A well-known rule of marketing stems from decades-old research that showed that when a marketer presents three versions of a product together—low, medium, and high priced options—consumers pick the middle option. The research showed that people prefer a compromise between the highest and lowest priced versions, leading the researcher, Itamar Simonson, to refer to this effect as the compromise effect. Marketers have long exploited the compromise effect to influence the way customers shop: If they wanted customers to select option X, they made sure that option Y was lower priced and option Z was higher priced than that focal product. The effect remained well supported and influential for years.
But this same researcher has recently added a new wrinkle to the compromise effect. In a new study, Simonson showed that people faced with three product options, ranging from low to higher priced, did not always choose the middle option, as long as they had access to reviews of the products on Amazon. The people who would choose the low priced option continued to do so. The people who always chose the high priced option also stayed with their pick.
The vast middle though, the consumers who were strongly affected by the compromise effect and who thus settled on the middle choice, tended to switch up to the more expensive model when they were free to browse other users’ opinions of the products.
These findings led Simonson to proclaim the end of the compromise effect. Instead, he now asserts, consumer evaluations reflect the products’ “absolute value, their quality.” If he is right, the implications for marketers are immense. If indeed user-generated online reviews enable consumers to determine the best quality, much of the foundation of marketing practice might be undermined.
For example, if quality is easily and readily discernible through online reviews, then brand signals lose much of their power. Instead, the job of the marketer shifts, to focus more clearly on discovering consumers’ preferences and determining what influences lead to consumers’ purchase decisions. If reviews are this powerful, then marketers have a new tool at their disposal, to replace the compromise effect. Online content that is easily available to other consumers is equally available to the firms themselves. In turn, marketers seemingly have a new and even more effective method to influence consumers’ behaviors.
Matt Richtel, “There’s Power in All Those User Reviews,” The New York Times, December 7, 2013