Understanding Money-Back Guarantees Cognitive Affective

Topics: Risk, Experience good, Emotion Pages: 43 (14009 words) Published: April 11, 2013
Journal of Retailing 87 (4, 2011) 462–478

Understanding Money-Back Guarantees: Cognitive, Affective, and Behavioral Outcomes Thomas Suwelack a,∗ , Jens Hogreve b,1 , Wayne D. Hoyer c,2 b

Institute of Marketing, University of Muenster, Am Stadtgraben 13 - 15, 48143 Muenster, Germany Catholic University of Eichstaett-Ingolstadt, Ingolstadt School of Management, Chair of Service Management, Auf der Schanz 49, 85049 Ingolstadt, Germany c Department of Marketing- B6700, McCombs School of Business, The University of Texas at Austin, Austin, TX 78733, United States


Abstract Although money-back guarantees (MBGs) have a long tradition in marketing and retailing practice, a deeper understanding of how consumers value this instrument is still lacking. The results of two experimental studies show that in addition to cognitive effects, MBGs evoke a positive emotional response, thereby increasing consumers’ purchase intentions and willingness to pay a price premium. Moreover, MBGs positively affect consumers’ responses for search and experience goods, although for experience goods, MBGs should be designed with stricter return conditions as compared to MBGs for search goods. The results should help retail managers understand the consumer impact of MBGs, as well as assist them in pricing guaranteed items and designing effective MBGs according to the type of product. © 2011 New York University. Published by Elsevier Inc. All rights reserved. Keywords: Money-back guarantee; Risk perceptions; Emotions; Willingness to pay a price premium; Search and experience goods

Introduction By offering a money-back guarantee (MBG), a seller promises that any customer who is not satisfied with a purchase can return the item within a certain period and receive a full refund (Davis, Gerstner, & Hagerty 1995). In response to intense competitive forces in business environments, especially during the recent recession, MBGs have been widely implemented by retailers and manufacturers as a promotional tool to gain consumers’ attention and positively influence their purchase decisions (Sullivan 2009). Thus, firms are increasingly taking advantage of MBGs, even though empirical investigations about MBG outcomes on consumer behavior remain insufficient (d’Astous and Guèvremont 2008). Several authors argue that MBGs serve as extrinsic cues of quality (e.g., Moorthy & Srinivasan 1995; Shieh 1996), reduce consumers’ perceived risk (Grewal et al. 2003; Heiman, McWilliams, & Zilberman 2001; Lei, de Ruyter, & Wetzels ∗

Corresponding author. Tel.: +49 251 83 25 027. E-mail addresses: t.suwelack@uni-muenster.de (T. Suwelack), Jens.Hogreve@ku-eichstaett.de (J. Hogreve), wayne.hoyer@mccombs.utexas.edu (W.D. Hoyer). 1 Tel.: +49 841 937 1861; fax: +49 841 937 2976. 2 Tel.: +1 512 471 1128.

2008), increase consumer satisfaction (e.g., McCollough & Gremler 2004), and enhance purchase intentions (e.g., Davis et al. 1995; Wood 2001). Yet despite these various effects analyzed in previous research, important gaps in literature remain. In response, this article offers four contributions to retailing and marketing literature. First, we extend previous research on MBGs that has focused on cognitive variables such as quality or risk perceptions, by examining their impact on affective outcomes. We therefore respond to Chandon, Wansink, and Laurent (2000) claim that promotions offer both utilitarian and hedonic benefits. Furthermore, investigating emotions is important because cognitive models only provide partial explanations for responses to promotions (Erevelles 1998), and affective influences appear more important than previously believed (e.g., Bagozzi, Gopinath, & Nyer 1999), especially for retailing (Puccinelli et al. 2009). To begin exploring the role of emotions in an MBG context, we restrict our investigation to one negative and one positive emotion that could both mediate MBG effects on important consumer outcomes. Specifically, the focus is on anticipated regret...

