‘Stealing’ Digital Red Packets

The online shop studied usually give out higher value red packets to new customers and dedicated customers. However, it added a ‘stealing’ function so that even non-frequent customers are able to receive high value red packets from their friends who are loyal customers. Customers can request an unused red packet from friends in their social circles when they place orders. This customer can choose any friend in their social network to get the red packet from, and this friend cannot prevent this red packet from being given away but they can choose which ones they get to keep.

Under this feature, the size of the red packets not only depends on the customer’s status with the company but also the size of their online social network. To increase their chances of getting valuable red packets, users can actively recruit new customers by sending out referral links on the app to their friends who are not existing users. They can also send out special merchant offers to their friends who are existing users to encourage them to place more orders.

“By making digital red packets ‘social’, companies turn incentivising online purchases into a red packet game. It’s a win-win situation for both customers and the company. The former gets to participate in a fun and interesting experience, and the latter benefits from exposure to a new customer base as well as potentially increased business from existing clients,” Prof. Lin says.

The Effect of Sharing

After analysing the behaviours of hundreds of users on the food delivery platform from October 2016 to September 2017, the researchers found that when red packets are allowed to be shared, people who are infrequent customers saw their monetary rewards rise the most.

The study found that on average, when companies gave out red packets that were not allowed to be shared among customers, high value customers, such as new customers and loyal customers, received red packets with discounts of 12 percent and nine percent, respectively. On the other hand, existing customers who are not frequent buyers received discounts of just two percent. However, if the red packets were allowed to be circulated among users’ social circles, the average discounts in red packets for new and devoted customers came in at 11 percent and 10 percent, respectively, but the discounts received by existing but infrequent customers rose sharply to eight percent.

Prof. Lin adds that although infrequent buyers can improve their chances of getting red packets with steep discount vouchers by recruiting new users and encouraging their friends to make more purchases, it is more difficult for them to recruit new users than motivating existing users to make more repeat orders. This is because customers usually know what their friends would want to buy anyway. Because of this, the researchers conclude that “social” red packets are less effective at, and take a longer time in, acquiring new customers.

Customer Profiling

The researchers also found that some types of customers are more likely to use their online social circles to get the most out of these red packet discounts. First, customers who pay more attention to prices are more interested in getting red packets through their social network. Second, customers who are more socially active are more likely to take advantage of social red packets. Due to their strong ties with their friends on social networks and strong public profiles, they may have a higher chance of convincing their friends to place more orders and recruiting new users for the app.

Different age groups also behave differently. According to the study, older customers tend to share more merchant offers with their friends, while younger customers are keener on recruiting new users by sharing referral links. Thirdly, customers who like to buy other things on the food delivery platform the researchers studied, rather than just order meals, tend to be more interested in recruiting new customers but they were less likely to socialise with their existing friends using the platform.

In addition, users who have friends which are potential new customers or existing loyal customers are likely to socialise with these friends on their social networks to take advantage of the social red packet function. Furthermore, given they live in the same city, customers are more generally interested in sharing red packets with friends who are also existing users, than recruiting them as new customers.

China has seen some of the most destructive earthquakes in history. For example, the devastating 2008 Earthquake in Sichuan province killed over 69,000 people, left up to 11 million people homeless and caused up to US$20 billion in property damage. The country sits atop seismically active areas, and it had 118 earthquakes in the past year. This setting provided the backdrop for a group of researchers to look at whether near-death experiences, such as major earthquakes, can influence people’s spending patterns. They found that those who experienced major earthquakes early in life are more likely to “live in the moment” after a traumatic experience.

Jaimie Lien, Assistant Professor of Business Economics in the Department of Decision Sciences and Managerial Economics at The Chinese University of Hong Kong (CUHK) Business School and her collaborators became interested in how major earthquakes in China affect people’s spending preferences.

“People who have personally lived through such an event may develop a strong belief that another may happen again soon. This makes them treasure what they have and seize the day.”

Prof. Jaimie Lien

“Can a life-altering experience affect our outlook on life and change our spending priorities? When people get married, have a child, or retire, they often change their values and lifestyles, which consequently affect how they spend money,” she says, “but what about for life events beyond our own control, such as natural disasters?”

