How effective are public policy decissions?…The need for a general evaluation model

Journal of the Academy of Marketing Science Summer 1976, Vol. 4, No. 3,554-565

How Effective Are Public Policy Decisions?... The Need for a General Evaluation Model

Robert Anderson, Ph.D. and R. Eugene Klippel, Ph.D.

University of South F/orida

INTRODUCTION

It is readily evident that the development and implementation of public policy is becoming increasingly important at the federal level of government

and it is unrealistic to anticipate a reversal of this trend. A brief review of the

Humphrey-Javits bill now pending in Congress should convince even the most skeptical of this point.

While governmental activities have been increasing, consumer advocates, public policy makers and industry officials are aware that at the present time

new laws are not always the solutions for the consumer ills they seek to cure (Kripke, 1969). For example, firms may react in an unforeseen way to legisla-

tion by adjusting their policies and practices to eliminate many of the envi- sioned benefits to the consumer (Wheatley and Gordon, 1971).

The primary purpose of this paper is to develop a general model for use in evaluating proposed and existing consumer-oriented public policy actions.

However, before describing the model per se, it would be useful to briefly review recent major consumer-oriented policy decisions from two perspectives: (1) from the viewpoint of the consumer and (2) from the perspective of the business firm.

Given these two basic perspectives, the remaining portion of the paper focuses on the development of a general model which attempts to incorporate

554

555 HOW EFFECTIVE ARE PUBLIC POLICY DECISIONS?

�9 . . THE NEED FOR A GENERAL EVALUATION MODEL

these perspectives into the model's conceptual framework.

Public Policy: The Consumer's Perspective

The basic rationale for consumer oriented public policy decisions is that it

will improve overall consumer welfare by enabling the individual to attain a

higher level of utility through better product quality and better information.

The "informational" laws of the sixties and seventies such as truth-in-pack-

aging, truth-in-lending, unit pricing and truth-in-advertising make it possible

for the consumer to be better informed and thus to make more rational pur-

chasing decisions. These " information" laws assume that consumers have the

following characteristics:

1. Consumers do shop for the best deals on the merchandise or service

desired�9 2. Consumers are capable of making sound rational judgments between

alternatives and therefore secure the best values.

Recent studies have shown that the assumed characteristics of consumers

are probably in error�9 Consider the 1968 consumer credit protection act (truth-

in-lending) which provides for the disclosure of the annual rate of interest of

all finance charges on credit transactions, the method of determining the

finance charges on credit transactions, when additional charges may be im-

posed, and the minimum periodic payment that may be required. How effec-

tive is the law.'? A federal reserve board survey in 1970 found 21 percent of new

car buyers with installment loans were unaware of the interest rate charged

them, as were 42 percent of the new furniture buyers. In another stud>' of the

effectiveness of truth-in-lending, Homer Kripke doubts the efficacy of pro-

viding low income consumers with information on credit terms�9 He looks

upon the law as using middle-class solutions (disclosure) to solve a low income

class problem. Kripke's (1969) analysis of the effects of truth-in-lending points

to the fact, ironically, that those low-income consumers who need the protec-

tion of the law the most, benefit the least. The consumers who need the bene-

fits the least, accrue most benefit. Mandell (1973), in a study of the consumer's

knowledge and understanding of credit, concluded:

First, we have seen from other evidence that most consumers do not in

fact care as much about interest rates and the cost of credit as about other

things; specifically, the size ~_,f the monthly payment. Second, with the

exception of those who are well educated and fairly affluent, most consum-

ers have great gaps in their knowledge of the credit market.

In addition to the assumptions about consumers' shopping and judgment

capabilities, the informational laws also make the following assumptions

ANDERSON AND KLIPPEL 556

about consumers ' information processing abilities (Wilkie, 1974).

1. First, more information is better. The more information consumers have,

the better decisions they can make.

2. All consumers process information in a uniform manner. The first as-

sumption is erroneous because consumers have different informational re-

quirements and their environments in which they use the information differ.

