Life cycle cost

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Title:
Life cycle cost the impact on the processing of new information for durable goods
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xii, 309 leaves : ; 28 cm.
Language:
English
Creator:
Hutton, R. Bruce, 1947-
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Subjects / Keywords:
Product life cycle   ( lcsh )
Durable goods, Consumer   ( lcsh )
Consumer education   ( lcsh )
Marketing thesis Ph. D   ( lcsh )
Dissertations, Academic -- Marketing -- UF   ( lcsh )
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bibliography   ( marcgt )
non-fiction   ( marcgt )

Notes

Thesis:
Thesis--University of Florida.
Bibliography:
Bibliography: leaves 303-308.
Statement of Responsibility:
by R. Bruce Hutton.
General Note:
Typescript.
General Note:
Vita.

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University of Florida
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All applicable rights reserved by the source institution and holding location.
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aleph - 000186417
oclc - 03372585
notis - AAV3007
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Full Text










LIFE CYCLE COST:


PROCESSING OF NEW INFORMATION FOR DURABLE GOODS










By
R. BRUCE HUTTON


A DISSERTATION PRESENTED TO THE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY


UNIVERSITY OF FLORIDA

1977


THE IMPACT ON THE














ACKNOWLEDGMENTS



I am deeply indebted to a number of people for their


guidance and support over the last three years.


First, and


foremost, is Professor William L. Wilkie, who introduced the


concept of "perspective"


nto my


ife in more ways than one,


who allowed me to discover a meaningful direction for my


career


, and who provided an atmosphere which encouraged me


to work to my full capacity


His contributions and patience


have far exceeded the role of major professor


Professor


Joel B. Cohen stressed the importance of problem conceptu-

alization and direction and required the methodological


soundness necessary for meaningful research.


Grac


Professor


e G. Henderson provided useful insights into important


problem areas and was a constant source of encouragement.

In addition to my committee, I would also like to

thank Professors A. R. W'ildt, Gordon Bechtel, and Olli'

Ahtola for their interest and incisive comments in the

conceptualization of parts of this project.

A special thanks goes to Dennis McNeill, fellow

graduate student and friend, whose support, encouragement,
t I a a a .>- -










I would also like to thank the National Science

Foundation and the American Marketing Association for


their support.


An NSF grant awarded to Professor William L.


Wilkie and the AMA Doctoral Dissertation Research Grant

awarded to the researcher provided the flexibility necessary


to make thi


project a more meaningful contribution.


Finally, and most importantly, it was my wife Linda

who made the past three years possible. Without her en-


couragement, strength, and sacrifices this would not have


been done.


To you, Linda, go my most special thanks.















TABLE OF CONTENTS


Page


ACKNOWLEDGMENTS

LIST OF TABLES.


LIST OF FIGURES


viii


ABSTRACT


CHAPTER


INTRODUCTION


GENERAL P
Cons
Dura
Prog


LEM FRAMEWORK. . .
r Information. . .
Goods . .
s and Reports Applied to Objec
ve Information Provision .


LIFE CYCLE COST. . .
What Is The LCC Construct?
What Impacts Might LCC Hav
summers .


DESCRIPTION OF ST
Impact of Ne
Levels


Focus
Presen
Resear
Sampi i
Conduc
Summar


For Con


UDY . .
w Product Information
of Consumer Response.


groups . . .
action of Hypotheses. . .
h Design and Control Procedure

of the Experiment . .
* . S S .


RESULTS AND DISCUSSION
Analysis of Results .
Discussion of Results


_.......__ I ~











TABLE OF CONTENTS (continued)


APPENDICES

I RESULTS FOR ENERGY COST PER YEAR PRODUCT


Page


INFORMATION


EXAMPLES OF LABELS UNDER THE VOLUNTARY


LABELING PROGRAM


S . 230


INSTRUMENT


235


COST CALCULATIONS.


RAW DATA AND CODING


HEET.


BIBLIOGRAPHY.


BIOGRAPHICAL SKETCH


309















LIST OF TABLES


TABLE

1


Page


Perceived Product Environment for Refrigerator-
Freezer Features . . . .


Demographic Profile of Group Interview Partici


pants


90


Summary of Characteristi


of Refrigerator-


Freezer by Order of Discussion.

Focus Group Interview Quotation


Mean Values for Model


MANOVA


Evaluativ


satisfaction Ratings.


Satisfaction Ratings


e Distance Between Energy Saving and


Energy Using Models


Additional Information Consumers Would Like To
Have Had. . . .


Factors Influencing Operating Costs


Accuracy of Consumer Perception


s by Dimension


150


What Cost Is Greater--Purchase Pric
Energy?


e or Lifetime


Which I


More Cost Efficient


--Top Flight or


Exclusive?.


Considerations in Evaluation of What Attribute
to Include -. -


Cost Recall and Recognition Summing Over
Features. a - -











LIST OF TABLES (continued)


TABLE


Building Task


Consumer Evaluation of Cost Information


Two-Way ANOVA


Perceptions of Purchase Price


. 1

. 1


Two-Way ANOVA:

Two-Way ANOVA:


Two-Way ANOVA:

Percentages of
tion "Simple"


One-Way ANOVA:


Perceptions of Operating Cost


Helpfulness of Cost Information


Complexity of Cost Information.


Consumers Judging Cost Informa


Effect of Education on MAD's.


Feature Costs and Mean Absolute Deviations.


Mode
Leve


MANOVA:


Satisfaction Mean Values by Educational
4..*. .* 0 4 4 51 1


Model Satisfaction


Correlation Analy


Partial Correlation Analy
graphics. . .


on Demographics.


on Selected Demo-


Partial Correlation Analy
tons .


ses


on Consumer Evalua-


Page















LIST OF FIGURES


FIGURE

1


Page


Estimated Breakdown of Electrical Energy Use by
the Residential Sector for 1967 . .


Components of 197


for Refrigerator-Freezers


Discounted Life Cycle Cost


50


Conduct of the Experiment Flow Chart.


Model Satisfaction by Information Level

Mean Values for Model Satisfaction. .










Abstract of Dissertation Presented to the Graduate Council
of the University of Florida in Partial Fulfillment
of the Requirements for the Degree of Doctor of Philosophy


LIFE CYCLE COST:


THE IMPACT ON THE


PROCESSING OF NEW INFORMATION FOR DURABLE GOODS

By

R. Bruce Hutton


March, 1977


Chairman:


William L. Wilkie


Major Department:


Marketing


The purpose of this dissertation is to increase under-

standing of the impact on consumers' processing of new


product information.


Specifically, this research study


focuses on objective product information including price,

energy, and service costs presented as components of a newly


organized inde


ife cycle cost (LCC).


LCC is defined as


the sum of all dollars paid for an "average" product during


its useful life.


In essence, LCC provides consumers with


a more comprehensive, organized, and consistent way of

dealing with product cost by incorporating the three com-

ponents within a consistent time frame (average product


life) and


common units of measurement


dollars).


Conse-


quently, this project addresses important issues that

necessarily underlie the potential information provision

impact at the more traditional brand choice and market share










A major point in this study is that impact of infor

mation can, and should, be measured in a variety of ways,

especially in assessing impact of new forms of product


information.


Impacts that would prove crucial to an in-


formation provision involving LCC include (1) increased

information in the marketplace leading to more informed

consumers, (2) improved conceptualization of product cost

to include both acquisition and operating costs including a

longer run perspective of product cost, (3) increased sali-


enc


e of energy and service as cost dimensions of a product,


(4) improved bases for


consumer evaluation of alternatives,


(5) sharpened cost/benefit judgments on product features,

(6) new trade-offs between initial and deferred costs re-


flected by trade-offs among the primary components of LCC,

and (7) shifts in products purchased.

Hypotheses were set up to test different levels of


consumer respond


Among them were consumer awareness and


accuracy regarding product cost perceptions, recognition

and recall, helpfulness and complexity in evaluating alterna-

tives, consumer attitudes and satisfaction, and measures


approximating purchase behavior

demographic variables were also


The effects of relevant


assesse


The basic design was a posttest-only control group










profiles.


The experiment consisted of multiple tasks in-


cluding a simulated "building" task designed to allow sub-

jects to "build" the refrigerator-freezer that best suited

the needs and budget of their family.

Strongest results are seen in hypotheses reflecting

levels of consumer response in a cognitive as opposed to a


behavioral sense.


Support was found for the premise that


availability of objective information will lead to more in-


formed consumers.


In a key finding concerning the interac-


tion between price and energy costs, the LCC group was more


accurate in perceiving the


orrect relationship (i.e.,


energy costs account for a higher percentage of total


product cost).


Also, the control group


significantly under-


estimated the magnitude of operating cost


for a given price.


Findings concerning the most effective way to present


such information are equivocal.


Consumers currently prefer


energy/year data, but there is some evidence that the LCC

index may be more efficient.

Results also indicate a changing conceptualization

of product cost with the availability of LCC (subjects in


LCC condition correctly perceived electricity as


more than purchase pri


costing


over the life of the product


Also, the presentation of cost data is most effective when










price and energy were more likely to choose to purchase

such features.

Overall, evidence indicates that consumers' existing

knowledge in the energy area and its relation to products


and other costs i


lacking.


It i


apparent that some cost


information in addition to the traditional pri


data


is desirable.















CHAPTER


INTRODUCTION



In recent years, concern with the amount and type of

information available to consumers for product evaluation has


been increasing.


Arguments in favor of


, and against, requir-


ing the provision of performance data (i.e., objective in-


formation) for various product


asses


from cereals to air


conditioners have been advanced by consumer groups, marketers,


public policymakers, and consumer researchers.


Despite the


wide variations in opinion, it appears certain that there


will be an increase in the disclosures of


efficiency and


comparative performance data in the future (Day, 1976).


The major issue


s then surround provision of the most


"effective" information for the various product


asses.


The less than satisfying results of past information programs


(truth-in-lending


, unit pricing, cigarette warning labels)


point to the potential contributions of research evaluating


consumer response


mation provisions.


i.e., impact) to any new objective infor-

Such research may contribute to the


. 1 .. p -- I I I










Consequently, this dissertation i


aimed at increasing


our understanding of consumer information processing (CIP)


as it relates to new forms of product information.


More


specifically, the "life cycle cost" measure developed in


the M.I.T. Report,


"The Productivity of


ervicing Consumer


Durable Products," will be examined.


measure extends


beyond the newly required energy labels in that it provides

a comprehensive and consistent framework for three cost


dimensions--price, energy, and service.


In addition, the


study is structured to allow analysis of the energy infor-


mation alone.


Emphasis will be placed on the various fea-


tures available within one durable product--refrigerator-


freezers.


Summarizing, the primary consumer research issue


to be addressed in this dissertation is the impact of the

life cycle ocst (LCC) construct on consumer response to


information pertaining to durable


specifically refrigerator-


freezers and associated product features.


The contributions of this thesis will b


applicable to marketing


most directly


interface with public policy pro-


grams for objective information provision, marketing manage-


ment, and to the development of CIP research.


First, the


thesis is directed toward durable goods which have received

considerably less attention than packaged items in previous









promotions, etc.


Policymakers are also concerned with the


impact of information on the consumer


Many of these studies


utilize only attitudinal type measures and/or market share


shifts for evaluation purposes


dissertation attempts


to develop and use measures which allow for evaluation of

information and its impact in a more comprehensive light and

which can contribute to strategic development of stimuli


targeted for future objective information provisions.


Third,


little empirical work has been done exploring the relation-

ship between energy use and consumer behavior in a product


sense.


Finally, in order to increase both internal and


external validity, housewives were used as subjects, and the

methodology involved a task designed to allow the consumer

to create the refrigerator-freezer which best suits his needs


and budget.


It is hoped that this task will improve on the


more traditional written questions by reducing both real and

perceived emphasis on cost components, and thereby provide

truer subject responses to available information.

The dissertation will be divided into six chapters.


Following the Introduction, Chapter


will discuss the


General Problem Framework.


Basically


chapter is con-


cerned with consumers' present and future information


envi ronment.


The concept of consumer information is a com-


I r I I f I I r









management, and in recent years government at various level

and consumer advocates have also become increasingly con-


cerned.


