When it is time to buy something online, perhaps a coffee maker, you might head to Amazon and browse items for sale. One particular model might spark interest. The product page may contain recommendations for other goods: complementary products such as coffee filters; or recommendations for different, competitor coffee maker brands offering unique features and prices.
E-commerce websites commonly use product recommendations — called co-purchase and co-view recommendations — to keep users locked into the sales funnel and increase customer retention. But what impact do these types of recommendations actually have on consumers? How do they influence one’s willingness to pay for the original product searched?
In fact, the level of influence depends on how close a consumer is to making that purchase, said Jesse Bockstedt, associate professor of information systems & operations management at Emory’s Goizueta Business School. In addition, what type of recommendation the consumer sees plays a role in purchasing as well.
To shed empirical light on this, Bockstedt teamed with Mingyue Zhang from the Shanghai International Studies University.
“We were curious. We knew that recommendation systems are integral to how consumers discover products online – a good 35 percent of Amazon sales can be attributed to recommendations, for instance,” Bockstedt said. “But we knew a lot less about how recommendations change consumer behavior in relation to a focal product.”
Specifically, the researchers were interested in looking at the effect of complementary versus substitutable products, and what impact the price of these types of products had on consumer behavior. They also wanted to know whether these effects were more or less amplified depending on whether consumers were at the exploratory phase in the buying process or ready to go ahead and make the purchase.
To unpack the dynamics at play, Bockstedt and Zhang ran two experiments that simulated the online purchasing experience. The researchers had volunteers go through the process of evaluating different products and then report back on how much they were willing to pay for each.
“We asked volunteers to look at a product page for a computer mouse, and we randomly assigned different recommendations to that page – some that were for other mice, and others that were for goods and products that would complement the original mouse. Going through the experiment, we also manipulated the price that volunteers saw on different pages, both for the recommended substitute and complementary products,” he said.
“Finally, we looked at the effect of timing and the sales funnel. In one case we had volunteers look for a highly specific mouse and recommended a particular product page to them. To simulate the more exploratory phase, we gave them many pages and asked them to click on the one they found most interesting.”
In total, Bockstedt and Zhang put 200+ volunteers through the replica virtual purchasing experience and recorded their willingness to pay the advertised price for the focal product on scale of 0 to 100, depending on what they had seen and the point in the sales funnel they had seen the recommendations.
Ready to buy? Recommendations do matter
Pulling the data together, the researchers unearthed interesting effects. Where people are in the sales funnel has a huge amount to do with how they are affected by recommendations.
“When shoppers are ready to buy something, seeing complementary products recommended will significantly enhance their willingness to go ahead and make the purchase,” said Bockstedt. “In contrast, seeing recommendations for substitute products at this point in the purchase funnel doesn’t have a significant effect.”
Conversely, “Substitutes really matter when you’re at the start of the funnel as you are still benchmarking,” noted Bockstedt. “But at the end, we find that it’s the complements that will actually increase your willingness to pay – and to pay more – for the product you’re considering.”
If a customer is about to check out, he added, showing them other products that they can use with the purchase seems to increase their perceived value of that purchase.
Price also has a strong role to play in consumer behavior related to product recommendations – both for substitute and complementary goods.
“We found across the board that if people are shown recommendations for more expensive goods, they are willing to pay more for the original product. If they are shown cheaper options, they will want to pay less,” Bockstedt said.
“In a sense, our findings on substitutes is fairly intuitive. If you are looking for something and you find a cheaper alternative, you are naturally going to be interested in the bargain,” said Bockstedt. “What’s really interesting is the effect of showing people complementary goods and how that increases the perceived value of a product they are already fairly committed to buying.”
At a time when consumers are increasingly turning to online shopping platforms – Statistica, an analytics program, estimates that there are 206+ million online shoppers in the U.S. alone – Bockstedt and Zhang’s findings are relevant for e-commerce retailers and customers alike.
“For the Amazons, the eBays and others, practical takeaways relate to the benefits in showing consumers complementary or related products – especially those that are higher in price – when people are viewing their cart or ready to check out,” Bockstedt said.
For consumers, he urges greater awareness of the dynamics and mechanisms that might influence their willingness to buy something.
“I’d encourage people to keep these facts on their radar and to understand how their decision-making process can be influenced by the way information is presented to them,” concluded Bockstedt. “In the aggregate, these small things – the slight increases in a buyer’s willingness to convert the purchase and pay the price – do add up to significant gains for the retailers, but not necessarily for the consumer. So, it’s a bit of new spin on a very old adage: caveat emptor or let the buyer beware.”
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