Customer Sophistication

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Consumer Sophistication: fVu, Titus, Newell and Petroshius

CONSUMER SOPfflSTICATION: THE DEVELOPMENT OFA SCALE MEASURING NEGLECTED CONCEPT

BOB WU Bowling Green State UniversityPHILIP TITUS Bowling Green State University

STEPHEN J. NEW ELL, Western Michigan UniversitySUSAN PETROSHIUS, Bowling Green State University

The theoretical background and various conceptualizations of the important concept of consumersophistication are discussed as well as the need for the development of measures of the concept.Three scales are subsequently developed and tested on a large national sample of households whohave recently purchased a new home. All three measures were shown to have high degree ofreliability as well as content, convergent, and criterion validity. The results revealed that the moretime spent on specific decision making activities does not necessarily lead to higher perceivedsophistication o f consumers nor a greater level of perceived satisfaction with, confidence o n, and

anxiety with the home purchase decision. Rather, it is an individual s perceived level ofsophistication that was highly correlated with satisfaction, confidence and lesser anxiety in thepurchase decision.

INTRODUCTION

In the face of the increased complexity oftoday's marketplace, consumers are continuallyfaced with the difficult task of choosingbetween a large number of competing productsand services. Yet more choices are notnecessarily leading to better decisions orincreased consumer satisfaction (Schwartz2004 ). Rather, reports of consum ers fallingvictim to unscrupulous business practitioners ina variety of situations seems to be more andmore common. Consumers making uninformeddecisions has negative effects not only on theindividual, but also on the overall perceptionsof the faimess of the marketplace. A case inpoint. The financial collapse of 2008 , whicheventually spread to most developed nations,

was partially the result of unsophisticatedconsumers securing ill-advised home mortgageloans at the behest of unscmpulous lenders.C o n s e q u e n t l y, d e v e l o p i n g a b e t t e runderstanding of what constitutes sophisticatedconsxuner decision mak ing, and how to measureit, seems particularly important.

The Maiketmg M anagement JoumalVolne 21 Issue 1 Pages 16-30Copyright O 2011 The Marketing Management AssociationAll ri hts of reproduction in any fonn reserved

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Despite the need for a better understanding ofsophisticated shopping behavior, little researchhas been undertaken to define and measureconsiuner sophistication. The purpose of thisarticle is to fill this void by presenting thedevelopment of a scale to measure consumer's

hom e purchase sophistication. The advent ofsuch a measure should serve as a template forfu r the r i ns t rument deve lopment andmeasurement of shopping sophistication in theconsumer context.

BACKGROUND

Conceptual Definition

Various conceptualizations of consumersophistication have been advanced (Wu andTitus 2000; Titus and Bradford 1996; Bam esand McTavish 1993; Hirschman 1980; Sproles,Geistfeld and Badensho p 1978). From these,two schools of thoughts have emerged. Onefocuses on factors which facilitate the ability orth e potential of being sophisticated. BothSproles, Geistfeld and Badenhop (1978) andBam es and McTavish (1993) equated consumersophistication to the relevant knowledge,education, and experiences which facilitateefficient decision making. Similarly, Hirschman

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Consumer Sophistication Wu Titus Newell and Petroshius

(1980) used the term consum er creativity todenote the notion of the problem solvingcapability of consumers (p.286) whichincreases the probability of selecting superiorproducts (p.289). The other school of thoughtalternatively focuses on the need to expand thesophistication concept beyond the merepossession of knowledge and experience (i.e.,potential), to the actual engagement in wis epurchase practices (Wu and Titus 2000; Titusand Bradford 1 996). Althou gh it is interestingand beneficial to identify sophistication p oten tial, it can be argued that it is the actualpractice which impacts consumers' well being.PubUc poUcy should be behavior driven, ratherthan ability driven. Thu s, for the purpose of

this research, consumer sophistication inpurchasing decisions is defined as: theparticipation in weU-infonned action(s) duringeach stage of the purchase process that issystematic, thoughtful, and goal-directedthroughout the entire purchase process,unde r t aken wi th knowledge o f t heconsequences associated with its performance.Characteristics of this co nceptualization are:

Dom ain and Task Specificity: Similar tothe concept of opinion leadership

(Schiffinan and Kanuk 2000 ), consum ersophistication levels are likely to varyacross purchasing domains and stages ofthe consumer decision making process,making only a general (across) domainmeasure of sophistication fiitile.

