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CT-2010-010 THE COMPETITION TRIBUNAL IN THE MATTER OF the Competition Act, R.S.C. 1985, c. C-34, as amended; AND IN THE MATTER OF an application by the Commissioner of Competition pursuant to section 76 of the Competition Act;
AND IN THE MATTER OF certain agreements or arrangements implemented or enforced by Visa Canada Corporation and MasterCard International Incorporated.
BETWEEN: THE COMMISSIONER OF COMPETITION Applicant - and –
VISA CANADA CORPORATION and MASTERCARD INTERNATIONAL INCORPORATED
- and –
CANADIAN BANKERS ASSOCIATION and THE TORONTO-DOMINION BANK
Intervenors
EXPERT REPORT OF MICHAEL S. MULVEY April 4, 2012
Respondents
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Table of Contents I. Introduction ............................................................................................................................................... 1 A. The Proceeding ............................................................................................................................... 1 B. Mandate .......................................................................................................................................... 1 C. Qualifications .................................................................................................................................. 2 D. Summary of Conclusions................................................................................................................. 4 II. A Study of Consumer Reaction to Payment Steering Mechanisms .......................................................... 5 A. Providing an Opinion Informed by Research .................................................................................. 5 B. An Overview of Available Payment Options and Usage ................................................................. 7 C. Steering Mechanism Effectiveness ................................................................................................ 8 Discounts .................................................................................................................................... 10 Surcharging ................................................................................................................................. 13 Other Steering Mechanisms ....................................................................................................... 17 A Direct Comparison of Discounts and Surcharges .................................................................... 17 III. The Commissioner’s Experts’ Reports Regarding Consumer Behaviour ............................................... 21 A. The Single Lowest Price ................................................................................................................. 21 B. The Credit Card Companies’ Purported Preference for Discounts over Surcharges ................... 23 C. The Dangers of Using Anecdotes as Evidence .............................................................................. 25 IKEA ............................................................................................................................................. 26 Woolworths ................................................................................................................................ 26 IV. Conclusion .............................................................................................................................................. 27
3 - 1 - PUBLIC I. Introduction A. The Proceeding 1. In the Notice of Application (dated December 14, 2010), the Commissioner of Competition (the "Commissioner") applied to the Competition Tribunal (the "Tribunal") pursuant to section 76 of the Competition Act (the "Act") for an order “prohibiting Visa Canada Corporation (“VISA”) and MasterCard International Incorporated (“MC”) (the "Respondents") from implementing, enforcing or continuing agreements or arrangements, or engaging in any like means, that directly or indirectly influence upward or discourage the reduction of the prices paid by merchants for credit card network services within Canada.”
2. In particular, the Commissioner has requested an order to prohibit MC and VISA from enforcing the rules (she coins “Merchant Restraints”) that prohibit merchants from:
a. surcharging on purchases made using credit cards (the “No-Surcharge Rule”); b. refusing to accept particular credit cards within each of the networks (the “Honour-All-Cards Rule”); and
c. taking actions to discourage the use of particular credit cards (the “No Card Discrimination Rule”).
3. The economic theory upon which the case is based (Schedule “A” of Notice of Application, dated December 14, 2010) proposes that the rules are a form of price maintenance. Specifically the Commissioner alleges that the elimination of the rules would intensify competition between MC and VISA (and within each of the MC and VISA networks) over the level of “Interchange Fees” and “Network Fees”, bringing about lower Card Acceptance Fees to merchants. In her theory, lower costs to the merchant would be passed on to consumers.
B. Mandate 4. I have been asked by the firm of Blake, Cassels & Graydon LLP, on behalf of its client VISA, and McMillan LLP, on behalf of its client MC to provide independent, objective opinions and analyses with respect to consumer behaviour, consumer research issues and other matters in relation to the Tribunal’s proceedings.
5. In particular, I have been asked to: a. contribute to the design of a survey (the “Gauthier Study” conducted by Benoît Gauthier of Circum Network Inc.) that investigates consumer reaction to various payment steering mechanisms;
b. analyze and comment on the results of the Gauthier Study and the implications of those results for the matters under review in the Tribunal’s proceedings; and
c. respond to the expert reports submitted by the Commissioner respecting how consumers respond to different payment mechanisms using insights from marketing and consumer research.
6. For purposes of my analysis, I reviewed copies of the Notice of Application (The Commissioner of Competition, dated December 14, 2010) and the expert reports of Dennis Carlton (March 14, 2012), Alan S. Frankel (March 9, 2012), Mike McCormack (March 14, 2012), Ralph A. Winter (March 12, 2012) and the witness statements filed by the Commissioner.
