GB794 Unit 7 External Validity Memo Example

Will the Decoy Work in a Real Basket? A Unit 7 External Validity Memo on a Coffee-Bag Listing

[Student Name]

Purdue University Global

GB794: Advanced Topics in Marketing

Unit 7 External Validity Memo

[Instructor Name]

[Date]

Thornbury Market, its coffee and every price are composite and illustrative; the studies cited are real.

Memo

To: Director of E-Commerce, Thornbury Market From: Director of Analytics Re: Whether the proposed 26-ounce coffee listing will raise sales of the 32-ounce bag

The Proposal

The e-commerce team proposes listing a 26-ounce bag of house coffee at 24.49 dollars alongside the existing 12-ounce bag at 11.99 and the 32-ounce bag at 24.99. Few shoppers are expected to buy the 26-ounce bag. Its purpose is to make the 32-ounce bag look like a better deal, so that more coffee buyers choose the largest size. The team cites research on the decoy, or attraction, effect.

What the Laboratory Finding Says

Huber et al. (1982) showed that a new option plainly inferior to one existing choice, yet not to the other, can increase the share of people choosing the option it is worse than. Their participants made hypothetical choices among described options, such as cars or restaurants, defined by two attributes. When a decoy was added that was dominated by one option on both attributes, that dominating option's share rose. The finding was important because it violated a basic assumption of choice models: adding an option should not increase the share of an existing one.

In the coffee case, the 26-ounce bag is dominated by the 32-ounce bag, since it costs almost as much and holds less, but not by the 12-ounce bag, which costs much less. The laboratory finding predicts more shoppers will choose 32 ounces.

Does It Travel? Four Dimensions

Shadish et al. (2002) describe external validity as the question of whether a causal relationship holds across variations in persons, settings, treatments and outcomes. Each dimension raises a question here.

Who chose. The original participants were students making hypothetical choices. Thornbury's coffee buyers are adults, many of whom buy the same coffee every week and may not reconsider their size at all. A decoy can only change a choice that a shopper is actively making.

What they saw. The original options were described by two attributes in a table, with the dominance relationship easy to see. On Thornbury's site, shoppers see product images, prices, unit prices displayed by regulation in many states, ratings and other products. The dominance relationship may be less salient, or more obvious, depending on how unit prices are shown.

What counted as the outcome. The original outcome was a stated choice with no money spent. Thornbury's outcome is a purchase, with a real price paid and a real bag of coffee to store.

Where. A laboratory study isolates one choice. An online grocery basket involves dozens of choices made quickly, with most attention elsewhere.

What Later Evidence Shows

Frederick et al. (2014) tested the attraction effect with more realistic stimuli and found that it weakened or disappeared in many conditions, especially when options were presented with pictures or real products rather than numerical attribute tables, and that it sometimes reversed. They argued that the effect depends on shoppers being able to see the dominance relationship clearly in numerical form. The original authors replied that the effect is real but conditional, and that it should be expected mainly when the dominance relationship is easy to see and the decision maker is uncertain (Huber et al., 2014).

The decoy works when the shopper can see at a glance that one option beats it, and an online grocery page rarely makes anything that easy to see.

Prediction

The memo's prediction is that the 26-ounce listing will raise the share of coffee buyers choosing 32 ounces by less than laboratory studies suggest, possibly by nothing. Two features of the setting push in opposite directions. Unit prices on the product page make the 26-ounce bag's poor value easy to see, which could strengthen the effect for shoppers who look. But habitual coffee buyers who reorder from their purchase history will never see the new option, which weakens the effect overall. A rough expectation is an increase of one to three percentage points in the share choosing 32 ounces, with zero entirely possible.

The Cost of Being Wrong

Listing the decoy is not free. It adds an item to inventory that few will buy, which the roaster must pack and the warehouse must store, and some shoppers who buy it would otherwise have bought the 32-ounce bag at a higher margin. If the effect is near zero, the listing loses money.

Recommendation

Rather than launch the listing to all shoppers, Thornbury should test it. Logged-in shoppers can be randomly assigned to see either the current two-size page or the three-size page for several weeks, and the share choosing 32 ounces compared between the two groups. The Unit 8 proposal describes such a test.

References

Frederick, S., Lee, L., & Baskin, E. (2014). The limits of attraction. Journal of Marketing Research, 51(4), 487-507. https://doi.org/10.1509/jmr.12.0061

Huber, J., Payne, J. W., & Puto, C. (1982). Adding asymmetrically dominated alternatives: Violations of regularity and the similarity hypothesis. Journal of Consumer Research, 9(1), 90-98. https://doi.org/10.1086/208899

Huber, J., Payne, J. W., & Puto, C. P. (2014). Let's be honest about the attraction effect. Journal of Marketing Research, 51(4), 520-525. https://doi.org/10.1509/jmr.14.0208

Shadish, W. R., Cook, T. D., & Campbell, D. T. (2002). Experimental and quasi-experimental designs for generalized causal inference. Houghton Mifflin.