References: Adams, J. Stacy (1965), “Inequity in Social Exchange,” in Advances in Experimental Social Psychology, Leonard Berkowitz ed. New York: Academic Press, 267–99. Agarwal, Sanjeev and R. Kenneth Teas (2001), “Perceived Value: Mediating Role of Perceived Risk,” Journal of Marketing Theory and Practice, 9 (4), 1–14.
T. Suwelack et al. / Journal of Retailing 87 (4, 2011) 462–478 Erevelles, Sunil (1998), “The Role of Affect in Marketing,” Journal of Business Research, 42 (3), 199–215. Fishbein, Martin and Icek Ajzen (1975), Belief, Attitude, Intentions and Behavior: An Introduction to Theory and Research, Reading: Addison-Wesley. Fliess, Sabine and Michael Kleinaltenkamp (2004), “Blueprinting the Service Company: Managing Service Processes Efficiently,” Journal of Business Research, 57 (April), 392–404. Flynn, Leisa R., Ronald E. Goldsmith and Jacqueline K. Eastman (1996), “Opinion Leaders and Opinion Seekers: Two New Measurement Scales,” Journal of the Academy of Marketing Science, 24, 137–47 (Spring). Ford, Gary T., Darlene B. Smith and John L. Swasy (1990), “Consumer Skepticism of Advertising Claims: Testing Hypotheses from Economics of Information,” Journal of Consumer Research, 16 (March), 433–41. Fornell, Claes and David F. Larcker (1981), “Evaluating Structural Equation Models with Unobservable Variables and Measurement Error,” Journal of Marketing Research, 18 (February), 39–50. Franke, George R., Bruce A. Huhmann and David L. Mothersbaugh (2004), “Information Content and Consumer Readership of Print Ads: A Comparison of Search and Experience Products,” Journal of the Academy of Marketing Science, 32 (1), 20–31. Friestad, Marian and Peter Wright (1994), “The Persuasion Knowledge Model: How People Cope with Persuasion Attempts,” Journal of Consumer Research, 21 (1), 1–31. Fruchter, Gila E. and Eitan Gerstner (1999), “Selling With ‘Satisfaction Guaranteed’,” Journal of Service Research, 1 (May), 313–23. Fuchs, Christoph, Emanuela Prandelli and Martin Schreier (2010), “The Psychological Effects of Empowerment Strategies on Consumers’ Product Demand,” Journal of Marketing, 74 (January), 65–79. Gelbrich, Katja and Holger Roschk (2011), “A Meta-Analysis of Organizational Complaint Handling and Customer Responses,” Journal of Service Research, 14 (February), 24–43. Grewal, Dhruv, Kent B. Monroe and R. Krishnan (1998), “The Effects of Price-Comparison Advertising on Buyers’ Perceptions of Acquisition Value, Transaction Value, and Behavioral Intentions,” Journal of Marketing, 62 (April), 46–59. Grewal, Dhruv, Jeanne L. Munger, Gopalkrishnan R. Iyer and Michael Levy (2003), “The Influence of Internet-Retailing Factors on Price Expectations,” Psychology & Marketing, 20 (6), 477–93. Harris, Lloyd C. (2008), “Fraudulent Return Proclivity: An Empirical Analysis,” Journal of Retailing, 84 (4), 461–76. Hart, Christopher W.L. (1993), Extraordinary Guarantees, New York: AMACOM. Heiman, Amir, Bruce McWilliams, Zhao Jinhua and David Zilberman (2002), “Valuation and Management of Money-Back Guarantee Options,” Journal of Retailing, 78 (3), 193–205. Heiman, Amir, Bruce McWilliams and David Zilberman (2001), “Demonstrations and Money-Back Guarantees: Market Mechanisms to Reduce Uncertainty,” Journal of Business Research, 54 (1), 71–84. Ho, Hillbun, Shankar Ganesan and Harmen Oppewal (2011), “The Impact of Store-Price Signals on Consumer Search and Store Evaluation,” Journal of Retailing, 87 (June), 127–41. Hoch, Stephen J. and John Deighton (1989), “Managing What Consumers Learn from Experience,” Journal of Marketing, 53 (April), 1–20. Hogreve, Jens and Dwayne D. Gremler (2009), “Twenty Years of Service Guarantee Research: A Synthesis,” Journal of Service Research, 11 (May), 322–43. Homburg, Christian, Nicole Koschate and Wayne D. Hoyer (2005), “Do Satisfied Customers Really Pay More? A Study of the Relationship between Customer Satisfaction and Willingness to Pay,” Journal of Marketing, 69 (April), 84–96. Horton, Raymond L. (1976), “The Structure of Perceived Risk: Some Further Progress,” Journal of the Academy of Marketing Science, 4 (4), 694–706. Huang, Peng, Nicholas H. Lurie and Sabyasachi Mitra (2009), “Searching for Experience on the Web: An Empirical Examination of Consumer Behavior for Search and Experience Goods,” Journal of Marketing, 73 (March), 55–69.