C. Qualifications 7. I specialize in consumer behaviour, consumer advertising and consumer product marketing, a field in which I teach, have conducted extensive research and advise a number of clients.
8. I am currently Assistant Professor of Marketing (tenured) at the University of Ottawa’s Telfer School of Management and also serve as Visiting Professor at the Bucharest School of Management Romanian-Canadian MBA program. Prior to joining the faculty at the University of Ottawa in 2003, I was Assistant Professor of Marketing at Rutgers University from 1996-2002 and returned as Visiting Associate Professor of Marketing in 2005-2006. From 1993-1996, I was an instructor in the Department of Marketing at Penn State University.
9. I have a Ph.D. in Business Administration-Marketing from Penn State University (1997). In 1992, I obtained a Masters degree in Management Systems-Marketing from Clarkson University, following my graduation from the University of Ottawa in 1991 with an Honours Bachelor of Commerce degree in Marketing.
10. I have taught numerous courses in marketing at the undergraduate and graduate levels, and have been the recipient of several academic honours and fellowships and have published
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extensively in the field of marketing and advertising research. Most recently, I was selected by my peers as the Telfer School of Management candidate for the 2009-10 and 2010-11 University of Ottawa Award for Excellence in Teaching and the 2010 President’s Award for Media Relations.
11. Much of my research focuses on how products, brands and behaviours become personally relevant to consumers. I have investigated diverse consumer-centered issues including consumer money management styles, gift giving practices, philanthropy, infant feeding decisions, activism and boycott behaviours, and volunteerism. I have also studied aspects of the macro marketing environment, focusing on prevalence of magazine advertorials, direct-to-consumer pharmaceutical advertising, and the promotion of online trading and investing services.
12. I have extensively studied and researched how consumers perceive, comprehend and respond to product advertising and brand images and have been retained as a marketing consultant by Bank of America, Corporation for Public Broadcasting, Hilton Hotels, Motorola, New York State, Panasonic, ShopRite Supermarkets, Toyota and the United Way. I am a member of the Academy for Marketing Science, Association of Consumer Research, American Marketing Association, American Academy of Advertising, Direct Marketing Educational Foundation Professors’ Academy, and the Society for Consumer Psychology.
13. I was accepted as an expert witness in several court proceedings, including in: a. the Federal Court (e.g, Doris Hosiery Mills Ltd. v. Warnaco Inc., 2004 FC 1781, [2006] 2 F.C.R. D-18; Procter & Gamble Inc. v. Colgate-Palmolive Canada Inc., 2010 FC 231; Target Brands Inc. et al. v. Fairweather Ltd. and International Clothiers Inc. et al., 2011 FC 758);
b. the Ontario Superior Court (Brian Singer v. Playtex Limited et al., 2010 ONSC 42); and c. the Quebec Superior Court (e.g., Agropur Coopérative c. Saputo Inc., 2003 CanLII 909 QC CS).
14. I am regularly consulted by English and French-speaking media in Canada on marketing, branding and consumer issues. I have been quoted in over 140 interviews in newspapers (e.g. Globe & Mail, Le Devoir, Le Droit, New York Times), magazines (e.g. Canadian Business, Maclean’s), trade journals (e.g. Marketing Magazine, Opt!k), radio (e.g. CBC Radio One, CHQR
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AM770 Calgary) and television (e.g. CTV News, Radio Canada – Le Téléjournal). I have also provided peer-reviews for articles submitted to the following academic journals: California Management Review, International Journal of Research in Marketing, Journal of Advertising, Journal of Historical Research in Marketing, Journal of Institutional Economics, Marketing Theory, Psychology & Marketing, Revue Gestion, and Services Industries Journal.
15. My professional activity, my academic credentials, the focus of my research and the familiarity that I have developed over the years with the Canadian retail marketplace enable me to analyze and discern the link between marketing strategy and consumer behaviour in a Canadian retail context. Details of my educational, academic, teaching and professional qualifications are set out in my curriculum vitae, which is attached hereto and marked as Exhibit “A”. I understand and acknowledge the Competition Tribunal’s code of conduct for expert witnesses, as indicated in Exhibit “B”.