The study Major Earthquakes Experience and Presently-Gratifying Expenditures was conducted by Prof. Lien, Prof. Qingqing Peng at Chongqing Technology and Business University and Prof. Jie Zheng at Tsinghua University. The researchers found that people with direct experience of major earthquakes tend to spend significantly more on travel and entertainment, luxury goods and health products after experiencing an earthquake while spending less on education.

“Chengdu in Sichuan province is a great example and was a source of inspiration for our study. The city is known for its laid-back lifestyle and its people are famous for their leisurely pace, but at the same time, it is also in a region that is prone to recurring catastrophic earthquakes,” Prof. Lien says.

The researchers reached their findings after examining the major earthquakes that occurred in all of China from 1920 to 2008 and how it correlated with urban household spending from 2002 to 2009. They compared the spending patterns of families whose head of household was living in an earthquake-stricken area before a major earthquake and those that settled or were born in the area only after the major earthquake had passed.

Living For Today?

The study found that there was no significant difference in the saving habits between families which lived through a major earthquake, with those who did not. However, there were differences in how they allocate their family expenditures. Specifically, families with earthquake experience spent, as a share of total household expenditure, 0.3 percentage points more on entertainment and entertainment-related products, such as video cameras and computers. They also spent 0.1 percentage points more on trips, travels and other entertainment services.

In addition, those who experienced a major earthquake also splashed out more on clothing, jewellery, watches, which accounted for almost half a percentage point increase in the total family expenditure. They also spent about a quarter of a percentage point more on health-related devices, such as massage chairs, and Chinese health supplements, such as ginseng, royal jelly and bird’s nest.

“Like designer clothing and jewellery, these types of ‘health food’ are considered luxurious and expensive, and are a show of status,” Prof. Lien comments. “One of the reasons why people buy luxurious goods is to make themselves feel better in the present. After you’ve had a near-death experience, it’s understandable and only human nature to want to feel alive and happy in the moment.”

In addition, families with earthquake experience also spent significantly more on house cleaning services. Prof. Lien and her co-authors think that this is another example of how post-earthquake families tend to value more of their own time and focus more on improving their current quality of life.

Another major difference in household expenditure between families which experienced an earthquake and those which did not, is on education. Families that experienced a major earthquake spent less on almost all types of education, including children’s education away from home (such as public boarding school), tutoring and training. Specifically, the magnitude of the difference between spending on educating children away from the home by families which experienced an earthquake versus those who did not was as high as 3 percent of total household expenditure. Adult education, which is typically more focused in the present than educational expenditures on children, is the only type of education that families with earthquake experience spent relatively more on.

“Education is an investment in the future. It is probably not in long-term interest of any type of household, let alone those who survived an earthquake, to borrow from the future to spend in the present. It’s another example how the altered spending habits of people who’ve survived natural disasters like earthquakes could potentially be harmful in the long-run,” Prof. Lien comments.

Are Earthquakes Special?

While many economists and marketing gurus have focused on investigating how people spend money according to their long-term interests, this new research study took a different approach by examining how uncontrollable life events, such as earthquakes, can affect people’s lifestyle choices that may conflict with their long-term interests.

The researchers suggest that future research could investigate the effect of earthquakes on consumption preferences in developed countries. It would be interesting to see whether there is a similar effect in a different demographic setting and whether other types of disasters would create a similar effect on people’s consumption patterns.

“Experiencing an earthquake first-hand is different from merely knowing about earthquakes. People who have personally lived through such an event may develop a strong belief that another may happen again soon. This makes them treasure what they have and seize the day,” Prof. Lien says. “Future studies can investigate if there is something special about earthquakes in particular that would alter people’s life choices, or whether similar effects also hold for other kinds of events that are out of our control.”

Trains are making a comeback. After losing ground for decades to the far sexier and faster travel by plane, people are increasingly making a return to good old fashion rail as a viable mode of getting around (at least for short to medium distance trips), thanks in part to rising concerns over the impact of air travel on global carbon emissions as well as the coming online of more and more high speed rail which has made travel by train faster and more comfortable.

