St. Thomas Campus News
- Honesty Is the Best Policy
When I was pondering what to study in college, my dad suggested I get a degree in business. He argued that no matter what I wanted to do, I’d always need to understand business. He was an architect and, in his limited free time, had to teach himself business so he could run his own firm. At that age I wasn’t in love with business, but I could see his point – it was a very practical choice. Never did I imagine I’d end up as a business school professor!
The first turning point for me was a class in consumer behavior at Wharton where I became fascinated with understanding why people thought, felt and acted as they did in the marketplace. But when my marketing research professor suggested I join their Ph.D. program, I thought the idea was crazy. Instead I went into management at The Four Seasons Hotel, where part of my responsibilities included overseeing the customer satisfaction surveys and internal glitch reports (how the hotel responded to service failures). It didn’t take long before I was again fascinated with understanding consumers – perhaps a Ph.D. program was right for me.
Now 20 years later, I still am fascinated with not only understanding consumers, but also how that understanding can enable more effective strategies and practices. After joining UST in 2007, I started researching word-of-mouth marketing with my colleague Dr. James Heyman.
Consumers have been talking with one another about products for as long as there have been products. When marketers finally realized that these personal recommendations were more credible than advertisements and other firm-based communications, they started finding ways to initiate the conversations. The most common technique involved providing everyday consumers with incentives (e.g., free products) and instructions about how to spread word-of-mouth. Early efforts were often categorized as stealth marketing, as message recipients were largely unaware that peer recommendations were being pushed by marketers. Ethicists loudly condemned these actions, but when James was researching how consumers perceived the fairness of a wide variety of stealth tactics, he discovered that undergraduates – the main age group being targeted – were largely indifferent. Our research then aimed to look at the intersection between ethics and efficacy.
The solution to the ethical issue was disclosure, which involved word-of-mouth agents revealing their relationship with the brand. Industry organizations such as the Word-Of-Mouth Marketing Association (WOMMA) advocated disclosure, and in 2009 the FTC began mandating disclosure. The problem was that agents were reluctant to disclose their relationship for fear of what their peers would think of them, and firms worried that disclosure would hurt their brands. So while disclosure removed the ethical dilemma, the technique’s effectiveness then came into question – was disclosure really harmful?
When we started this research project, James was teaching consumer behavior and I was teaching marketing communications. As such, word-of-mouth was a topic in both of our classrooms. One of our undergraduates expressed interest in our research and asked to do an independent study with me for a semester. The collaboration proved to be a win-win: She got experience conducting research and we got insights from her interviews with friends and classmates. These insights helped us create realistic word-of-mouth scenarios and develop hypotheses that we then tested in two controlled experiments.
Our findings indicated that disclosure of the agent-brand relationship during the word-of-mouth incident improved the effectiveness of the recommendation relative to no disclosure (i.e., seemingly organic word-of-mouth). More specifically, purchase consideration increased when the agent disclosed that they had received free product (e.g., a case of energy drink or a cellphone) and were asked to tell others about it.
Further, the disclosure caused study participants to feel more knowledgeable and evaluate the product more positively, which in turn increased purchase consideration. If you are wondering why, consider that the firm’s behavior – giving product as an incentive to generate word-of-mouth – might suggest the firm was confident their product was good, which reinforces a positive recommendation. Also consider that learning about a relationship between the agent and the firm might make the message recipient feel closer to the brand, similar to having insider information.
In contrast, we also examined what happened when an agent did not disclose his/her relationship with a brand and that relationship was discovered incidentally at a later time, for example through news media or agent recruiting messages. In this situation, we observed a decrease in the recommender’s credibility relative to situations when disclosure occurred concurrently or the recommendation appeared organic. Study participants also reported feeling deceived and rated the conversation as somewhat unethical. However, the primary negative impact was on the messenger and not the product, as purchase consideration and product evaluation were each relatively unscathed by the deception. This pattern is consistent with prior research findings that consumers process negative tactics separately from message claims. Taken together, the key take-away for marketers who use incented word-of-mouth is to ensure that their agents disclose the relationship in a truthful and timely manner for their mutual benefit.
This research was published in the Journal of Marketing Communications, 2013 (Volume 19, Issue 4) under the title “Honesty is the best policy: The effects of disclosure in word-of-mouth marketing.” Perhaps more importantly, the research has been incorporated into our teaching. With it, we are able to demonstrate to students the importance of understanding consumer behavior, how research enables that understanding, and how it can guide us toward marketing tactics that are both ethical and effective.
