Life cycle cost


Material Information

Life cycle cost the impact on the processing of new information for durable goods
Physical Description:
xii, 309 leaves : ; 28 cm.
Hutton, R. Bruce, 1947-
Publication Date:


Subjects / Keywords:
Product life cycle   ( lcsh )
Durable goods, Consumer   ( lcsh )
Consumer education   ( lcsh )
Marketing thesis Ph. D   ( lcsh )
Dissertations, Academic -- Marketing -- UF   ( lcsh )
bibliography   ( marcgt )
non-fiction   ( marcgt )


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

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









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


, 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


Joel B. Cohen stressed the importance of problem conceptu-

alization and direction and required the methodological

soundness necessary for meaningful research.



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.











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

What Is The LCC Construct?
What Impacts Might LCC Hav
summers .

Impact of Ne

Sampi i

For Con

UDY . .
w Product Information
of Consumer Response.

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

of the Experiment . .
* . S S .

Analysis of Results .
Discussion of Results

_.......__ I ~








S . 230













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

Demographic Profile of Group Interview Partici



Summary of Characteristi

of Refrigerator-

Freezer by Order of Discussion.

Focus Group Interview Quotation

Mean Values for Model



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


What Cost Is Greater--Purchase Pric

e or Lifetime

Which I

More Cost Efficient

--Top Flight or


Considerations in Evaluation of What Attribute
to Include -. -

Cost Recall and Recognition Summing Over
Features. a - -

LIST OF TABLES (continued)


Building Task

Consumer Evaluation of Cost Information


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.



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 .


on Consumer Evalua-






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

Components of 197

for Refrigerator-Freezers

Discounted Life Cycle Cost


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





R. Bruce Hutton

March, 1977


William L. Wilkie

Major Department:


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



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


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-


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


The basic design was a posttest-only control group


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


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


It i

apparent that some cost

information in addition to the traditional pri


is desirable.



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


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


The less than satisfying results of past information programs


, 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.


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-


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.


little empirical work has been done exploring the relation-

ship between energy use and consumer behavior in a product


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.


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-


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-


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



Major costs involved are price, energy, and

service expenses.
* *


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


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-


Sharpened cost/benefit judgments on product

New trade-offs between initial and deferred

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-


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-


After the presentation of hypothese

a discussion of

the research design, sampling, and control procedures is


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,


, 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-


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.



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


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


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


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


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-


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,


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


Within this general problem of information


, 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



Legislative support

s growing (Advertising Age, 1975).


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


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



it i

argued that the present competi-


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,

(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.



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, a


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-


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



, there are at least 34 federal agencies

and many state and local ones involved in disseminating con-

sumer information and consumer education programs (Wilkie,


, 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


interpret its responsibility to include the initiation of

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

traditional reaction to isolated marketing abuses


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


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


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


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


e relevance of CIP to information provision,


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-


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


1 A1 B1 C1 Is

2 A2 B2 C2 2s

3 A3 B3 C3 3s


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


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


(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


Also, the concept of an intelligible message is in

the best interests of all parties.


, 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.


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)


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


In analyzing the above premise

, it is logical that

when a consumer receives "adequate" information his confi-

dence should be high.


, the consumer may also

express a high confidence in his choice and not have

received full information.


of durable goods, and


refrigerators-freezers with no awareness or comprehension of

the energy and service costs involved in operating such a


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.


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 -


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


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


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


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-


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.


should be made

That is, is it possible to

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


The concept of information overload and its effects

on consumers has been a major focus of Jacoby

CIP research


, Speller

, and Kohn, 1974a





Jacoby, Speller

, and Berning, 1974; Jacoby,


, 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


, 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 -* *-


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


mission and reception due to physical factors.

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

tion retained in the


(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-


, 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-



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


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



, relatively little research has been done

on these early


Thorelli (1971) maintains that the awareness


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


His conclusion is there needs to be a diversifica-

tion of

consumer information acr


a variety of sources and


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



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


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



This claim is

supported by

Scitovsky (1950)


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


but this will not accomplish the

purpose of improving the level of competition in the market-


Mittelstaedt (1972) notes that the provision of useful

information is a significant form of consumer protection.