Anderson, Eric T., Karsten Hansen and Duncan Simester (2009), “The Option Value of Returns: Theory and Empirical Evidence,” Marketing Science, 28 (3), 405–23. Anderson, James C. and David W. Gerbing (1988), “Structural Equation Modeling in Practice: A Review and Recommended Two-Step Approach,” Psychological Bulletin, 103 (May), 411–23. Bagozzi, Richard P., Mahesh Gopinath and Prashanth U. Nyer (1999), “The Role of Emotions in Marketing,” Journal of the Academy of Marketing Science, 27 (2), 184–206. Bagozzi, Richard P. and Youjae Yi (1988), “On the Evaluation of Structural Equation Models,” Journal of the Academy of Marketing Science, 16 (1), 74–94. Bearden, William O. and Terence A. Shimp (1982), “The Use of Extrinsic Cues to Facilitate Product Adoption,” Journal of Marketing Research, 19 (May), 229–39. Berkowitz, Eric N. and John R. Walton (1980), “Contextual Influences on Consumer Price Responses: An Experimental Analysis,” Journal of Marketing Research, 17 (August), 349–58. Bettman, James R. (1973), “Perceived Risk and Its Components: A Model and Empirical Test,” Journal of Marketing Research, 10 (May), 184–90. Biswas, Abhijit, Sujay Dutta and Chris Pullig (2006), “Low Price Guarantees as Signals of Lowest Price: The Moderating Role of Perceived Price Dispersion,” Journal of Retailing, 82 (3), 245–57. Blinds (2010), Blinds.com 100% Satisfaction Guarantee . . . or Your Money Back!, (accessed December 28, 2010). Available at http://www.blinds.com/control/infopage?page=sat guar.html Boulding, William and Amna Kirmani (1993), “A Consumer-Side Experimental Examination of Signaling Theory: Do Consumers Perceive Warranties as Signals of Quality?,” Journal of Consumer Research, 20 (June), 111–23. Brown, Steven P., Pamela M. Homer and Jeffrey J. Inman (1998), “A MetaAnalysis of Relationships between Ad-Evoked Feelings and Advertising Responses,” Journal of Marketing Research, 35 (February), 114–26. Camera Batteries (2010), JCPenney Digital Camera Battery, (accessed December 28, 2010). Available at http://www.camerabattery.com.au/s/digital-camera-battery/jc-penney/ Campbell, Margaret C. and Amna Kirmani (2000), “Consumers’ Use of Persuasion Knowledge: The Effects of Accessibility and Cognitive Capacity on Perceptions of an Influence Agent,” The Journal of Consumer Research, 27 (June), 69–83. Chandon, Pierre, Brian Wansink and Gilles Laurent (2000), “A Benefit Congruency Framework of Sales Promotion Effectiveness,” Journal of Marketing, 64 (October), 65–81. Chaudhuri, Arjun and Mark Ligas (2009), “Consequences of Value in Retail Markets,” Journal of Retailing, 85 (September), 406–19. Cheema, Amar and Vanessa M. Patrick (2008), “Anytime Versus Only: Mind-Sets Moderate the Effect of Expansive Versus Restrictive Frames on Promotion Evaluation,” Journal of Marketing Research, 45 (August), 462–72. Chen, Tao A.O., Ajay Kalra and Baohong Sun (2009), “Why Do Consumers Buy Extended Service Contracts?,” Journal of Consumer Research, 36 (December), 611–23. Chu, Wujin, Eitan Gerstner and James D. Hess (1998), “Managing Dissatisfaction: How to Decrease Customer Opportunism by Partial Refunds,” Journal of Service Research, 1 (November), 140–55. d’Astous, Alain and Amélie Guèvremont (2008), “Effects of Retailer PostPurchase Guarantee Policies on Consumer Perceptions with the Moderating Influence of Financial Risk and Product