The second assumption is also erroneous in that it ignores consumer differ-

ences in the processing of information because of experience, use of the pro-

duct and how important the product is to the consumer. In general the two as-

sumptions do not allow for differences in situational factors or situational en-

vironments.

A recent study of the consumer use of base price information illustrates the

differences in how consumers process and utilize information. Less than half

of the sample of 151 respondents were aware of base pricing and less than one-

third demonstrated minimum familiarity with the meaning of base price even

though base price information had been mandatory and available for approxi-

mately six months before the study took place. Overall the study demonstrated

very low consumer awareness of base pricing although as the consumer 's

social class or educational level improved, so did the awareness of base pricing

information. One of the major questions of the study dealt with why con-

sumers would not request and use the available information. The reply given

most frequently was that to do so would involve too much of an effort or an

excessive amount of time while shopping. This study, as did the Monroe-La

Placa study on unit pricing, suggests that consumers are not primarily con-

cerned with price as a criterion in the purchase of grocery products. Other

attributes such as brand name, size of the package or store choice may be more

relevant to the consumer than price. " T h e implication is that information on

base price was not perceived by the study respondents as valuable enough to

offset the effort required to secure in fo rmat ion . " The two broad conclusions

reached by the author (Wilkes, 1972-73) were:

1. Consumers are largely unaware of the meaning of base pricing.

2. Consumers rarely exercise their option to request base price information

even when they are familiar with base pricing.

Most existing and proposed consumer legislation, as in unit pricing laws,

has as its primary goal the increase of information to consumers to allow

better decision-making in their purchases. This was the goal of the Fair Pack-

aging and Labeling Act. The act was passed essentially to standardize package

sizes and information contained on labels which would allow consumers to

make better price comparisons. However, due to the varied sizes that packages

come in, it was still difficult for the consumer to compare a 14-ounce package


�9 . . THE NEED FOR A GENERAL EVALUATION MODEL

costing 65 cents and a 6-3/8 ounce package costing 30 cents. Consumer advo-

cates realized this and began advocating for unit-pricing laws which were to:

1. Give the necessary information to those consumers who feel price is an

important criterion;

2. Give additional information to those consumers who have low motiva-

tion to use price as the only criterion, such as the consumer who uses a brand

name as his buying criterion (Shoaf and Melnick, 1974l.

A number of research studies have been conducted since the inception of

unit pricing in Massachusetts during 1970 (Monroe and La Placa, 1972;

Carman, 1972-73; McCullough and Padberg, 1971). A relevant question in

most of the above studies was: To what degree do consumers use price as a

basis for making their purchasing decision? Monroe and La Placa (1972), after

investigating the research findings of a number of studies dealing with this

issue, concluded "the limited evidence available suggests that most consumers

are not primarily concerned with price as a purchase choice criterion for gro-

cery p roduc t s . . . Therefore, if unit pricing suggests that a different brand or

size would be more economical, the consumer may be reluctant to use this new

criterion as the only base for his purchasing decision."

Other recent findings indicate that consumers do use criteria other than

price in formulating their purchase decision and the amount of information

required depends upon the alternative product-service offering. Thus, it

should not be presumed that a consumer will automatically shift to a lower-

priced product because there may be substantial differences in the various

product-service alternatives (McCullough and Padberg, 1971)�9

Public Policy: Industry's Perspective

As stated previously, public policy is normally developed for the eventual

benefit of the consumer. Some policy decisions such as unit pricing and base

price information have an immediate impact upon the consumer and negligible

effect on the individual firms in the industry affected by the policy. This seems

to be particularly true for the larger firms and industries (Carman, 1972-73).

For other policy decisions such as truth-in-lending, truth-in-packaging, and

truth-in-advertising, although they are implemented immediately, the effects

upon the consumer have been difficult to measure because various industries

and firms have reacted differently to the decisions�9

One instance of how industry reacted to a public policy decision was investi-

gated in a study by Wheatley and Gordon on the effects of the passage of a law

in the state of Washington limiting the interest rate that can be charged on various consumer credit to 12% a year.


