B-School Research Examines the Business of Gift-Giving

‘Tis the season to be shopping. As a result, researchers at top business schools are sharing what they have learned about consumer behavior and marketing in the hope that consumers, retailers, and other businesspeople can get an edge this holiday season. Here is a rundown of some of the more interesting holiday-relevant business school research:

Risky Business

Beware online pals—and not for the reasons one might think, such as false identities or seedy behavior. Slated for publication in a 2012 issue of the Journal of Marketing Research, a recent study showed that online interactions on sites such as eBay can lead to risky financial decision-making. Researchers from Rice University’s Jones Graduate School of Business, the University of British Columbia, and the University of Zurich in Switzerland tracked the lending behavior of 600 randomly selected lenders on Prosper.com, the largest U.S.-based peer-to-peer lending site, over 18 months. They found that those who participated in the site’s online communities lent their money to those who had poorer credit and were more likely to default.

In observing the behavior of 13,735 eBay Germany customers, some of whom were monitored before and after participating in the site’s community, researchers found that those who participated made riskier bids than those who didn’t. They put more than one bid on each item and spent more when they won. Back at the lab, researchers discovered that those in online communities are motivated by the belief that their virtual pals have their back.

“Based on this research, managers are advised to consider how riskier behaviors stemming from online community participation could possibly impact their customers adversely and what they might do to minimize potential negative outcomes,” writes Utpal M. Dholakia, professor of management at Jones, who was joined by three co-authors, UBC associate professors of marketing Rui (Juliet) Zhu and Xinlei (Jack) Chen and marketing professor René Algesheimer at Zurich. “Consumers should be made aware that they may fall prey to this effect.”

The Unplanned Purchase

Make a list and check it twice—and stick to it—before heading to the store to pick up gifts this holiday season. People just about everywhere make unplanned purchases when they go shopping. That’s no secret. What was a secret until recently is that the motivation to make these unplanned purchases actually happens before you ever head to the store, according to research in the January 2011 edition of the Journal of Marketing.

Professors Daniel Corsten at IE Business School in Madrid, David Bell at the University of Pennsylvania’s Wharton School, and George Knox at Drexel University’s LeBow College of Business had shoppers in Europe fill out a questionnaire about why they were shopping and what they ended up purchasing. The team analyzed 18,000 purchases on 3,000 trips by 400 households. The responses revealed that 20 percent to 40 percent of purchases are unplanned.

“Much of what drives shoppers to make unplanned purchases happens before they ever set foot in the store,” writes Corsten. “For example, on shopping trips for the whole week or to re-stock the pantry, unplanned buying goes up a lot—about 40 to 60 percent. If we go to buy something for right now or to take advantage of a specific promotion, we don’t buy much unplanned.”

The research teaches a few lessons. First, marketers spend a lot of time on in-the-store promotion to spark unplanned purchases, but that strategy fails to take into account the motivation triggered before one even leaves for the store, adds Corsten. In addition, consumers should rid themselves of buyer’s remorse because the study showed that most people who make unplanned purchases do so because they have some extra money on reserve. Still, Corsten suggests that writing down exactly what you need to avoid unplanned purchases or renouncing one of the items you intended to buy in favor of an unplanned purchase might help you stay on budget.

Gift-Giving for the Self

Consumers are more optimistic about their own financial situation than they were in 2010 and therefore they plan to buy more over the holiday shopping season, according to a survey of 1,400 consumers recently conducted by Northwestern University’s Kellogg School of Management. This positive outlook has consumers feeling bolder and more empowered than they were in the previous holiday season, writes Derek Rucker, associate professor of marketing at Kellogg. In fact, many of them plan to buy gifts for themselves, too.

“These findings have important implications because by understanding consumer sentiment, and the reasons for why they buy, brands can adjust their marketing efforts,” he adds. “For example, the optimism and planned expenses mean brands should be out there marketing to consumers. Furthermore, the increase in this power mindset suggests that brands need to be thinking about positioning products not just as gifts for others but as gifts for the self.”

Wrap It Up

While feeling the pressure to make those perfect creases and fabulous bows on holiday gifts this season, consider the expectations one is setting for the receiver. Researchers at the Yale School of Management recently found that people preferred not-so-hot gifts when they were either badly wrapped or not wrapped at all, as opposed to being perfectly styled. Yale professors Nathan Novemsky and Ravi Dhar and doctoral candidate Jongmin Kim presented people with gifts that were both wrapped and unwrapped. Then they asked them to evaluate the gifts and whether they liked them and how much gratitude they had for the gift giver. While people showed more gratitude and contentment with the gifts if they were badly wrapped or not wrapped at all, nice wrapping created high expectations.

“The general idea is that giving consumers a really nice add-on prior to the main product experience can backfire by setting high expectations that lead to disappointment with the main product,” says Novemsky of the study, which is being reviewed for publication. “For example, restaurants giving a free amuse-bouche from the chef at the beginning of a meal can suffer if the following courses do not meet the high expectations set by the seemingly innocuous add-on.”