Goal independence: While consumersoph istication is goa l-directe d, it is not agoal specific or goal dependent activity.Sophisticated consumers may pursueentirely different shopping goals (e.g.,convenience vs. lowest price) and thus,display variations with respect to theirshopping activities (e.g., search in retailstores vs. searching the internet). How ever,the marmer or approach employed intheir shopping activities should be similar.That is, their shopping activities should stiUbe carried out in a systematic andthoughtftil ma nner. Th us, it is thebehavioral approach or proc ess that isindependent of the specific goals thatdetermine wiiether or not a behavior is

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considered sophisticated. In essence, it'snot what the consumer does as much as it isho w the consiuner does it that cou nts.

Decision Making Process: Consumersconstantly face choiceswhether to buy,what to buy, when to buy, wdiere to buy,from whom to buy, and how to pay for it.It is widely held by most researchers thatthese decisions generally involve a processof stages (Koklic and Vida 2009; Kahn2005; Engel, Kollatt and Blackwell 1973;Nicosia 1966). Since sophisticatedconsumer purchase behavior is defined asthe participation in well-informed action(s)during each stage of the purchase p rocess, asophistication measure needs to cover aUfive stages identified abov e.

Operational Definition

Since sophisticated behavior is conceptualizedas the participation in well-informed action(s)during each stage of the purchase process,three measures are advanced in this article tooperationaUze the concept: the actual timemeasure, the regret (actual-ideal-gap) measure,and the global-perception mea sure

Actual Time Me asure: It is generally truethat the more dm e and effort o ne spends onan activity, the more informed and thebetter the outcom e. Therefore, the actualamount of time one spends on each stage ofpurchase activities, in and of itself shouldbe a reasonable measure of theparticipation in well-informed action(s).

The Regret (Actual-Ideal-Gap) M easure:Although greater effort and moredeliberation leads to well thought-out

decisions, there are cases \^lere buyers m aybe spending a disproportionate amount oftime on a task in relation to its effect on theend result. On the other hand, there arealso cases where a buyer may wish he/shehad spent more time on an activity.Therefore, spending too little or too muchtime on an activity can be considered adeviation fi-om the ideal. A sophisticatedbuyer should be an informed buyer aswell as a wis e buyer who allocates timein a productive mann er. Thus, to

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Consumer Sophistication:.. . . Wu, Titus, Newell and Petroshius

understand a sophisticated buyer, one mayalso want to know not only how m uch timeindividuals actually spent on an activity,but also how much time they feel that theyshould have spent (ideal time spent). Thedifference between the time respondents'actually spent and what they think theyshould spend, is another indication of thelevel of consumer sophistication. Thegreater the gap (positive or negative), the

, lower the level of sophistication. Global Perception Measu re: A third

measure of sophistication used in thisresearch was the subjects' self perceptionof the sophistication level of the entirebuying process.

While all are measures of sophistication, eachmeasures a slightly different dimension of theconcept. For instance, consumers oftenexperience cognitive dissonance after a majorpurchase decision manifest by questioning thewisdom of the decision (Cooper 2007). Toreduce the feelings of not making a rightdecision, consumers often develop morefavorable attitudes toward the product selected.By the same psychological process, since the

actual-time measure derives from the timeactually spent on activities, it would beexpected to correlate closely with subjects'perceived appropriateness of efforts spent oneach decision stage. However, since the regretmeasure deals with the difference between theactual time the consumer spent vs. the time theconsumer thought he/she should spend, itrepresents a more holistic and more objectiveassessinent of the merits and deficiencies of thedecision. Therefore, it would be expected tocorrelate stronger with the global perceptionmeasure of sophistication than with the actual-time measure.

METHO

Scale evelopment

Given that buying a home is often the singlelargest and most complicated purchase decisionthat many individuals or households will make,it was chosen as the focus of this research.

Questions covering home purchase activities ofall decision stages were developed based onKiplinger's (2006) Biding Selling a Hom eand Schmitt's (1989) Consumer's Guide ForSmart Spending. For each activity, subjectswere asked how much time did yourhousehold spend on each of the following homepurchase activities and how much timeshould your household have spent. Each wasmeasured on a five-point scale, anchored by none at all and an extensive amou nt. Forexample, subjects were asked about how muchtime they spent/should have spent identifyingthe specific living requirements/needs of theirhousehold, determining when would be the besttime to purchase a hom e, gathering informationabout the list price of prospective homes,assessing the physical conditions/constructionof their prospective home, inspecting theirhome after closing, and performing routinemaintenance checks and repairs afterpurchasing their hom e. These questions servedas the inputs to both the actual time and regretmea sure. A total of sixty-two items weredeveloped.

