Price is what you pay,
value is what you get
A study of the decision-making process of
consumers of Dutchfiction books and
determinants of their willingness to pay
Nicole Neven
Student number 294808
Master Thesis
ErasmusUniversityRotterdam
Colophon
Copyright © 2009 Nicole Neven
For information
Student Nicole Neven
Studentnumber 294808
AddressKorte Dreef 32
2941 SH Lekkerkerk
The Netherlands
Master thesis ErasmusUniversity,Rotterdam
Rotterdam, 2009.
Tutor: Kristien Werck
Second reader: Arjo Klamer
Cover image:
All rights reserved. No part of this thesis may be reproduced, transmitted or utilized in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without the prior permission in writting from the author.
Price is what you pay, value is what you get
Table of content
Introduction 7
1.1 Research question and hypotheses 8
1.2 Structure of this thesis 9
1.3 A word of thanks10
Chapter 2: Characteristics of books 11
Economics and culture, non-market values, willingness to pay and the fixed book price
2.1 The value of culture 11
2.1.1 The tension between culture and economics 11
2.1.2 Cultural values 13
2.2 Definition of books 14
2.3 What makes books different? 14
2.4 The value of books and consumer willingness to pay 18
2.5 The Fixed Book Price Law in the Netherlands 19
2.6 WTP and attributes, information aspects and purchase behavior 21
Chapter 3: Purchase behavior of consumers of books 23
3.1 Introduction 23
3.2Consumer decision-making process 23
3.3 Attributes of books and consumer information acquisition 26
3.4 Planned, semi-planned and impulse purchase behavior29
3.5In-store versus out-store communication 31
3.6In-store: Display tables 31
3.7 In-store: The effect of book covers 33
3.8 In- and out-store: The sales effect of word of mouth 33
3.9 Out-store: Sales effect of offline book reviews 35
3.10 Out-store: Sales effects of online book reviews 36
3.11 Particular issue: Informational cascades 37
3.11.1 Informational cascades in the book industry 38
3.11.2 Negative information 40
3.12 In- and out-store: Sales effects of literary awards 41
3.13 In- and out-store: Bestseller lists and consumer behavior 43
3.14 Conclusion 43
Chapter 4: Research design, methods and hypotheses 46
4.1 Research aim, objectives and hypotheses 46
4.1.1 Aim 46
4.1.2 Objectives 46
4.2 Measurement of consumers’ willingness to pay – CV method 46
4.3 Hedonic pricing method 48
4.3.1 Hedonic pricing method in general fields 48
4.3.2 Hedonic pricing method in the cultural field 50
4.3.3 Flaws of the hedonic pricing method 53
4.4 Surveying consumers decision-making process 53
4.5 Survey design 54
4.5.1 General structure of the questionnaire 54
4.5.2 Purchase and purchase behaviour questions 54
4.5.3 Willingness to pay and hedonic pricing questions 55
4.5.4 WTP questions 55
4.5.5 Demographic questions 56
4.6 Data 56
4.7 Sampling 58
4.8 Hypotheses 59
Chapter 5: Data analysis and interpretation 61
Part I: Descriptive statistics 61
5.1 Response 61
5.2 Description of the sample 61
5.2.1 Income 62
5.2.3 Education 62
5.2.4 Size book collection 63
5.3 Description of titles 63
5.3.1 Price of books 64
5.4 Attributes and informational aspects 64
5.5 Purchase behavior 66
5.6 Willingness to pay 66
Part II: Test of the hypotheses 67
A. Hypotheses concerning demographic variables 67
B. Hypotheses concerning purchase behavior variables 69
C. Hypotheses concerning physical attributes 71
D. Hypotheses concerning attributes, informational aspects of the respondent 72
Part III: Validity and reliability 75
Chapter 6: Concluding remarks 78
6.1 Research methods and research question 78
6.2 Results 79
6.3 Recommendations 79
Appendices 81
Appendix I: The book industry 81
I.1 Structure of the Dutch book industry 81
I.2 Publishing Cycle 83
I.3 Structure of the Dutch book price 84
I.4 Writing as a creative process 85
I.5 Authors as creative persons 86
I.6 The book industry in a rapidly changing environment 87
Appendix II: The questionnaire 90
Appendix III: Frequency tables 95
Appendix IV: Correlation diagram101
Appendix V: Abstract102
Appendix VI: List of abbreviations103
References 104
Introduction
This thesis is part of the master program Cultural Economics and Cultural Entrepreneurship of the ErasmusUniversity in Rotterdam.
As a child I already read dozens of books per month. As I got older, my love for books only grew more and more. I got a job in a book store and later, after an internship at a publishing house, I began working in the publishing sector as well. The topic for my master thesis therefore was obvious: books.This thesis is focused on the consumer of books. Why does he buy certain books? And which informational resources does he use to make his decision? Are book prices representing all values the consumer can attach tobooks? I find these very interesting issues.