And nowhere has this boom been more apparent than in China, which in the space of just over a decade has built the longest high speed rail network in the world, stretching nearly 38,000 kilometres and accounting for two-thirds of all high speed rail track in the world. This boom has also been mirrored in air travel, with the sector in China transporting a record 660 million passengers in 2019 before the pandemic hit.

The fast pace of growth in these rival sectors in China provided a group of researchers with the ideal conditions to study how this second coming of the golden age of rail has affected airlines. The study, titled Competition and Quality: Evidence from High-Speed Railways and Airlines, found that the rise in high speed rail led to a significant improvement in airline services, mainly in the form of reduction in flight delays.

“While it’s true that both flight volumes as well as airline choice has grown dramatically in recent years as China’s aviation market has opened up, it’s also no secret to anyone who’s been through an airport in the country that serious flight delays are a chronic problem,” says Yang Yang, Assistant Professor at the School of Hotel and Tourism Management at The Chinese University of Hong Kong Business School and one of the study’s co-authors.

“Airlines can see that if their market is about to be encroached by high speed rail that they should focus on getting their passengers off the ground as quickly as possible.”

Prof. Yang Yang

“This has made high speed rail a really attractive way for people to get around between cities, and it was an opportunity for us to study how competition between the two modes of transportation affected airline service quality.”

Shorter Flight Delays

The research, which was carried out in collaboration with Prof. Fang Hanming at the University of Pennsylvania and Prof. Wang Long at ShanghaiTech University, looked at close to 900,000 non-stop domestic flights from Beijing by 41 airlines to 113 destinations between 2009 and 2012. To measure service quality, the researchers focused on flight delays in arrivals and departures, as well as travel time.

They compared the length of delays for flights to 11 cities that are also served by the Beijing Shanghai High Speed Rail, a 1,318-kilometre long track, to flights that that were not served by the line. The study found that the entry of this high speed track in 2011 led to a reduction of an average of 2.54 minutes in delays in flight arrivals. It also found that the launch of high speed rail services led to a 2.5 percentage point-reduction in arrival delays of 15 minutes or more.

These results were stronger for airlines did not operate on the hub model (such as budget carriers that fly point-to-point) and which have less market power, as well as flights on short and medium distance routes.

The Need for (High) Speed

Whereas high speed rail has operated in different parts of the world for decades, (Japan’s Shinkansen, the world’s first high speed rail system, began in 1964, whereas France’s TGV launched in 1981) China only really got into the game well after the turn of the millennium. While planning reached back as early as the 1990s’, it was not until 2008 that the country launched its first high speed passenger-only service between Beijing and Tianjin, comprising of a 117-kilometre line. The boom that followed saw tens of thousands of kilometres of high speed track laid in the following decade in a network that now covers nearly every single province and region.

And the country is not done. China is seeking to almost double its high speed network to around 70,000 kilometres by 2035. Also, while train speeds have increased from a maximum of 200 kilometres per hour to 350 kilometres per hour, the country is pouring resources into developing even faster rolling stock, including a Maglev prototype that is capable of reaching up to a blistering 620 kilometres per hour.

Going back to the latest study, the researchers then sought to find out whether the reduction in flight delays following the launch of a directly competing high speed rail service was due to direct efforts by an airline company to improve the quality of its service, or whether there was some other external variable at play.

“There’s only so many ways an airline can reduce travel times,” says Prof. Yang, adding that for example it was difficult to reduce flight times without sacrificing safety or buying a completely different model of aircraft.

The researchers found that the coming online of high speed rail led to a reduction in delays in flight departures of an average 5.28 minutes, leading them to suggest that the entry of competing high speed rail services drove airlines to directly speed up checking-in and boarding processes, as well as by improve training for crew.

“Everyone knows it’s hell to sit on the tarmac waiting for a plane to take off,” says Prof. Yang. “Airlines can see that if their market is about to be encroached by high speed rail that they should focus on getting their passengers off the ground as quickly as possible.”

The study also found a 1.39-minute reduction in average runway taxiing times at the destination airport, although the researchers noted was something that airlines are unlikely to be able to control.