In addition to these activity based items, a

global self perception measurement wasund ertake n. Specifically, subjects were askedto indicate their perception of their overallhome buying decision-making on a five pointLikert scale, ranging fi-om strongly agree (1) tostrongly disagree (5). Questions covered theirperception of whether an appropriate amount oftime was spent on each decision stage, as wellas whether they believed that they carried outth e entire purchase process in a sophisticated,prudent, consistent, and well informed manne r.

The initial set of items were evaluated by fourdifferent realtors who independently assessedthe item's ability to capture what would beconsidered generally-accepted wise homepurchase practices, those items that wereunnecessary, and any items not included thatthey believed should be added. Based on thecomments of these expert judges, themeasurem ent wa s revised. The final instrumentconsisted of 47 activity based items used for theactual and ideal measures as well as 13 items

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that served as the global self perceptionmeasu re. This latter measure consisted of fivestage specific items, and eight overall-processitems. All measuremen t items are shown inAppendix A and B.

Sample

Using an established national research panel ofan independent research firm as the samplingframe, approximately 90 0 sets of questionnaireswere randomly mailed to panel memberhouseholds throughout the U.S. wdio hadpurchased a new home within the last 12months (Park 1982; Munsinger, Weber andHansen 1975). In married househo lds,

information was collected from the husbandand wife separately (Levy, Murphy and Lee2008; Bonds-Raacke 2006; Cosenza 1985;Hemp el 1972; Davis 1971 ; Granbois andWlett 1970).

After el iminating questionnaires withincomplete responses or systematic responsepattem s (indicating possible validity problems),a total of 670 usable questionnaires remained.Of those, 494 questionnaires were retumed

from married panel members representing 247different households while another 176 werefrom non-m arried househ olds. Slightly morethan half 5 2 . 8 percent) of the respondents werefemale. The largest percentage of respondents(48.4 percent) were between the ages of 2 5 an d44 years of age, with 65.7 percent indicatingthat they had at least some years of collegeeducation.

R E SULT S

To validate the measures developed, a series ofsteps that were consistent with the proceduresrecommended and used by previous researchers(Newell and Goldsmith 200 1; Bunn 1994;Churchill 1979) were undertaken. First, eachset of items was purified by eliminating itemsthat were am biguous or that did not fit neatly toa specific und erlying dimen sion. Theremaining items were then subject to reliabilityand convergent validity checks. Finally,criterion validity was applied to the measures.

Since there is no theory or a priori foundationto expect that there is a difference in item-scalestmcture between gender, responses fromhusband and wife of the same household weretreated as separate entities for the purpose ofscale constmction.

Exploratory Factor and Reliability nalysis

Activity Based M easures Given the shortage ofresearch studies attempting to measureconsumer sophistication, it was difficult topredict with any degree of confidence theprecise dimensionality associated with theconcept. How ever, it is reasonable to expectconsumer sophistication to have more than one

dimension. In addition, given the belief thatconsumer sophistication is task specific, onemight expect individual items to load onspecific tasks associated with the homeshopping process (a task-based dimensionalityof to p p in g sophistication.) In order to assessthe dimensionality of the activity-basedsophistication scale (actual time and idealmeasure), exploratory factor analysis wasperformed (Hair, Black, Babin and Anderson2010). The results of the exploratory factoranalysis on the actual time measure usingvarimax rotation, produced eight factors witheigenvalues higher than one, accounting for63.34 percent of the variance. For the idea lmea sure, the analysis yielded seven factors w itheigenvalues higher than one, accounting for64.97 percent of the variance. For each factor,a reliability analysis was performed on thoseitems highly loaded on that factor (Churchill1 9 7 9 ; Peter 1979). The factor stmcture andAlpha coefficients associated with each factorcan be seen in Table 1.

As shown, all Alpha coefficients were abovethe .5 to .6 range deemed sufficient for an earlystage of basic research (Nunnally 1967).Furthermore, the overall factor stmctures forthe actual and ideal measurement were prettymuch in agreement, especially for the first sixfactors. Since only one item wa s highlyassociated with the eighth factor for the actualmeasure, it was concluded that both the actualand ideal measure yielded essentially seven

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TABLEFactor Structure And Alpha Coefficients for the Actual and Ideal Measures:

Factors

1

2

3

4

5

6

7

8

Questionnaire Items* Reliability lpha Coefficient

Actual

Ideal

Actual

Ideal

Actual

Ideal

Actual

Ideal

Actual

Ideal

Actual

Ideal

Actual

Ideal

Actual

Ideal

22,26,28,29,30,31,32,33

26,28,29,30, 32,33

39,40,41,42,43,44,45, , 47

39,40,41,42,43,44,45,46,47

15,34,36,37,38

7 , 15,34,36,37,38

9,10,11,12,13,14

10,11,12,13,14

1 , 2, 3, 4, 5

1 , 2, 3, 4, 5, 6, 8

17,18,19

17,18,19,20

1 , 6, 7, 8

9,21,22,23,24,25

20

.89

.88

.91

.92

.88

.92

.87

.88

.85

.88

.77

.78

.78

.88

factors. Despite the convergence between theactual and ideal measures, there existed somedisparity requiring a further purification of themeasure (Churchill 1979). As shown inTable 1: The items associated with the seventh

factor were totally different between thetwo sets of measures.

