Purdue Business and Finance Briefs

January 1998

Purdue professor: Consumers in constant search of a sale

WEST LAFAYETTE, Ind. -- A Purdue University marketing professor says the corporate emphasis on short-term profits changes consumer purchasing behavior and cuts long-term profits.

"We've long suspected that repeated exposure to short bursts of special price reductions and promotional activity such as couponing and special offers would weaken brand loyalty among consumers and eventually harm long-term profits within individual categories," says Doug Bowman, assistant professor of management at Purdue's Krannert Graduate School of Management. "But it's been only recently that we've had enough data to confirm our suspicions."

A category is a specific product type such as laundry soap or furniture polish.

Bowman and Carl F. Mela, assistant professor in the College of Business Administration at the University of Notre Dame, and Kamel Jedidi, associate professor in the Graduate School of Business at Columbia University, collaborated on the consumer behavior research. Their study examined the purchasing behavior of more than 1,500 Midwestern households over an eight-year period. The results will be published in an upcoming issue of the Journal of Marketing Research.

Bowman says past research has typically held that years of consumer exposure to promotions had not changed buying behavior.

"Our research finds the contrary," he says. "We find that consumers now 'lie-in-wait' for a good sale on a product before they buy. They may buy more of an item during the sales period, or stockpile items, and that makes a short-term spike in product revenue, but when the item returns to regular price, it's likely to sit on the shelf."

For example, instead of purchasing an item at regular price during each shopping trip, consumers now wait for a sale to buy two or three of that item during one shopping trip. Although the consumer is buying more of the product, the discounted rate and decrease in buying frequency hurts the manufacturer's bottom line.

"We're not sure why companies continue to spend millions of dollars on short-term gains," Bowman says. "Nonstop promotions only encourage consumer price sensitivity and can possibly work to devalue a product or category over the long haul."

CONTACT: Bowman, (765) 494-4446; e-mail, bowman@mgmt.purdue.edu

Resolve to plan now, save later

WEST LAFAYETTE, Ind. -- Jan. 1 is the perfect time to begin to plan for next year's taxes, says a Purdue University accounting professor.

"It's too late to do anything about the 1997 return, so you might as well start planning ahead." says John "Jack" Hatcher, assistant professor of management in the Krannert Graduate School of Management. "January is a great time to project what you think your 1998 taxes will look like. Once you get that picture, you can start making changes. Start a new Roth retirement account, increase charitable giving or take advantage of some of the new educational tax credits. Increase your pretax contributions to your 401(k) or retirement plan. It's so much easier if you make those decisions early in the year, rather than trying to fit it all in before you file."

Hatcher teaches tax courses in the accounting program at Krannert and offers the following tax tips for early bird planners:

If your employer offers it, take advantage of pretax contributions to flexible spending accounts for medical or child care expenses. "People save much more money by lowering their taxable income than by taking the standard child care credits or deducting miscellaneous medical expenses," he says.
Make the maximum pretax contribution possible to retirement accounts.
Take time to become familiar with the investment opportunities provided by the new tax laws of 1997 -- they take effect in 1998.
Create and stick to a plan to keep good records either on a home computer or with a filing system.

Good records are especially important for taxpayers who have a home office or have outside income and are filing a Schedule C. That is the IRS form for reporting profit or loss from an unincorporated business of which you are the sole owner.

"The Internal Revenue Service tends to look very closely as those filers," Hatcher says.

He says all tax returns are put through a computer audit to check the math and to make sure that what taxpayers are claiming matches up with what banks, mortgage companies and charities are reporting.

"Only 1 to 2 percent of all tax filings get a full-blown audit from the IRS," he says, "but it never hurts to be prepared."

CONTACT: Hatcher, (765) 494-4478; e-mail, jack@mgmt.purdue.edu

In customer service, what you don't say may tell it all

WEST LAFAYETTE, Ind. -- When a customer walks in the door of a hotel or restaurant, how employees act may send a louder message than their words.

"As far as a customer is concerned, front-line employees in the service industry are the business," says Joseph La Lopa, assistant professor in the Purdue University Department of Restaurant, Hotel, Institutional and Tourism Management. "Businesses put a heavy burden on these people, and managers should realize the extent to which their employees create the image of their business."

La Lopa has developed a video and workbook for training front line employees in tourist and hospitality businesses. They list nonverbal expressions that may turn on or turn off customers. Among the no-nos:

Sitting behind a desk -- and worse -- putting your hands behind your head. He says that suggests superiority or power and may intimidate customers. He suggests standing to greet customers.
Fidgeting or shifting from side-to-side. It makes you look apprehensive or nervous, he says.
A "dead fish" handshake. "Always look alert to customers and interested -- no matter how bored you really are," La Lopa says.
Glancing sideways and lowering your voice. He says it comes across as being secretive or dishonest.

He says positive signs to customers include smiling, friendly eye contact and nodding. "Use these gestures in abundance when meeting and greeting customers," La Lopa says.

"How to Please People," the video and workbook, is designed to provide independent businesses an inexpensive way to train their employees. The cost is $99.

"Many small business owners will say that they can't afford to train their people. My reply is that good training more than pays for itself. What they can't afford is to not train their employees," La Lopa says.

Other topics covered include key points in meeting and greeting customers; telephone etiquette; the art of active listening; how to handle customer complaints; and elements of quality service.

The two-hour video and workbook may be purchased by contacting La Lopa at (765) 494-6218; e-mail, lalopaj@cfs.purdue.edu

Compiled by Kate Walker, (765) 494-2073; e-mail, kate_walker@purdue.edu
Purdue News Service: (765) 494-2096; e-mail, purduenews@purdue.edu

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