Complexity,” Journal of Retailing & Consumer Services, 15 (4), 306–14. Darke, Peter R., Amitava Chattopadhyay and Lauren Ashworth (2006), “The Importance and Functional Significance of Affective Cues in Consumer Choice,” Journal of Consumer Research, 33 (3), 322–8. Davis, Scott, Eitan Gerstner and Michael Hagerty (1995), “Money Back Guarantees in Retailing: Matching Products to Consumer Tastes,” Journal of Retailing, 71 (1), 7–22. , Michael Hagerty and Eitan Gerstner (1998), “Return Policies and the Optimal Level of ‘Hassle’,” Journal of Economics and Business, 50 (5), 445–60.
T. Suwelack et al. / Journal of Retailing 87 (4, 2011) 462–478 Jain, Shailendra P. and Steven S. Posavac (2001), “Prepurchase Attribute Verifiability, Source Credibility, and Persuasion,” Journal of Consumer Psychology, 11 (3), 169–80. Kalra, Ajay and Ronald C. Goodstein (1998), “The Impact of Advertising Positioning Strategies on Consumer Price Sensitivity,” Journal of Marketing Research, 35, 210–24. May. Kaltcheva, Velitchka D. and Barton A. Weitz (2006), “When Should a Retailer Create an Exciting Store Environment?,” Journal of Marketing, 70 (January), 107–18. Kaplan, Leon B., George J. Szybillo and Jacob Jacoby (1974), “Components of Perceived Risk in Product Purchase: A Cross-Validation,” Journal of Applied Psychology, 59 (3), 287–91. Kirmani, Amna and Akshay R. Rao (2000), “No Pain, No Gain: A Critical Review of the Literature on Signaling Unobservable Product Quality,” Journal of Marketing, 64 (April), 66–79. Kukar-Kinney, Monika and Rockney G. Walters (2003), “Consumer Perceptions of Refund Depth and Competitive Scope in Price-Matching Guarantees: Effects on Store Patronage,” Journal of Retailing, 79 (3), 153–60. Kukar-Kinney, Monika, Rockney G. Walters and Scott B. MacKenzie (2007), “Consumer Responses to Characteristics of Price-Matching Guarantees: The Moderating Role of Price Consciousness,” Journal of Retailing, 83 (2), 211–21. Kukar-Kinney, Monika, Lan Xia and Kent B. Monroe (2007), “Consumers’ Perceptions of the Fairness of Price-Matching Refund Policies,” Journal of Retailing, 83 (3), 325–37. Lei, Jing, Ko de Ruyter and Martin Wetzels (2008), “Consumer Responses to Vertical Service Line Extensions,” Journal of Retailing, 84, 268–80. September. Lichtenstein, Donald R., Scot Burton and Richard G. Netemeyer (1997), “An Examination of Deal Proneness Across Sales Promotion Types: A Consumer Segmentation Perspective,” Journal of Retailing, 73 (2), 283–97. , Richard G. Netemeyer and Scot Burton (1990), “Distinguishing Coupon Proneness from Value Consciousness: An Acquisition-Transaction Utility,” Journal of Marketing, 54 (July), 54–67. McCollough, Michael A. and Dwayne D. Gremler (2004), “A Conceptual Model and Empirical Examination of the Effect of Service Guarantees on PostPurchase Consumption Evaluations,” Managing Service Quality, 14 (1), 58–74. McWilliams, Bruce and Eitan Gerstner (2006), “Offering Low Price Guarantees to Improve Customer Retention,” Journal of Retailing, 82 (2), 105–13. Mitchell, Vincent-Wayne (1999), “Consumer Perceived Risk: Conceptualisations and Models,” European Journal of Marketing, 33 (1/2), 163–95. Mitra, Debanjan and Scott Fay (2010), “Managing Service Expectations in Online Markets: A Signaling Theory of E-tailer Pricing and Empirical Tests,” Journal of Retailing, 86 (2), 184–99. Moorthy, Sridhar and Kannan