Grenada, 71 H Hackman, Gene, 77 halal, 63 Hamburger Helper, 129 Hanover New Hampshire, 101 Harrison, Rick, 40 Harvard, 143

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Index Harvard Business Review, 45 Hawaii, 125 Hebrew University, 5, 185, 217 Heineken, 200 Heraldic lion, 143 herd behavior bias, 32, 219 Hertz, 200, 230 heuristic, 13, 21, 32, 53, 86, 118 Hi-C, 198 Hierarchy of Effects, 80, 180 high chroma, 166–167, 202 history, 194, 220 History Channel, 165–166 Hitler, Adolf, 175 Hill, Jonah, 211 Hobble-Skirt, 117 hockey jersey, 218–219 Hoffman, Dustin, 93 Holbrook, Morris, 80 Hollywood Bowl, 49 Honda, 38 Houdin, Robert, 57 Houdini, Harry, 57 Houston, 229 How the West Was Won, 165 hue, 200–201 H&M, 197 I identification, 55 Illinois, 112 illusionary superiority, 60 illusory superiority, 61 immunize, 9 Inbev, 106 Indian pennies, 73, 215, 231 inertia, 85, 89, 225–227 inoculate, 29 inoculation theory, 170 insulin, 89–90 Intelius, 166 interior department, 163 international branding, 112 Investor’s Business Daily, 45, 86, 176

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Index involvement, 85 iPhone, 168 isolation effect, 80 Israeli Shekel, 42 Ivory soap, 76 Ivy league, 143 J 21 Jump Street, 211 22 Jump Street, 211 J-Date, 60 Jackson, Michael, 160 Jacoby, Jacob, 82 Jenner, Bruce, 109 Jenner, Caitlyn, 79 Jet Blue, 228 Jewish, 63 Jewish dietary law, 62 John Deere, 200 John F. Kennedy airport, 227 Johnnie Walker, 114 Johnson, Lyndon B. (see also President Johnson), 43, 104 K Kamins, Michael, 217 Kardashian, Kim, 78, 173 Kraft Macaroni and Cheese, 118 Kashi, 61–63 kashrut, 62 Keat’s heuristic, 53 Keller, Helen, 113–114 Keller, Kevin Lane, 128 Kellogg’s Corn Flakes, 76 Kelloggs, 1 Kennedy, John, F. (see also President Kennedy), 43, 182, 228 Keytruda, 129 Kill A Mockingbird, 150 Klein Becker, 159 Klein, Arnold, 160 Kohler, Wolfgang, 80 Kona, 74 Kors, Michael, 19 kosher, 61–64

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237 Kotler, Phillip, 128 Kotler and Keller, 128 Kubota, 200 L LaBatt, 200 Labour Party, 191 LaCoste, 118 Lafayette College, 53 Lake Wobegon, 61 Lake Wobegon Effect, 60 Lancôme, 148 Lanham Act, 110, 112, 153 Las Vegas, 74, 202 Last Act price, 29 Lauren, Ralph, 19, 172 Lawrence of Arabia, 165 learning theory, 49 Lee, Harper, 150 Lemmon, Jack, 211 Levitra, 203 Levitt, Ted, 102 Lewis, Jerry, 105 Lewis, Michael, 210 Lindell, Mike, 147 Loews Theaters, 156 Lorillard, 156 Los Angeles, 55, 74–75, 96, 228 Los Angeles Kings, 91, 222, 224 loser’s curse, 212–213 Louis Vuitton, 110 low involvement, 17–18 Luntz, Frank, 180 M MacFarlane, Seth, 77 MacLaine, Shirley, 211 Macy’s, 147 Mad Money, 67 Madison Square Garden, 104 Madrid, 71 Manhattan, 221 Mann, Alfred, 90 MannKind, 90–91, 209 market leaders, 32

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238 market leadership, 33 marketing, 85 marketing manipulation, 13–14 marketing maven, 65, 73 marketing mix, 10 marketing tactics, 13 Maserati, 168 Mason, Jackie, 80 Match.com, 60 materiality, 154 Matsuyama, Brad, 210 maximum bid, 212 Mays, Billy, 100 Mazursky, David, 185, 217 McConnell, J. Douglas, 107 McDonalds, 98, 187 McGuire, William, 170 Medavoy, Irena, 161 memory, 72 memory biases, 210 memory-based biases, 13 Merck, 130 mere exposure effect, 8, 48 minimization, 74 minimization hypothesis, 74 minimum bid, 214, 230 Minute Maid, 109 MIT, 97 mobilization, 74 model, 49 Molokai, 202 Money Monster, 67 more the better bias, 12 mortality salience, 52 Morwitz, Vicky, 197 mouse, 160 MSNBC, 179–180 MSRP, 105 multi-level marketing, 99 Murakami, 110 Murphy, Daniel, 231 Mutombo, Dikembe, 79 Mutual of Omaha, 120–121