Primary issues involve consumer awareness, inter-


est, understanding, and utilization of facts pertinent to

the purchase and use of products offered by today's marketing


system (Wilkie, 1975a).


In order to discuss this within the


context of the focus of this dissertation, the chapter will

be broken down into three sections--consumer information,


durable goods


, and relevant programs and reports.


First, the pros and cons of the current consumer in-

formation environment are given in terms of its adequacy


for consumer evaluation and decision making.


The main con-


cern of those who feel it is not adequate is the perceived


lack of information, especially objective data.


Because of


the complexity of the issue and the divergent opinions
regarding solutions, consumer research implications are


discussed next.


Consumer research, and subsequently consumer


information processing research, has the capacity to play


a vital role in the area.


CIP research can provide


e assist-


ance in the selection of relevant information, and it can

help in improving the effectiveness by which the information


can b


communicated through the use of more valid research


designs with greater generalizability.









including impact studies of unit pricing, truth-in-lending,

nutrition, and energy and a description of the Voluntary

Labeling Program, Energy Policy and Conservation Act, and


the M.I.T. Report.


In all cases, a consistency of concern


with two underlying issues is present--a determination of

what is relevant for the consumer and the criteria for deter-

mining such information.

Relating the concept of consumer information more


closely to this study, Chapter


ties the importance of in-


formation to durable goods and especially refrigerator-


freezers.


A major point i


s that the value of information


is related to risk,


tored information and past experience,


and character of available alternatives.


The purchase of a


durable good such as a refrigerator-freezer involve


these factors.


s all


In addition, it is pointed out that the


refrigerator-freezer is a major energy consumer.

The costs involved in major durable goods are the


focus of Chapter


Life Cycle Cost.


The definition of life


cycle cost (LCC) supplied by the M.I.T. Report (1974) is

the total dollars the consumer will expend over the product's


useful


ife.


Major costs involved are price, energy, and


service expenses.
* *


discussed.


Both the concept and its components are


Price is probably the most obvious cost involved


^ A- L. *- - I I A .









but it is equally likely they will not be aware of the

magnitude and importance of such factors over the product's


life


It is suggested that the availability of LCC data


may cause a changing conceptualization of product cost and


provide a new basi


for evaluating products.


In addition,


specific impacts which LCC might have on consumers include:

1. Increased information in the marketplace leading
to more informed consumers.

2. Improved conceptualization of product cost.

3. Increased salience of energy and service as
cost dimensions of a product.


Improved basi


s for consumer evaluation of alterna-


tives.

Sharpened cost/benefit judgments on product
features.

New trade-offs between initial and deferred
costs.

Shifts in products purchased.


The purpose of Chapter 4, Description of Study


is to


translate the general problem framework of Chapters


into a research format for testing the impact of new product


information on consumers.


The initial discussion centers


around the fact that impact may be measured in a variety of


and changes in attitudes and market shares are not the


only relevant criteria for evaluation of impact.


The purpose


of this studyv i tn Inok at thp imnart of npw nrndurt infor-






7


In order to gain a better understanding of the current

environment, focus group interviews were conducted with


housewives in the Gainesville, Florida, area.


were to explore the


The purposes


current state of consumer knowledge and


attitudes toward refrigerator-freezers, to gain a better

understanding of the language used, and to increase under-

standing in the area of cognitive complexity with regard

to consumer views of dimensions of refrigerator-freezers.


The results of the focus group interviews


general problem framework of Chapters


coupled with the


and 3 provide the


basis for the hypotheses to be tested which are then dis-

cussed.


After the presentation of hypothese


a discussion of


the research design, sampling, and control procedures is


given.


A posttest-only control group design, one of three


true experimental designs discussed by Campbell and Stanley


(1963), is utilized.


The three groups to be tested are LCC,


energy/year


, and control


The LCC group will receive infor-


mation of the variety discussed in Chapter 3.


the most comprehensive


It represents


e and unique presentation of cost data.


The control group will receive only price information which

approaches the information environment as it exists today.

The third group is an energy/year condition which was in-









future.


Consequently, the analysis focuses on LCC v control,


while energy/year results are discussed in an appendix.

The rest of Chapter 4 involves a discussion of the


conduct of the experiment. This is felt to be an important

part of this study for two reasons. First, the study


measures impact at various levels so that the sequence of


events in the experiment becomes crucial.


Second, the imple-


mentation of measures and formats which can be used as valid

indicators of information impact will aid in the development

of future evaluative techniques.

While Chapter 4 provides an in-depth look at the con-

duct of the experiment and presents the hypotheses to be

tested, Chapter 5, Results and Discussion, discusses the


results of the tests.


They are presented in two frameworks.


First is the extent to which each hypothesis is supported.

Second is a discussion of results by the level of consumer

response measured.


Chapter 6, Summary, Conclusions


, and Implications,


focuses on the overall conclusions of the dissertation.

Special attention is paid to the public policy implications

of the study and to future research considerations.















CHAPTER


GENERAL PROBLEM FRAMEWORK



Providing information to consumers has long been

recognized as an important function of marketing management.

The impact on consumers of various types of advertising and


promotional efforts (media ads, package design, label


etc.


is reflected in company and product recognition, dollar


sales, and profit figures.


Among the factors of importance


to be considered by management in the implementation of an

information program are awareness, comprehension, recall,

and utilization of the information by consumers in the

development and change of attitudes and behavior towards

products and brands.


Government, at various level


is also becoming in-


creasingly concerned with product information.


Much of the


recent legislative action proposed and implemented in the

interest of consumers has been informational in nature (e.g.,

Truth-in-Lending, Truth-in-Packaging, unit pricing), and

more such action on the part of government agencies and


I n f nI -< ,- a J r 8-r a


- L .I 1






10


the test of the societal value of such information oriented

legislation is seen to rest largely on the impact of the dis-

closures on consumers and subsequent reactions by the business

community (Wilkie, 1975a).

The purpose of this dissertation is to increase our

understanding of the impact on consumers' processing of new


product information.


More specifically, research will focus


on objective product information including price, energy,
and service costs presented as components of a newly organized


index--"life cycle cost" (LCC).


In essence,


"life cycle


cost" (LCC) provides the consumer with an organized and con-

sistent way of dealing with product cost by incorporating

the three cost components within a consistent time frame


average product life) and common units of measurement


(dollars).


Consequently, both conceptually and empirically,


this dissertation will be addressing important issues that
necessarily underlie the potential information provision

impact at the more traditional brand choice and market share


levels.


That is, attention will be on the individual and


his reaction to this new form of product information--life

cycle cost (LCC).



Consumer Information









have shown an increasing interest in provision of more and

different kinds of consumer information are consumer advo-

cates, marketers, public policy makers, and consumer re-


searchers.


Within these


groups, the basic issue involve


consumer awareness and interest


, understanding, and utiliza-


tion of facts pertinent to purchase and use of products

offered by today's competitive marketing system (Wilkie,

1975a).


Current Information Environment Perceptions


Opinion concerning the current informant ion environment

in terms of its adequacy for consumer product knowledge and


evaluation varies a great deal.


Two important contributors


to this variance seem to be the emotional nature surrounding

the issue of information provision itself and a lack of


systematic and objective research in the area.


At this


time, convincing arguments can be made for increasing the

amount and types of information and in defense of the current


environment


Within this general problem of information


provision


, the present emphasis i


a move to provide con-


sumers with "significant" performance data (i


information) for complicated products.


for this type of action i


.e.


objective


Legislative support


s growing (Advertising Age, 1975).






12


Objective information may be distinguished from sub-

jective information in an evaluative as well as descriptive


sense (Engel, Kollat, and Blackwell


, 1973).


They note that


evaluative


riteria may be either objective (specific physi-


cal features) or subjective symboli


values or benefits).


In this case, energy and service costs and price are objec


tive dimensions


Wilkie (1975a) reports that it is likely


that consumer information programs will stress such objective

and/or performance characteristics since they are the most

susceptible to standardization.

Defenders of the current environment base a large part

of their arguments on the economic efficiencies of our com-


petitive marketing system.


They point out that the value


of information for a product category, in an economic sense,

depends on the extent to which consumers can be expected to

make "better" (i.e., more informed) choices with the new


information than without it.


Wilkie (1975b) notes that


general industry and policy experience has shown many more

failures than successes along these criteria in the intro-


duction of new dimensions of consumer information.


Cases in


point include Ford's move to


sell automobile


on the basis


of greater safety in the 1950


and the health warnings on


cigarettes.


Further


it i


argued that the present competi-









public.


That is, when consumers want objective information


regarding particular product classes


their desires will


be reflected in the marketplace, and manufacturers wil


respond in kind


On the other hand, an article by Lenahan et al. (1973)

on nutritional labeling suggests that there are several non-

use benefits which can be derived from such objective in-

formation programs:


(1) Providing a new basis for product competition,

(2) Greater consumer awareness of the objective
information through advertising,

(3) Improved consumer feelings toward the industry,
and

(4) Changing emphasis toward functional aspects by
the industry.

The conclusions of Lenahan et al. support the position


taken by Bymers (1972


in her classic article advocating


that the use the consumers make of the information is


peripheral to the main issue of his right to know.


This


premi


the result of the general conclusion that in


today's product information environment, consumer decisions


are forced to be based on nonfunctional characteristic


(i.e., attributes not directly related to product quality).

Scitovsky (1950) pointed out that the bulk of advertised

messages contain very little relevant information, and.as a






14


is further advanced by Bymers in her conclusion that adver-

tising seldom helps the poorly informed buyer because its

content is usually suggestive, irrational, and repetitive.

The general recommendation from this group is that informa-


tion


should be provided which has the ability to produce


more informed consumer


s (i.e.


, defined by Nourse and Ander-


son in their 1973 article as buyers who can make more in-

telligent purchase decisions when provided with objective,

factual information on the contents and/or performance

characteristics of competing products).

Concern with the lack of information available to con-

sumers has also gained the increasing attention of government


agencies.


Currently


, there are at least 34 federal agencies


and many state and local ones involved in disseminating con-

sumer information and consumer education programs (Wilkie,


1975a)


, including the Food and Drug Administration (FDA),


Department of Transportation (DOT), and Federal Trade Com-


mission (FTC).


Public policy programs in this area span a


variety of interests including


cigarette warnings, truth-


in-lending, unit pricing, car mileage, truth-in-packaging,

octane ratings, energy consumption, and nutritional labeling.

It seems certain that programs dealing with consumer


information will continue to expand.


This is particularly






15


interpret its responsibility to include the initiation of

information programs (i.e., proaction) rather than the more


traditional reaction to isolated marketing abuses


.e.


cease and desist orders


, corrective ads).


Through vehicles


such as the trade regulation rule (TRR), an agency such as

the FTC has the power to set guidelines on trade practices

for all marketers in a given industry or product category.

This type of power seems particularly applicable to cases

involving objective information provisions.


Consumer Research Implications


Because of the concern with consumers and product in-

formation increasing in importance at the above-mentioned


level


the interest of consumer researchers in this area


is a natural one.


It is generally recognized that many of


the past public policy information programs, while providing

valuable information to the public, have met with less than

hoped for success in terms of consumer response to the in-

formation (e.g., cigarette warnings, truth-in-lending, unit


pricing).


The less than satisfying results of past programs


may partially reflect a lack of concern or commitment with


understanding the individual consumer


Consumer research


can provide valuable insight into consumers' response to









has been that "clear and conspicuous" disclosure was ade-


quate for achieving policy objectives. This reflects the

policymaker's concern with the stimulus (i.e., information) and


subsequent response (i.e.


, usually measures such as brand


choice or market share


shifts).


It 1


s generally recognized


that this S-R framework is not totally adequate.


In fact,


one needs to consider those consumer characteristics which

differentiate individuals in terms of their reaction to the


stimulus (S-O-R framework)


In this regard


research in-


volving consumer information processing (CIP


is a particularly


applicable tool.

Besides the concern with the individual as a unit of


study


e relevance of CIP to information provision,


es-


specially in a policy sense, is further enhanced because it

provides the opportunity to evaluate consumer response (i.e.,

impact) to new product information with criteria other than


brand choice or market share measures.