Faced with a large loss in revenue due to the interest limitation, the retailers had the options of reducing costs, raising the price of the products, increasing

charges for extra services or beginning to charge for extra services that for- merly were free, or reducing the trade-in allowance if trade-ins are a normal

part of doing business. The following are the reactions of the retailers to the interest limitation law:

1. Businessmen attempted to lower costs by making qualitative changes in their consumer-lending activities. Virtually all financial institutions and retail-

ers tightened their lending policies by increasing down payment requirements and shortening loan periods.

2. Most retailers admitted to raising prices in direct response to the passage of this act. Moreover, the price increases were not restricted to products usually sold on credit terms.

3. Some retailers instituted charges for services which were provided "free" prior to the act.

Even more interesting than industry's reactions to the interest limitation law are the effects of the law on the various segments of the economy affected by the law.

1. Total consumer loans outstanding declined 12.4070 in number and 6.3~ in dollar volume.

2. The price that the banks and finance companies charge the retail dealers

with whom they do business increased (it is not controlled by law). 3. Many banks will no longer handle indirect loans for older model auto-

mobiles, particularly those five years or older.

4. The law did benefit customers in that the cost of direct or indirect merchandise loans, the use of bank credit cards, and interest charged by merchants has been held at or reduced to 12~ per annum. The effect of the law has been uneven, however, and there appear to be consumer groups who

have suffered adversely from its enactment. Cash customers, for example, received no benefits. They are probably paying higher prices because most re-

tailers contacted had raised their prices on all merchandise by the third quarter of 1969. When loan maturities have been shortened, the consumers' monthly payments have increased. Therefore, most customers are able to borrow less than they were prior to enactment of the law (Wheatley and Gordon,

1971). Another study that was concerned with the effects of the Fair Packaging

and Labeling Act of 1971 also offers insight into industry's response to public

policy decisions. The substance of the regulations issued by the Federal Trade Commission is that the manufacturer is restricted to offering the "cents off package" to three times a year on any given brand size and it is the manufac-


. . .THE NEED FOR A GENERAL EVALUATION MODEL

turers' duty to withhold availability of "cents off package" deals in circumstances in which he knows (or should have reason to know) that the "cents off

package" will be used for deception or cause complications in the consumer's ability to make value comparisons. In 1973, the Retail Management Institute of New York University conducted a research study to determine the effects of

the regulations. A "before the regulations" study was conducted prior to the issuance of the regulations and used as a benchmark to determine the effects

of the regulations. The findings are summarized below: 1. It appears that the FTC rulings have had the effect of reducing the num-

ber of stores willing to handle the "cents off package" deals. . . Many retailers are opting for either discount coupons or cash discounts for special point-of-

purchase displays in lieu of federally regulated "cents off package" deals. 2. The FTC guidelines have not had an appreciable effect on improving the

relative performance of the type of stores most negligent in passing the "cents off package" deals to the consumer. In the initial 1969 study it was found that

large (particularly chain) stores properly priced 89 percent of the COP deals on their shelves, while the small (especially non-chain) stores properly priced 65

percent of the deals (Shoal and Melnick, 1972). Although the previous pages dealing with the perspectives of the consumer

and industry to public policy decisions are admittedly limited in their scope

and coverage, they do set the framework for some general statements as to the

effects of various public policy decisions. 1. In general, public policy decisions have had some benefit to consumers

but there is evidence that there have been many adverse effects also suffered by

consumers through enactment of the various laws and regulations.

2. Consumers, in general, will not expend extra energy or time to use information designed to increase their ability to make "rational" purchasing decisions.