Quantifying the Benefits

By looking at flights on specific dates and times, Prof. Yang and her collaborators also eliminated a slew of alternative explanations for the improved timeliness by airlines, from reduced air passenger and airport congestion as a result of increased transportation volumes, to restructuring in flight schedules.

Using the estimates of the time saved, the researchers roughly calculated that the launch of competing high speed rail services would have conservatively saved passengers an aggregate of just under 2,100 Chinese yuan per flight.

When this number was applied to the outbound Beijing destinations that were also served by the Beijing-Shanghai line, it means that the introduction of just this one line would have translated to total passenger savings of 15.72 billion yuan, assuming that that airline travellers flying out of Beijing purchased a round-trip ticket and a discount rate of 5 percent, and that comes even without taking into account reductions in airfare as a result of increased competition.

“We live in an age where the price of a train ticket is still cheaper than flying, but the time cost of travelling by train is fast dropping,“ adds Prof. Yang. “The findings speaks volumes about the disruptive competition that high speed rail represents to air travel.”

Real estate is a key driver of the Chinese economy, and a popular choice of investment among the country’s consumers. The huge demand for real estate has contributed to a consistent rise in property prices in China in recent years. The latest National Bureau of Statistics data shows that new home prices in first tier cities increased 3.8 percent year on year in December, while they increased 7.3 percent and 6.7 percent year on year in second and third tier cities, respectively. The Chinese government has announced a variety of measures to make homes more affordable for ordinary Chinese citizens. However, a recent research study by The Chinese University of Hong Kong (CUHK) Business School shows some of these measures may not be that effective.

The study, entitled Using purchase restrictions to cool housing markets: A within-market analysis, was conducted by Prof. Yang Yang, Assistant Professor of Real Estate at CUHK Business School, in collaboration with Prof. Tsur Somerville of Sauder School of Business at the University of British Columbia and Prof. Long Wang of the School of Entrepreneurship and Management at ShanghaiTech University. It found that restricting the total number of properties that a buyer may purchase had a substantial and immediate effect on transaction volume but no statistically significant impact on residential property prices.

According to a Mckinsey report, the average household in China is more likely to concentrate their assets in real estate than elsewhere in the world. For example, 62 percent of average household assets there are in real estate, whereas households in Japan and the United States only allocate 38 percent and 28 percent of their assets in real estate, respectively. In order to curb speculation and to contain property prices, the State Council issued two directives, the Ten National Rule and the Eight National Rules in 2010 and 2011, respectively.

The two directives include changes to the Housing Provident Fund underwriting to lower the maximum loan to value ratio for purchases of residential property greater than 90 square metres and the increase of minimum down payments on loans from commercial banks as well as raising the minimum interest rates for mortgages. The number of properties an individual could purchase was also restricted. However, the State Council did not release a universal implementation timeline and specifications, which means it was up to the local governments to customize these policies and implement them according to local economic conditions.

Haphazard Implementation

The latest study sought to measure the effectiveness of restrictions on the number of properties a buyer may purchase in calming housing markets, lower asset bubble risk, and improve affordability. Unlike macro-prudential measures relating to mortgage interest rates, underwriting criteria, or access to credit, such quantity measures were not imposed on all significant cities and applied to all buyer types. Purchase restrictions were instead enacted with variation: some cities did not introduce restrictions at all, while others implemented restrictions that varied by district within the city, says Prof. Yang.

“For instance, Guangzhou allowed those with hukou, or household registration, to purchase an additional unit, but forbad any purchases by non-residents; Shanghai allowed both to purchase just one additional unit; and many other cities limited residents to two units and non-residents to one. In addition, not all cities imposed purchase restrictions, and of those that did so, some did not impose them uniformly throughout all the districts in the municipality or county,” Prof. Yang explains, adding that the team had selected four cities that imposed restrictions on some districts but not on others for their analysis.

“We find little evidence that purchase restrictions resulted in price declines, though market activity clearly declined.”

Prof. Yang Yang

The four cities were Chengdu, Guangzhou, Hefei, and Qingdao. Guangzhou is a first tier city whereas the others are second tier cities. All four cities have at least two districts without quantity restrictions on resident and non-resident buyers. The purchase restrictions were introduced on different dates in the four cities: Guangzhou introduced policies on October 15, 2010; Qingdao on January 31, 2011; Chengdu on February 15, 2011; and Hefei on March 31, 2011.