CIP primarily deals


with brands and the bases upon which such brands are evalu-


ated


Since policy programs for information provision are


implemented to provide objective basis for brand or model

evaluation, one can delineate three components of the CIP

system that are particularly relevant--dimensions of con-

sumer information, ratings or values on these dimensions,









(1973) have represented these components in the matrix

form:


BRANDS
SUMMARY
ATTRIBUTES A B C ATTRIBUTE EVALUATION
1 A1 B1 C1 Is

2 A2 B2 C2 2s

3 A3 B3 C3 3s
SUMMARY BRAND
EVALUATION As Bs Cs


Brands


or models of the same brand) and attributes


comprise the dimension


cell entries are the rating


relational rules provide structure for dealing with brand/


attribute combinations by directing the


ing activities and evaluation.


sequence of process-


since primary concern of


this dissertation is in the study of consumer response to

the objective nature of information regarding product

attributes, the consumer information processing -(CIP) frame-

work provides an efficient structure for exploration.

General benefits of CIP research in the area of new

product information provisions can be summarized as follows:


(1) providing


ass


instance in the selection of


relevant information needed by consumers,

(2) improving the effectiveness by which such


information i


s communicated,










(4) providing valid research designs, methods, and


measurements.


(Wilkie, 1975a)


The concept of relevant information
and criteria


One of the basic problems in this area involve


to conceptualize the idea of adequate or relevant informa-

tion so as to develop the needed criteria to assure that such


information is available to the consumer


Howard (1972)


lists four criteria for deciding whether information to the


consumer is adequate--truthfulness, intelligibility, rel


vance, and completeness.


In his article Howard reports that


there is general agreement among parties (i.e.


, consumers,


industry, government) that consumer information should be


truthful


Also, the concept of an intelligible message is in


the best interests of all parties.


Consequently


, his major


concerns lie with the latter two dimensions and are sum-

marized below.

The determination of what information is relevant to

consumers depends on how the consumer conceptualizes the


object the information focuses on.


Howard


concern is at


the brand level, but the criteria can also be applied to


the product class level as well.


The consumer may concep-


tualize the product or brand in denotive (i.e. descriptive)





19


not numerous because the consumer is limited by his capacity


to process information.


The evaluative dimensions are those


factors that cause him to decide whether the object is


"good" or "bad."


It is the combination of these dimensions


that form the brand or product concept.


Information is


relevant whenever it aids the consumer in placing the object

on the dimensions of the concept.

In his discussion of completeness, Howard's central

question is concerned with determining when the consumer


has enough information.


Psychologically, one can think of


as occurring when the tension caused by the conflict,


which is in turn produced by consumer uncertainty, is at


some acceptable level.


A construct that describes this


psychological state is confidence in judging product quality.

Howard postulates that when the consumer has received ade-

quate information his confidence will be high and that one

can conclude, in a subjective sense, his information is

complete.


In analyzing the above premise


, it is logical that


when a consumer receives "adequate" information his confi-


dence should be high.


However


, the consumer may also


express a high confidence in his choice and not have


received full information.


case


of durable goods, and






20


refrigerators-freezers with no awareness or comprehension of

the energy and service costs involved in operating such a


product.


This behavior, in part, is a function of an infor-


mation environment that provides price as the only cost com-


ponent for evaluation.


should not be surprising to find


that, in a survey, consumers would express confidence in


their knowledge and choice of a particular model.


The issue


then is really what information the consumer has used in


his evaluation as well as hi


s confidence in using it.


Factors that affect consumer evaluation of product

features, and subsequently one's confidence, include source


credibility and the salience of evaluative dimensions.


This


contention is supported in an experimental study by Hempel

(1966) who found the influence of informational cues to be a

function of both the source and content of communications.

Howard goes on to note that certain evaluative dimen-


slons are more important or salient than others.


He postu-


lates that the consumer will select information concerning

the more salient dimensions in preference to that about the


less salient dimensions.


He concludes that the quantity


of information is basically the amount of relevant descrip-

tive and evaluative dimensions on which the consumer has


received data.


Confidence, then, is a function of brand


I -






21


The idea of salience is a particularly important one

in the case of durable products and their relation to energy


and service cost dimensions.


It is possible that these are


not salient dimensions because consumers have not received

information about them in the past that would indicate their


importance.


Consequently, in some cases it may take the


availability of information to create salience rather than

just providing information on dimensions that are already

perceived as important.


An article by Jacoby (1974) discusses th

of approaches whose concern is mainly with the


and not its effects.


e shortcomings


information


He says that factors such as intelli-


gibility, completeness, relevancy, etc. developed as cri-

teria for optimal conditions of choice are concerned with

the evaluation of the information, with little concern for


what effects this information has on the consumer


There-


fore, Jacoby argues, developing criteria for evaluating

the information from the source is really secondary to con-

sidering the impact that such information has on the con-


summer


It is not what is provided by the source but rather


how it is perceived and its effect on the consumer that should

be the major focus of the information issue.


One of Jacoby


major criticisms of Howard's framework










of product information, a direction the FTC is moving in-


creasingly toward.


Jacoby notes that terms such as full


disclosure and completeness are imprecise, and th


should really be with how full a disclosure


for the consumer's own sake.


concern


should be made


That is, is it possible to


have too full a disclosure (i.e., can the information be too

complete)?

The concept of information overload and its effects


on consumers has been a major focus of Jacoby


CIP research


(Jacoby


, Speller


, and Kohn, 1974a


Jacoby,


peller


Kohn


1974b


Jacoby, Speller


, and Berning, 1974; Jacoby,


Speller


, and Busato-Schach, 1974)


The basic


for much of his


research li


in the well-documented finding in information


processing research that there are finite limits to the

ability of consumers to process information in a particular


time period.


Once these limits are passed, behavior tends


to become confused and dysfunctional.


The implication for


consumer information is that providing too complete an


information package may be just as inefficient a


viding enough.


not pro-


A study by Nourse and Anderson (1973)


example, found that carpet purchases have a low threshold

for the quantity of label data they will use, and if there

is too much information at least some will ignore all of









These findings could be taken as a criticism of the

full disclosure concept if consumers were forced to deal


with all information provided.


However, Jacoby goes on to


say that there is now evidence that consumers react to what

may be too much information by tuning part of it out (Jacoby,


Kohn, and Speller


, 1973).


Jacoby uses this as a criticism


of full disclosure since people will not deal with all of


However


, he is failing to take into account individual


difference factors here.


That is, the real issue is that


given a large amount of information to deal with, consumers

will act selectively in determining what information they


choose to deal with.


What information the consumer chooses


will be a function of prior information (Ross, 1972) and


the saliency of the information dimensions.


be expected to be ignored.


The rest can


The point being that consumers


differ with regard to both these dimensions--so their behavior

regarding the information will also differ.


Naturally, however


, as Jacoby points out there are in-


efficiencies in providing total information.


It would appear


that policy makers and consumer advocates would pay more

attention to a consideration of just what information should

be presented and how it can be best organized.

In order to engage in meaningful research in deter-
r. -- A. r 1 3 -* *-









variable


Possible independent variables might include:


(1) Display density--number of visual targets
relative to the amount of available space.
(2) Fill--amount of nonrelevant information in
the display.

(3) Complexity-symmetry.


(4) Nois


and distortion--nonclarity in th


trans-


mission and reception due to physical factors.

(5) Memory load--amount of prior relevant informa-


tion retained in the


system.


(6) Symbolic value of the information.

(7) Preference value for information.

Dependent measures which can be used to determine how

information impacts on consumers may be defined at different


levels of consumer behavior

variables may be the stages


For example, possible dependent


in Lavidge and Steiner's hier-


archy of effects model (Lavidge and Steiner


, 1961).


stages are awareness, knowledge, liking, preference, con-


eviction


, and purchase.


In thi


way, the impact of product


information is being measured more completely than just

through the more traditional attitude and/or purchase be-


havior


stages.


Other variables correlating with this frame-


work include attention, interest, desire, comprehension,


intention, and action.


Other models of consumer decision


processes which could provide dependent measures include






25



The type of information involved will affect the impact


seen at each of the stages.


For example, Day (1976) notes


that observed impact of new product information will be


greatest at the initial stage


of the hierarchy.


As con-


sumers become more familiar with the information over time

and with experience, impact will increase in the latter


stages.


However


, relatively little research has been done


on these early


stage


Thorelli (1971) maintains that the awareness


tage


needs to be a focus of concentration in evaluating the im-


pact of information provisions.


There i


empirical support


that market information and search activity and data source

awareness are highly unevenly distributed among consumer


groups.


His conclusion is there needs to be a diversifica-


tion of


consumer information acr


oss


a variety of sources and


media.


In this way the probability of consumers becoming


aware of information will increase.

Staelin (1972) support Thorelli. T


A study by Newman and


hey concluded that the


amount of information sought by many buyers is small, even


though the information i


access


ible,


suggesting there is


substantial selectivity of search.


s does not necessarily


mean he i


s ill-informed.


He may have started out with what


he regarded as adequate knowledge.


Herein, however


, lies






26



This kind of procedure inhibits consumer awareness of new

product information.

Even if consumers are cognizant of the relationship

between products and dimensions such as energy, they may

not know how useful it can be in a product evaluation sense.

Bymers (1972) asserts that economists have research the vari-

able "knowledge" least often of any of the other stages of


consumer decision making.


he goes on to say that almost


no effort on the part of economists has been devoted to

studying either the content of the information or whether


what has been transferred has been understood.


Instead, they


work under the assumption that information availability


equates with comprehension.


She goes on to claim that ad-


vertising seldom helps the poorly informed buyer because


its content is, in general


, suggestive


irrational


repetitive.


This claim is


supported by


Scitovsky (1950)


says


that the bulk of advertised messages contains very


little relevant information.

The result of the failure to concentrate on the early

cognitive stages is a mistake according to Bymers (1972).


She notes that one may legislate such information


tionally factual label


nutri-


but this will not accomplish the


purpose of improving the level of competition in the market-






27


Mittelstaedt (1972) notes that the provision of useful

information is a significant form of consumer protection.


However


, the value of such information in the


eyes


of the


consumer is a function of the expected opportunity loss of


suboptimal choice.


what is an optimal choi


The question, of course, then becomes


Mittelstaedt maintains that


optimality is an individual variable, and, therefore, the

ultimate judge of the value of the information should be

the consumer.


However


, Swan (1969) makes the point that consumers'


evaluation of new information and ultimately the products

involved is dependent, to a large extent, on past experience


and information.


He found that experience with a brand and


satisfactory (as opposed to optimal) choice strategies can


lead to lower information seeking.


His study suggests that


in the evaluative stage of products consumers may


substitute


prior experience for external information


see


king if they


have learned that certain brand


are satisfactory.


Consequently, consumer liking and preference for

brands may be narrowed to those they are most familiar with.

If the liking and preference for a given brand translates

to a conviction that it would be a wise choice, the pro-

cessing of new product information would almost certainly









The most advanced measure for evaluating new product

information impact, and consequently the most difficult to


show change in, is purchase behavior


Day (1976) attributes


the lack of evidence of behavioral effects of information


disclosures to four factors:


(1) newness of the require-


ments, (2) problems in designing evaluation research, (3)

lack of a conceptual basis for understanding how consumers


use information, and (4) a lack of policy objectives.


also cites three reasons why behavior change may not occur

with the information disclosures--buyers may not have a

choice, previous choice may have been correct, or information

may not be relevant.


Information impact:


The cases of


unit pricing, truth-in-
nutrition, and energy


ending


Three areas which have been a major focus of informa-

tion disclosure are unit pricing, truth-in-lending, and


nutrition.

with energy.


More recently there has been a growing concern

A summary of the research in each of these


areas provides a framework for understanding the problems,

prospects and reactions of consumers to information pro-

visions.

Truth-in-packaging and pricing of products in the










The basic issue is alleged consumer confusion in making


price comparisons (Gatewood and Perloff, 1973).


The argu-


ment for unit pricing is that it will eliminate such con-

fusion brought on by price calculations.