Leemans and Stokmans (1991, 1992) have conducted extensive research on the matter of the consumer decision-making process of books and the different attributes[1] of books. They have compiled a list of attributes that may influence a consumers’ decision for a certain book. These attributes represent aspects of books (physical and other aspects like cover, author, number of pages, design, publishing house, etc). Consumers can use information from outside the book store (like reviews, interviews with the author and advertisements) and inside the store (like book covers, flyers and books that are placed on display tables) as well. These features I will name information aspects.I will also try to identify the use of these aspects in the decision-making process of the consumer.
In the light of themaster program (cultural economics and cultural entrepreneurship) this thesis also needed to have an economic perspective. The prices of books have also drawn my attention. Some books are way more expensive than others, but are sold a lot more. Some books are that cheap that nobody buys them because consumers might suspect the quality of the book because of this low price. Recently, I have been questioning myself if people would be willing to pay more money to possess certain books. This goes especially for sequels like the Harry Potter books to which is given a great deal of media attention. In this thesis I want to bring these two aspects together: the consumer decision-making process and the price of books. I would like to investigate whether people are willing to pay higher prices for books which they have chosen. Here, I assume that people value the book of their decision higher than the price that is charged for the book. Books offer an unique experience for every reader. This concept also implies that a reader needs to experience reading in order to appreciate a book: he needs to acquire a taste for reading. During this process he learns which genre of books he prefers or which authors he likes best. It is therefore possible that people value their favorite genre more than other genres and are therefore willing to pay a higher price for that particular genre. Though this is just one possible reason why people would value certain books more than the price that is charged. To conclude the preceding: I want to research whether the different attributes and aspects of books influence consumers’ willingness to pay for books.
1.1 Research question and hypotheses
This thesis aims to give insight in the attributes and information aspects which consumers use to make their decision for a specific book and consumers’ willingness to pay for that book. The central research question of this thesis is therefore formulated as following:
How do attributes of books, information aspects and purchase behavior influence Dutch consumers’ willingness to pay for books?
To be able to answer this question I first need to find out which attributes consumers have used during their decision-making process. For this purpose I will construct a survey asking consumers of books at the moment right after their decision to value the different attributes and information aspects which they perceive to have used with a grade (varying from 1 to 6). The second part of the survey will focus on the more economic part of this thesis: the price of books. The survey will ask the respondent whether or not he would also have selected or purchased the book if a higher price were charged for it. Eventually it may (or may not) turn out that this study reveals a correlation between some aspects or attributes of books or purchase behavior and consumers’ willingness to pay for books. But, besides answering this main research question, a lot more information can be abstracted from the dataset. Now I will already mention the hypotheses that will be tested with the collected datain chapter 5 below.
A. Hypotheses concerning demographic variables
A.1 Respondents with a higher income will on average be willing to pay a higher price for the book of their choice.
A.2The higher the education of the respondent the higher the willingness to pay of the respondent.
A.3Respondents with a higher age will be more willing to pay a higher price for the book of their choice than respondents with a lower age
A.4Men have a higher WTP for books than women.
B. Hypotheses concerning purchase behavior variables
B.1Some information-aspects are typically used by impulse-purchasers and some by planned-purchasers.
B.2Respondents that do an impulse purchase will on average be less willing to pay more money for their decision than planned purchasers.
B.3 Respondents buying a gift will on average be less willing to pay more money than buyers of non-gifts.
B.4Respondents with a large collection of books at home will be willing to pay a higher price for the book of their choice.
B.5 Respondents that have already selected a large number of books during their visit to the book store are willing to pay a lower price for the book of their decision than other respondents.
C. Hypotheses concerning physical attributes
C.1 Books with a large number of pages will generate a higher WTP.
C.2 Respondents that have chosen the hardcover edition of a book will have a lower willingness to pay than respondents that have chosen the paperback edition.
D. Hypotheses concerning attributes, informational aspects of the respondent
D.1 Some informational aspects willmutually show high correlation (relatively in-store and out-store information aspects.
D.2 Respondents using out-store information aspects in their decision-making process will on average be willing to pay more money for their decision than people that use in-store information aspects in their decision.
D.3 There exists a positive relation between the number of used attributes and information aspects and consumers’ WTP.
D.4 Respondents that have chosen a book that fits in their favorite genre will be willing to pay a higher price than people who buy a book from a different genre.
D.5 Some attributes of books and some informational aspects will have a positive effect on consumers’ WTP.
1.2 Structure of this thesis
I mentioned earlier that the aim of this thesis consists of two main angles: first, the consumer decision-making process and the attributes and informationaspects of books and second, consumers’ willingness to pay for books. In order to understand these issues I will first explain some general issues in chapter 2. Here I will define some general concepts and I will discuss the relationship between culture and economics. In thischapter the Dutch fixed book price is discussed as well. The concept of fixed book prices is a deciding factor for this thesis: price competition between book shops in the Netherlands is restricted. Prices are fixed for a minimum of one year. In paragraph 2.5 I will elaborate more on the effects of the FBP (fixed book price) on the Dutch book sector.
