Hold the Vegetables: How 'Now vs. Later' Affects Customer Choice
If people typically watch a kung-fu flick or a trashy teen comedy on DVD before the documentary they rented several days earlier, it only stands to reason they will also order ice cream from the online grocery for tonight and broccoli if the delivery is scheduled for later in the week.
That was the hypothesis that drove Katherine Milkman, an operations and information management professor at the Wharton, and two colleagues to study online shopping patterns to see if consumers were indeed more likely to order "want" foods like high-calorie desserts and snacks for more immediate delivery while tending to order "should" foods like fruits and vegetables several days in advance.
Milkman's research found that -- for the most part -- the longer the delay between placing an online grocery order and delivery, the less a given customer spends in general and the greater percentage of that order is allotted for healthier items, like produce, than for junk food. "Spending decreases as we order food further in the future," Milkman says. "But the more immediate the gratification, the more freely we spend."
Her findings on consumer habits in online grocery shopping are detailed in a paper titled, "I'll Have the Ice Cream Soon and the Vegetables Later: A Study of Online Grocery Purchases and Order Lead Time" that was published in Marketing Letters. It was co-authored by Todd Rogers of the Analyst Institute and Max H. Bazerman of Harvard Business School.
Milkman's research into the psychology of consumer decision-making was partially inspired by the rise of Internet shopping because that trend has created a pool of data that is both extensive and much more exact than information that could be obtained through surveys or other research methods. Although online shopping once lagged behind other forms of commerce, by 2006 it had become a $100 billion a year industry.
"The Internet has made it possible to study human decisions in an entirely new way," Milkman notes. In particular, the data created by online shopping can help researchers track the buying habits of a particular anonymous individual consumer over time and focus on the impact of different variables on consumers' decisions.
Earlier Payoff = Different Choices
Over the course of several research papers, Milkman has sought to learn what this new fountain of data can tell us about the psychology of shoppers, particularly as it relates to their habits regarding pleasurable items they crave, and items that they feel they "should" purchase given their long-term interests and well-being. The authors of the paper were particularly interested in online grocery shopping because, unlike many other kinds of online shopping, customers must typically schedule the delivery of food items for a more specific time.
The researchers note in their paper that a growing body of evidence shows that "people behave more impulsively when the outcomes of their decisions will be realized in the near future rather than the more distant future." They cite a series of recent findings showing that people are often willing to accept a dramatically smaller immediate payoff rather than waiting for a larger later payoff; that people are more likely to donate their time to a charity two weeks from now rather than tomorrow, and that voters are more likely to support difficult "should" policies when they are to be implemented at some future date.
Milkman has already looked at the "want" versus "should" dilemma for shoppers in a somewhat different venue: online DVD rentals. In a previous paper written with the same co-authors, "Highbrow Films Gather Dust: Time-Inconsistent Preferences and Online DVD Rentals," the researchers found that when renters order a high-brow flick like "Schindler's List" and a low-brow movie like "Talladega Nights," they tend to watch the low-end movie first (and return it faster) -- even if they were rented in the reverse order. The authors also discovered that the practice seems to diminish over time as customers learn to be more realistic about their habits.
Currently, Milkman is working on a third paper that examines an additional trigger that leads consumers to select "wants" over "shoulds" -- uncertainty. She says her new research shows that consumers involved in an uncertain situation are much more likely to crave and to purchase "want" items like chocolate.
In the study of online grocery shopping, Milkman and her co-authors analyzed the buying patterns of individual customers of a North American urban online grocery operation over the course of the 2005 calendar year. The authors found that while many orders where placed just one day in advance of delivery, enough were scheduled two to five days out to compile considerable data.
One challenge for the authors was determining what grocery items belonged in the "want" category and which to classify as "should" items. To establish this, Milkman and her colleagues paid 154 people to take part in a survey to rate some 117 different categories of food products. Not surprisingly, the items classified as "wants" include such high-calorie staples as chocolate and other types of candy or bags of chips, while the "should" items include fresh fruits and vegetables as well as meats and seafood.
The results, according to the paper, clearly show that spending is higher -- a sign of impulsivity -- when an order is placed by the same customer for more immediate delivery. In addition, when looking ahead at orders with two-day lead time versus those with five days advance notice, the researchers found that the percentage of "want" items decreased while the percentage of "should" items rose steadily. Milkman and her co-authors stressed that while the findings generally jibe with past efforts, they did not perform further research to show the causes of the behavior.
Milkman noted that the findings of the researchers are similar to a newspaper investigation that she had read prior to launching the project; it showed that major America restaurant chains, such as Applebee's, had been urged by their customers to add more healthy and low-calorie items to their menus, only to learn that no one was ordering them when they came for dinner. While customers expected that they would select "should" food options in the future and thus asked management to put them on the menu, they actually opted for "want" options in the heat of the moment. The discovery amounted to a financial loss for the restaurant chains, since they had spent considerable funds on ordering fresh, healthy ingredients that customers were not buying.
Marketing Along the 'Want/Should' Spectrum
The implications of Milkman's research are particularly important for online retailers that not only sell groceries but also for retailers of other products that fall along the "want"/"should" spectrum, including books, movies and apparel. For one thing, Milkman says understanding the different habits of customers making short-term orders as opposed to customers making more advance purchases could lead to better demand forecasting. Perhaps more critical to the bottom line, the authors note, retailers might try to push their customers to place more orders for the immediate future, since their research suggests that more money will be spent under those conditions.
According to Milkman, this knowledge could be extremely helpful for retailers interested in developing a recommendation engine that suggests a personalized list of products of interest to shoppers. For example, retailers could ask customers their expected delivery date at the beginning of an order. "If [retailers] know that you are placing an order for next week, they can put less of an emphasis on high-calorie foods" and instead recommend healthier items.
"In a bricks-and-mortar grocery, when you walk into the store you see the vegetables first and at the checkout you see the candy," Milkman noted. "That may be because the grocer realizes that the further you are from your purchase, the more appealing you will find healthy 'shoulds', while at the checkout you will be the most attracted to unhealthy 'wants.'"
Milkman and her co-authors believe their work could become a tool for health policymakers who have been looking for ways to convince Americans to consume a healthier diet with fewer high-fat items. Their results imply that students in school could be asked to order meals a week in advance instead of on a cafeteria line, which should lead to healthier selections.
"A company could try to get its employees to make healthy decisions in advance and see if that leads to a healthier lifestyle," Milkman says. "Maybe that could save a lot of money, and it would have important implications for health."
Published November 02, 2010 in Arabic Knowledge@Wharton