There were items which associated withone factor for the actual measure but not forthe ideal measure such as items 22 and 3 1 .

There were items not associated with anyfactors for both me asure s. Specifically,items 16, 27, and 35 . Clearly, a furtherpurification of the measure was needed(Churchill 1979).

As a part of the purification process, theresearchers independently reexamined the

original items to decide v ch items to delete.Seven items ( 7, 16, 20, 26, 35, 46) wereeliminated fi'om the original list. Either they didnot load on any factor ( 16, 27, and 35),lacked convergence between the actual andideal ( 7, 46), or were ambiguous ( 26,assessing the cost of maintaining and operatingyour prospective hom e). As shown in Table 1,item 20, (emplojng the assistance of aprofessional real estate lawyer), emerged as asingle factor for the actual measure but not forthe ideal. Therefore, it was judg ed to beidiosyncratic, seldom being employed by thegeneral public, and subsequently deleted fromthe scale. After the item elimin ations, thesecond round of analyses was performed. Table2 presents the results of the factor andreliability analysis. As shown, the results forthe actual measure using varimax rotationproduced seven factors with eigenvalues higher



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than one, accounting for 64.76 percent of thevariance. Similarly, the ideal measure yieldedseven factors with eigenvalues higher than one,accounting for 67.51 percent of the variance.Overall, the factor stmctures for the twomeasu res are nearly identical, except item 9.As shown in Table 2, item 9 is grouped withFactor 5 on the actual measure and Factor 6 onthe other. Upo n close examination, item 9,gathering information about prospectiveneighborhoods was positioned with Factor 5for the following reasons: (1) item 9 wasintended as a part of preliminary informationgathering of the attractiveness of severalneighborhoods, the domain of the Factor 5group, while Factor 6 reflects the dimension of

assessment; and (2) removing item 9 fi-om theitems 21 , 22, 23 , 24 and 25 had littieeffect on the reliability of the group.

The resulting factor stmcture in Table 2 can bedescribed as follows: The first factor measuresth e post- purchase sophistication the secondfactor the need assessment sophistication th ethird factor the overall value assessmentsophistication the fourth factor the financingacumen sophistication the fifth factor theinformation gathering sophistication the sixthfactor the physical condition assessmentsophistication and the seventh factor externalassistance utilization sophistication. Althoughthe original 47 items were constmcted

TABLEFactor Structure and Alpha Coefficients for the Actual and Ideal M easures:

Final AnalysisFactors***

1

2

3

4

5

6

7

Questionnaire Items* * Reliability Alpha Coefficient

Actual

Ideal

Actual

IdealActual

Ideal

Actual

Ideal

Actual

Ideal

Actual

Ideal

Actual

Ideal

3 9 , 4 0 , 4 1 , 4 2 , 4 3 , 4 4 , 4 5 , 4 7

3 9 , 4 0 , 4 1 , 4 2 , 4 3 , 4 4 , 4 5 , 4 7

1, 2, 3, 4, 5, 6, 8

1, 2, 3, 4, 5, 6*, 82 8 , 2 9 , 3 0 , 3 1 , 32 ,33

28,29 ,30 ,31*,32 ,33

15 ,34 ,36 ,37 ,3 8

15 ,34 ,36 ,37 ,3 8

9 10 11 12 13 14

10 ,11 ,12 ,13 , 14

21, 22 ,23 , 24 , 25

9, 21*, 2 2 , 2 3 , 2 4 , 2 5 *

17,18 ,19

17,18 ,19

.90

.92

.86

.88

.87

.88

.88

.91

.87

.88

..87

.88

.77

.79

* All these items have loadings equal to or above .45. Althoiigh not as high as .5, it is the highest loading across all factors.** Factor structure is based on items with a factor loading equal to or greater than .50*** Factor 1 Post Purchase Sophistication

Factor 2: Need Assessment SophisticationFactor 3: Overall Value Assessment SophisticationFactor 4: Financing Acumen SophisticationFactor 5: Information Gathering SophisticationFactor 6: Physical Condition Assessment SophisticationFactor 7: External Assistance Utilization Sophistication

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according to the stages of the home purchasedecision making, w hat em erged fi-om the factoranalysis was a combination of decision stagesand the nature of decisions including financing,physical conditions and overall values. Sevendistinct dimensions emerging suggestedsophistication should be measured at both thecompon ent and overaU level.

