Question

Lecture material:

The Just Noticeable Difference (JND) is the minimum amount of change in a stimulus that can be detected. Using sound as an example, if a decibel level change from 60 decibels to 62 decibels is undetectable and a change from 60 decibels to 63 decibels can be detected, we know that at an initial stimulus of 60 decibels, a change of 3 decibels is the Just Noticeable Difference. Over 100 years ago, a psychophysicist names Ernst Weber found that the amount of change necessary to be discernable is not an absolute amount, but is related to the initial intensity of the stimulus. For example, discounting a $50 shirt by $5 may not be perceived by consumers as a meaningful change in price, but discounting a $25 shirt by $5 likely would. Therefore, the Just Meaningful Difference (JMD) is often described as a percentage. Apparel retailers have found that discounting the price of a garment by less than 20% does not usually result in consumers’ perception of a meaningful change in price, but discounting the garment by 20% usually does result in the perception of a meaningful change in price. JMD highlights the fact that the JND should not only be discernable to the consumer, but should also signify a meaningful change. In the example above, consumers would surely be able to perceive that the price of a $50 shirt discounted by $5 has changed, but they would likely not perceive the discount as meaningful. In order for a change to affect consumer behavior, it must be noticed and perceived as meaningful. For the purposes of this case, we will use the term JND, but it should be noted that in a marketing context, the JND must be both noticed and perceived as meaningful by the consumer. Another important point about JND involves the applications of the concept. Strictly speaking, the concept of JND implies that one need not go beyond the JND in order to affect consumer behavior. In other words, if the JND is 5%, one must only change a stimulus by 5% in order to affect consumer behavior; changing the stimulus by more than that amount is typically not cost effective. As an example, in the case of decreasing the prices of a product, if a marketer significantly exceeds the decrease dictated by the JND, he/she is “giving away” more money than is necessary. Simply meeting the JND would have been enough to alter consumers that a meaningful change in the price has taken place, and, according to this theory, affect their behavior.

Case:

Nikolai and Hunter are twin brothers, and they each own appliance stores. Nikolai lives in Cincinnati, Ohio and Hunter lives in Fresno, California. Even though they live far apart, they talk often, and trade hints and grievances about the appliance retail business. Lately, they have been discussing the fact that in a tough economy, consumers often hold off on the upgrade of an appliance as long as possible, deciding that they will wait to “trade up” when the economy turns around or the appliance breaks, whichever comes first. The brothers are discussing the wisdom of instituting short-term rebates in order to make their appliances more attractive to consumers, and to increase their rather dismal recent sales figures. Unbeknownst to each other, both Nikolai and Hunter decide to institute a retail-level rebate on a specific high-end stove. The price of the stove in both stores is $1,000, and both Nikolai and Hunter’s rebate offers will be advertised in the Sunday paper, and will last one week. Neither Nikolai nor Hunter has done the research necessary to discover the Just Noticeable Difference (which, for that target market and that product category in that economic climate, is 15%). Nikolai offers consumers a $100 rebate on the $1,000 stove. Hunter offers consumers a $200 rebate on the $1,000 stove. Nikolai sells 20 stoves during the rebate period, which is about the same number that he sold the week just prior to the rebate offer. Hunter sells 30 stoves during the rebate period, which is an increase of about 10 more than he sold the week just prior to the rebate offer.

Did the fact that he didn’t know the accurate JND cost Nikolai any money? Yes/No. If yes, how much?

Did the fact that he didn’t know the accurate JND cost Hunter any money? Yes/No. If yes, how much?

Explain your answers.

Answer 1

Yes, it cost Nikolai as he did not aware about the accurate JND. Even after giving an extra rebate of $100 the sale remains , hence loss of $100*20 stoves =$ 2000 occurred due to non awareness of accurate JND.

YES, it cost Hunter as he did not aware about the accurate JND. As the accurate JND was 15% i.e discount of $1000*15% =$150. Extra Discount given is $200(-)$150=$50 per stove. Hence loss on account of non awareness of accurate JND =30 Stoves*$50=$1500.