3. Particular groups of consumers, low income and/or ethnic minorities, re-

ceive the least benefit from public policy decisions and are usually the victims of unforeseen adverse reactions to the laws by industry due to circumstances

largely beyond their control. 4. Industry as a whole will respond to public policy decisions in a self-pro-

tective manner that is not always in the best interests of consumers. 5. Certain sectors of industries affected by public policy decisions will suffer

detrimental consequences as a result of the policy decisions which in turn will

usually have an adverse effect on the consumer in the long run.

A GENERAL CONSUMER-ORIENTED EVALUATIVE MODEL

Based on the above discussion there is an obvious need for a more scientific


and systematic approach to public policy decision making--an approach that emphasizes the acquisition of information pertaining to the possible effects of the policy before the policy is actually implemented. The proposed general procedural model illustrated in Figure 1 has three major thrusts: (1) the identification of the appropriate "target markets" and the costs and benefits of public policy decisions associated with these markets; (2) the identification of the information needs of the consumer; and (3) the pretesting of the policy decision before actual implementation.

FIGURE I

A General Model for Public policy Research and Development

Public Policy Objectives ~ ..............

9 Public policy Proposal

I d e n t i f i c a t i o n o f Consumer Groups A f f e c t e d by P r o p o s a l

I & & E n u m e r a t i o n of p o t e n t i a l I d e n t i f i c a t i o n of c o s t s b e n e f i t s from the p r o p o s a l 1. I m p l e m e n t a t i o n c o s t s to " t a r g e t " consumer 2. Consumer c o s t s

and i n d u s t r y 3. I n d u s t r y c o s t s i g roups

Benefits Exceed Costs

Identify kinds of Assess capability of Determine amount information needed "target" ~roups to under- of existing rele- in making decisions stand decision environ- rant information by groups affected ment available to by policy decision target groups

Consumer Information ystem

............... Revise

O

Test Market Public policy Proposal

pre-test policy on "target" groups

Pre-test policy on affected industry

Pre~test Pre-test communica- communication tions vehicles

Evaluation of Market Test ..............

Benefits Exceed Cost Costs Exceed Benefits

I Implement l Abandon p o l i c y )policy De~isions - - Decisions

& Measure and Eva%uate Results


�9 �9 . THE NEED FOR A GENERAL EVALUATION MODEL

Operational Considerations

Even though the proposed approach to public policy decision making is a

systematic and analytic approach to decision making,, it is certain that there

will be problems encountered in attempting to implement such a proposal.

Some of the more obvious potential problems will be: (1) Defining operational public policy objectives; (2) identifying relevant "target markets" (consumers

who are to benefit from the public policy); (3) identifying costs and benefits to both consumers and firms affected by the policy; (4) defining consumer

information needs; (5) defining consumers' capabilities and willingness to use information.

Defining Objectives and "Target Groups"

Defining the objectives of public policy will not be easy due to a lack of

agreement as to what the purpose of public policy is. The disagreement as to the purpose of public policy is deeply imbedded in differing socioeconomic

and political viewpoints. In order to escape an emotional debate over the role of government and public policy, the focus should be on what is to be accomplished by enactment of the policy decision. These accomplishments then be-

come the objectives of the policy decision. If this approach had been taken

with the truth-in-lending policy, possibly many of the reactions of business and affects on consumers could have been anticipated and provisions made to eliminate them.

The consumer groups that are to benefit the most from the proposed legis-

lation should be considered the primary "target groups" of the proposed

public policy. However, one should not ignore the secondary groups because

most public policy decisions, although they may be directed towards one or more specific groups, do to some degree have an effect on all consumers.

Costs and Benefits

All consumers do not share equally in the benefits of public policy. In most cases the consumers who use the product or service of a particular industry

reap more benefits than do the non-users. There are also groups of consumers who have the potential to benefit from a law but do not because they choose not to participate or do not have the information required to participate.

