Psychology

People prefer cash back or a free gift to wild discounts

decision making / By

What would you choose a rebate or a discount – five ways why a rebate works

In prospect theory, which a descriptive theory of how people choose under risk, how options are framed affects the choice a person will take. When alternatives are presented people prefer options posed as gains rather than as reduced losses. An example to illustrate what I mean is the case of a discount verses a rebate in a car purchase. A rebate cheque is valued much more by a consumer than a discount on the price even when the financial parameters are identical in value. So a rebate cheque of $2000 is valued more in the eyes of a consumer than a discount of $2000 on the retail price. So in these credit crunch times the rebate in Germany for scrapping your old car is right on target as far as generating extra demand is concerned – however whether this is just pulling forward sales we shall see.

The reason for this is in the way we consumers look at the options before us. When a discount is offered on a good that discount is integrated into the original purchase price – it is possible that this is something we all have learnt to do over time. Bombarded as we are by sales of sofas and other incidental goods that seem to be on constant 50% discount we no longer ‘see’ the original price and ascribe the discounted cost of the good as the reference price. Rebates on the other hand are disaggregated in our minds and processed separately from the purchase price. We interpret the rebate as a gain whilst the discount is seen as a reduced loss and when given a choice which has on the surface the same monetary value we chose the rebate.

This principle seems to apply also to gift items, free goods and other promotions, other things being equal we prefer to have the free items compared to an identical discount due to this process. One caveat here is that the premium must be valued – it is no use offering two for the price of one if the extra package of hot cross buns goes stale or the free item is just not interesting enough to excite interest like a tin of cat food when you do not have a cat! But a well thought through extra in a promotion can be seen as a nice gain for the consumer and can orient a choice in your direction. A lottery ticket is a example with the promise of huge gains that is seen by the consumer as highly attractive compared to the $1 discount price of the ticket. Think about how this also works by removing the choice of buying a lottery by the consumer and all those nasty rationalisations of having no chance of winning!

Another aspect of the way we make choices is the certainty effect – we prefer an option when the outcome is certain or known compared to the situation when there are probabilities at play. For example we prefer to accept an offer of $100 with 100% probability rather than an offer of $112 at a probability of 90% although the expected values are the same. This can be extended in some cases where the certain choice is materially much worse than the uncertain option.

Five aspects why promotions win over discounts

  • It is materially easy for the customer to visualise the gain and little mental processing is needed.
  • They value free promotions as they are seen as a gain rather than a reduced loss.
  • They integrate discounts into the price – the discounted price becomes the reference.
  • The separate the evaluation of promotions from prices.
  • They prefer the certainty of the gain (bird in hand syndrome).

So all in all offering a promotion in the form of a certain win for the customer works much more effectively than ever increasing (or continuous) discounts which are only serving to re-set the price points at ever lower levels.

What is meant by an Interpretive Approach in Organisational Psychology

1 Comment / Psychology / By

Interpretive Approaches

An interpretive approach focuses on the processes by which meanings are created and negotiated (Schwandt, 1998). However there are a range of interpretive approaches each with different views on epistemology and ontology (Alvesson & Skoldberg, 2000; Lindlof, 1995). Even if you restrict it to those that fall into the ‘interpretive’ umbrella, as outlined in the subject guide, there is still a broad choice.

Furthermore, there is some confusion because all of the other approaches use interpretation in some way – we are always interpreting!

Within the ‘interpretive’ umbrella (or paradigm), there are some particularly important approaches to research, I will briefly outline them here:

Phenomenological approaches try to avoid researcher interpretation and describe only what is evident in the data, and there is a tendency to isolate and de-contextualise during analysis. Phenomenologists argue that it is possible to remain objective and outline data findings in a more objective way by removing the researcher’s bias and the additional scope for error that is involved in interpreting. However, the concept of bracketing, (removing all ones own prejudices and pre-understanding), is questioned by others (e.g. Lowes & Prowse, 2001).

Interpretive Phenomenological Analysis (Smith, 1996) is more of an analysis method based on phenomenology. It aims to go one step further than phenomenology, by describing the data first in a similar way, but then interpreting it, particularly in the light of psychological theory. This focuses primarily on theory to aid analysis, which means individual meaning can be lost. However, as with all methods, it may well depend somewhat on how well the analysis is done.

Grounded theory in many of its forms is arguably rather ‘rational’ and positivistic, and generally has a tendency to break-apart rather than maintain context (Tesch, 1990). There are more constructivist approaches to grounded theory, and it does have the benefit of very clear processes for students to follow, but some still argue that it is restrictive and fails to acknowledge the biases of the researcher. Some suggest it is an analytical method rather than an approach, but like many of these things, the two go very close together, and I don’t think you could do a grounded theory analysis without taking on board all the other ideas behind it.

Hermeneutics you will meet in another other mini ‘lecture’. It has been put forward as a move ‘beyond’ both scientism and social constructionism, accepting the self-interpreting nature of humans within their social-cultural context, but not reducing them completely to these origins (Martin & Sugarman, 2001). In particular, hermeneutics has been proposed as a useful approach when one wishes to gain insight into meaning (Alvesson & Skoldberg, 2000).

