Official U.S. Navy Imagery – a sailor presents his girlfriend with an engagement ring (Source: Wikimedia Commons)
Ideas for Leaders #612

The Competitive Implications of Customer Expectation

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Key Concept

Past research has shown that products and services that don’t fit specific market categories are more likely to fail in the marketplace. A new study demonstrates that even a product with all the attributes of its category can fail. To truly understand the competitive dynamics of its market, a company needs to look beyond categories, and focus on the customer expectations that underlie those categories. 

Idea Summary

Products and services fit into certain categories. For example, circuses, theatres and sporting events are all sources of live entertainment, yet they each fit their own category.

Categories are defined by the attributes that customers expect from those categories. The circus category involves a traveling show with animals and clowns; the attributes of the theatre category would include a permanent stage and live actors; a sports event is a live competition between individual or teams of athletes.

Products or services that attempt to ‘span’ categories are less likely to be successful because they often fail to meet category expectations. Putting circus acts on a stage is not likely to meet the customer expectations of a circus (where are the elephants or tigers?) or a theatre program (where is the story?).

Many companies focus on categories to help define the dynamics of their markets — e.g. what their customers expect, what new products might or might not work. A new study by Rotman School of Management’s Anne Bowers shows, however, that categories alone don’t necessarily explain success or failure in a market.

Using the market for diamond engagement rings as its focus, Bowers’ study reveals that products can seem to be a perfect category fit — based on their attributes — and yet still fail to meet customer expectations.

From the perspective of categories, for example, the attributes of a beautiful solitaire diamond ring fit the engagement ring category perfectly. Diamonds are the expected stones in an engagement ring. The larger the diamond and the more beautiful the setting, the more valuable the engagement ring.

However, in her study, Bowers reveals a rather subtle customer expectation for engagement rings that, if not met, makes a beautiful solitaire diamond ring unsuitable to many. That expectation is purity. As exemplified by the traditional white wedding dress, purity is one of the underlying themes or symbols of a wedding. An engagement ring that was involved in a previous failed relationship — a divorce or a broken engagement, for example — is considered, rather superstitiously, to have lost this rather nebulous sense of purity. Instead, the ring is considered ‘tainted’. The study shows that tainted rings, despite their attributes (the value of their diamonds and the beauty of their settings), sell at a lower price than untainted rings.

Of course, many engagements and weddings are becoming less traditional. Couples are finding unique ways to celebrate what they feel for each other beyond the formalities and traditions of a church wedding. In this context, the importance of purity as a symbol of the diamond ring is (very slowly) losing steam. Instead, a ring is mostly appreciated for its beauty and value — attributes untouched by the issue of purity or ‘taintedness’.

Whatever the impact, purity is an expectation unrelated to the ring’s traditional category attributes of size and beauty; in other words, if a woman shows off a large solitaire diamond ring that her fiancé gave her when he proposed, her friends and family will see an engagement ring.

Yet, this study shows, if companies in the jewellery industry are to fully understand the market of diamond engagement rings, they need to appreciate the impact of the purity/taintedness factor.

Bowers’ study was based on archival data from eBay as well as a controlled laboratory experiment. In the experiment, participants were asked how much they would pay for an engagement ring described in an ad that featured one of three conditions: 1) the ring came from a divorce; 2) the ring came from a happy marriage; 3) no provenance was cited. 

Business Application

The core lesson of the research is that focusing on categories and their attributes alone is not sufficient to understand your market. You must also study the competitive implications of the expectations that underlie the categories.

In doing so, you may find that a failure attributed to category spanning may in fact have other roots. As Bowers demonstrates successful, a product can seem to fit perfectly in its category and still be failing to meet one (or more) of the expectations of the market.

Exploring expectations will not only reveal problems but can also represent market opportunities for firms willing to counter those expectations. In the diamond engagement ring market, for example, some jewellers might focus on reducing superstitious beliefs in their industry. Others may seek out niche customers who ignore expectations in favour of other attributes; for example, they don’t care about taintedness and are much more interested in a good deal.

The bottom line: the more you know about your market, the better your chances of success. Is there a “taintedness” factor undermining your efforts in the marketplace?

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Authors

Institutions

Source

Idea conceived

  • July 2016

Idea posted

  • July 2016

DOI number

10.13007/612

Subject

Real Time Analytics