Global Measures The exploratory factoranalysis on the 13 overall home buyingdecision-making items generated two factorswith eigenvalues over one and accounted for66.1 percent of total variance as indicated inTable 3 . The two factors feU neatly accordingto the original conception of the items. That is,one group measured the perceived appropriateamount of time spent on each specific decision

stage, while the other group measured thesubjective perception of global sophistication.Every item loaded highly on either one of thefactors with the exception of item #7, overall Ibelieve my/our household wasn't very well-informed when deciding to purchase the home.In addition, there was a low correlation(approximately .2) between #7 and theremaining items, significantly lower than thecorrelation am ong o ther items. As a result, item#7 was dropped fiom the original list ofquestions (Churchill 1999, p.462 ).

Va U d i t y

Content Validity Since reUability is anecessary but not sufficient condition toestabUsh the validity of a measurement scale

TABLE 3Facto r Analys i s and Rel i ab i l i t y Alpha Coeff i c i en t s

Items-

1. OveraU I believe an appropriate amount of dm e was spent assessing the needs and resourcesof the household prior to purchasing our/my home.

2. Overall I believe an appropriate amount of dm e was spent gathering home buying informa-don and assistance prior to purchasing ovir/my home.

3. OveraU I believe an appropriate amount of dm e was spent evaluating housing alternativesprior to purchasing our/my home

4. OveraU I beUeve an appropriate amount of time was spent nego dadng and securing financingfor our/my home.

5 . Overall I believe an appropriate amount of dme was spent ensuring that the house hold's fi-nancial and safety needs associated with the purchase of our/my hom e

6. OveraU I believe my/our household acted in a very sophisdcated manner through the entirehome shopping effort.

8. OveraU I believe my/our household carried out the home purchase process in a very system-adc manner.

9. OveraU I beUeve my/our household effort was very consistent with wise purchase pracdc e.10. Overall I beUeve my/our household acted in a very thoughtful m anner througihout the home

purchase process.11. OveraU I beUeve my/our household acted in a very prudent manner throughout the home

shopping effort.12. OveraU I beUeve my/our household displayed a high degree of shopping competence through-

out the home shopping process.13. OveraU I beUeve my/our home shopping effort was very through.

Factors*

1

.424

.449

.331

.158

.263

.649

.779

.731

.830

.770

.787

.702

2

.646

.714

.690

.795

.743

.315

.218

.415

.245

.278

.341

.484

% of Variance Explained 37.83%Reliability Alpha .92*Factor i represents the qipropriate amount of time spent on each stageFactor 2 represents the subjective perception of global sophistication

''The original item #7 was eliminated due to a low correlation with other items.

28.27%.85



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(Churchill, 1999, p.459), other indicators areneeded. The first indicator is the contentvalidity or face validity of the scale. For theforty-one activity-based items, the contentvalidity was established by the fact that theitems were adapted from consumer guides forbuying and selling home as previouslydiscussed. The scale also covered themultifaceted stages of home purchase decision.In an attributes-consequences-value framework,consumers are said to look for productattributes vsdiich lead to certain consequenceswhen in use, and ultimately produce theattainment of desired values (Gutman 1982). Ifthe forty-one activity based items are the micro-level attributes, then the twelve overall hom e

buying decision items are the more aggregatelevel conseq uenc es derived from thoseactivities. All items pertain to the perceivedresults because of the house-piirchase activitiesperformed. If the activity items are contentvalid, so are the consequence items derivedfrom those activity items. Therefore, thecontent validity of these twelve items wasestablished.

Convergent Validity. A multi-trait, multi

methods approach was employed to establishthe convergent validity and discriminatevalidity. There were essentially two measuresof specific dimensions/stages of home purchasesophistication. A high correlation between thesemeasures is an indicator of convergent validity.One was the different factors of the forty oneactivity-based items designed to measure aspecific dimension/stage of the home piirchasesoph istication. Specifically, these factors we re: Nee d Assessme nt Sophistication

Informa tion Search Soph istication External Assistance Sophistication, P h y s i c a l C o n d i t i o n A s s e s s m e n t

Sophistication Overall Value Assessment Sophistication, Financial Acum en Sophistication Post-Purchase SophisticationEach of these dimensions was represented bythe average score of all the items in thatdimension. The other measure were thespecific items on the Global PerceptionMeasure designed to measure the perceived