The researchers gathered their data from the Chinese Real Estate Index System (CREIS), which records housing transaction data in China from information published by the central, provincial and local governments for new units sold by developers to end buyers. The team analysed 2014 projects in the four selected cities. According to Prof. Yang, such within city variation rather than comparing restricted and non-restricted cities could give them a clearer picture of the effectiveness of the policies as both restricted and non-restricted districts of a city share the same general housing and labour markets and the same local economy.

Transaction Volumes Vs. Property Prices

According to the results, quantity restrictions had a substantial and immediate effect on transaction volume. In the six months following the introduction of quantity restrictions, transaction volumes in districts within a city that had purchase restrictions fell over 40 percent relative to volumes in unrestricted districts. Over time, this difference narrowed to 30 percent for a 12-month window and 24 percent for a two-year window. However, the effect of quantity restrictions on home prices is a different story.

“The stated objective of the restrictive policies was to tame high and accelerating house prices and calm markets. We find little evidence that the purchase restrictions resulted in price declines, though market activity clearly declined,” says Prof. Yang, adding that while other researchers find price declines of up to 16 percent in cities with restrictions compared to those without, they found no differential change in prices across districts.

Prof. Yang says there are a number of possible behavioural explanations for such results. For instance, while buyers were affected by the restrictions, the developers did not drop prices, suggesting they might expect the policies to be temporary so that they could sell the properties at more profitable prices after the restriction period.

A separate analysis also found that local governments did not reduce the supply of land in districts where property purchase restrictions were introduced. Land prices, the number of parcels auctioned, and the buildable potential all were unchanged when comparing districts with restrictions and those without.

“This pattern is consistent with developers who see the government policies as temporary, to be reversed after some period. As a result, with no drop in the offered land in restricted areas compared to unrestricted areas, there were no differential changes in bids. Such a response is also consistent with prices of completed units remaining unchanged in the face of less buyer demand.”

“If developers expect the restrictions to be loosened at some point in the not so distant future and their holding costs are low, then they would have little incentive to reduce prices rather than wait until demand recovers once restrictions are lifted,” Prof. Yang explains. “Alternatively, the response is consistent with loss aversion. Whatever the explanation for the behaviour, this research reflects other studies on macro-prudential policies finding that although policies to restrict demand when housing markets are hot have strong dampening effects on market volumes, their ability to reverse problems of high house prices and address affordability are limited in the short to medium run.”

We live in the age of the social influencer. Nowadays, with the development of the internet and the growth of social media, it is increasingly easy for consumers to post a comment or a picture of a product and to notice whether somebody else uses or praises a product or a brand, making word of mouth and opinion leader recommendations more important than ever.

Online, a recommendation may come in a form of a selfie on Instagram, a short Tweet, a “like” on Facebook, or the fact that an opinion leader uses certain products. An entire cottage industry has seemingly risen overnight where internet celebrities – people who acquired or developed their fame online – make their entire livings from corporate endorsement, using their relative notability to peddle products or experiences to their followers.

However, using social influencers to market a company’s products or services can be tricky. Consumers nowadays are savvy enough when they encounter a product endorsement to consider not only that it is likely sponsored, but also whether the recommendation is purely based on high product quality. It is highly likely they would also think about whether it was because the social influencer selected a specific product (from a variety of offerings) that suited their particular taste, says Chenxi Liao, Assistant Professor at The Chinese University of Hong Kong Business School’s Department of Marketing.

Under such a scenario, is there an ideal number of varieties of a product a company could offer to maximise profits? This is what drove a group of researchers to look at the impact of product variety when consumers rely on the product evaluations of opinion leaders or experts to make purchase decisions. Entitled Opinion Leaders and Product Variety, the study was conducted by Prof. Liao in collaboration with Prof. Dmitri Kuksov of the University of Texas at Dallas.

