# Incommensurate Resources: Not Just More of the Same

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2 Incommensurate Resources 27 Figure 1 ADVERTISEMENT OF PRECIOUS MOMENTS FIGURINE This is not to say people never attend to absolute differences, but they seem to focus first on whether the savings is a large percentage of the base price (Darke and Freedman 1993). 2 When consumers are offered a premium with an unspecified pecuniary value, it is not clear how they evaluate the promotion. We posit that unlike cash discounts in which 2For evidence against the psychophysics of pricing, see Kamen and Toman (1970). both the reference level and the change are expressed in monetary terms premiums with unstipulated or vague dollar values can inhibit consumers tendency to evaluate the promotion in relation to the focal product, or its price. Because of its incommensurate nature, the premium would be less likely than a comparable discount to be viewed in a relativistic sense and, consequently, is less likely to suffer from diminishing marginal returns. We define incommensurate resources as those individual carriers of wealth or welfare that are difficult to convert into a single currency or common unit of measurement. Therefore, a richer under-

6 Incommensurate Resources 31 Table 1 STUDY 1: EFFECTIVENESS OF AN INCOMMENSURATE BENEFIT Dependent Variable: Willingness to travel 15 minutes to obtain promotion \$25 Blanket: \$125 Blanket: Reported Average Reported Average Version Would Go Value (Bid) Would Go Value (Bid) 1. \$10 discount 64% N/A 31% N/A 2. Free travel umbrella 45% \$10.46 (\$6.41) 43% \$11.69 (\$5.91) 3. Free travel umbrella 53% N/A 25% N/A (\$10 cost to retailer) 4. Free travel umbrella 38% \$9.04 (\$7.07) 43% \$8.47 (\$7.37) (Self-generated value) Those willing to travel: \$8.13 (\$7.77) \$11.14 (\$10.28) Notes: N/A indicates not applicable to this version of the scenario. surability: cash, premium) full-factorial design in which the dependent measure is whether respondents are willing to travel 15 minutes in exchange for the promotion. We analyzed the data using the analysis of variance (ANOVA) categorical modeling procedure in SAS, and the results include a main effect for blanket price ( 2 = 5.95, p =.01) qualified by a significant interaction ( 2 = 5.73, p <.05). Overall, more respondents were willing to travel 15 minutes when the promotion accompanied a \$25 blanket (53%) than when it accompanied a \$125 blanket (36%), but this difference depended on whether the promotion was commensurate. In the first version, \$10 off of the standard price of \$25 led 64% of respondents to say they would make the 15- minute trip. In comparison, only 31% of respondents said they would make the trip when the \$10 discount was on the \$125 blanket; this difference is highly significant ( 2 = 8.34, p =.004). This result replicates Kahneman and Tversky s (1984) classic jacket and calculator study. More interesting, however, is what happened in the second version. When the blanket cost \$25, 43% of respondents said they would make the trip, and 41% said they would go when the blanket cost \$125 ( 2 =.02, p =.899). The value of the umbrella, expressed as a trade-off for a 15-minute commute, did not depend on the price of the blanket, as the promotion was incommensurate. In addition, the average value of the umbrella elicited from respondents did not differ significantly on the basis of the price of the blanket ( \$25 = \$11.69, \$125 = \$10.46; t 69 =.69, p =.25), nor did the average bid ( \$25 = \$6.41 versus \$125 = \$5.91; t 53 =.26, p =.40). However, the average bid was significantly less than the average value (t 132 = 3.76, p <.001). It appears that though respondents acknowledged that the umbrella possessed a value near \$10 (perhaps its retail price), they typically were not willing to pay this amount, as indicated by their bids. This is not surprising given the semiarid climate and rare precipitation in the region where the experiment was conducted. Responses to the framing question suggest that respondents evaluated the incremental benefit differently when it was delivered in an incommensurate currency (see Table 2). When the promotion was delivered in cash, 39% of respondents reported viewing the savings in relation to the price of the blanket or the total expenditure; this is almost three times the number (14%) of respondents who reported viewing the umbrella in this way (z = 3.23, p <.01). Conversely, 39% of respondents reported seeing the umbrella in its own right, and only 5% viewed the \$10 savings this way; this difference is highly significant (z = 6.17, p <.001). These measures are consistent with the verbal protocols (see Table 3). Two independent judges who were blind to the Table 2 STUDY 1: SELF-REPORTS OF FRAMING Dependent Variable: Frame in which respondents reported viewing promotion Cash Premium Promotion \$10 \$10 Umbrella Umbrella I considered with \$25 with \$25 with \$25 with \$25 Frame the (promotion) Blanket Blanket Blanket Blanket Pure gain on its own, 8% 3% (5%) 40% 38% (39%) a in its own right Topical in relation to the price 33% 44% (39%) 0% 8% (4%) a paid to buy the blanket Comprehensive in relation to the total 13% 8% (10%) 8% 13% (10%) expenditure Minimal in relation to traveling 46% 46% (46%) 53% 41% (47%) 15 minutes athe difference across promotion types is statistically significant at the p <.01 level. Notes: Numbers in parentheses are averages across conditions.