Associate professor of marketing Dr. Lisa Abendroth is faculty director of the university’s Evening MBA Program.
From Exemplars, a publication of the Grants and Research Office.
- Home Prices Take Small Seasonal Dip in July
For the third year in a row, the median sale price for a Twin Cities home took a seasonal dip in July after peaking in June. That, and a pronounced lack of homes available in the sub-$200,000 range, were among the findings in the monthly housing-market analysis of the 13-county Twin Cities region conducted by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business.
Each month the center tracks the median price for three types of sales: nondistressed or traditional; foreclosures; and short sales (when a home is sold for less than the outstanding mortgage balance). Here’s what the center found:
Key numbers for July
The median sale price of a traditional home in July 2015 was $231,000. That is down 1.91 percent from $235,500 in June 2015 but up 2.67 percent from $225,000 in July 2014.
“So far in 2015, the traditional median sale price has been running a relatively stable 2.5 percent to 3.5 percent increase over 2014 levels,” said Herb Tousley, director of real estate programs at the university. “We continue to expect a 4 percent to 6 percent overall median sale price increase for 2015. However, our outlook could change to the extent that interest rates increase this fall.”
In the two distressed categories: The median price for short sales dropped 10.2 percent, from $171,500 in June 2015 to $154,000 in July 2015; the median price for foreclosure sales increased 1.75 percent, from $137,591 in June 2015 to $140,00 in July 2015.
The distressed-type sales are comprising a progressively smaller portion of all sales as the housing market returns to pre-crash health. The short sales in July represented just 2 percent of all home sales in the Twin Cities and foreclosures were 5.4 percent.
The Twin Cities housing market saw 6,301 closed sales in July 2015. That’s down slightly from June 2015 but up 19.2 percent from July 2014. In addition, there were 5,736 pending sales at the end of July 2015; that’s up 12.5 percent over July 2014. The 16,998 homes on the market at the end of July 2015 remains historically low.
“Before the market crash of 2005 to 2007, there were many more new listings coming into the market than there were closed sales leaving the market,” Tousley said. “In 2015 the number of closed sales is rebounding to pre-crash levels, yet the number of new listings has not recovered.”
He said that for inventory levels to return to more normal levels, the number of new listings will need to increase to at least 10,000 per month in the peak selling months.
“Until that happens the low levels of homes available for sale will persist. In the meantime, the low number of homes for sale and the high volume of closed sales are being reflected in the higher number of multiple offers and sale prices at more than the original asking price.
“Good news for sellers; bad news for buyers looking for a deal,” he said.
Supply and demand of modest homes
The Shenehon Center examined the median sale price of the homes that actually sold in July (the demand) and compared that with the prices of homes that were for sale in July (the supply).
“We found that in July 40 percent of the homes that were sold were less than $200,000. Yet only 27 percent of the homes available for sale fell into that range,” Tousley said. “That means that in comparison, as a percentage, there were more buyers wanting to purchase a home under $200,000 than there were homes available for sale in that price range.”
For more expensive homes, those selling for $400,000 or more, there were many more homes available for prospective buyers to choose from.
“The conclusion is that there are more buyers chasing a relatively smaller percentage of low- to moderately priced homes available for sale and that is another reason why we are seeing a very active market for moderately priced homes in the Twin Cities market.”
The St. Thomas indexes
As part of its monthly analysis, the Shenehon Center creates a monthly composite index score by tracking nine data elements for those three types of sales (traditional, short sales and foreclosures). The data categories include things like the number of closed sales, how many days that homes are on the market, and what percent of the asking price sellers receive. The center started the index at January 2005 and for that month gave each of the three indexes a value of 1,000.
July’s composite score for traditional sales was 1,128, which is the highest since the index began in 2005.
“We expect increases in the index to moderate as summer moves into fall,” Tousley said. “However, the continued increase of the traditional-sale index is an indicator of expected ongoing improvement in the health and resurgence of the Twin Cities housing market.”
The short-sale index was up a few points, from 971 in June to 974 in July. The foreclosure index was up a couple, from 817 in June to 819 in July.
More information online
The Shenehon Center’s charts and report for July can be found here.
The index is available free via email from Tousley at firstname.lastname@example.org.