“Absent costs of variety, to increase profit, an intuitive solution is to increase product variety. With more alternatives available, it is more likely that an expert can find a variant that fits their personal preference, and post a positive product opinion,” says Prof. Liao, adding that since consumers expect quality to be higher when the expert opinion is positive than when it is negative, they are willing to pay a higher price.

When More Variety is Bad

From this perspective, increased assortment can benefit the firm. However, when many product variants are available, consumers may expect an expert to find a better fit, and this consideration would then reduce consumer expectations of the product quality, leading to lower profits.

There is also the issue of market noise. Consider that opinion leaders are likely to be more knowledgeable and have a greater desire to educate themselves about a certain product, since this is typically how they gain popularity and the trust of their followers in the first place. These experts are likely to be able to better understand and choose which variant fits them best.

On the other hand, the everyday consumer may not be as familiar with the product or are not willing to spend the time and effort. This means they may not be able to choose the best-fitting alternative and may benefit less from having many alternatives.

“The idea is that the promotion of a smaller number of products makes communication easier and clearer.”

Prof. Chenxi Liao

Taken all of this into consideration, the researchers formulated a complex mathematical model and found that there does exist a point beyond which increasing product variety netted no significant benefits to a company.

Prof. Liao explains that two opposing forces come into play when a company increases the variety. First of all, when product variety increases, it raises the probability of getting a positive expert opinion and therefore the product being recognized by consumers as of high quality. On the other hand, it also decreases certainty by the consumer that the product received a good review because of its inherent high quality.

Although the first effect is positive, the second is negative. It turns out that for a small number of variants, the first effect dominates the second, and for a large number of variants, the second effect dominates the first.

“We further find that the optimal number of product variants increases if the importance of fit for the expert or the expert’s unwillingness to provide a positive recommendation is higher,” Prof. Liao adds.

Another consideration is whether the company has a good grasp of how consumers would rate the quality of its products. The researchers cite as examples two similar products in recent years – the Apple iPod and the Microsoft Zune music players. Whereas the second flopped, the first became a phenomenal success, but because they were both conceptually new products, it was difficult to tell how consumers would rate their quality.

The research also found that, unsurprisingly, when the firm has a good understanding of how consumers will perceive the quality of its products, the firm with the lower quality product may seek to hide its inferiority by limiting the information transmitted through expert opinions and mimic the variety provided by a firm with a similar product but of a higher quality.

Real World Implications

Relating the findings to real world business practices, Prof. Liao notes that it is not uncommon for a company to introduce a product line with a small number of products, or even just one, promoted to opinion leaders.

“The idea is that the promotion of a smaller number of products makes communication easier and clearer,” she says, citing a successful promotional campaign by the U.S. luxury department store chain Lord & Taylor. In introducing its Design Laboratory collection, the company chose to promote a single dress to many influencers on Instagram.

The fact that a number of social influencers all agreed to create a post on Instagram with the same dress signaled to their followers that the choice was based on the quality of the dress itself, rather than because it complimented a specific fit or complexion.

Another prediction of the model is that when opinion leaders are more likely to be happy with the product regardless of the exact quality they see, a firm should prefer to offer a smaller product selection, says Prof. Liao. For example, Apple does not provide as many customization opportunities in iOS for iPhones as Android systems usually do. However, since many opinion leaders like Apple products more, they are likely to give a positive review.

Prof. Liao adds that one important assumption was that consumers are unable to tell exactly how much of a positive product review is because the product is suited to the reviewer’s tastes. This is changing in that many websites, such as the American NGO Consumer Reports, are providing more detailed information regarding the reviewer’s context. In these circumstances, the negative effect of having a large number of product variants will be diminished.

Looking at opportunities for future research, Prof. Liao notes that another assumption is that the expert always posts a product evaluation. “In practice, opinion leaders could be silent on many products. An absence of a recommendation may be interpreted as a negative opinion, as in the expert did not find it worthwhile to choose the product, or could be reducing the informativeness of the recommendations,” she says.

One interesting avenue is to consider the uncertainties facing the expert before and after the purchase, and how it affects the likelihood of a positive review, she adds.

Bodily Feedback

“Our findings confirmed that when unhappy people imagine having an enjoyable activity it ends up reducing their appreciation of the experience rather than increasing it,” Prof. Shen says.

