How Wishing You'd Bought the Better Version Can Be Beneficial
Regret is usually thought of as a bad thing, but new research from the University of Maryland’s Robert H. Smith School of Business identifies conditions when it can benefit companies as well as consumers.
Maryland Smith marketing professor Bo “Bobby” Zhou’s purchase of an electric lawn mower a few years ago inspired the research.
“I told my wife, ‘Let’s just go with the low-end version. It’s cheaper. We’re not pros. Why do we need such a powerful version?’” he says. “And then, after two to three months, we realized that was a huge mistake. I could never finish the entire lawn with one try. I had to recharge the battery and do it again the next day.”
Whenever there are two versions of a similar product and a consumer doesn’t have perfectly well-defined preferences, regret can happen, Zhou says. He labeled his experience as under-purchase regret: “I should have shelled out more money to get the better version of the lawn mower.” Consumers can also feel over-purchase regret if they opt for a high-end version of a product and later realize they don’t really need it.
Zhou’s research reveals how companies can capitalize on regret and how anticipated regret affects consumers. He and two co-authors from the University of Florida and Washington University in St. Louis ran an online experiment with more than 1,800 participants. They found that when consumers were pushed to feel like they might regret purchasing a low-end model of an item, it decreased the regret they reported over a high-end purchase. Zhou says firms should use that finding in their marketing messages: “Making consumers think they aren’t going to get what they want with the low-end model makes them less likely to worry about over-purchasing.”
Over-purchase regret is always bad, and it’s particularly bad for the firm, says Zhou. “Take an iPhone, for example,” he says. “The phone with the higher storage space has a much higher profit margin for Apple. As a consumer, if you’re worried about making the mistake of buying the more expensive iPhone, you buy the less expensive one and Apple suffers.”
But under some conditions, under-purchase regret can benefit both the firm and consumers. In the Apple example, when consumers have moderate levels of over-purchase and under-purchase regret, Apple will increase the standard features of its base iPhone, for example by upping the storage capacity. Now the consumers that choose the low-end phone will be happier. To keep other consumers springing for the high-end iPhone instead of opting for the improved low-end version, Apple has to decrease the price of its best version. But Apple still makes out because even if it needs to slash the high-end version’s price, it can charge a higher price for the base model.
Zhou and his co-authors were surprised to see that women study participants were significantly more worried than men about regretting a purchase of a low-end model.
“Women want all the features – even if they don’t use them – because they don’t want to regret not having them, so they are more likely to go for the high-end model of a product,” says Zhou. “None of the previous literature has specifically studied gender differences in anticipated regret.”
To keep all consumers happy and minimize their worries of regret, Zhou says any firm that launches multiple versions of a product should offer a relatively lenient product exchange policy. Not only will consumers be happy that they can change their mind after a purchase, but firms will also make more money by charging them a fee to do so, he says.
“That’s a very lucrative opportunity to take advantage of regret,” Zhou says. “And most consumers would be willing to pay a fee to better match their preference with the most-desirable product version. It’s a win-win situation.”
Zhou says firms could choose a different amount for the restocking fee, depending on the version consumers are bringing back to exchange. For consumers who wish they would have bought the better model, firms should charge less of a restocking fee for them to trade up, but more to consumers who want to downgrade.
The research also shows that consumers who choose the default options for products are less likely to regret their purchase decisions. But, Zhou says, many firms use their least expensive product as the default option, which could be leaving money on the table in situations where consumers aren't price sensitive. He points to B2B sales, where purchasing departments often go with the default option for new technology equipment. “If the default option is the most expensive one with the most features, everyone will be happy,” he says.
By thinking more about regret, companies can make it easier for all consumers to be happier and avoid those could-have, would-have, should-have moments that we’ve all had, says Zhou.
He still has the lawn mower that prompted the research – “It’s sitting in my garage collecting dust,” he says. Now he hires out the lawn care instead. “But had I made the right lawn mower decision, maybe I’d still be doing it myself.”
“Product-Line Design in the Presence of Consumers’ Anticipated Regret” is featured in Management Science.