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overall sophistication of each decision stage.Specifically, these w ere: Overall Need Assessm ent Sophistication Overall Information Search Sophistication Overall Evaluation of the Altematives

Sophistication Overall Nego tiation Sophistication Overall Financial and Safety Need

Sophistication

As shown in Table 4, there exists significantcorrelations not only between two measures ofthe same dimension, but among almost alldimensions. How ever, the correlation betweentwo measures of the same dimension isconsistently higher than those of correlationsbetween dimensions. For examp le, thecorrelation between the need assessmentsophistication dimension measure and theoverall need assessment sophistication itemmeasure, .26, is higher than its correlation withall other overall item sophistication measures.Similarly, the correlation between informationsearch sophistication dimension measure, .34,and overall information search sophisticationitem measure is higher than other overallsophistication measu res.

Not only is the convergent validity of themeasures established, but to some degree thereis evidence of discriminate validity. Theexternal assistance sophistication dimensionmeasure consists of the following three items:employing the assistance of a professional realestate agent, real estate appraiser, and homeinspector. Real estate professionals not onlyprovide expert information, but also a sense ofsecvirity. Therefo re, it is no t surprising to seethe results presented in Table 4 revealing thatthere exists a high correlation (.11) with notonly the overal l information searchsophistication perception, but also with theoverall financial and safety protectionsophistication perception (.16). Similarly, thefinancial acumen sophistication dimensionmeasure has the highest correlation (.38) withthe overall negotiating and securing financingsophistication perception. It is also highlycorrelated (.31) with financial and setyprotection sophistication measure.



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TABLE 4Correlation Coefficients Between Time Based Soph istication M easures A ctual Time Spent Items versus O verall Specific A ctivity Perce ption)

NEED* INFO EVAL

NAS* .26** .25** .20**ISS .19** .34** .30**EAS .01 .11 ** .04PAS .29** .37** .32**OVS .21** .30** .24**FAS .18** .27** .20**PPS .22** .28** .20*** N AS : Need Assessment SophisticationISS: Information Search SophisticationEAS: External Assistance SophisticationPAS: Physical Condition Assessment SophisticationOVS: Overall Value Assessment SophisticationFAS: Financial Acumen SophisticationPPS: Post-Purchase SophisticationNEED: Overall NEED Assessment SophisticationINFO : Overall INFOm ation Search SophisticationEVAL: Overall EVALuation of the Alternatives SophisticationNEGO: Overall NEGOtiadon SophisticationFINA : Overall FINA ncial & Safety Nee d Sophistication

** significant at .01 level*** significant at .05 level

NEGO

.15**

.23**

.09***

.29**

.22**

.38**

.25**

FINA

.21**

.21**

.16**

.30**

.29**

.31**

.30**

In addition to the actual measure, the regret(actual-ideal-gap) measure can be correlatedwith the first five activity specific overall homebuying decision making items in the globalperception measure to establish the convergentvalidity as shown in Table 5. First, the samepattem emerged as with the actual timemea sures. The correlation between twodifferent measures of the same dimension isgenerally higher than the correlation betweenmeasu res of different dimensions. Forexample, the correlation between the needassessment regret sophistication measure and

the overall need assessment sophisticationperception -.33) is higher than its correlationwith overall sophistication measures intendedfor other dimensions. Therefore, convergentvalidity, and to a lesser degree, discriminatevalidity are established. Secon dly, the directionof the correlation is in the expected direction.Specifically, the higher regret (gap) isnegat ive ly associa ted wi th perce ived appro priate amount of time spent on aparticular decision stage.

With respect to establishing convergentvalidity, the actual and regret measures use thesame 41 items to measure sophistication whethe global measu re uses 12 items. Therefore, asummary indicator of each of the threemeasures of sophistication can be obtained bycalculating the average of each measu re. Forinstance, a summ ery indicator of the actual timemeasure can be obtained by taking the averageof the 41 actual time items with similaraverages calculated for the regret and globalperception mea sure. Each of these meanswould serve as a surrogate measure of

sophistication. With the actual time measureand global perception measure, the higher th emean, the gre ter consiuner sophistication.Since the regret measure represents thatdifference in actual time spent vs. the ideal, thehigher the mean, the less consumersophistication. As shown in Table 6, all threemeasures have significant (p


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TABLE 5Correlation Coefficients Between Time Based Sophistication Measures

Regret versus Overall Specific Activity Perception)