“People who are experiencing negative feelings often tend to frown automatically, leading to sensory feedback from nerve endings which is inconsistent with the natural inclination to smile if they were to repair their mood by doing an enjoyable experience.

“This incompatibility makes the happy activity more difficult for sad people to imagine doing and consequently has a negative impact on the activity’s attractiveness, so they evaluate the enjoyable experience less favourably than they would have done otherwise.”

Prof. Shen says the research, in contrast with previous studies, provides new insights into understanding the effects of imagining an experience on judgments of it.

The effects of the nerve ending feedbacks from facial expressions such as smiling or frowning spontaneously brought about by imagining a happy or sad experience, the difficulty of imagining activities that are incompatible with their mood, in combination with the mood the person is experiencing at the time, have not been examined before, he says.

“Unhappy people may have difficulty responding to an advert that encourages them to imagine a positive experience … such as having a holiday in Hawaii. The advert might have a detrimental effect on evaluations of the holiday.”

Prof. Hao Shen

“Our findings suggest that an enjoyable experience may only make unhappy people feel better if they engage in this experience without thinking extensively about it beforehand.”

When participants imagine having an experience before they actually do so, metacognitive experiences – the act of thinking about thinking something – may override the effects of mood repair, Prof. Shen says.

“Such thinking might mean, for example, that people who were thinking about going on a holiday to Hawaii would be less disposed to make any travel plans if they were feeling unhappy at the time, rather than if they were not.

“People who are feeling unhappy may have difficulty responding to an advert that encourages them to imagine having a positive experience with a product featured in a promotion, such as a holiday in Hawaii. In such cases, the advert might have a detrimental effect on evaluations of the holiday.”

He and his colleagues carried out six different tests, which they completed in a laboratory in Hong Kong with the help of 1,022 undergraduate participants.

They used a variety of methods to influence the mood of participants before the start of the tests, including asking some of them to imagine a sad experience or watch a sad video, so that they could examine how it might affect their behaviour.

The tests typically involved asking students their preferences for a comedy or action film, or popular Hong Kong songs, or whether they would be happy to sing the song, We Wish You a Merry Christmas.

Some of the studies looked specifically at the effect of people’s facial expressions on their preference for an imagined experience.

Simulating Facial Expressions

In one of them, the researchers subtly influenced the expression of participants’ mouths while they imagined the pleasant experience, so that they had to form either a smile, by holding a biscuit between their teeth, or a frown, by holding the biscuit between their lips.

“We found that a frown-like expression reduced participants’ relative preference for an enjoyable activity to a greater extent than a smile-like expression did,” Prof. Shen says.

“We replicated this effect for participants who experienced a negative mood. Moreover, activating muscles associated with smiling among unhappy participants who imagined engaging in a pleasant activity eliminated the negative effect of any difficulty they find in imagining the said experience.

“These studies showed that feeling unhappy decreased a participant’s preference for a pleasant experience compared with a neutral one.”

The study also found that unhappy people are less likely to engage in a happy experience when they focus on the actual doing of the said activity rather than imagine the outcome of it, i.e., feeling better as a result of doing something enjoyable.

It was also found that unhappy people find it easier to imagine doing an unpleasant activity, presumably because it elicited facial expressions that were consistent with what they were already experiencing.

Finally, the study found that people who habitually visualize doing something before actually doing it (as opposed to others who usually skip this imaginative process) are also less motivated to engage in an enjoyable activity when they are unhappy.

Although the research supported the role of facial expressions in driving the effect that the studies had observed, this was clearly not the only way that a negative mood could make people avoid embracing an enjoyable experience, so further research could help to examine these other possibilities, he said.

“Although we did not expect the effects we observed might be moderated by the cultural background of the participants, future research could be done to test whether our effects can be generalised to participants from other areas or countries as well.”

The COVID-19 pandemic has accelerated the adoption of technology in the service industries. As hotels and restaurants increasingly turn to artificial intelligence and install robotic concierge and waiters, as well as service kiosks, what is the best way for them to communicate with customers?

For example, if a customer wants to know whether a tourist attraction is worth visiting, should a robot respond with the plain and informative “The view is excellent” or the more conversational “The views there will blow your mind away”?