Psychodynamics – The concept of a hidden unconscious drives underpins all psychodynamic theories and forms a major area of difference between this and other perspectives. Confusingly, there is a range of different approaches within this grouping, but they all share a focus on the importance of the unconscious, and childhood experiences. Most psychodynamic theories suggest the ‘self’ is generated by fantasy and phantasy, rather than real events. Psychodynamic theories could be framed from relativism or new realism, (Wetherell & Still, 1996) although the object relations school tend to take a more realist view, (real events influence the self). Although psychodynamics tend to focus on the individual, there are also group level versions (some of you may have heard of Bion?)

Sense making (Weick, 1995) has been classed as an interpretive approach, but others argue that it is more postmodern, being based partly on social constructionism. That is why it is placed on its own in the subject guide, we are not sure ourselves where it fits! Personally I would put it into interpretive because it has a rather functionalist and cognitivist flavour to it and is not relativistic enough to slot into a postmodern/social constructionist framework.

Now, I mentioned that many other approaches include some level of interpretation (well actually, all do, as even statistics have to be interpreted). Discursive and critical approaches focus on critique of the social and power situation of those researched, rather than understanding individual meanings, and critical in particular assume the power of the researcher in their interpretation. Although these clearly use interpretation in the research process, they are not classed as fitting in the interpretive paradigm because they have different views on epistemology and ontology. I think I have said elsewhere that the postmodern approaches tend to take a mutualist view and focus more on the social construction of the self, and fragmentation rather than cohesion. If you can get hold of books there is an interesting one by Heracleous (2006) that covers interpretive and discursive approaches.

So interpretive approaches are all those that approach research in an idiographic way (focusing on the individual). They will always use some form of qualitative data collection and analysis process. Some might use content analysis and counting, but more often they will try to retain some of the richness of the data. In general they will tend to take a realist approach to their ontology (but not always!) They do tend to take a very neutral approach to their subject, rarely considering power relations or the influence of societal norms – they focus on the individual experience primarily or on how groups develop meaning, without considering the broader issues in much depth (this is viewed by some as a key weakness).

Although questionnaires could be argued to be looking at the individual and to be subjective (indeed they are of course tapping into subjective self-reports). They tend to be used in an aggregate way and some form of objectivity is assumed. You will discuss issues with running different types of statistics on questionnaires in OR. The key reason why they are not used within the interpretive paradigm is that they force the reply upon the participant, and do not allow the participant to express the things that they think are important about the subject.

Taking an interpretive approach also influences your form of analysis. Choice of analytical method should be based on the research questions, but inevitably these very questions will be driven by your own philosophical background and preferences.

The analysis method will be influenced by which overall interpretive approach you prefer. Even with some general interpretive approaches, the richness of meaning is often lost, with a tendency towards narrative positivism (Pentland, 1999), where coding processes remove much of meaning. However, for some, this is quite sufficient, so using content analysis and even counting the number of times words are used by the participants, is considered useful (this is a post-positivist approach I guess, still has some normative overtimes even though using qualitative methods.

An interpretive approach will never use discourse analysis as we know it because that looks at language and not the individual. However there is still a broad range of analytical techniques available to them.

You will sometimes find normative/post-positivist researchers will use a qualitative data collection method, like interviews, to help inform their research. However it is usually only to help them design a questionnaire, and you will find that the qualitative data is treated very superficially, often hardly mentioned at all. Some would argue they cannot possibly have understood the depth of meaning offered by participants due to their tendency to just scan the qualitative data (rather than study it in depth), indeed often transcripts are not taken, just a few notes of key words during the interview sessions.

Do get the Cassell & Symon ‘Essential Guide to Qualitative Methods in Organizational Research’ (2004) if you can – you will even see an article from me in there – the book includes many different ways of both collecting and analysing qualitative data.

Of course, researchers sometimes use a mix of paradigms anyway, so it is not always easy to spot what is going on (less frequent I think with the normative). Good news is, some are very clearly within one paradigm, and by the end of this module at least you will know roughly what they are on about if they say they took, for example, a phenomenological approach!

Stephanie (from BizFace)

References (for information only, you don’t have to read them):

Alvesson, M., and Skoldberg, K. (2000). Reflexive Methodology: new vistas for qualitative research, Sage, London.

Heracleous, Loizos (2006) Discourse, Interpretation, Organization. Cambridge University Press.

Lindlof, T. R. (1995). Qualitative communication research methods, Sage Publications Inc., Thousand Oaks.

Lowes, L., and Prowse, M. A. (2001). “Standing outside the interview process? The illusion of objectivity in phenomenological data generation.” International Journal of Nursing Studies, 38, 471-480.

Martin, J., and Sugarman, J. (2001). “Interpreting Human Kinds: Beginnings of a Hermeneutic Psychology.” Theory & Psychology, 11(2), 193-207.

Schwandt, T. A. (1998). “Constructivist, Interpretivist Approaches to Human Inquiry.” The landscape of qualitative research: Theories and issues, N. K. Denzin and Y. S. Lincoln, eds., Sage Publication Inc., Thousand Oaks.

