Attribute-level loss aversion and diminishing sensitivity

Abstract

This study manifests the effect of relative degree of loss aversion and diminishing sensitivity in the willingness to subscribe affecting the consumer``s purchase behavior. It is based on loss aversion of prospect theory (Kahneman and Tversky 1979) and asymmetric effects and reactions on product attributes (Mittal et al 1998). We draw benefit factors and barrier factors from product attributes, and get to bottom of consumer``s willingness to subscribe through a cumulative elimination of entry barrier of purchasing. We show that if a product attribute is the necessity goal of consumer``s preference, loss aversion can be found. The final willingness to subscribe of group, who chosen pecuniary attribute such as charge, device, and switching cost, is less than others``. And, the final willingness to subscribe of group, who chosen crucial attributes, is less than others``. Despite the cumulative elimination of barriers the group of consumers demonstrates the willingness to pay is lower than the others. Thus, it is our understanding that the group``s peculiar behavior in the process is derived from loss-aversion. By diminishing sensitivity, at high levels of positive or negative performance on an attribute, overall willingness to subscribe will be affected less than at intermediate levels of performance on that attribute. Thus, before a launching a new innovative product, such as wireless LAN service, it is necessary to quantify the customer``s invisible and emotional needs and wants, and, to maximize overall willingness to subscribe, managers should optimize and not maximize attribute-level performance, because of the diminishing of marginal increase in subscription.