This is basis of a new research study, titled “How May I Help You?” Says a Robot: Examining Language Styles in the Service Encounter. Looking at the use of language in service encounters, the researchers found that, more often than not, providing information in a clear and straightforward manner is better than the more colourful alternative.

“Verbal communications plays a key role in customer service encounter evaluations, but we know very little about how language styles affect customer satisfaction,” says Prof. Sungwoo Choi, Research Assistant Professor in the School of Hotel and Tourism Management at The Chinese University of Hong Kong Business School and one of the co-authors of the study.

“Today’s service encounters are increasingly infused with innovative technologies, and most notably, smart service robots have become ubiquitous. However, we know very little about what is the best ways these robotic service providers should address customers.”

Prof. Choi and his co-authors, who are Prof. Stephanie Liu at Ohio State University and Prof. Anna Mattila at the Pennsylvania State University, specifically looked at whether literal or figurative language was superior in service encounters, and whether this was different depending on whether the information was being provided by a human being, a robot, or a service kiosk.

Literal vs Figurative Language

When people use literal language, they are being straightforward and saying exactly what they mean. On the other hand, figurative language refers to the use of metaphors, similes, hyperbole or personification to describe something, often by comparing it with something else. Figurative language are sometimes used to evoke an emotionally intense response.

The researchers recruited 173 adult consumers in the U.S. for the study. The participants were asked to imagine themselves in a scenario where they stayed at a fictitious hotel and had to get ideas for dining options from the hotel concierge, which was either human, a robot or a service kiosk. The concierge either used literal language such as “the restaurant has a nice interior design” or figurative language such as “the restaurant looks more stunning than a palace”. The participants then completed a series of questions to evaluate their service encounters.

“When customers deal with human service personnel, the use of literal language led to marginally higher service encounter evaluation. This was also the case when customers were dealing with service robots.” says Prof. Choi. “The results also revealed that, when customers are dealing with human service representatives, using literal language also led to higher credibility. This effect again extended to service robots.”

“When customers deal with human service personnel, the use of literal language led to marginally higher service encounter evaluation.”

Prof. Sungwoo Choi

According to the study, service kiosks were unaffected by language style because they resembled objects rather than people. Language didn’t matter in this case because service kiosks didn’t look human and thus the expectations that govern human-to-human communication didn’t apply.

“The main difference between service robots and kiosks is their external shape. A service robot is designed to have an appearance or character resembling a human being, whereas a service kiosk looks more like an object. Past research have suggested that people tend to apply their beliefs and knowledge about humans to non-human objects when they have humanlike features,” Prof. Choi explains.

The researchers suggest hospitality managers to recognize the importance of language styles used by frontline employees and develop their training protocols accordingly.
“We show that literal language is more appropriate in face-to-face service interactions. Guests often inquire about places to visit. They would ask for recommendations for shopping, restaurants, or tourist attractions or about hotel facilities. Similarly, servers often give customers recommendations on menu items. In such service interactions, frontline employees should avoid using figurative expressions. Rather, providing straightforward and clear information tends to improve service encounter evaluation,” Prof. Choi comments.

Future Research Directions

Prof. Choi said it would be interesting to explore language styles in failed service encounters as the current study focused on the effect of language styles in a successful service encounter.

“Would people still expect a service provider to use literal language when offering explanations or an apology since service recovery perceptions are driven by competency and reliability? Or, would people expect the service provider to use emotionally intense language as a means to recover a damaged relationship?” Prof. Choi asks.

In addition, Prof. Choi said it would be worth extending the investigation to loyal customers who have an existing relationship with the service provider and to test the theory in the field and collect data from real interactions between guests and service robots. In addition, he said it would also be interesting to examine how language styles influence consumers’ brand perceptions, social media engagement, and loyalty.

“There are many other language styles that are worth exploring in the context of service encounters, such as assertive vs. nonassertive language, informal vs. formal language, and abstract vs. concrete language. It would be interesting to gain insight into consumer reactions to service robots employing such language features. Testing the effects could deepen our understanding of customer evaluation with technology-infused service encounters,” says Prof. Choi.