, the value of such information in the


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.


, 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


prior experience for external information


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


Three areas which have been a major focus of informa-

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


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-


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


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


, 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.


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-


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).


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.


, 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-


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


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-


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.


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


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


consumer to attain a higher level of utility through

increased product quality, more information, and fewer


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



, 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



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


should continue to

increase, and that th

e future will


greater attention

paid to disclosures of efficiency and comparative informa-


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


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



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


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-


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%

1. Home electronic products
2. Other major appliances

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


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-


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-


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.


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


, 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


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


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


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).


, the re-

suits of Brandt and Day


how that these variables

are not important when variables such as duration of shopping

time, price, and prior experience are also considered.


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

classes of buyers for major durables.

Smith (1970


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.

tore loyalty determines brand


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


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

(3) The utility of the brand

current brand ownership

s is reflected i n

, satisfaction with that

brand, aware



of other brands

, quality perceptions


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


k relief

12-month period had to mak

at least three complaints before

satisfaction was received


Over 18

did not receive any

Others had been seeking relief over an


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



, respondents were willing to pay dispro-

portionately higher amounts to have lower cost products

repai red.


average purch


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-


Because of the increasing concern with objective in-

formation provision


, 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


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


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





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.


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.


, 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


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:





power usage




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-


The refrigerator-freezer is perhaps the most necessary

product in the home today.

This i

s evidenced in the fact

that it i


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


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


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


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.


costs are projected to drop by as much

as 11%, from 18 to 16 million call

between 1973-1980.



, 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-





Clothes dryers

6.6% Ranges

% Space Heating




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


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-


The Voluntary Labeling Program for Household Appli-

ances and Equipment to Effect Energy Conservation was


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


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



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


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.


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-


Also, a survey of energy efficiency ratios for room

air conditioners showed an improvement of


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.


, 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.


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



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. "


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


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


(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


(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,
(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


e the

act i

specifically concerned with annual costs, LCC i


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


presentation of the cost data.

The M.I.T. Report

This report provides the strongest


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


. Report was conducted

5 at M.I.T. with the


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-


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


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.


, they go on to state that

appliances and/or the importance of the relationship.


, consumers have not sought out energy and service

related information during product evaluation.


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


(i.e., LCC which includes purchase pri

energy cost, maintenance and repair costs, and disposal


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


perception of

sole reliance on initial purchase price to the

concept of long run total life cycle



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


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


These are summarized below.

Consumer level

Use the

concept LCC and actively seek out

information on energy and service cost

well as pri


s as


service costs by making sure the
is really malfunctioning before


service call

Use official
to reduce abu

channels of complaint in order


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


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


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
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




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


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


Consequently, concern here will focu

issues one and two.

The first invol


dealing with the

construct at an aggregate level. The purp


here is to

characterize the consumer environment, not the individual


, and provide an overview of the questions and

issues in a policy sense.


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


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


e consumers pay for th


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


, 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


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.


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.


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.


Notice especially that

of an information provision in the area, pri

calculated here, would not be serviceable for brand or model


But, the figure could serve as a baseline refer-

ence by which the consumer could compare the stated price for

the unit in


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


sales value to final customers as reported in

Merchandising Week


a representative

unit price
feature i

e for the industry.

that purch


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

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.



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.



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


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-


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.



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

i n prlce

However, the reduction in heat

eakage will

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 .- - -



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


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


It makes it


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


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


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.


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


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


A review

of this discussion by LCC dimension will help to bring the

importance of the costs into focus.


Of the three components in LCC

, price is by far the

most familiar to consumers, policymakers, and market re-


Marketing research has dealt with "price"


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


and energy.

While price will continue to be, and

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


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


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


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


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


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


the impor-

tance of energy as a significant operating cost of his


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

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

the limited resour


and heat balance of the


(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


s generally will cost the


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

ensure voluntary adoption of such applian


(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


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


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


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


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.