9 34 JOURNAL OF MARKETING RESEARCH, FEBRUARY 2003 Table 5 STUDY 2: ANOVA Dependent Variable: Willingness to travel 20 minutes (yes or no) Incremental benefit: \$50 or 5000 miles Independent Degrees of Measure Freedom Chi-Square Probability Intercept <.0001 Base cost currency Promotion currency <.0001 Base cost promotion Ratio (promotion/base) Base ratio Promotion ratio Base promotion ratio Incremental Benefit: 2500 or 5000 miles Independent Degrees of Measure Freedom Chi-Square Probability Intercept <.0001 Promotion currency Ratio (promotion/base) Promotion ratio Surcharge size (number of miles) <.0001 Promotion surcharge Ratio surcharge Promotion ratio surcharge The dependent measure was always whether the subject would make the trip (i.e., spend 20 minutes to avoid the additional cost). The setup was essentially the same as in the jacket and calculator studies, in that if respondents relied on relative judgments, they would be more inclined to make the trip when paying the lower base cost (\$250 or 25,000 miles). The incremental expense of \$50 was expected to seem larger and more excessive on \$250 than \$500. Similarly, the incremental expense of 2500 and 5000 miles was expected to appear both larger and more excessive on 25,000 than 50,000 miles. Therefore, when dollars were added to dollars and miles to miles, we expected a greater percentage of respondents to make the trip when the incremental cost was a relatively large percentage of the base cost. Otherwise, we expected no difference. Consequently, we predicted a main effect for ratio that would be qualified by an interaction with the promotion currency (i.e., whether the incremental cost was incommensurate). We also obtained all of the independent contrasts. Analysis and Results We analyzed the data within the original design (initial eight cells) using the ANOVA categorical modeling procedure as in Study 1. The main effects for promotion currency and ratio and the interaction between promotion currency and ratio were all significant at p <.001 (see Table 5). We then replaced the conditions in which the surcharge was in dollars with the four additional cells in which the surcharge was 2500 miles and reanalyzed the data in a similar fashion. Base currency, which became redundant, was replaced with surcharge size (i.e., 2500 or 5000). The results are essentially identical (see Table 5), except for a main effect for surcharge, which indicates that people were generally more willing to travel to save 5000 than 2500 miles. Again, the interaction implies that the ratio mattered only when the surcharge was incommensurate. Independent contrasts (see Table 4) reveal that more respondents were willing to travel 20 minutes to save 5000 miles on a 25,000-mile base cost than on a 50,000-mile base cost ( 2 = 7.31, p =.0069), and the same holds true for 2500 miles ( 2 = 5.07, p =.0244). Similarly, more respondents would make the trip to save \$50 on \$250 than on \$500 ( 2 = 6.46, p =.011). These results imply that people took a topical frame, replicating the jacket and calculator study in the domain of dollars and another currency (i.e., frequent flier miles) as well. However, as predicted, these effects disappear when the currency of the incremental cost changes. Essentially the same number of respondents would travel 20 minutes to save \$50 on a base cost of 25,000 miles as 50,000 miles ( 2 =.96, p =.326). Likewise, saving 5000 miles on \$250 is no more appealing than saving the same amount on \$500 ( 2 =.13, p =.7215), and the same holds true for 2500 miles ( 2 =.07, p =.7943). By mixing currencies within the transaction, people are prompted to take a minimal perspective; they focus on the incremental cost in absolute terms, asking themselves if the amount is worth a 20-minute commute. However, what may be most exciting for marketers is how changing the currency of the incremental cost can enhance or diminish the perceived value or size of the expense. For example, when the base cost was \$500, the proportion of subjects who were willing to make the trip to the airport when the incremental cost was 5000 miles (86%) was significantly larger than when it was \$50 (57%). This difference was highly significant ( 2 = 6.46, p =.011). Similarly, more subjects said they would make the trip to save \$50 (89%) than to save 5000 miles (51%) when the base cost was 50,000 miles ( 2 = 9.99, p =.002). Recall that subjects in this population reported valuing 5000 miles at approximately \$50. People apparently equate the two without any context, but the additional content in the scenarios changes this assessment. The \$50 seems less appealing (i.e., easier to give up) in relation to \$500, whereas the 5000 miles retain their value. Similarly, both the 2500 and 5000 miles are easier to give up in the context of spending 50,000 miles, whereas the \$50 retains its value. Discussion In Studies 1 and 2, we show how incommensurate resources can affect the perceived value of an incremental benefit and incremental cost. In Study 2, we have evidence that two different resources (i.e., \$50 and 5000 miles), which independently were perceived as equivalent, have different effects when included as an incremental cost based on the currency of the primary expense. This finding is particularly relevant for airlines and other firms (e.g., Milepoint.com) that allow consumers to exchange bundles of currencies (e.g., a mixture of money and miles) for various products and services. In Study 3, we test whether a premium, or incommensurate benefit, can be more effective in boosting sales than comparable cash discount, a commensurate benefit, in the real world. STUDY 3 Method and Design Study 3 provides an empirical test of the principle of incommensurate resources in a natural experiment conducted at a high-end, sole proprietor pet shop in a major West Coast city. The study incorporated a 2 (package size)

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