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Index My Pillow, 147–148 M&M’s, 105 N naïve theories, 22 naive belief, 21, 33 National Diabetes Fact Sheet, 89 Naples, 168 Nasonex, 130 National, 200 NBC Business News, 156 NCAA, 223 negative option pricing, 17, 167 negativity bias, 49, 51, 72, 88 Nelson, Willie, 90 New Jersey, 152, 187 New Mexico, 123 New York, 115, 196, 228 New York City, 93, 221 New York Daily News, 176 New York Knicks, 104 New York Rangers, 146, 223 New York State Attorney General, 173 New York Stock Exchange (NYSE), 210 New York Times, 60, 93, 114–115, 161, 187 New York University, 156, 169, 197 Newark, 152, 228 Nexium, 124 nibbler, 218 nibbling, 220 NIH, 127 Nissan, 102 Noy, Avi, 217 numismatist, 215 O O’Brien, William, 210 Obama, Barack, 182 odd-pricing, 94, 96 odd-pricing effect, 94 Oklahoma City, 181 Olympic Decathlon, 109 one-sided, 167 O’Neill, William, 45

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Index order, 166 Ortega, 63 Orthodox Union of Rabbi’s, 64 out-group homogeneity bias, 61, 63 P packaging, 128 Palin, Sarah, 176 Paris, 140 Parke–Davis, 126 Patent Office, 163 Patton, George, 165 Paul, Les, 40 Pawn Stars, 40–41, 165 Peace Corps, 51 pennies a day, 103 People Search, 166 Perkins, Marlin, 120 perceived risk, 106 perceptions, 16 peripheral, 17 Personal Post, 81 Personal Post Office, 81 Pesci, Joe, 70–71 Pfizer, 90, 126 Pfizer Corporation, 89 Phase I, 7 Phelps, Michael, 90 pioneer brands, 32, 76 Pitney Bowes, 81 Pitt, Brad, 97 Place (distribution), 92 Popeil, Ron, 100 Post, 62 Post Raisin Bran, 62 Prevagen, 158 price, 92 price anchoring, 101 price anchors, 214 price bundling, 18 price lining, 149 price sensitivity, 108 price–quality, 108 price/quality inference, 108 priceline, 72–74, 209, 220, 222

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239 Prilosec, 124 primacy and recency effect, 76 primacy effect, 76, 192–193 Princeton, 54, 143 Princeton University, 54 processing, 16 product, 92 prominence effect, 80 promotion, 92 prospect theory, 101 psychology, 27 puffery, 157 Pulitzer prize, 176 pump and dump, 59 purchase, 180 purchase intention, 193 purple pill, 124 pyrazinamide, 129 Q quality, 149, 170 R R.J. Reynolds Tobacco Company, 156 Radio Flyer company, 91 Raisin Bran, 62 Ramirez, Michael, 176 rational man, 32, 217 reactance, 52 reasonable consumer, 158 recency, 77 reciprocity bias, 141 rectangular distribution, 162 Red Bull, 156–157 Reese’s Dark Chocolate Peanut Butter Cups, 45 Reese’s Peanut Butter Cups, 45 reference point, 103 reference price, 103, 105 Rembrandt Company, 152 Republicans, 50, 180–181, 184 reserve price, 214, 218, 230 Reuters, 210 Rezulin, 125–128 Rhapsody in Blue, 49

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240 Rhyme-as-Reason Effect, 52 Rickles, Don, 71 Robins, Rebecca, 131 Roosevelt, Eleanor, 178 Rolling Stone, 115 Rome, 75, 168 Ronald McDonald, 2 Roosevelt, Franklin, 175 Roosevelt Island, 178 Rorschach test, 65 Rotarian, 206 S Salem Cigarette, 83 Sanders, Bernie, 179 schema, 70 schema incongruence effect, 69 Schindler, Robert, 95 Schneiderman, Eric, 142 Schul, Yaacov, 185 Schwarzenegger, Arnold, 69–70, 154 Seawolf red, 200 secondary meaning, 114–116 See’s Candies, 63 selective attention, 47 selective perception, 54 self-serving, 65–66 self-serving bias, 64 serial positioning, 166 series, 43 setting your reserve, 44 Seville, 71 Sex in the Ancient World — Pompeii, 165 Shamban, Ava T., 159 Shanghai, 113 shape, 128 Shatner, William, 222 Sheepshead Bay, Brooklyn, 158 sided advertising, 169 silver dollar, 140 simple heuristic, 108 Simpson, O.J., 53 Skechers, 173 sleeper effect, 185–187 Snickers, 70–71, 116–117