McCullough and Padberg (1971) found that after sixteen weeks of implemen-

tation only 43 percent of the consumers were aware and understood unit

pricing. Thus, we have identified two separate and distinct groups of con-


sumers, one group receives direct benefits through usage of the product or ser-

vice and the others are potential receivers of benefits. A third group of consumers who can benefit are those who receive secondary benefits. For exam-

ple, it is believed by some that if druggists were allowed to substitute in pre-

scription drugs and allowed to advertise prescription drug prices, the con- suming public would benefit in general from lower drug prices not just those

who use a specific prescription drug. Consumer costs are a great deal more difficult to identify because not all

costs can be measured in dollars and cents. Some implementation costs are obtainable as reported in Carman's survey of unit pricing legislation (1972-73).

However, other costs are largely dependent on how much the consumers uti-

lize the information provided by the "truth-in-laws" or full disclosure laws.

Other costs are hidden and not readily obtainable until a law has been enacted and industry has had time to respond (Monroe and La Placa, 1972). It is also possible that consumers will be less than rational in their decision-making

process. Walker and Sauter (1972} found that low income consumers preferred

higher interest rates with lower down payments or monthly payments to con- tracts that had lower interest rates and higher down payments or monthly payments.

If benefits exceed costs the policy should be implemented but one should not assume that if costs exceed benefits that the proposal should be automatically eliminated. From a social point of view if the costs are borne by higher income groups with most of the benefits accruing to low income consumers,

then it may be desirable to implement the law. There is also the possibility that

the law could be revised and with good implementation procedures increase the benefits and reduce the costs.

Information Needs and Requirements

The major problem confronting the gathering of data concerning consumer information needs and consumer capabilities to process information is that consumers are different. As Wilkie and Gardner have pointed out, consumers have different informational requirements; their environments in which they

use the information differs; and experience caases differentiation in processing and utilizing information (Wilkie and Gardner, 1974). However, by adequately defining the "target groups" for whom the legislation is to benefit, general need and usage profiles of each group can be drawn. From these profiles adequate methods of communication and proper vehicles of communication can be tested. Past experience has demonstrated that in general the reason public policy has not been successful is due to the poor utilization or lack of


�9 NEED FOR A GENERAL EVALUATION MODEL

awareness of information, not the lack of it (Wilkes, 1973). What is needed is

an effort to develop programs that will individualize the dissemination of information. The consumer should feel that an attempt is being made to provide him with an awareness of the buying environment and the 'information re-

quired to guarantee satisfaction with his choice of alternatives. Finally, an

effort must be made to provide feedback to the governmental bodies that de-

velop public policy. This feedback should become part of a consumer information system that all policy making units have access to.

Test-Marketing Policy Decisions

Assuming that the methodological problems can be solved, the next step is

to test market the decision. Test marketing is a widely known and utilized tool

in marketing. Its use is defended on the basis of having public reaction to pro-

ducts on a small scale before full scale operations are attempted. It is used to gather facts and information, good or bad, about key decisions such as to market a product or not, to revise a product, or to attempt a totally new mar-

keting program. This tool of marketing has great potential in the area of public policy decision-making. Unlike business decisions, once policy decisions are made they are very nearly irreversible. Thus, all the more need to test the decision before it is implemented. One of the major problems with

past public policy decisions has been that the decision makers have never known specifically how or who the law would affect. Most research dealing

with public policy decisions comes after the fact, not before it. The major benefit resulting from test marketing a policy decision is that it will give infor-

mation as to how the law should be implemented. Lack of good implementation procedures has been one of the reasons public policies such as the "full disclosure laws" have not been as beneficial to the consumer as they were designed to be.

CONCLUSIONS

The success of public policy decisions to make the consumer more knowl- edgeable and rational in his decision-making process is certainly open to debate. This is particularly true if an individual's philosophy is that public policy decisions should be aimed at improving the welfare of all individuals in our society. Even if one were to take an opposing position and say that public

policy should be aimed primarily at special interest groups, public policy has not accomplished what it is intended to do.