Smith, J. (1996). “Beyond the divide between cognition and discourse: using interpretative phenomenological analysis in health psychology.” Psychology and Health, 11, 261-271.

Tesch, R. (1990). Qualitative Research: analysis types and software tools, The Falmer Press, Basingstoke.

Weick, K. E. (1995). Sensemaking in Organizations, Sage, Thousand Oaks.

Wetherell, M., and Still, A., (1996) Realism and Relativism, in Sapsford, R., (Ed.) (1996) Issues for Social Psychology, Open University.

Forced Change in an Outsourcing – guidelines for communicating to reduce resistance

change management / By

Forced Change in an Outsourcing

Change Managers in an Outsource often assume that if the rationale for change is made clear to the people affected then change management is unproblematic and resistance negligible. People assume that if we rationally explain to the employees affected they will ‘buy-in’ to the process and thereafter work actively to realise the change or at least moderate their resistance to it. There is a assumption behind all this that changes are negotiated and developed over time and that the change agent’s task is but to make clear the imperatives and the people fall into place – communication mechanisms (usually Slide-Ware) are the main carriers of this type of intervention.

Whilst this approach has been roundly criticised for ignoring political and social aspects it is also more and more disturbed in major system changes. In outsourcing or mergers and acquisitions we are often faced with transitioning organisations within a strict deadline. Here the degrees of freedom are limited and failure to successfully implement can result in stiff penalties for time and cost overruns. In such circumstances our room for ‘negotiation’ is constrained as the change outcome is a given and the people affected are faced with a forced change.

Of interest to us as managers and consultants in such circumstances is how we support the change in particular minimising the business risk, defusing change resistance and avoiding long term damage to the organisation.

Forced change against a strict deadline is the reality and we also see that the complexity in a major change is increasing as many major programmes consist of several big initiatives in their own right. In one major change programme I worked on the client was disentangling from a parent company, implementing major systems changes, whilst outsourcing a part of the operational IT. All of these forcing substantial changes in role and responsibility right across the organisation and this programme also included the outsourcing of substantial parts of the finance function in a phase two.

Don’t forget Managers are affected by an Outsource as well…

At a management level change of status assumes high importance with any perceived loss in autonomy or the need to acquire new skills key aspects to consider. In another change programme the author was involved in the financial controller had a significant change in scope as a result of a system implementation and outsourcing which included loss of staff from her department. This resulted in much prevarication and concentration on detail, non-acceptance of the rational for change and question/problem raising that came over to the central project team as structural resistance.

Also don’t assume managers know how to support their staff through change – because they often do not. Special training and development is necessary. Also be sure that the management has bought in, in one case the stiffest resistance came from the team leader whose scepticism fed the resistance of the whole team being outsourced.

Three Key points in managing change communication

  • Relevant – We all know the value of clear communication but forget to caveat this with the need for relevancy. Exhortations of the value of the change at high level are useless unless made clearly relevant to the people affected. Unless the communication is explicitly tailored to the hearer’s specific needs general broadcasts will be discounted and perceived negatively.
  • Clear – Avoid the ‘Englishman on Holiday’ change communications approach – i.e. if they don’t understand speak slowly and louder! At a feedback meeting on the situation at a French manufacturing plant the consultants gave a withering overview of the impact of the various initiatives, changes and improvement programmes a major high technology company was imposing on the factory. The response to this from the company – “the management have not explained this clearly enough therefore ‘they’ do not understand it” – obviously they did not get the message either!.
  • Segmented – People in change need focused information – how does this new system affect me? Will I still have a job? Will I be able to cope – will they train me? This means communications must be relevant, focused and bespoke aimed at a segmented audience – don’t treat people as the same with the same vanilla information requirements.

Some interventions I have used

  • Local briefings at department or group level to strengthen team feelings of unity and develop focus on the task in hand.
  • Cutover process – form well managed meetings to act as resolution and solution forum to build for the change-over.
  • Tighter linkage to the change-over particularly for the management to expose the organisation to the task in hand and encounter change.
  • Activate processes to resolve/close personnel issues — close these issues managers often have difficulty in handling these.
  • Mentoring management to actively participate and lead change
  • Visible presence of change manager to emphasise the company’s commitment to making the change over
  • Reflect listen but not judge issues — allow self-reflection.
  • Ensure deployment communications is done (Watch for gate-keeping in one project when I checked the communications had got no further that the secretary)
  • Provide recognition of any process improvements ideas and try to push upwards any ideas the team has.
  • Recognise that resistance is a legitimate concern for the well-being of the business.
  • Ensure communication channels are open and deployed (again this is sometimes not done).
  • Hire a consultant to act as change focus (reflecting with support but not judging)
  • Tighter engagement of the organisation into the change process — they will switch to solve mode.

As an endnote — Know the limitations of rationally based change methods and avoid broadcast communication. Target and segment communications at the various groups in an organisation and you will be much more successful and managing communicating even bad news. When we design a marketing communications approach we segment our audience and focus messages at specific target groups – this is a lesson we could use within change management.

Royston