NEED* INFO

NASGP*ISSGPEASGPPASGPOVSGPFASGPPPSGP

- .33**- .31**-14**- .31**-.28**-.28**-.29**

-.29**-.47**-.22**-.37**- .33**- .35**- .31**

EVAL

- .32**-.37**-.12**- .33**- .25**- .26**- .25**

* NASGP: Need Assessment Regret SophisticationISSG P: Information Search Regret SophisticationEASGP: External Assistance Regret SophisticationPA SGP : Physical Condition Assessment Regret S ophisticationOV SGP: Overall Value Assessment Regret SophisticationFASGP: Financial Acumen Regret SophisticationPPSGP:Post-Purchase Regret SophisticationNEED: Overall NEED Assessment SophisticationINFO: Overall INFO mation Search SophisticationEVAL: Overall EVALuadon of the Alternatives SophisticationNEGO: Overall NEGOtiation SophisticationFIN A: Ove rall FDSfAncial & Safety Ne ed Sop histication

** significant at .01 level*** significant at .05 level

NEGO

- .23**- .34**-.17**-.27**-.29**- .35**-.30**

FINA

-.22**-.28**-.16**-.27**-.28**-.27**-.32**

sophistication r = .38). Also , the more timespent overall, the less overall regret ( r = -.26).Similarly, the higher the overall regret, thelower the perceived overall sophistication ( r =- .46). It seems that the overall self perceivedsophistication is determined not so much byhow much time one actually spent on homepurchase activity overall, but more by thedegree of gap between the actual amount oftime spent and the amount of time one ought tospend. Finally, within the global perceptionmeasure, there is a high correlation ( r = .73 )between subjects' perception that they spent anappropriate amount of time on all stages ofdecision making and their own assessment ofhow sophisticated they are.

Criterion Validity. Criterion validity reflectswhether a scale relates to other constructs in atheoretically predicted way. Since consumersophistication reflects wise , well thoughtou t decisio ns, it is logical to expect that asophisticated buyer would be more satisfiedwith his/her decision, more confident in thedecision made, and experience less anxiety

about the decision. Three items weredeveloped to measure the above constructs: I

am very satisfied with the purchase of my/ourhom e, I am very confident that I/we mad e theright decision to buy the hou se, After thedecision to buy my/our home, I felt veryanxious about my/our purchase decision. Allthree overall measures of sophistication werecorrelated to the three separate items. Theresults are shown in Table 7.

As expected, the regret (actual-ideal-gap)measure correlates significantly with all threeitems. A high level of regret (lowsophistication) correlates with low level ofsatisfaction, low level of confidence and highlevel of anxiety. Similarly, a high level ofg loba l pe rcep t ion ind ica t ing g rea t e rsophistication correlates highly and positivelywith satisfaction and confidence, but nega tivelywith anxiety. How ever, The actual timemeasure correlates significantly with bothsatisfaction and confidence, but not withanxiety. Ov erall, there exist criterion validityfor both the regret (actual-ideal-gap) measure

25 Marketing Management Journal Spring 2011


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Co n s u me r So p h i s t i c a t i o n : . . . . Wu Titus Newell and Petroshius

TABLE 6Correlation Coefficients Between Overall Sophistication Measures

Actual Time Spent versus Regret versus Global Perception)

TLPARTlTLABSGAPBUYOVALL

* TLPARTlTLABSGAPBUYOVALL

** significant at .01 level

OverallOverallOverall

TLPARTl* TLABSGAP BUYOVALL

-.26** .38**-.46**

- .Sophistication based on actual activity itemsSophistication based on regret itemsSophistication based on global perception

TABLE 7Correlation coefficients between sophistication and satisfaction, confidence, anxiety

TLPARTl*TLABSGAPBUYOVALL

Satisfaction.12**

- .25**.49**

Confidence.12**

-.29**.51**

* TL PA RT l Overall Sophistication based on PAR T I activity itemsTLA BSG AP Overall Sophistication based on Regret (ABS(PA RT I - PAR T II))BUY OV ALL Overall Sophistication based on Global Perception

** significant at .01 level

and the global perception measure, but onlypartially with the actual time m easure.

DISCUSSION

Based on the convergence of factor analysisresults performed on the actual and idealmeasures and the results of the subsequentreliability analysis, the original forty-sevenactivity-items were reduced to forty-one items.Similarly, one item was eliminated fi-om thethirteen overall perception items. The actualtime sophistication measure and the regretmeasure were then constructed based on theforty-one reduced items, while the globalperception measure was constmcted fi-om thetwelve overall perception items. All threemeasures were lown to have high degree ofreliability. Furthermo re, they were shown tohave content validity, convergent validity, andcriterion validity.