A good review of the unit pricing literature can be


found in Russo, Krieser


, and Miyashita (1975).


They note


that in


pite of the plausibility of the reasoning behind


unit pricing, empirical research on its effects have been


inconclusive.


For example, Monroe and LaPlaca (1972) report


mixed results in awareness of unit pricing.


Isakson and


Maurizi (1973) found that changes in purchasing patterns


varied by consumer group.


pricing 1


The prime beneficiary of unit


not, as was expected, low income consumers or


even high income consumers because of their corresponding


high education.


Rather it was middle income consumers.


fact, all consumers were influenced by the price information,

but the middle income groups benefited most.

While studies by Gatewood and Perloff (1973) and

Houston (1972) also found support for unit pricing in that


the displaying of the data on


shelf tags significantly


decreased the number of errors in choosing the cheapest

product, Russo et al. (1975) note that the majority of

evidence indicates that unit pricing has little effect on









They contended that the mere availability of unit


price information was not sufficient.


Rather a convenient


processable display of the information was also necessary

before consumers could effectively use such information.

Therefore, the question they addressed concerned how to

present price information in order to maximize its use.

Three methods of presenting price information were considered--


raw price by brand/size, unit prices on


helf tags, and an


organized list of all raw prices and their corresponding unit

prices, the latter method being the one hypothesized to be


the most effective.


The hypothesis tested was that there


would be an inverse relationship between the order of the

unit prices and the order of the purchasing changes as a


result of the unit price lists.


A large chain supermarket


was used as the focus of study. The first three weeks were

used to estimate a baseline distribution of market shares

for three product classes--dishwashing liquid, canned dog


food


, and facial tissue--with the availability of shelf tag


unit prices.


In the next two weeks, the distribution of


market shares was again recorded, but the unit price lists


were now used.


Results supported the hypothesis


that an


organized list of unit price information would alter con-

sumers' purchasing patterns.






31


July 9, 1969, with the expectation that improving consumer

knowledge of annual percentage rates (APR) and dollar finance

charges associated with consumer credit purchases would lead

to more informed credit decisions.

An excellent article by Day and Brandt (1974) evalu-


ates the impact of truth-in-lending.


Their results showed


that truth-in-lending information had little effect on


credit search and usage behavior


They conclude that to


simply provide consumers with more information is not enough.

In fact, it is only the first step in a major educational

task of getting consumers to understand the information and

persuade them to use it.

Once again usage behavior has been selected as the


criterion to determine the impact of the information.


though behavior change measures have not shown the expected


impact of the information, there is evidence that consumer


are responding to the new information.


by Brandt, Day, and Deutscher (1975


A more recent article


reports that a ser


of studies have found that consumer knowledge about APR'


has risen


significantly, with the greatest gains among the


more affluent, better educated, and more experienced con-

sumers.

However, they go on to report that the majority of










addition, the present aggregate level of knowledge appears


to be quite stable.


That is, those consumers who become


informed are offset by those who forget or become confused.

Also, knowledge about dollar finance charges is even lower.

An interesting finding in this area is that consumers with

lower incomes and education are more likely to know the


finance charges for a purchase.


This may be due to the fact


that they have to be more dollar conscious or that they


engage in financing more often.


The conclusion is that


learning about such information formulates over time with


continued exposure to the information.


It is clear that


studies such as this, dealing with consumer knowledge as

opposed to purchase behavior exclusively, provide greater

insight into the effects of information provision.

A newer area of information provision is concerned


with nutrition.


The thrust of information disclosure in


this area is to aid understanding and eliminate confusion

in consumer product evaluation of foodstuffs and their


nutritional content.


The underlying assumptions in this


area, as in most other information programs, are the con-

sumer has the right to be informed and that effective in-

formation dissemination can be accomplished with more spe-

cific labeling standards (French and Barksdale, 1974).






33


facilitating value comparisons and aiding shoppers in making


choices among brands. Ideal

quent purchase behavior will


tious products


ly, information usage and subse-


hift demand toward more nutri-


, and firms with less nutritious products


will be forced to upgrade their products or lower price.


However


, a number of problems are recognized in the


nutritional information area.


First, choices based on the


nutritional data are unlikely to be realized by all segments


of the population.


Consumers at the lower end of the socio-


economic status scale may find the information too difficult

to comprehend and, therefore, not use it even if they are


aware of the information.


cond, if the nutritional infor-


mation is vague or presented in loose terms, such as high

or low content, it is not likely to have a major impact on

consumer liking or preferences for certain products as well


as behavior change


(French and Barksdale, 1974)


Also a


study by Asam and Bucklin (1973


points out that when too


much information is provided and product selection becomes

complex, buyers tend to skim product information, and their

comprehension is reduced.

As with most information programs, the issue of infor-

mation complexity and subsequent comprehension is an im-


portant one.


A study by Lenahan et al. (1973) provide









This can be interpreted as an awareness on the part of the


consumer that personal benefits could result.


Second, and


most important, understanding of the information, use of

information in evaluations, and knowledge of nutritional

information all increased over time with the duration of

the program.

Not only is there concern by consumers with informa-

tion that helps them improve their purchase behavior for


personal benefit, but there i


also a rising interest in


more socially useful information for making purchase deci-


sons.


Henion (1972) found that consumers switched detergent


brands from higher to lower phosphate content when the sub-

jects were informed about the amount of phosphate.


A dimension of current concern is energy usage.


formation in this area provides the consumer with the oppor-

tunity to act not only in a socially responsible way but


also for hi


own personal benefit.


That is, saving energy


by purchasing more energy efficient appliances helps in

the national concern for energy saving, and it saves the


consumer money by reducing fuel bills.


other areas, relatively few


area.


Compared to the


studies have been done in this


Haas and Rogers (1975) report that the magnitude


of noxiousness of a potential energy crisis affected atti-






35


by Chestnut (1976) found that numerical rating facilitates

memory during processing, but a semantic rating is required

for effective storage of consumer information.

Many of the concerns with the information provisions


mentioned earlier also apply to energy data.


For example,


research needs to be done in the area of complexity and


consumer confusion with the possible rating systems.


summer education will be a factor.


Con-


It needs to be established


whether the cost of providing such information will be


equalled or exceeded by consumer benefits.


A thorough dis-


cussion of some proposed programs and reports in the energy


area will be given in a later section of this chapter


In analyzing the consumer information provision move-


ment in its total perspective, Walker


, Sauter


and Ford


(1974) provide some interesting insights.


They note that


while much of the consumer oriented legislation is assumed

to have a beneficial impact, situations may occur where the


law fail


to accomplish its objectives due to a poor design,


weak implementation, enforcement, or illegal business ac


tions.


Also, a law may lead to unforeseen


strategy changes


which may minimize or even nullify


expected benefit


Walker et al. go on to break down the effects of information

programs.










consumer to attain a higher level of utility through

increased product quality, more information, and fewer


risks.


But, there are certain costs to the consumer in-


evolved also. Expenses to establish government enforcement

mechanisms and the conducting of the enforcement efforts


are factors.


The firm'


s reaction may be to increase prices


to cover costs of compliance or to take away free service

facilities and possibly even to reduce the quality of his

product.


However


, such information programs may also provide non-


use benefits to the consumer (Lenahan et al., 1973).


The new


information may provide a new basis for product competition.

It may increase consumer awareness of the dimension through


advertising

industry.


The program could increase goodwill toward the


And, it may cause the industry to concern itself


more with the functional aspects of their products


i .e ,


nutrition, energy, price, etc.).

An article by Thorelli (1971) in which he explains the

Swedish experience in providing consumer information through

product labeling provides some interesting facts for con-


sideration in information provisions.


The Swedish experi-


ence found that several factors affected information impact:

(1) Credible testing methods.


.*









(3) Labeling and other information provision plans
do not sell themselves.

(4) Large investments have to be made in the promo-
tion of the programs.

(5) Brochures should always be available.


The result


of these studies and the questions and


concerns raised by the authors show that provision of con-


summer information is not a simple task.


Its effectiveness


is dependent on multiple factors and even how one chooses


to define "effective.


ummary, Day (1967) notes that


the pressure for addition


information


should continue to


increase, and that th


e future will


see


greater attention


paid to disclosures of efficiency and comparative informa-


tion.


Reflecting this premi


much of the recent movement


toward providing consumers with more objective information

has been directed at durable goods.



Durable Goods


Granbois (1961) notes that the value of information


relating to products i


s determined mainly by three factors.


The first is perceived risk, which may take various forms.


The amount of monetary outlay is a common factor


Risk will


also tend to be higher for products with a long life span

thereby providing a long-term commitment for the consumer.









may also be in the high risk category.


The second factor


is the consumer's stored information and past experience.


case the value of the information should vary inversely


with the amount of information and experience the consumer


has accumulated.


The third factor involves the number and


character of available alternatives.


The relationship between


these factors and the characteristics and information availa-

bility of durables provide strong support for the current


emphasis on objective information provision for durabi


Background on Durables


Durables are defined a


s tangible goods which normally


survive many uses (Kotler


include high initial


1972).


purchase price


Important characteristics

, product complexity,


energy use, and infrequency of purchase.


The importance of


these characteristics are reflected in most durable goods


manufacturers' marketing mixes.


In addition, these charac-


teristics are present for durable goods:


(1) Risk.


Most consumers would agree that pur-


chasing a durable good involves considerable


risk.


Purcha


of dollars


se price is usually in the hundreds
Units are becoming increasingly


complex with the rapid advancement of product
technology, and the product is usually con-
sidered an investment which should last a


decade or mor


In addition, some durables,


such as refrigerator-freezers are viewed as


more than just a piece of equipment


Rather


fhPv ;V'a. an 4ntnrtaird rnmrnninnn +n- nh hrk lirn










(2) Stored Information and Past Experience. The
long interpurchase intervals for durables tend
to reduce feedback effects from former buying
experiences. Also, personal experience with
products may be a significant contributing factor
in evaluating products. However, in the case of
durables, this is sometimes not so easy. Many
things can happen to a company and its product
in the say 14 year span since you purchased
your last refrigerator-freezer from them. In
fact, the rapid technological advances in many
product areas have succeeded in producing what
some would regard as a completely different product
with a new and expanded role to play for the con-


summer witnesss


the emergence of the refrigerator-


freezer with automatic ice and water dispenser


and radio and tape deck).


Past information and


experience may be of little help in dealing with
and evaluating such products.

(3) Number and Character of Available Alternatives.
Not only have the number of brands increased sig-
nificantly over the years, but with the addition
of a multitude of available features, the number
of models per brand has also increased substan-


tially.


The end result is a more


complex product


environment for consumer product comparisons.

Much of the concern with information regarding durable

goods revolves around the substantial financial investment


of the American people in this product class.


Dimensions of


concern include purchase price, repair cost, and energy use.

Using 1972 data, the M.I.T. Report on consumer appliances


quotes the following yearly figures:


1These figures represent early 1970 costs.
These figures represent early 1970 costs.


A study


- -I 1%










Cost
1. Home electronic products
2. Other major appliances


Repair
1. Radio and T.V.
2. Other major appliances


Electrical Energy
1. Current
2. Future (1980)


$5.4 billion
$7.5 billion


$1 .5-3.2 billion
$900 million


$5 billion
$8.75 billion


In addition, the M.I.T. Report points out that possibly

the greatest area of consumer concern is with the cost and


quality of products and service.


Manufacturers are being


blamed for poor product design, faulty manufacturing, and


deceptive warranty and advertising practices.


Repair service


s seen as inconsistent and too


expensive.


The conclusion


that the American consumer is not only becoming increas-


ingly concerned with the price/quality relationship for


durable products, but also with why he pay


what he does


number of studies discuss these problems directly and will

be summarized below.

In an excellent article drawing from much of the litera-

ture on durable goods, Granbois (1961) presents a total pro-


cess


model including problem recognition, search and de-


liberation, selection and outcome, and post-purchase behavior

stages as a framework for organizing the theoretical propo-


Citinnc cllrrnlnrlinn + ha Q 1vahl n A n A r" a


M ^ "ii^ \ I-l-






41


Problem recognition is characterized as a disequilibrium

between a family's present assortment and its desired one.