Chapter 3describes the decision-making process of consumers for books. Here also will be treated all physical and general attributes of books and information aspects that play a role in this consumer decision-making process. These different attributes and information aspects of books are physical attributes (number of pages, type of paper, hard cover or paperback), other attributes (genre, author, cover, cover text), in- and out-store information aspects (on- and offline reviews, in- and out-store advertisement (flyers, banners and posters), display tables, the word of mouth phenomenon (i.e. recommendations by others), literary awards, bestseller lists) and consumer purchase behavior (planned, semi-planned and impulse purchases)).Consumers follow a certain pattern or process and use certain attributes and information aspects when making a decision for a certain alternative, this is called the consumer decision-making process. Chapter 3 will focus on the decision-making process in great detail.
Chapter 4 will enlighten the research method I have used (WTP method) and a method on which this thesis is partially based: the hedonic pricing method.Further, I will explain how I have gathered the data for this research and I will explain the construction of the questionnaire that has been used to collect the dataset.
The data analysis and the testing of the hypotheses will take place in chapter 5.The relationship between some characteristics of books and consumers’ willingness to pay will be investigated.
For readers who would like to have some background knowledge on the Dutch book industry I have added a chapter on this matter in Appendix I.This chapter gives insight in the book production process and the structure of the market. This chapter contains fundamental informationfor persons who feel to miss some basic knowledge about the book industry. Appendix V consists of an abstract of this thesis.
1.3 A word of thanks
Many persons have supported me during the process of creating this thesis. I would like to thank Peter Kaldewaay (store manager) for allowing me to survey in the book shop Selexyz Donner in Rotterdam. I would also like to thank my colleagues who helped me with the questionnaire, as well as in the process of creation (testing the questionnaire) as in the actual period of surveying. I would like to thank Véronique and Dennis for their constructive remarks and enlightening points of view. Above all I would like to thank Kristien Werck, for guiding me from beginning to end, and helping me to bring this thesis to a good end.
Chapter 2Characteristics of books
Economics and culture, non-market values, willingness to pay and the fixed book pricein the Netherlands
The book market is a very interesting market. But what distinguishes this market from other for-profit markets? There are some features that discerns books as a cultural good from other cultural goods and other goods in general. To lay out a basic foundation for this chapter I will first focus on the tension between economics and culture and the value of culture. In the following paragraphs I will focus on the features that distinguish the book market from other markets. Here after, I will discuss non-market values that books can produce andthe instruments to indicate these values: contingent valuation and the willingness to pay method. After this I will describe the Dutch fixed book price law. In the final paragraph these issues (willingness to pay, Fixed Book Price Law and attributes and information aspects of books) will be brought together to come to the essential foundation of this thesis.
2.1 The value of culture
Economics and arts can’t be seen apart from each other anymore. After being ignored for ages culture has finally taken its place in economics, first, with the publishing of ‘The Liberal Hour’ that J. K. Galbraith wrote in 1960. In this piece he discusses amongst other issues the economic situation of the artists. After this breakthrough, many economists followed him writing about cultural economics (Lavanga, 2003: 1). When Baumol and Bowen (1966) published their book‘Performing Arts the Economic Dilemma,’ the existence of cultural economics was definite.
The link between economics and culture is interpreted in various ways by many economists. I will first describe the definitions of culture and economics. Then I will describe two important visions on the link between culture and economics that are crucial for this thesis.
2.1.1 The tension between culture and economics
Culture is one of the hardest concepts to define. There are so many definitions given by economists and sociologists and other scientists that the combination of these termsbrings a broad definition. Culture in the anthropological way is defined as the beliefs, traditions, uses, values, art, morals, laws that characterise a group of people (Lavanga, 2003: 2). Everything that characterises a group of people from one another is culture.
Overall there are three categories of definitions of culture: ‘a particular way of life typical for a group of people, the second is a system of symbols, meanings and codes for communication and the third defines
it as a product of adaptations to a set of given environmental conditions’ (Lavanga, 2003: 2). Art is a product of culture. Some economists define culture simply as art. This is an easy definition. In this sense culture includes every man-made cultural artefact in a society. Culture is consideredto be equal to the art that is produced in a society. Since the nineteenth century the term ‘culture’ is used in the broader sense of the word: ‘it is used to describe the intellectual and spiritual development of civilisation as a whole’ (Throsby, 2001: 3).
A standard distinction is made between the economy as a whole and economics. Economics can be defined as the utility maximisation, allocation of scarce resources and the rational behaviour (rational choice theory) of individuals – the study of micro behaviour of individual units in the economy (Throsby, 2001: 2). This definition is based on the Neoclassical theory. This theory focuses on price, output and income distribution determined by supply and demand.
Macro behaviour (accumulated micro-behaviour) is often referred to as the economy. In the economy it is all about efficiency and equity. A company has to maximise the utility, maximise their profit to work efficiently. The allocation of scarce resources has to do with the equity, the allocation of wealth among individuals and the allocation of production resources. This involves rational choices from individuals and companies. This is in (very) short what economics is about.
Combining these definitions you get the definition of cultural economics or the economics of the arts. This is the economics (as defined above) applied to the artistic field. The way that producers and consumers of culture (supply and demand) make rational choices, maximising their utility, and allocate their scarce resources.