b3214-index

Index Snickers bar, 71 sniper, 218 sniping, 216–217 social acceptance, 22 social biases, 14, 55 social cues, 217 social psychology, 27 social security number, 28 sociology, 27 Sorrento, 168 Southern California, 65, 172 Spain, 71 Spiderman, 151 Spirit Air, 74 Splenda, 200 sponsored content, 206 spotlight effect, 78 Stanford, 58 Stanford Research Institute, 107 Stanley Cup, 223–224 Staples Center, 91 Star Alliance, 75 Starbucks, 200 Steinhart, Yael, 217 Sterling, Donald, 55 Stern School, 156 Stony Brook, 3 Stony Brook University, 1, 106, 200, 228 Strivectin, 159, 173 StubHub, 209 Suffolk County, 102 sunk cost effect, 46 sunk cost fallacy, 44, 145 SUNY, 32 Super Bowl, 69 supplemental item, 99 Supreme Court, 164 Sweet’N’ Low, 200 Swiss–Webster mice, 160 Sylvania, 146 System I, 13–14, 16, 25, 41, 118, 144, 166, 173, 225, 227–229 System I processing, 17, 20–21, 226 System II, 13–14, 41, 228 System II processing, 23, 25, 230

page 240

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Marketing Manipulation: A Consumer’s Survival Manual - 9in x 6in

b3214-index

Index T Talon zippers, 78 tarnishment, 119–120 Tatum, Channing, 211 Taylor, Elizabeth, 160 telemarketing, 9 Terminator, 69 Texas, 112 Thaler, Richard, 215 The Apartment, 211 The Apprentice, 180 The Guardian, 191 The Internship, 211 thermoregulation, 5 Theron, Charlize, 77 Third Reich, 203 Tiguan, 230 Toledo, 71 Tony the Tiger, 2 Topps Company, 231 Toucan Sam, 2 trade dress, 113–115 trademark, 118 trademark dilution, 119 transaction compliance, 103 TripAdvisor, 50, 64–65 Triumph cigarettes, 156 Tropicana, 2, 109 Troy-Hills New Jersey, 159 True Lies, 154 Trump University, 141–143 Trump, Donald (see also President Trump), 50, 141–142, 176, 179, 184 TSA, 93 Twilight movies, 77 two-sided, 169, 172 two-sided non-refutational appeal, 172 two-sided refutational ads, 170 two-sided, advertising, 168 Type I error, 34 Type II, 34 U U.S. dollar, 43 UCLA, 200

page 241

241 Unforgiven, 77 United Airline, 49, 227, 229 United Kingdom, 191 United States, 229 United States Department of Agriculture, 163 United States Senate, 185 United’s Mileage Plus program, 86 University at Buffalo, 32 University of California-Santa Cruz, 213 University of Chicago, 95, 215 University of Nebraska, 60 University of Southern California, 38, 53, 200, 214 V value, 201 Vaughn, Vince, 211 Verne, Jules, 40 Viagra, 128, 203 Victor’s Little Secret, 119 Victoria’s Secret, 119 Victoria’s Secret Angels, 120 Virgin America, 228 Voight, Jon, 93 Volkswagen, 102, 170 Von Restorff, Hedwig, 80 Von Restorff Effect, 79 W Waldorf Astoria, 222 Walker, Morton, 135 Wansink, Brian, 232 Wall Street Journal, 103 Warren, Lori, 95 warmth, 5–6 Warner Lambert, 126 Washington, D.C., 93, 167 Washington Heights, 145 Weiner, Anthony, 193 Weiss, Leopold, 57 Wesleyan Media Project, 182 Wharton School, 143, 197 “wheat backed” cents, 40 Wild Kingdom, 120

July 13, 2018 11:12

Marketing Manipulation: A Consumer’s Survival Manual - 9in x 6in

242 Wilderness AT tire, 112 Williams, Andy, 145 Wilson, Owen, 211 winner’s curse, 44, 212, 215, 219 Winston Lights, 156 wisdom of the masses, 33 Wisk, 78–79 word-of-mouth, 129 Wrigley’s chewing gum, 76 X X-Men, 151 Xyzal, 130

b3214-index

Index Y Yahoo auctions, 89 Yale, 143 YouTube, 210 Z Zajonc, 198 Zeigarnik, Bluma, 83, 210 Zeigarnik effect, 80–82, 145 Zuni Indians, 123 Zwicky, Arnold, 47

page 242

World Scientific–Now Publishers Series in Business (Continuation of series card page)

Vol. 9

The First Great Financial Crisis of the 21st Century: A Retrospective edited by George G. Kaufman and James R. Barth

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Superpower, China? Historicizing Beijing’s New Narratives of Leadership and East Asia’s Response Thereto by Niv Horesh, Hyun Jin Kim and Peter Mauch

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