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


cant portion of the total cost of a product.


, 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


, 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



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


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


Increased Salience of Energy and Service as Cost Dimen-


s of a Product:

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

Consumer aware


of th



arises mainly

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



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


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


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


subsequently greater energy and

, for the
for longer




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-

Within the LCC focus of this dissertation, empirical

research will center on issue V,

happened Cost/Benefit


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,


of the general increase in numbers of features,

possibly add to service costs


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.


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.


Perceived Product Environment for
Refrigerator-Freezer Features


Current Environment

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


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


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



within a model

Changed Environment (LCC)

A. There are

still a greater

number of benefits


sociated with features
than costs.

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

energy and


savings opportunity
Number of features
available within a

model increa



cause of inclusion
of energy and service

TABLE 1 (continued)


Current Environment

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


clearer ice")

Energy and service in-
formation is subjective

* e

. Cost data i

G. Feature


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-
1. Convenience information
remains subjective

(i .e .,

"makes clearer

Energy and service in-

formation become


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

price, energy
costs statee

, and service
gic policy

G. Features which reduce

energy and

service costs

are stressed even more
although it is their


ondary function

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


Current State

A Willingness to pay higher


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


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

TABLE 1 (continued)

--- r

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

(1) A


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

(2) Time

- Part of

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

call of


dollar cost

Changed State

C. Cost of features

. Conceptual view of
"cost" of product

. Price
(1) A

association with

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

(2) Time

- Part of

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


Price will

be given

(b) Less accurate


dollar cost
due to the
amount of

Current State

TABLE 1 (continued)


Current State

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

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

Changed State

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

(b) Direction
is accurate

(c) Amount b




(2) Time Cost over
product life

(3) Measurement
(a) Possibilities-
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
(1) Association with
(a) Recoqnition

TABLE 1 (continued)


Current State

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

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

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


cale of


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


ociation with




* no total

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

Changed State

(b) Accurate
direct on

(c) Amount be-
comes sig-

(2) Time

- thought of

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

4) Refinement

- per-

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



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

cost +

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)


Current State

(b) Components are
not in the
same units of

(c) Different




(d) There are no
with cost in


having an in-
fluence on
and their sum
is also not

seen as

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


- underestimated

because of lack of
information on the
c hihprf

Changed State

(b) Components
measured in
same units

1 ars)


(c) Consistent
(d) Although
there is
still not a
relation be-
tween price
and cost in
terms of
energy and
service do
become sig-
nificant, and
their sum
also becomes a

Actual Costs

a. Total cost of feature-
overestimated because

of the "newn


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


- overestimated

because of increased

TABLE 1 (continued)


Current State

Changed State

d. Price increment -
overestimate because
of technological
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


3. There exists a positive
P/Q correlation so that
the addition of features
will inflate the P/Q
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
D. Judgment of Features
1. Attitude towards:
a. Convenience features-
varies by feature now
but general decline
b. Energy and service


- overall

increase in evalua-

Increased uncertainty
with regards to prefer-
ences for convenience


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

tion and there i

s ex

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

emphasis on
service and

energy and
.'. becomes



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.


to be covered


(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



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-


In addition, one of the common features of consumer

decision-making is that separate stages of thinking are

linked together over time, and th


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,


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

of the product or


(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


the product over others.

are consumers who prefer

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


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


)r example,

some of these


represents conative activity in the Lavidge and Steiner


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


, there d


appear to be certain internal psychological p


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


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-


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


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

reflect consumer response given multiple exposures and experi-


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-


provide the nonresearch

client with the oppor-

tunity to listen to what consumers actually say.


the situation in which the interviewing is done is flexible

and allnwi fnr cjhiprtfc fn infprart and ctimil1atl nno


, 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


e ben

In the case of the current study involv-

ing a relatively new product environment in terms

of both information and attribute


it may also

equally interesting to note what terms and

dimensions they do not
inclusion, or lack of,


, 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


samo1e was not

expected to represent the total

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