Ravi Chitturi Lehigh University Pallavi Chitturi Temple University Damaraju Raghavarao

1. The Influence of Brand and Price Information on Relative Customer Preference for Hedonic and Utilitarian Product Design Benefits Ravi Chitturi Lehigh University Pallavi Chitturi Temple University Damaraju Raghavarao Temple University 09/20/2008 2008 Behavioral Pricing Conference Drexel University

2. What are design benefits? • Design is a planned organization of elements in a given domain interconnected with a specific purpose • Design Benefits (Dhar & Wertenbroch 2000; Chitturi et al., 2007) • Hedonic • Utilitarian

3. Key Words • Hedonic Benefits: • The “experiential”—fun, pleasure & excitement—element (Holbrook and Hirschman 1982) • Associated with “wants” (Shiv and Fedorikhin 2000) • Associated with “luxury” (Kivetz and Simonson 2002) • Utilitarian Benefits: • The “instrumental” purpose (Strahilevitz and Myers 1998) • Associated with “shoulds” (Wertenbroch 1998) • Considered a “necessity” (Kivetz and Simonson 2002)

4. Motivation • Personal experience as a design engineer, Marketing manager, and executive in hi-tech industry • Design engineer: design benefits • marketing manager: brand & price • Customer: Most desirable combination of design benefits, brand & price • What is the right alignment between design benefits, brands, and price of a product? • Example products: cell-phones, laptops etc.

5. Motivation: Design for Affect • “Nokia this month reported a 6% decline in revenues….Nokia CEO blamed the sales fall on its lack of attractive midrange handsets.” • Financial Times, February 2004 • BBC World (June 2004) • How could Nokia make such a mistake? • Nokia to introduce 40+ stylish and attractive handsets in 2004-5 to get their customers back

6. Low Involvement Products: Evolution in Product Designs • More balanced designs (chitturi, raghunathan, and mahajan 2007) • Emphasis on both Hedonic and Utilitarian

7. Strategic Question • What is the right alignment between design benefits, brand, and price? • Are there systematic differences in how consumer preference changes between hedonic vs. utilitarian depending of the brand and price information? • If yes, then what are the guidelines for product designers and marketing managers?

8. Literature Review • How do customers tradeoff between hedonic and utilitarian benefits in the absence of brand and price information? • Chitturi, Raghunathan, and Mahajan (2007)

9. The Principle of Precedence • Hard earned money must be spent frugally on necessities rather than luxuries (Weber 1998; Kivetz and Simonson 2002) • Customers give greater importance to utilitarian benefits than hedonic benefits during tradeoffs involving choice decisions (Chitturi et al., 2007) • Example: Choosing between two products when both do not meet their minimum hedonic and utilitarian needs

10. The Principle of Hedonic Dominance • Customers give greater importance to hedonic benefits than utilitarian benefits after meeting their minimum needs during tradeoffs involving choice decisions (Chitturi et al., 2007) • Example: Choosing between two products when both meet their minimum hedonic and utilitarian needs

11. Need justification for Hedonic Consumption • Customers feel guilt and anxiety when they tradeoff utilitarian benefits for hedonic benefits (Chitturi et al., 2007) • Therefore, they need a justification for choosing hedonic benefits over utilitarian benefits to moderate the feelings of guilt and anxiety (Okada 2005; Chitturi et al., 2007)

12. Research Question • Can Brand or Price Information offer a justification for greater Hedonic Consumption?

13. Research Objective • To demonstrate that price information motivates customers to choose a product with greater hedonic design benefits than greater utilitarian design benefits • To demonstrate that brand information motivates customers to choose a product with greater hedonic design benefits than greater utilitarian design benefits

14. methodology • Pareto-optimal Design (Raghavarao & Wiley 1998) • No Dominating or Dominated option in the choice set • Design Benefits (Hedonic, Utilitarian) • Levels of each Benefit (High, Medium, Low) • Pareto Optimal Sets • (HL, MM, LH) • (HM, MH)

15. Methodology (Continued) • Choice-sets of varying sizes • (Koelemeijer and Oppewal 1999) • No Choice Option • (Dhar 1997) • Allocate 100 points across the four choice options • (HL, MM, LM, No-choice) • Allocate 75 points across the three choice options • (HM, MH, No-choice)

16. Stimuli Construction • Pre-tested cell phone pictures for style & attractiveness and other hedonic benefits at that time • Picked the High, Medium, and Low combination of utilitarian benefits in the market at that time

17. Results with and without Brand and Price Information TABLE 1 INFLUENCE OF HEDONIC AND UTILITARIAN DESIGN BENEFITS ON CUSTOMER PREFERENCE IN THE CONTEXT OF BRAND AND PRICE INFORMATION

18. Results with Brand (strong vs weak) and Price (high vs weak) Information TABLE 2 INFLUENCE OF HEDONIC AND UTILITARIAN DESIGN BENEFITS ON CUSTOMER PREFERENCE IN THE CONTEXT OF STRONG VERSUS WEAK BRAND AND HIGH VERSUS LOW PRICE INFORMATION

19. Theoretical Contribution • Customers give greater importance to hedonic benefits over utilitarian benefits when accompanied by a stronger versus a weaker brand • Customers give greater importance to hedonic benefits over utilitarian benefits when price information is included

20. Managerial Implications • If you want to price your products higher then you must pay greater attention to enhancing and promoting hedonic benefits • Focus on developing and promoting products with greater hedonic benefits if you have a strong brand

21. Thank You.