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No Pain No Gain: The Beneficial Role of Consumer Effort in Decision-Making

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Title No Pain No Gain: The Beneficial Role of Consumer Effort in Decision-Making
Period 01 / 2006 - 11 / 2012
Status Completed
Dissertation Yes
Research number OND1333882
Data Supplier Website ERIM

Abstract

The industrial system nowadays is draining into the market a huge variety of goods and services, a variety substantially larger than ever before, delivered through a huge though ever-growing system of alternative channels. At the same time, due to the spread of communication means such as the internet, consumers have increased access to more information, at greater speed and lower costs. The increased global competition and the worldwide accessibility of knowledge and technology are driving firms to search for new sources of sustainable competitive advantage. Traditional strategies such as cost leadership and product innovation are still important but come under pressure in the current era where labour can easily be outsourced worldwide and product development cycles are speeding up. The emerging actuality is forcing the economies to reconsider the traditional system structure of company-centric value creation that has predominated over the past century. In this context, a promising avenue that emerges is for firms to build strong learning relationships with their customers (e.g., Prahalad and Ramaswamy 2004). By keeping track of the preferences of individual consumers, building consumer communities and tailoring products and services directly to consumers specifications, firms can increase the value of their offerings to consumers while also protecting these offerings against easy copying by competitors. An important prerequisite to establish such learning relationships is that consumers also provide valuable and meaningful input in the value creation process. This process not only requires that supply chain networks can respond adequately to consumer requests for individualized products and services, but perhaps more importantly, it requires that consumers play an active role in the supply chain, e.g., by defining their desired product specifications, participating in shared consumption experiences, and communicating about their experiences and expectations. Moreover, co-creation can lead to consumer loyalty, especially when referring to online markets where consumers are only one click away from turning to a competing provider. Consumer loyalty increases because of the higher switching costs that consumers face due to required initial time investments, interface habituation and their escalating learning curve, and increased uncertainty about the quality of competitors services. When dealing with a new product, there are two different kinds of costs, the physical and the cognitive cost (Johnson et al. 2003). The physical cost refers to the time needed to spend with the provider and the cognitive cost deals with the effort of making sense of the information one gets from the provider (whether it has to do with the product or the process). The use of internet increased the relative importance of the latter since the number of options and the speed of information is constantly increasing. It has been shown that in the context of online markets, an initial interaction with a provider increases the probability of visiting again the website, since the cognitive costs are declining (due to the power law of practice). Also it has been shown that repeated visits to a website and hence a higher loyalty towards the website, decrease the total time of each visit. Therefore the importance lies to not only how much time one spends on a website but also the experience and the comportment while visiting (what kind of time).

Related organisations

Related people

Supervisor Prof.dr.ir. B.G.C. Dellaert
Doctoral/PhD student Dr. D. Tsekouras

Classification

A54000 Marketing and consumption
D43000 Economics

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