Public policy decisions that have changed marketing procedures have


largely been implemented through full "disclosure laws." Apparently some-

thing is needed more than " fu l l disclosure" before a majori ty of the con-

sumers benefit. The lack of benefits derived from the " informat iona l taws"

appears to be due to four primary reasons:

1. Consumers have not adequately used the available information in

decision making.

2. Consumers have not been aware of the availability of the information.

3. Consumers, particularly those at the lower end of the socio-economic

scale, do not have freedom of choice in most of their purchasing decisions due

to their socio-economic standing in their communities.

4. Industry has shown a tendency to respond to public policy decisions in a

self-protective manner that is not always in the best interest of the consumer.

The successful implementat ion of public policy depends heavily upon know-

ing what information is required by the consumers and the situational factors

that determine whether or not the consumer will use the information. Imple-

mentat ion will only succeed if there is an attempt made to educate the con-

sumer through methods other than "ful l disclosure." One approach to suc-

cessful implementation of public policy is to emphasize pre-decision research

rather than post-decision research. The methodology outlined in the model

presented in this paper has as its major thrust the gathering of information as

to the effects o f a policy decision before the decision is made. In following

such a procedure, the chances of succesful implementation and achievement

of the policy's objectives are greatly enhanced.

R E F E R E N C E S

Carman, James M. 1972-73. "A Summary of Empirical Research on Unit-pricing in Supermarkets." Journal of Retailing 48 (Winter) 63-71.

Kripke, Homer. 1969. "Gesture and Reality in Consumer Credit Reform." New York University Law Review 44 (March) 1-13, 51-52.

Mandell, Lewis. 1973. "Consumer Knowledge and Understanding of Consumer Credit." Journal of Consumer Affairs 7 (Summer) 35.

McCullough, T. David and Padberg, Daniel. 1971. "Unit Pricing in Supermarkets: Alternatives, Costs and Consumer Reaction." Search, Agriculture l(January) 1-25.

Monroe, Kent. B. 1971. "The Information Content of Prices: A Preliminary Model for Estimating Buying Response." Management Science 7 (April) B-519--B-532.

Monroe, Kent B. and LaPlaca, Peter J. 1972. "What are the Benefits of Unit Pric- ing?" Journal of Marketing 36 (July) 16-22.

Sauter, Richard F. and Walker, Orville C., Jr. 1972. "Retailers' Reactions to Interest Limitation Laws--Additional Information." Journal of Marketing 36 (April) 58-61.

Shoaf, R. Robert and Melnick, Edward L. 1972. "Fair Packaging and Labeling Act.'"


...THE NEED FOR A GENERAL EVALUATION MODEL

Journal of Retailing 50 (Summer) 16-22. Wheatley, John J. and Gordon, Guy G. 1971. "Regulating the Price of Credit."

Journal of Marketing 35 (October) 21-28. Wilkes, Robert E. 1973. "Consumer Usage of Base Price Information." Journal of

Consumer Affairs 48 (Winter) 72-85. Wilkie, William J. and Gardner, David M. 1974. "The Role of Marketing Research in

Public Policy Decision Making." Journal of Marketing 38 (January) 34-47. "Loan Rates Confound Customers." Orlando Sentinel. February 7, 1971. p. 17-A.

ABOUT THE AUTHORS

Dr. ROBERT L. ANDERSON is currently associate professor of marketing,

College of Business, University of South Florida. He has given papers before

the American Marketing Association, American Institute for Decision Sci- ences and the Southern Marketing Association. His current area of interest

and research is attitude research in relationship to public policy decision making.

Dr. R. EUGENE KLIPPEL is currently an associate professor of marketing, Seidman Graduate College of Business, Grand Valley State Colleges. Profes- sor Klippel's current research interests focus upon attitude formation in the

communication process. His articles have appeared in the Journal of Market-

ing Research, Journal of Advertising Research, Journal of Gerentology. He has also given papers before the American Marketing Association, Associa- tion for Consumer Research and various regional professional associations.

Documents

How effective are public policy decissions?…The need for a general evaluation model