Srinivasan (1995), “Signaling Quality with a Money-Back Guarantee: The Role of Transaction Costs,” Marketing Science, 14 (4), 442–66. Naylor, Rebecca W., Rajagopal Raghunathan and Suresh Ramanathan (2006), “Promotions Spontaneously Induce a Positive Evaluative Response,” Journal of Consumer Psychology, 16 (3), 295–305. Nelson, Phillip (1974), “Advertising as Information,” Journal of Political Economy, 82 (4), 729–54. Oliver, Richard L. and John E. Swan (1989), “Consumer Perceptions of Interpersonal Equity and Satisfaction in Transactions: A Field Survey Approach,” Journal of Marketing, 53 (April), 21–35. Ostrom Amy, L. and Dawn Iacobucci (1998), “The Effect of Guarantees on Consumers’ Evaluation of Services,” Journal of Services Marketing, 12 (5), 362–78. Perdue, Barbara C. and John O. Summers (1986), “Checking the Success of Manipulations in Marketing Experiments,” Journal of Marketing Research, 23 (November), 317–26. Petersen, J. and Andrew V. Kumar (2009), “Are Product Returns a Necessary Evil? Antecedents and Consequences,” Journal of Marketing, 73 (May), 35–51.
Pham, Michel Tuan (1998), “Representativeness, Relevance, and the Use of Feelings in Decision Making,” Journal of Consumer Research, 25 (September), 144–59. (2004), “The Logic of Feeling,” Journal of Consumer Psychology, 14 (4), 360–9. Podsakoff, Philip M., Scott B. MacKenzie, Jeong-Yeon Lee and Nathan P. Podsakoff (2003), “Common Method Biases in Behavioral Research: A Critical Review of the Literature and Recommended Remedies,” Journal of Applied Psychology, 88 (October), 879–903. Posselt, Thorsten, Eitan Gerstner and Dubravko Radic (2008), “Rating E-Tailers’ Money-Back Guarantees,” Journal of Service Research, 10 (February), 207–19. Preacher, Kristopher J. and Andrew F. Hayes (2008), “Asymptotic and Resampling Strategies for Assessing and Comparing Indirect Effects in Multiple Mediator Models,” Behavior Research Methods, 40 (3), 879–91. Puccinelli, Nancy M., Ronald C. Goodstein, Dhruv Grewal, Robert Price, Priya Raghubir and David Stewart (2009), “Customer Experience Management in Retailing: Understanding the Buying Process,” Journal of Retailing, 85 (1), 15–30. Ramanathan, Suresh and Patti Williams (2007), “Immediate and Delayed Emotional Consequences of Indulgence: The Moderating Influence of Personality Type on Mixed Emotions,” Journal of Consumer Research, 34 (August), 212–23. Roseman, Ira J. (1991), “Appraisal Determinants of Discrete Emotions,” Cognition and Emotion, 5 (3), 161–200. Schwarz, N. and Gerald L. Clore (1983), “Mood, Misattribution, and Judgments of Well-Being: Informative and Directive Functions of Affective States,” Journal of Personality and Social Psychology, 45 (3), 513–23. and (1996), “Feelings and Phenomenal Experiences,” in Social Psychology: Handbook of Basic Principles, Higgings Edward T. and Arie Kruglanski, eds. New York: Guilford Press pp. 433–65. Shieh, Shiou (1996), “Price and Money-Bank Guarantees as Signals of Product Quality,” Journal of Economics and Management Strategy, 5 (3), 361–77. Shih, Eric and Hope J. Schau (2011), “To Justify or Not to Justify: The Role of Anticipated Regret on Consumers’ Decisions to Upgrade Technological Innovations,” Journal of Retailing,, doi:10.1016/j.jretai.2011.01.006 Shimp, Terence A. and William O. Bearden (1982), “Warranty and Other Extrinsic Cue Effects on Consumers’ Risk