This may be due to a number of reasons, but the two most

probable are the decline in the serviceability of the

product and/or a change in the size or quality level of the


desired assortment.


The basic elements of the problem


recognition model are:


(1) Determinants of decreased satisfaction with
present assortments;

(2) Determinants of increased attraction to
alternative products and mixes;


(3) Enabling


conditions and attitudes consistent


with a change.


Decreased satisfaction with present mode


result of breakdown, style changes


may be the


, a changing conceptual


view of the product's function and determinant attributes,


or family considerations.


The attractiveness of alterna-


tives will be a function of their ability to meet the new


criteria the consumer has set up for the product.


Dimensions


such as


size, number


, features, price, efficiency, and style


are possible factors by which alternatives can be judged.
The enabling conditions involve factors such as current and


future income, credit


Granboi


, assets, etc.


s (1961) notes that one of the most consistent


empirical findings ton mprnp frnm tho c+nd nf Aro-ic- n









in the degree of search and deliberation.


For example a


survey by Katona (1966) found that (1) deliberation was

sometimes very short with one or two features being the

major focus, (2) deliberation differed by income, education,

and time pressure, and (3) the process was different for

different products.

The degree of search and deliberation appears to be a

function of the value of the information and the cost of


acquisition.


The former


as discussed earlier


, is deter-


mined primarily by the degree of risk associated with the

product, stored information and past experience, and the


number and characteristics of available alternatives.


cost of acquisition refers to the amount of time and effort

spent in search, the decision making process, and completing


the transaction.


The consumer engages in a tradeoff between


time spent, his budget, and factors such as risk.

The type of information used in the decision process


somewhat determined by the product class.


Brandt and Day


(1971) note that long interpurchase intervals for durables


reduc


e the feedback effects from former buying experiences.

ogical implication would be that a great deal of out-


side information search would occur given the nature of the

product and the lack of reliable experience.









subjects shopped at only one store.


In support of this


finding, Dommermuth (1965) found that 59% of his subjects


examined only one brand of refrigerator


Also Nourse and


Anderson (1973) report that consumers have a low threshold

for the quantity of data (i.e., label information) they use

in a purchase decision, and if there is too much information,

at least some subjects will ignore all of it.

The amount of search apparently varies by consumer and


product.


Most research in this area has utilized bivariate


analyses of demographic data leading to the conclusion that


such variab1


are important in determining the amount of


search activity (Brandt and Day, 1971).


However


, the re-


suits of Brandt and Day


study


how that these variables


are not important when variables such as duration of shopping


time, price, and prior experience are also considered.


This


finding led to the possibility that there may be two or three


classes of buyers for major durables.


Smith (1970


deline-


ates four possible classes:

(1) presold consumer.
already decided on


These are consumers who have
specific brands prior to


entering the retail outlet.


(2) pliable customer. Brand choice is a function of
in-store factors, particularly salesmen.


(3) store loyalist.
choice.


tore loyalty determines brand






44


The stage following information search involves selec-


tion and outcome.


The selection of a particular brand or


product is a function of the evaluation of possible alterna-

tives (including a no purchase option) and external factors.

That is, purchase plans are not always carried through for


various reasons not involving the actual product.


The like-


lihood of purchasing a particular brand of durable goods is

determined by three main factors according to Ferber (1955):


(1) The consumer'
purchase. Th


s ability to make th


physical


is is partially determined by


factors such as family income, credit availa-
bility, etc.


(2) The product's utility for the family.


This may


be measured by quality of service provided, age


and deterioration of present model


and the


priority of purchase for this product over other
possibilities.


(3) The utility of the brand


current brand ownership


s is reflected i n


, satisfaction with that


brand, aware


prices


ess


of other brands


, quality perceptions


relative


Once the product has been purchased, the concern


shifts to post-purchase behavior


Much of this behavior


involves the interaction of consumer and product. And, a

significant proportion of this behavior involves the ser-

vicing of the product.

Mason and Himes (1973) conducted a survey of con-


summers to record their experiences in trying to


see


k relief










12-month period had to mak


at least three complaints before


satisfaction was received


satisfaction.


Over 18


did not receive any


Others had been seeking relief over an


ex-


tended period of time.


Backing up these finding


found that consumer distress with repair


They go on to note that this i


, Adler and Hiavacek (1976)


service is growing.


not surprising when viewing


the role of service costs in light of the total product


cost.


However


, respondents were willing to pay dispro-


portionately higher amounts to have lower cost products


repai red.


Also,


average purch


ase


cost went up,


consumers were more willing to pay higher repair costs.


Life Cycle Cost (LCC) and Durabi


Durable goods were chosen as the product class to be

considered in this dissertation due to current and future

emphasis on the availability, and utilization by consumers,

of "objective information" in product knowledge and evalua-


tion.


Because of the increasing concern with objective in-


formation provision


goods


, especially as it relates to durable


emphasized in the last section, and the lack of


available research dealing with such dimensions in a mar-

keting context, I have chosen to use the construct LCC as










benefit consumers will be given in Chapter 3--Life Cycle


Cost.


The purpose of this section is to tie together the


general problem area of objective information provision,

durable goods, and the LCC construct so that the relevance

and the relationships between the three can be put into

sharper focus.

The 1974 M.I.T. Report defines life cycle cost (LCC)

as the sum of all dollars paid for an "average" product


during its useful


ife.


Discounting of future expenditures


was used in making present value calculations since power

and service costs are necessarily spread over the life of


the produce

1.

2.


However


t.


The components of LCC include:


Purchase price

Operating costs
a. Energy
b. Maintenance
c. Service

Disposal costs


, for the purposes of this dissertation, the components


will be collapsed to price, energy, and service.


Mainten-


ance and service costs have been combined into one component,

service, and disposal costs were "disposed" of since they

typically account for one percent or less of total LCC.

The advantages of studying objective information pro-


vision for durables are numerous.


First


, the components










for easy comparisons between components.


Second, cost


figures are presented in a common time frame--average product

life--which also allows the consumer to evaluate the charac-


teristics in a more consistent manner


That is, the energy


dimension is weighted in a more realistic manner


Rather


than comparing total price to some energy per month or year


figure or by kilowatt hour


the consumer will be able to


compare total price to total energy cost. Also, product

cost is presented in a more inclusive fashion. Cost will


no longer be equated almost solely with price but with price


plus energy plus service costs


Third, there is a direct


relationship between the characteristics of durable


the components of LCC:


Durabi


Goods


complex

expensive

power usage


service

price

energy


Fourth, the infrequency of purchase associated with durabi

puts a premium on the availability of information and its

presentation in such a way that the consumer can readily


use it.


LCC appears to represent such a conceptual frame-


work by providing a construct whose composition encourages

the consumer to shift his perception of cost from a singular










Refrigerator-Freezers and the Durables Construct


Refrigerator-freezers were a major focus of the volun-

tary labeling program and the 1974 M.I.T. Report and is

currently the subject of an information provision on the

part of the Energy Policy and Conservation Act to be imple-


mented in early 1977


An examination of the dimensions of


this product reveal that such an interest i


justified, and


provides the rationale for this product to be used as the

durable good to be considered by the subjects in this dis-

sertation.

The refrigerator-freezer is perhaps the most necessary


product in the home today.


This i


s evidenced in the fact


that it i

function(


s in almost every home in the United States.


it provides the consumer are many.


They may


range from the basic food storage function to a convenience

feature for parties to a strategic place to locate a tape

deck and radio.


Whatever the function may be for the consumer


product has high economic importance in both a national and


individual sense relative to most other products.


It is one


of the few products in the home that is plugged in and runs


continually


That is, the consumer does not have the option


of turninn it nn and nff ha nloacc


iT QCtima+-O









to 4% in the total electrical consumption in the United


States.


The pie diagram from the M.I.T. Report in Figure 1


shows the breakdown of electrical energy use by the resi-

dential sector for 1967.


Power costs for the refrigerator-freezer are not


pected to decrease in the next few years either


ex-


This is


mainly due to the addition of new features like frost free,

automatic ice and water dispensers, increased size, etc.


which add to the load.


In fact, power costs have been


rising until they now account for


of the total cost of


refrigerators (Figure 2).


As can be seen from Figure


the magnitude of power costs, but 6


service costs do not have


still remains a signifi-


cant figure.


Servi


costs are projected to drop by as much


as 11%, from 18 to 16 million call


between 1973-1980.


How-


ever


, the drop is not expected to be


fast over the last


seven years.

In summary, the concern with refrigerators is justi-


field at both the national and individual level.


It is the


combination of wide public use and expense that prompted

the author to use refrigerator-freezers in this disserta-

tion.









T.V.


Lighting



Refrigerator-
Freezers


Clothes dryers
6-electric)



6.6% Ranges


% Space Heating




Other


Conditioning


FIGURE 1

Estimated Breakdown of Electrical Energy Use by
The Residential Sector for 1967 (M.I.T. Report, 1974)


FIGURE


U- *' '* -~ a I -% *










Programs and Reports Applied to Objective
Information Provision


A number of programs and related reports have focused


on one or more of the components of LCC.


Among them are


the Voluntary Labeling Program for Household Appliances and

Equipment to Effect Energy Conservation, The Energy Policy


and Conservation Act, and the M.I.T. Report.


Because of


the importance and direct implications of these documents,


they wil


each be summarized below.


Voluntary Labeli ng Program


On April 18, 1973, in a message concerning energy re-

sources, the President directed the Department of Commerce,

in cooperation with the Council on Environmental Quality and

the Environmental Protection Agency, to develop a voluntary

program for the energy efficiency labeling of household appli-


ances


The Voluntary Labeling Program for Household Appli-


ances and Equipment to Effect Energy Conservation was


estab-


wished to deal exclusively with major energy consuming


household appliances.


Among the appliances covered were


room air conditioners, refrigerators, refrigerator-freezers,

freezers, water heaters, clothes washers and dryers, dish

washers, ranges and ovens, and central heating and air










(1) Encourage manufacturers (including private
brand labelers) to voluntarily provide consumers
with information concerning the energy efficiency
or energy consumption of major durables.

(2) Encourage consumers to utilize the information
when evaluating products by providing, at the
point of sale, energy information presented in a
uniform manner and readily understandable in order
to facilitate product comparisons.

Under this program, a labeling specification was to be


developed for each type of appliance

out test methods, label design, labe


quirements for manufacture participate


The specification set


requirements, and re-

on. Specifications


were developed with the assistance of consumers, retailers,


manufacturers, and interested Federal agencies.


A particu-


larly notable feature resulting from this interaction is

that each label contained not only an energy rating but


also a range of energy consumption for all product


sofa


similar size.

Early accomplishments of the program included final

specifications for labeling room air conditioners and pro-

posed specifications for labeling refrigerators, refrigerator-


freezers, and free


zers


Examp


of these label


can be


seen in Appendix II.


Consumer information pamphlets were


published and consumer education and information activities


were undertaken.


releases accompanied the publication


nfh nr~nnn~corl and -Fi lnQ an cnar4--F-/nn






53


and a room air conditioner brochure were published and more


than 100,000 copies were distributed.


Also, a


slide tape


program describing room air conditioner labeling was pre-


pared and set to be distributed to consumer groups.


Also,


radio and television spot announcements were to be broad-

cast on a public service basis.

Results of the program include the fact that 24

manufacturers representing an estimated 95% of room air

conditioner sales in the United States were participating


in th


Energy Conservation Labeling Program


of 1975.


Results of consumer surveys indicated that the manufacturers'

use of the labels would benefit consumers, and consumer re-

sponse to the program indicated by marks of consumer repre-

sentatives and requests for brochures were clearly encour-


aging.


Also, a survey of energy efficiency ratios for room


air conditioners showed an improvement of


6.5%


in energy


efficiency between January 1974 and January 1975.


This i ndi-


cated a strong response by manufacturers to enter into the


energy conservation effort.


However


, in 1976 this voluntary


program wa


s abolished coinciding with the passage of the


Energy Policy and Conservation Act, which required a manda-


tory labeling program.


responsibility in the


The FEA and FTC now carry the primary


abeling area under this act.









further


First, it encompasses total operating costs, not


just price.


