Thursday, December 22, 2011

#ALGORITHMS: "Giving Big Beats Giving More"

People mulling over stocking-stuffer gifts for the holiday season and businesses offering giveaways should study the findings of new research that looks into recipient perceptions about add-on gifts.

Researchers claim that giving one big gift is perceived as more generous by the recipient than combining a big gift with smaller stocking stuffers. Adding the smaller gifts decreases the perceived value of the one-big-gift. Researchers at the Pamplin College of Business (Virginia Tech) have analyzed the phenomenon and concluded that bundling together a big gift and a smaller stocking stuffer indeed does reduce the perceived value of the overall package for the recipient.
"Suppose you’re trying to impress a loved one with a generous gift this holiday season," said Kimberlee Weaver, assistant professor of marketing in the Pamplin College of Business. "The recipient is likely to perceive an expensive luxurious cashmere sweater alone as more generous than the combination of the same sweater and a gift card."

Most shoppers would think that adding monetary value with a gift card is better, but the result is that the value given to the gift card--say $10--is actually subtracted from the value of the big gift in the mind of the recipient.
"The gift-giver, or what we call the presenter, has just cheapened the gift package by spending an extra $10 on it," said Weaver.
Weaver's research team calls this phenomenon the "Presenter's Paradox" because gift-givers and gift-receivers have different ways of measuring value. Gift-givers follow a "more-is-better" paradigm, whereas gift-recipients measure the value of the big gift against the value of the stocking stuffer.
"An expensive luxurious sweater represents a generous ‘big’ gift, but adding on a ‘little’ gift makes the total package seem [to have less value]," said Weaver.
Weaver's collaborators, Stephen Garcia and Norbert Schwarz of the University of Michigan, also note that this phenomenon pervades all presentations, whether it is a gift or a public lecture. The one "big" item needs to be presented by itself, not together with lesser items.
For example, when it comes to a lecture, "the addition of mildly favorable information dilutes the impact of highly favorable information in the eyes of evaluators," said Garcia. "Presenters of information would be better off if they limited their presentation to their most favorable points. Just as gift-givers would be better off to limit their present to their most favorite gift."
The researchers found the phenomenon to be pervasive in seven studies across domains, including product selection, bundles of music albums, hotel advertisements, scholarships and even "negative items," such as penalties. For instance, when a judge adds on community service to a fine, they actually decrease the severity of the fine in the eyes of the plaintiff. "Adding a couple of hours of community service makes the overall penalty appear less harsh and undermines the deterrence value of a big fine," said Weaver.
The lessons from these findings can be applied to many business situations. Whether the question is which reviews to include on a book jacket, which songs to include on a music album, which arguments a legal team should use in court, which features to pitch when selling a house, or which skill to pitch when a person interviews for a new job, the best approach is to stick to a short list of top items.
In other words, for presenters, more is not better.
Further Reading