Perceptions,” Journal of Consumer Research, 9 (June), 38–46. Simonson, Itamar (1992), “The Influence of Anticipating Regret and Responsibility on Purchase Decisions,” Journal of Consumer Research, 19, 105–18. June. Spence, Michael (1974), Market Signaling: Informational Transfer in Hiring and Related Screening Processes, Cambridge: Harvard University Press. Srivastava, Joydeep and Nicholas H. Lurie (2004), “Price-Matching Guarantees as Signals of Low Store Prices: Survey and Experimental Evidence,” Journal of Retailing, 80 (2), 117–28. Steenkamp, Jan-Benedikt E.M., Harald J. Van Veerde and I. Geyskens (2010), “What Makes Consumers Willing to Pay a Price Premium for National Brands over Private Labels?,” Journal of Marketing Research, 47, 1011–24. December. Sullivan, Elisabeth A. (2009), “Guaranteeing Success,” Marketing News, 43 (8), 20. Swinyard, William R. (1981), “The Interaction Between Comparative Advertising and Copy Claim Variation,” Journal of Marketing Research, 18, 175–86. May. Tax, S.S., Stephen W. Brown and Murali Chandrashekaran (1998), “Customer Evaluations of Service Complaint Experiences: Implications for Relationship Marketing,” Journal of Marketing, 62 (April), 60–76. Tripp, Carolyn, Thomas D. Jensen and Les Carlson (1994), “The Effects of Multiple Product Endorsements by Celebrities on Consumers’ Attitudes and Intentions,” Journal of Consumer Research, 20 (March), 535–47. Tsiros, Michael and Vikas Mittal (2000), “Regret: A Model of Its Antecedents and Consequences in Consumer Decision Making,” Journal of Consumer Research, 26 (March), 401–17.
T. Suwelack et al. / Journal of Retailing 87 (4, 2011) 462–478 Zeelenberg, Marcel and Rik Pieters (1999), “Comparing Service Delivery to What Might Have Been: Behavioral Responses to Regret and Disappointment,” Journal of Service Research, 2 (August), 86–97. Zeithaml, Valarie A. (1988), “Consumer Perceptions of Price, Quality, and Value: A Means-End Model and Synthesis of Evidence,” Journal of Marketing, 52 (July), 2–22. Zeithaml, Valarie A., Leonard L. Berry and A. Parasuraman (1996), “The Behavioral Consequences of Service Quality,” Journal of Marketing, 60, 31–46. April. Zhu, Rui and Joan Meyers-Levy (2007), “Exploring the Cognitive Mechanism that Underlies Regulatory Focus Effects,” Journal of Consumer Research, 34 (1), 89–98.
Wang, Jing and Angela Y. Lee (2006), “The Role of Regulatory Focus in Preference Construction,” Journal of Marketing Research, 43 (February), 28–38. Weathers, Danny, Subhash Sharma and Stacy L. Wood (2007), “Effects of Online Communication Practices on Consumer Perceptions of Performance Uncertainty for Search and Experience Goods,” Journal of Retailing, 83 (4), 393–401. Wirtz, Jochen and Doreen Kum (2004), “Consumer Cheating on Service Guarantees,” Journal of the Academy of Marketing Science, 32, 159–75. Spring. Wood, Stacy L. (2001), “Remote Purchase Environments: The Influence of Return Policy Leniency on Two-Stage Decision Processes,” Journal of Marketing Research, 38 (May), 157–69.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Cognitive Affective Essay
  • Essay on Understanding the Theories of Cognitive Process
  • Essay about Cognitive and Affective Characteristics of Gifted Children
  • Back to school Essay
  • Back Then Essay
  • Cognitive Essay
  • Cognitive Essay

Become a StudyMode Member

Sign Up - It's Free