Second, it can help in


consumer understanding


of the objective information by providing a consistent

representation of the components and a familiar unit of


measurement, dollars.


Finally, it encourages consumer


awareness of product cost by using a high


evel of aggregation


in its composition.


Energy Policy and Conservation Act


Congress passed the Energy Policy and Conservation Act


December


1975.


This act has a broad range of purposes,


but the most immediately relevant one is to "conserve energy

supplies through energy conservation programs and, where


necessary, the regulation of certain energy uses. "


Products


covered in this act are the same ones covered in the Volun-


tary Labeling Program plu


s home heating equipment, furnaces,


television sets, and humidifiers and dehumidifiers.


Among.. :


the important priorities dealing with these products include

testing procedures, labeling, energy standards, and consumer

education.

Test procedures will be prescribed in order to deter-


mine (1)


estimated annual operating costs of covered products


and (2) at least one other measure of energy consumption






55


(i.e., quantity of energy directly consumed such as kilowatt

hours) and "energy efficiency" (ratio of the useful output

of services from a consumer product to the energy use of

that product).

The Federal Trade Commission will also prescribe


abeling rules for the covered products.


Each label must


disclose


(1) the estimated annual operating cost of such
products covered and

(2) information regarding the range of estimated
annual operating costs for covered products.


The labe


s would be required to be displayed in such a way


so as to provide the most assistance to consumers in making


purchase decisions.


The information may be presented on a


tag at the point of sale.

Also, the Federal Energy Administration, as adminis-

trator of the Act, may in the interest of improving energy

efficiency, prescribe an energy efficiency standard to any


type or class of covered products.


It is further stipulated


that the energy savings resulting will have to outweigh any

increase in price or maintenance expense, lessening of

product performance, or negative effects on competition in

order to be implemented.

In addition to testing procedures, labeling, and










(1) the significance of estimated operating costs,


(2) ways in which comparative shopping can save
energy for the nation and money for consumers,
and
(3) other matters which may encourage conservation
of energy.

Again, the applicability of a construct such as LCC in


helping to real


program objectives is clear


Whil


e the


act i


specifically concerned with annual costs, LCC i


par-


ticularly suited to presenting energy information reflecting

savings or costs over "the estimated average life of the


product "


In addition, the significance of the operating


costs are magnified by the level of aggregation used, and

comparative shopping is made easier with the standard and


recognizable


presentation of the cost data.


The M.I.T. Report


This report provides the strongest


cas


for the use


of a construct such as LCC in the area of information pro-


vision for durable goods.


The M.I.T


by the Center for Policy Alternati


ves


. Report was conducted

5 at M.I.T. with the


Charl


es Stark Draper Laboratory, Inc. (1974


Funding was


supplied by the National


RANN Program.


science Foundation (NSF) under the


Various advisory groups from industry, aca-


demia. and consumer organizations also narticinated The










The scope of the study included durable goods within


product categories of general household appliance


air and


water processing appliances, yard and garden equipment, and


entertainment and communication appliances.


The report


itself concentrated on color televisions and refrigerator-


freezers.


The main task of the project was to explore the


productivity of the delivery of service to the American


public as it related to major durables.


Because of the de-


pendence of service factors on other operational and acqui-


sition characteristics, a systems approach wa


research.


s utilized in


Consequently the major concern of the study be-


came the optimization of LCC, and the major objective to

". evaluate alternatives for increasing productivity of

servicing consumer durable products and/or reducing the need


for service, in the context of total cost."


A comprehensive


discussion of the LCC construct and its implications for


consumer information as a result of the M.I.T. Report


findings will be the focus of Chapter


Life Cycle Cost.


The M1.I.T. Report rightfully acknowledges that there is


a general concern with energy across the nation.


Also, there


is increasing concern and discontent with service related

matters, and that price is still an important consideration


in purchase decisions.


However


, they go on to state that









appliances and/or the importance of the relationship.


Further


, consumers have not sought out energy and service


related information during product evaluation.


vanced


This is ad-


one reason why manufacturers have not been encour-


aged to develop energy efficient products.


Also, it appears


that consumers have opted for increasing convenience associ-

ated with product use at the expense of increasing energy

consumption by such products.


The major conclusions of the M.I.T


consuming public


study are that the


c is generally not aware of the total cost


of applian


ces


(i.e., LCC which includes purchase pri


energy cost, maintenance and repair costs, and disposal


costs)


On the manufacturers' side, the introduction of


energy conserving design changes will probably have to come


at the expense of higher prices.


Realistically, this type


of action on the part of manufacturers will occur only if


consumers will respond to them in a positive manner


this will necessitate a shift in consumers


cost from


And,


perception of


sole reliance on initial purchase price to the


concept of long run total life cycle


ost.


Consequently,


there is a need for consumer research in this area which

reflects the changed environment, pays particular attention

to consumer response measures, and measures the impact of









servicing major home appliances.


A systems approach was


used, and the concept of total costs paid by consumers over


a product


useful life was emphasized.


Various problems were brought to attention, especially

in the area of service billing practices and warranty claims


(The M.I.T. Report, 1974)


Overall, however, it appears


that industry has given consumers more reliable and efficient


products.


Even so, the consumer who depends on price


main evaluative criteria is not aware of the significant


energy and service cost


In the conclusion of the M.I.T.


Report a number of steps, at the consumer, manufacturer


government levels, are delineated for improvement of problem


areas


These are summarized below.


Consumer level


Use the


concept LCC and actively seek out


information on energy and service cost


well as pri


Reduce
product
placing


s as


ce.


service costs by making sure the
is really malfunctioning before


a


service call


Use official
to reduce abu


channels of complaint in order


ses.


Carefully evaluate added features and con-
veniences of products in light of their
energy costs.


Manufacturers

1. Develop better ways to alleviate warranty


abuses which increa


se c


ost and inflate per-


formance information.
Improve the warranty system by making it






60


3. Respond to the LCC concept by designing
and manufacturing products that represent
an optimal balance between the components.
4. Provide consumers with LCC data at the point
of purchase.

C. Government

1. Provide incentives that would reduce life-
cycle costs.
2. Monitor service technician needs and aid in
development of training and education
functions.
3. Study in more detail how warranties and
service contracts affect the marketing chan-
nel, and develop less costly means of dealing
with appliance failure.
The conclusions and recommendations of the M.I.T.

Report provide the impetus for the focus of this disserta-
tion. Their conclusions regarding the usefulness of the LCC

construct and its impact on consumer response can be ex-

plored within the context of a consumer research study.

Consequently, the focus of this dissertation will be LCC

studied within the problem setting of a potential durable

goods information provision. Particular attention will be

paid to the application of LCC information to product

features.















CHAPTER 3

LIFE CYCLE COST


The construct LCC was briefly discussed in Chapter


General Problem Framework, and its importance to the poten-

tial success of an objective information provision has been


brought up in various examples.


The purpose of thi


section


is to look at LCC in detail, both as a conceptual construct

and as a tool for projecting objective information to a


consuming public.


The three dimensions of LCC relevant to


information provision are


What Is The LCC Construct?


What Impact


Might It Have For Consumers?


C. Can It Be Effectively Communicated to Consumers?

While all three are equally important, the focus of this

dissertation, and subsequent discussion, will be on the

first two--conceptualizing this new form of product cost


information and projecting its potential impact.


The issue


of communication effectiveness basically involves reception


of the message by consumers


Levels of concern in this area


- t -










and (3) brand level.


These are essentially questions of


format which logically follow answers to the first two ques-

tions, and which can be overcome by policy and marketing


strategists.


Consequently, concern here will focu


issues one and two.


The first invol


ves


dealing with the


construct at an aggregate level. The purp


ose


here is to


characterize the consumer environment, not the individual


consumer


, and provide an overview of the questions and


issues in a policy sense.


sec


ond stage will then be


concerned with impact questions at the consumer level.



What Is The LCC Construct?


The basic components of LCC include (1


product life


and (2) product cost.


The product'


life cycle is it


use-


ful life expectancy as determined by consultation and testing


with various agencies and manufacturers.

into initial costs and operating expenses.


Cost may be divided

Initial costs


refer both to manufacturers' cost of production and the


pric


e consumers pay for th


product.


Operating expenses


include both various servi


outlays and energy use.


definition of LCC as supplied by the M.I.T. Report is "the

total dollars that will be expended over the product's


useful life."


Dollar expense may be broken down by









Purchase Price

Operating Costs
a. Energy
b. Maintenance
c. Service

Disposal Costs


However


, for the purposes of the report's calculations and


this dissertation, the components were collapsed to three--


purchase price + energy cost + service cost.


Disposal costs


were not included since they typically account for less than

one percent of the total

The LCC for various products in the M.I.T. Report were

calculated on an average basis by year of manufacturer and


year of use.


In addition, calculations for power and service


costs involved the technique of discounting future expenses


in making present value (PV) calculations.


This wa


s done to


account for the fact that th


ese


costs are necessarily spread


over the life of the product.

were obtained by deflating life


In addition, constant dollars

cycle costs using the Con-


summer Pri


Index (CPI).


This provided units of cost not


affected by inflation.

The M.I.T. Report's major concern was with the ultimate

optimization of LCC, not with providing the research and

formats necessary for the implementation of a consumer in-


formation program concerning the LCC construct.


Consequently,









the entity, and findings are reported as averages for the


industry rather than by individual model or brand.


example, Figure


refri gerator-freez


showed the average component costs for

ers. In the advent that an information


program using LCC is implemented, it remains a policy question


as to the best way to calculate and present the data.


How-


ever, to gain a better understanding of how the M.I.T.

figures were arrived at, the following is a summary of how


the component costs were calculated.


case


Notice especially that


of an information provision in the area, pri


calculated here, would not be serviceable for brand or model


evaluation


But, the figure could serve as a baseline refer-


ence by which the consumer could compare the stated price for


the unit in


case


it was decided that such information would


be of benefit to th


e consumer


(1) Price.


Product price rep


ents an aggregat


measure of initial cost.
figure is arrived at by


That i


taking th


, the price


average


sales value to final customers as reported in


Merchandising Week


ves


a representative


unit price
feature i


e for the industry.


that purch


ase


An additional


price also reflects


the cost of product warranty to the consumer


(2) Service.


Product service costs are defined as


all money paid by the appliance owner to the


serviceman.
tion of the


Basically, the
service incident


cost of providing the servi


costs are a func-
rate (SIR) and the
Calculations are


based on a linear projection of average service


cost per repair


The annual SIR for each year









(3) Power


Energy use is defined as the cost of


electricity to operate the appliance.


cost


Power


s are particularly hard to project because


of the uncertain future of the nation's energy


supplies and the recent "energy crisis."


sequently linear extrapolation


data were used.


cost


Con-


s from historical


For refrigerator-freezers, power


were calculated by taking daily power use


* 365 cost of power for that year
vided an annual cost which was then


This pro-
ummed over


the product's average life.

Because of the increasing concern with objective infor-


mation provision which was established in Chapter


and the


lack of available research dealing with such dimensions in


a marketing context, especially with regard to durabi


concept of life cycle cost is a particularly appropriate


vehicle for dealing with both dimensions.


It provides a


new and unique way of conceptualizing product cost.


potential advantages are discussed below


First, it can be used a


an organizing principle for


the objective information.


It provides a common time frame


for comparing product costs (i.e., the product's useful


life).


This i


especially important point when consumers


begin comparing price to energy costs.


It allows the con-


summer to evaluate the components from a more accurate per-


spective.


That is, the comparison will now be between total


price and total energy costs rather than between total price


and some fraction of energy cost.


In addition,


t also









the dollar format (e.g., dollars/month, dollars/year), the

combination of these factors should prove to be somewhat


more advantageous for the consumer


Second, the dependence and interactions among the

components are more clearly defined making trade-offs between

components such as energy v price easier to recognize and


more likely to occur


One of the findings of the M.I.T.


Report is that products do have considerable room for im-


provement of both energy and service costs.


However


interaction


effect must occur


That is,


energy and service


savings resulting from new technology and improved products


will result in an increase in price.