Additionally, it was found that the globalperception measure has the highest convergentas well as criterion validity, followed by theregret measure, with the actual time measurethe least. It seems that the more time spent ondecision specific activities does not necessarylead to higher perceptions of decision makingsophistication. No r does more time spent leadto more perceived satisfaction with, confidencein, and less anxiety with, the home purchase

decision. It is on e s self perceive dsophistication which has the h ighest correlationwith one s satisfaction, confidence and anxiety.

Since the global perception measure are itemsstated in general terms, they can easily beadapted to study the sophistication level ofother purchases as well, thus becoming thestandard sophistication measu re. The results ofthis measure over different purchase situations,for example, automobile purchase, computer



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purchase, insurance purchase, investmentdecision, etc., can be used to construct arelative sophistication index over differentpurchase situation.

Although the regret measiu-e does not performas well as the global perception measure, itoutperforms the actual time measure. It alsooffers an important advantage over the globalperception measure in its ability to shed insightinto the cau ses of a certain overallsophistication measure, the diagnostic power.For example, the overall regret measure isfound to correlate highly with satisfaction,confidence and anxiety. How ever, whichdimensional regret measure is responsible for

this correlation? Wh en regression analyseswere performed, using satisfaction, confidenceand anxiety as the dependent variables and theseven dimensional regret measures as theindependent variables, it was found that theoverall value assessment regret sophisticationmeasure was the sole factor significantly relatedto the anxiety about home purchase decision.On the other hand, the physical conditionassessment regret sophistication measure is thesole factor responsible for the correlation withboth the overl home purchase satisfaction aswell as the expressed confidence that rightdecision has been made .

In addition to its diagnostic power, the regretmeasure also provides policy makers with theability to understand in which sophisticationfactors consumers seem to be most deficient.Subsequently, policy initiatives can be designedand implem ented to alleviate this deficiency. Infiiture research, the overall regret measure, aswell as the dimensional regret measures, shouldbe analyzed based on important demographicvariables as well as family structural variables.This would provide deeper insights into thedifferences in sophistication among gender,race, family size, and stage of family life cycle,etc.

27

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Consumer Sophistication:.. . . Wu Titus NeweU and Petroshius

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APPENDIX A:Activi ty Based Measures*

Home Purchase Activity items

1. Determining whether your househo ld reallyneeded to purchase a home.

2. I d e n t i f y i n g t h e sp e c i f i c l i v i n grequirements/needs of your household.

3. Prioritizing you r hou seho ld's specificliving requ irements/needs.

4. Determining how various home designs orlayouts would satisfy the specific living

requirements of your household.5. Prioritizing the desired features yourhousehold wanted in a home.

6. Determining how much your householdcould reasonable afford to pay for a home .

7. Determining how much of a down paymentyour househo ld could afford to put down .

8. Determining w^en would be the best timefor your household to purchase a home.

9. Gathering information about prospectiveneighborhoods.

10 Visiting prospective hom es.11 . Gathering buying information/advice from

different sources.12. Verifying the accuracy of gathered hom e

buying information.13 . Gathering information about the list price

of prospective homes.14. Gathering information about the actual sale

price of recent hom e sales.15 . Gathering information about financing

options and interest rates.

16. Utilizing mo dem technologies (e.g.,intemet) to assist your informationgathering a ctivities.

17. Employing the assistance of a professionalreal estate agent.

18. Employing the assistance of a professionalreal estate appraiser.

19. Employing the assistance of a professionalhome inspector.

20. Employing the assistance of a professionalreal estate law yer.

21. Assessing the physica l condi t ion/constmction of your prospective home .

22. Assessing the strengths and weaknesses ofyour prospective neighborhood.

23. Assessing the strengths and weaknesses of

the design/layout of your prospective hom e.24. Assessing the strengths and weaknesses of

the location of your prospective home.25. Assessing the size and condition of the lot

and landscaping.26. Assessing the cost of m aintaining and

operation your prospective home.27. Assessing the working condition of the

major appliances in your prospective hom e.28. Assessing the actual market value of your

prospective hom e.

29. Assessing the tax advantages of purchasingyour prospective hom e.30. Considering the future appreciation va lue

of your prospective hom e.31. Considering the hidden costs of purchasing

your prospective home (insurance, realestate taxes).

32. Est imating the cost of necessa ryrepair/improvements to your h ome.

33. Asse ssing the physica l condi t ion/constmction of surrounding hom es.

34. Locating favorable financing terms andoptions to pay for your hom e.

35. Developing a strategy for negotiating thepurchase price of your hom e.

36 . Assessing the financial terms and conditionof your mortgage agreement.

37 . Reviewing the legal and financial terms ofthe real estate sales contract prior to signingthem.

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