The trade-off then


becomes one of deciding whether energy savings are worth


extra price.


For example, it is known that better insulation will


result in reduced energy consumption.


The M.I.T. Report


gives an example of how this trade-off may occur


value of energy is $.03 per kilowatt hour


If the


the cost of


insulation is $7


and there is a


to 1 markup to the point


of sale, the increased insulation will cau


e a $14 increase


1
i n prlce


However, the reduction in heat


eakage will


1
The cost per kilowatt hour will vary by area and year.


The $.03 figure is based on 1974 data


ic r i ncnr


As of 1976, the figure


- .a n A .- - -


L


*^










reduce kilowatt hours from 1840 to 1402.


Savings in elec-


tricity will be $13.14 a year based on $.03/kilowatt hour

If the savings are discounted at 6% for 10 years, there


will be $99.10 energy savings.


The net gain is


.10; and,


therefore, the extra insulation material is economically


justified.


These costs will already be provided to the con-


summer by the LCC construct, so that the trade-offs can easily


be made


Of course, whatever decision is made will depend


on individual and certain situation specific factors also.

One such situation specific factor is whether the con-

sumer feels the savings are great enough to warrant the


immediate out-of-pocket expense.


This brings up the third


factor


It makes it


eas


ier for the consumer to recognize


the importance of individual cost components.


This may be


a function of making the association between energy and cost

for the consumer and/or presenting the information at a

level of aggregation which is more likely to be perceived

as significant.

Fourth, the amount of information being given to the


consumer has increased.


gory, th


In the objective information cate-


e consumer will now have the opportunity to base


his evaluation on three dimensions (i


.e.


price, energy,


service) or even four if the aggregate LCC is considered









information, only that it is available.


Also, the question


that remains to be answered empirically is how the consumer

will use the information and with what results.

Fifth, it is a construct which may facilitate con-

sumers in shifting their perceptions of cost from sole

reliance on price to a more inclusive long run total cost


conceptualization.


The result of positive consumer response


to other cost factors (i.e., willingness to pay somewhat

higher initial prices for reduced energy and service costs)

may encourage manufacturers to engage in product design with

the purpose of increasing energy and service efficiencies.

In the case of most new concepts, especially those

dealing with consumer information, a number of questions


should be advanced which wil


need answering in the event


LCC does become a part of an information provision.


Fi rst,


there is the legitimate question of whether the complexity

of this procedure can be accurately understood by consumers.

It is possible that consumers do not think in this fashion

when evaluating product cost, and it will, therefore, be

either confusing to them and/or cause wrong deductions.


This i


s an area of impact which needs to be researched,


especially over time and with multiple exposures.


Also,


in the event LCC does become a part of the consumer environ-


mo n +t h o nfnic inn nf nh-iQrt- arT D


L C v nc


Thk M T T D r'> ,+-









a provision using LCC.


For example, is the interest in


promoting the lowest total cost or lowest energy cost?

While there is probably a positive correlation here, there

will be cases where the consumer is put in an either/or


situation.


The program structure may be different depending


on the answers to such questions.


Other factors which will


also need to be taken into consideration at the policy level

include variance in the conditions of product use, variance

in life spans, seasonal dependence on energy, and variance

in cost by the stage of the life cycle.


e preceding discussion was mainly concerned with the


concept of life cycle cost as a total entity


The M.I.T.


Report also 'discusses each component


eparately.


A review


of this discussion by LCC dimension will help to bring the

importance of the costs into focus.


Price


Of the three components in LCC


, price is by far the


most familiar to consumers, policymakers, and market re-


searchers.


Marketing research has dealt with "price"


ex-


tensively in studies concerned with competition, optimal

strategies, brand choice, and the correlation between price

and other factors such as perception of product quality.









provision for durables.


Although, the payments may be


spread over various time periods, it is essentially a short

run consideration when compared to the costs associated with


servi


and energy.


While price will continue to be, and


should be, a major concern of many consumers, the purp


ose


of the M.I.T. Report, and a possible objective of an infor-


mation provision in this area, was to put purchase price

into a longer run perspective so that the importance of

energy and service costs would not be diminished when com-


pared to the high initial outlay.


framework, it i


Within this particular


s hoped that the consumer's conceptualization


of product cost will broaden from a rather singular concern

with price to include costs associated with energy and


service al


Energy


Questions concerning energy have taken on an increas-

ing prominence in the media and an awareness by consumers


with the advent of the "energy crisis."


Its emergence as


a national topic reflects a changed environment for the


consumer


This,coupled with the fact that an increase in


the cost of energy is a certainty


, provides potentials


reasons for consumer concern with this dimension in product






71


Breaking down the energy issue from a consumer stand-

point and with regards to durable goods, energy becomes im-


portant for two reasons:


(1) it is an important component


of the operating cost of many appliances and (2) the total

energy consumed by these products is a significant portion

of the total electricity consumption of the United States.

For example, a 50% reduction in energy consumption by


refrigerators would represent a savings of


electrical use in the United


4% in total


states


The individual consumer is likely to be aware of the

more serious energy questions that confront our nation.

What he should be doing at the individual level to help


alleviate the situation is probably less clear


The concept


of LCC provides a means for the consumer to


see


the impor-


tance of energy as a significant operating cost of his

appliances


The overall


conclusion reached by the M.I.T


. Report


after reviewing the growing use of electricity in the home

and the role that durable goods play in this growth are

(1) The growth rate of residential use of elec-
tricity is comparable to the growth rate of
the total national load, approximately 8% per
annum.

(2) These high growth rates cannot be sustained in
the long run for a number of reasons, including


the limited resour


ces


and heat balance of the






72



(4) There are certain appliances where redesign could
achieve reduced energy consumption, without
sacrifice of product efficiency, and without a
decrease in overall cost.

(5) Because the purchase of more energy efficient


appliance


s generally will cost the


consumer


more than present ones, careful labeling and
education of the consumer will be necessary to


ensure voluntary adoption of such applian


ces.


(6) The public interest will be served if the consumer
will install in his home appliances that are more
energy efficient.


(7) If industry i


s unable to encourage the adoption


energy con


serving products, it i


probable


that government at the federal and state levels
will attempt to achieve this end through regula-
tion.


Service


The life cycle service cost for products is equal to

all the money that is paid by the owner to the serviceman.

This figure does not include warranty service which is


covered by the purchase price.


The measurable event for


calculations of service cost is the service call occasioned


by the customer request.

any number of reasons.


These, of course, may occur for

The product may be in actual need of


repair


It may be in good working order


but the customer


requires instruction of some manner in order for the product


to operate efficiently (i.e., education call).

be some external factor causing a malfunctinn


There may

Other 'prvirp


I










service incidence rate (SIR).


SIR is usually calculated


from industry data, consumer polls, or captive populations.

In terms of the life of the product, service costs are


a substantial portion of the LCC of many durables.


While


the general trend is toward a .slight reduction in the

service incidence rate for products, the cost per service


incidence rate has been rising rapidly.


It is clear from


a LCC frame of reference that service costs can be a


signifi-


cant portion of the total cost of a product.


However


, when


looked at in the short run, if at all, it is easy for con-


summers to be misled.


incidence for T.V


For example, the first year service


is one and for refrigerators


and these, as small as they are


warranty.


, are even covered by the


The facts seem to indicate that the rate increases


over the life of the product.


Considering this and adjust-


ing for increases in inflation, the costs have the ability

to become a significant contribution to the total cost of

the product.



What Impacts Might LCC Have For Consumers?


The primary objective of this research is to conceptu-

alize the nature of presumed LCC effects and explore the


likelihood and ramifications of their occurrence


There


.









Increased Information in the Marketplace, Leading to More
Informed Consumers:

Apart from any impact on consumer attitudes and
purchase decisions, the provision of LCC data should
provide more information to the consumer in terms
of both absolute amount and type. The type of in-
formation, being objective in nature, involves


primarily the dimensions of energy and


service, and


reflects an altered and more accurate representation
of "price" of alternatives.


Improved Conceptualization of Product "Cost":


Product cost encompa


sses


both acquisition and


operating costs so that the actual cost of owning
a product occurs over its operating life and there-
fore involves monetary outlays for dimensions such


as energy and service a
with price. The proves


the consumer with th


well a


s those associated


ion of LCC data will provide


e information to establish a


more analytical, and accurate framework a


to what


constitute product "cost" by encompassing the di
mensions in a common time frame and consistent


units of measurement


III.


Increased Salience of Energy and Service as Cost Dimen-


sion


s of a Product:


Issues surrounding energy and service are factor
of concern at both national and industry levels.


Consumer aware


ess


of th


ese


concept


arises mainly


from the recent "energy crisis" and a growing
general dissatisfaction that products are not being


made


pric


well. By accenting the magnitude of energy
service dollar costs and associating them with
e in the same conceptual framework, LCC provide


the consumer with the opportunity to make the
transition from a broad and rather vague concern
with the dimensions to a more refined and definitive
association of these dimensions as integral parts
of total product cost.


Improved Bases for Consumer Evaluation of Alternatives:

LCC provides the consumer with a consistent basis,
a I *J ---


__









Sharpened Cost/Benefit Judgments on Product Features:

The increasing and rapid technological innovations
inherent in many product industries have provided,


and made an integral part of


, many products with


increasing numbers of features supplementary to the


primary function of the product.


The availability


of LCC gives consumers the opportunity to recognize
the dollar costs over time of such features above


their contribution to initial price.


That is, those


features which are energy users (savers) and


service


users (savers) can be more easily recognized so
that the opportunity for judgments between obvious
benefits and more subtle costs become more apparent.


New Trade-Offs Between Initial and Deferred Costs Re-
flected By Trade-Offs Among the Primary Components of LCC:

Manufacturers indicate that the development and
production of energy and service efficient products


will entail greater cost
creased prices. The pre


and be reflected in in-


sent market


system will


support


uch a movement only in the advent of


positive consumer reaction.


LCC provide


s an


efficient mechanism, through the same units


of measurement and consistent time frame


consumer to trade-off th


run and


e higher pri


ces


subsequently greater energy and


, for the
for longer


service


efficiencies


VII.


Shifts in Products Purchased:


The provision of more and different information
through LCC provides the consumer with a changed


environment by which product


subsequently purchased


s can be evaluated and


Market shift


may result


at the primary demand level, among brand preferences,
and/or with regards to features and models within a
brand reflecting consumer responsiveness to the
new objective information provided in the LCC frame-
work.

Within the LCC focus of this dissertation, empirical


research will center on issue V,


happened Cost/Benefit






76


subsequent consumer response to, product features (especially

those primarily stressing consumer convenience and to a


lesser extent energy savings).


It appears that many of the


convenience features use significant amounts of energy and,


because


of the general increase in numbers of features,


possibly add to service costs


well.


In order to better


visualize the potential impact of LCC in relation to product


features, Table 1 provides this author'


s conception of what


the present environment regarding refrigerator-freezers is


versus expected changes with th


introduction of LCC.


Both


product and consumer states are projected.


Major concerns


in the consumer state are their purchase predispositions,

perceived feature benefits, and their conceptual view of

feature costs.










TABLE 1

Perceived Product Environment for
Refrigerator-Freezer Features


Product


Current Environment


A. There are greater numbers
of benefits associated
with features than costs:
1. Benefits
a. Reduction of work
time
b. Social significance
c. Increased efficiency
in
-primary functions
-secondary functions
d. Safety
e. Dependability
f. General convenience
g. Energy and service
savers


Costs


a. Increased purchase
price
b. Increased breakdown
rate due to more
parts
c. Energy cost in-
creased
d. Service cost in-


crea


B. Trend toward increasing the
number of features
1. Innovation (i.e., inven-
tion of new features)


Feature


available


within a model


Changed Environment (LCC)


A. There are


still a greater


number of benefits


as-


sociated with features
than costs.






















B. Trend continues toward in-
creasing number of features
1. Innovativeness in-
creases because of


energy and


service


savings opportunity
Number of features
available within a


model increa


es.


ses


cause of inclusion
of energy and service










TABLE 1 (continued)


Product


Current Environment


D. Marketplace stress is on
the favorability of the
features (i.e., benefits)
E. Feature information presen-
tation
1. Convenience feature in-
formation is subjective
in character (i.e. ,


"makes


clearer ice")


Energy and service in-
formation is subjective


* e


energy")
. Cost data i


G. Feature


"reduces


s not presented


s which redu


energy and service sec
ondarily are stressed


H. Energy and


service saving


features are accented


Changed Environment (LCC)

D. Marketplace stress is
still on the favorability
of the features
E. Feature information pre-
sentation
1. Convenience information
remains subjective


(i .e .,
ice")


"makes clearer


Energy and service in-


formation become


more


objective (i.e.,
dollar cost)
. Cost data is presented on
the features in terms of


price, energy
costs statee


, and service
gic policy


question)
G. Features which reduce


energy and


service costs


are stressed even more
although it is their


sec


ondary function


H. Features dealing specif-
ically with energy and
service efficiencies are
accented even more


Consumer


Current State


A Willingness to pay higher


price


for the product in


order to obtain features
B. Benefits of features
1. Consumers have more
information and more
exact information with
regards to product
benefits than costs


Changed State


A. Continued willingness to


pay higher product pri


ces


for features
B. Benefits of features
1. Consumers have more
information on feature
benefits, but more
exact information
reqardina costs









TABLE 1 (continued)


Consumer
--- r


C. Cost of features
1. Conceptual view of
"cost" of product
features
a. Price


(1) A


association


with cost
(a) Recognized
as contrib-
uting to
product cost
(b) Direction of
contribution
is accurate
(c) Amount is
not signifi-
cant in terms
of it being a
factor in an
accept/reject
decision


(2) Time


- Part of


initial outlay
(3) Measurement -
dollars
(4) Level of refine-
ment
(a) Extrapolation
from purchase
price since
it is not
given
(b) Accurate re-


call of


es-


timated
dollar cost


Changed State


C. Cost of features


. Conceptual view of
"cost" of product
features


. Price
(1) A


association with


cost
(a) Recognized
as contrib-
uting to
product cost
(b) Accurate di-
rection of
contribution
(c) Amount is
still not
s igni ficant
in terms of
it being a
factor in an
accept/reject
decision


(2) Time


- Part of


initial outlay
(3) Heasurement -
dollars
(4) Level of refine-


ment


Price will


be given



(b) Less accurate


reca


dollar cost
due to the
greater
amount of
objective


Current State









TABLE 1 (continued)


Consumer


Current State


b. Energy
(1) Association with
cost
(a) Not recog-
as contrib-
uting to
product cost
or only in a
very vague
association
(b) Direction of
contribution
is accurate
(c) Amount is
not signifi-
cant
(2) Time Monthly
basis in rela-
tion to total
electric bill
(3) Measurement
(a) Possibilities-
dollars/month,
dollars/year,
total dollars,
KWH, $/cu.ft.
(b) Expected -
dollars/month
(4) Refinement -
Perceived as being
acceptable/unac-
ceptable



c. Service
(1) Association with
cost
(a) Not recoq-


Changed State


b. Energy
(1) Association with
cost
(a) Recognition
as a contrib-
uting factor
to product
cost


(b) Direction
is accurate


(c) Amount b


comes


i


e-
gnif-


icant
(2) Time Cost over
product life


(3) Measurement
(a) Possibilities-
dollars/month,
dollars/year,
total dollars,
KWH, $/cu.ft.
(b) Expected -
total dollars
(4) Perceived along
a more advanced
scale such as
from high cost to
no cost or even a
ratio scale in-
volving the actual
dollar amount
Service
(1) Association with
cost
(a) Recoqnition









TABLE 1 (continued)


Consumer


Current State


(b) Direction of
contribution
is accurate
(c) Amount is not
significant


(2) Time thought of
in terms of the
warranty period

(3) Measurement
(a) Possibilities-
cost/call,
SIR, downtime,
cost/year,
total cost
(b) Expected -
downtime (re-
frigerator)
(4) Refinement per-
ceived along some


ordinal


cale of


dependability


summary
(1) Feature cost = f
(dollar price +
vague directional


ass


ociation with


energy


ice)


serv-


* no total


dollar figure is
perceived
(2) Factors
(a) Level of re-
finement very
broad except
for price


Changed State


(b) Accurate
direct on

(c) Amount be-
comes sig-
nificant


(2) Time


- thought of


in terms of
warranty period
and product life
(3) Measurement
(a) Possibilities-
cost/call,
SIR, downtime,
cost/year,
total cost
(b) Expected -
total
dollars


4) Refinement


- per-


ceived along an
ordinal scale
ranging from
high to very low
cost or even a


ratio


scale


d. Summary
(1) Feature cost =
(price + energy


cost +
cost)


service
a total


dollar figure or
at least an
ordinal rating
is perceived
2) Factors
(a) Level of re-
finement be-
comes more
discrimi na-










TABLE 1 (continued)


Consumer


Current State


(b) Components are
not in the
same units of
measurement

(c) Different


temporal


as-


sociations

(d) There are no
significant
relationships
with cost in


ense


having an in-
fluence on
accept/reject
decisions,
and their sum
is also not


seen as
nificant


Actual Costs


a. Total cost of feature-


underestimated becau
of failure to associ


ate energy and service
with cost

b. Energy and service as
a percentage of total


cost


- underestimated


because of lack of
information on the
c hihprf


Changed State

(b) Components
measured in
same units


(i.e.
1 ars)


dol-


(c) Consistent
temporal
representa-
tion
(d) Although
there is
still not a
significant
relation be-
tween price
and cost in
terms of
accept/reject
decisions
energy and
service do
become sig-
nificant, and
their sum
also becomes a
significant
factor


Actual Costs


a. Total cost of feature-
overestimated because


of the "newn


ess"


perceiving it in a
more comprehensive
framework
b. Energy and service as
a percentage of total


cost


- overestimated


because of increased
visibility










TABLE 1 (continued)


Consumer


Current State


Changed State


d. Price increment -
overestimate because
of technological
complexity
D. Judgment of Features
1. Attitude towards:
a. Convenience features-
very favorable

b. Energy and service
features favorable
but less so (per-
ceived as adding
more to cost than
they reduce)
2. High certainty with


regard to preferen


ces


3. There exists a positive
P/Q correlation so that
the addition of features
will inflate the P/Q
correlation
4. The perceived total cost
of a feature is viewed
by the consumer in rela-


tion to th


e total


product cost (i.e


price) and


as significant


is not seen


d. Price increment -
overestimate because
of technological
complexity
D. Judgment of Features
1. Attitude towards:
a. Convenience features-
varies by feature now
but general decline
b. Energy and service


features


- overall


increase in evalua-
tion


Increased uncertainty
with regards to prefer-
ences for convenience


feature


The P/Q correlation be-
comes a LCC/Q correla-


tion and there i


s ex


pected confusion as to
direction
4. Perceived total cost is
viewed as part of LCC
of the product with


emphasis on
service and
significant


energy and
.'. becomes















CHAPTER 4

DESCRIPTION OF STUDY


The purpose of this chapter is to translate the gen-


eral problem framework of Chapter


and the LCC concept of


Chapter 3 into a research format for testing the impact of


new product information on consumers.


Topi


to be covered


include

(1) The relationship between the problem framework


discussed in Chapters


and 3 and leve


s of


consumer response


(2) A description of the preliminary focus group
interviews and results.


(3) A formal


statement of the relationships to be


tudied (i.e., presentation of hypotheses)


(4) A discussion of the research design, sampling,
and control procedures.


(5) A d


esc


tested


ription of how each hypothesi


s will be


, presented within a general explanation


of the conduct of the experiment.



Impact of New Product Information:
Levels of Consumer Response


It is well recognized that "impact" can be measured in









is by a "hierarchy of effects," which allows for study of


different types of consumer response. T

effects concept is most often related to

decision processes (Lavidge and Steiner,


he hierarchy of


tages of consumer


1961; Rogers, 1962).


The decision process is usually described as a sequential

and reiterative series of psychological and physical activi-

ties ranging from problem recognition to postpurchase evalu-


action


In addition, one of the common features of consumer


decision-making is that separate stages of thinking are


linked together over time, and th


these


consumer passes through


tages in a loose but specified order as he moves


toward final purchase.


Lavidge and Steiner's cognitive-


affective-conative sequence of psychological states gives a

conceptual view of the pattern of responses a consumer might

go through as he gets closer to actual purchase (Markin,

1974):


(1) Some consumers, of course, are completely unaware


of the product or


service.


(2) Next, are those who are aware but not interested.

(3) Further along are those who know what the product
has to offer.


(4) Next, are consumers who like the product.


(5) Closer to final purch


ase,


the product over others.


are consumers who prefer


(6) Even closer are those who have a conviction that






86


These steps can be condensed into stages for the con-


sumer--awareness, knowledge, liking


and purchase.


, preference, conviction,


Lavidge and Steiner (1961) present these


steps in a sequential process to form a "hierarchy of effects"

concept (i.e., cognitive involves knowledge and awareness,

affective includes liking and preference, and conative in-


cludes conviction and purchase).

stages are hard to separate. Fo


However


)r example,


some of these

"conviction"


represents conative activity in the Lavidge and Steiner


sense.


Presenting this concept


a behavioral tendency and


separating it from the affectiv


e state is hard to do, both at


the conceptual and operational level


However


, there d


oes


appear to be certain internal psychological p


processes


consumer usually experiences from the perception of some


form of communication, and th


e various components are sub-


ject to a persuasive process (Markin, 1974).

The idea that a pattern of consumer responses does


exist


he move


s closer to purchase will be incorporated


into this study because it provide


a useful framework for


delineating the impacts of new product information on con-


summers


It is


especially beneficial given both the nature


of the study and the information.


The experiment is con-


strained to one


sitting for th


e subject,


his exposure to






87


so that any results, or lack of them, do not necessarily

reflect consumer response given multiple exposures and experi-


ence.


Impact measures which reflect only later stages of


consumer activity and response, such


purchase behavior


cannot be expected to give complete information regarding

the effect of the new information on consumers after such


limited exposure.


The information may very well have had


an impact on the consumer in the form of increased awareness,


understanding, recall


, and/or liking.


Consequently, this


dissertation will explore the impact of new product informa

tion on consumers by various methods and measures aimed at a

range of consumer responses.



Focus Groups


Focus group interviews are a much used tool in consumer


and market research. There are a number of reasons why such

a technique may prove useful. As Dupont (1976) notes, the


interviews can be done quickly and relatively inexpensively.

They allow the researcher to talk face-to-face with con-


summers.


provide the nonresearch


client with the oppor-


tunity to listen to what consumers actually say.


Also,


the situation in which the interviewing is done is flexible

and allnwi fnr cjhiprtfc fn infprart and ctimil1atl nno










However


, the most important function is to guide the


design and conduct of a larger study.


It is within this


framework that the focus group interviews for this disser-


station were conducted.

(1) Explore the cur


The primary purposes were to


tate of consumer knowledge


and attitudes toward refrigerator-freezers and
associated features, and to obtain information
about possible variations among consumers regard-


ing th


ese dimensions.


(2) Gain a better understanding of


consumer language


used in thinking about refrigerator-freezers.
Dupont notes that the determination of what terms


consumers use and what they mean can prov


ficial


e ben


In the case of the current study involv-


ing a relatively new product environment in terms


of both information and attribute


prove


it may also


equally interesting to note what terms and


dimensions they do not
inclusion, or lack of,


Specifically


, the


an energy dimension in


the consumer evaluation or knowledge set may be
helpful in the determination of program objectives
and directions.


3) Increa


understanding in the area of cognitive


complexity with regards to consumer views of
dimensions of refrigerator-freezers. That is,


what i


s involved in


action of th


e product


consumer knowledge and evalu-
? Is it a relatively simple


process, thought of in terms of very few dimen-


sons, or i


it more complex involving many


dimensions of varying complexity


Because of the nature of the product, housewives were


chosen for the groups.


Central Florida Research, a local


professional field research group, contacted a cross section


Thp


samo1e was not


expected to represent the total


I 111II~ I *JU ml u ^ rrVA 1 j