D. Summary of Conclusions 16. My analysis has led me to the following questions and conclusions, which are detailed later in this report:
a. A Study of Consumer Response to Payment Steering Mechanisms: The Gauthier Study was conducted to investigate consumer reaction to disruptions caused by four basic types of payment steering mechanism. Eleven specific steering mechanisms were compared along five performance indicators. Among other things, the survey found that:
i. Discounting was rated as most effective at steering cardholders toward cash and debit, eliciting positive feelings, supporting current and future store patronage, and being acceptable to consumers.
ii. Though surcharging steered some cardholders toward cash and debit, many of the remaining cardholders exhibited strong negative sentiment that undermines store patronage and results in the transfer of their purchases to merchants who would accept their preferred payment method.
iii. Education and card discrimination strategies were less effective at steering than discounting and surcharging. Cardholders were turned off by inform- and ask-
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based initiatives and reacted negatively to merchants that do not “honour all cards”.
b. The Single Lowest Price: The Commissioner and her experts claim that merchants need to, or must, advertise at a “single lowest price.” This does not align with the reality of a retailing sector that embraces multi-dimensional pricing tactics. Nor is it clear that even a single price must for a discounting merchant be the higher or highest price applicable to a purchase by credit cards.
c. The Credit Card Companies’ Preference for Discounts over Surcharges: The Commissioner’s experts’ contention that credit card companies oppose surcharging and not discounting because surcharging is a more effective mechanism ignores an alternative, more plausible reason for the credit card companies’ opposition: the protection of brand image (explaining why discounts are not problematic for credit card companies); and,
d. The Dangers of Using Anecdotes as Evidence: The decision as to whether or not to abolish the rules should be based on fact rather than speculation. The “evidence” relied upon by the Commissioner on the effectiveness of steering mechanisms suffers from serious methodological limitations, including an over-reliance on (unreliable) anecdotes that lack objective basis.
17. The evidence and reasoning underlying these conclusions are developed below. II. A Study of Consumer Reaction to Payment Steering Mechanisms A. Providing an Opinion Informed by Research 18. How do consumers react to a disruption to the status quo of payment options at the point-of-sale? Empirical evidence gathered from Canadian cardholders is required to assess the likely impact of abolishing the rules. The results of studies from the Australia, Netherlands, and United States lack generalizability and are not applicable to the unique Canadian context. 1 1 For example: Bagnall J, S Chong and K Smith (2011), Strategic Review of Innovation in the Payments System: Results of the Reserve Bank of Australia’s 2010 Consumer Payments Use Study.
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8 - 6 - PUBLIC 19. Counsel for VISA and MC asked Benoît Gauthier of Circum Network Inc. to conduct research (the “Gauthier Study”) to investigate consumer reaction to various payment steering mechanisms. Between January 12, 2012 and February 16, 2012, a large sample of 11,561 panelists completed the study questionnaire (approximately 80% web-based, 20% phone-based). I was asked to contribute to the design of the questionnaire and to provide an expert interpretation of the results.
a. Relevant consumers: The Gauthier Study solicited the views of Canadians aged 18 or over who understand English or French and possess a credit card.
b. Scope of steering mechanisms: The Gauthier Study examined consumer reaction to a diverse set of payment steering mechanisms. This approach permits the comparison of measures of effectiveness so that the superiority of an approach can be established using statistical effect sizes. Specifically, it investigated consumer reaction to four basic types of payment steering mechanisms:
i. Offering discounts (financial incentives); 2 ii. Imposing surcharges (financial disincentives); iii. Informing and asking consumers to switch (education); and iv. Altering the honor-all-cards rule (card discrimination). c. Immediate and imminent reactions: The Gauthier Study assesses consumers’ immediate response to a steering mechanism as well as reactions that may bear on future decisions. Specifically, consumer reaction to the payment steering scenarios was measured along the following four dimensions:
i. Affective reaction: the overall sentiment toward the scenario; Borzekowski, Ron, K. Kiser Elizabeth, and Ahmed Shaista (2008), "Consumers' use of debit cards: patterns, preferences, and price response," Journal of Money, Credit and Banking, 40 (1), 149-72.
Jonker, Nicole (2007), "Payment instruments as perceived by consumers–Results from a household survey," De Economist, 155 (3), 271-303.
2 In the survey discounts are referred to as rebates.
ii. Anticipated immediate reaction: the in-store payment choice used; iii. Retail patronage: the scenario’s impact on future retail patronage; and iv. Acceptability: the overall reaction to the principle behind the steering mechanism.
d. Transaction values: Prior research establishes a strong relationship between transaction value and payment instrument choice. 3 For example, cash dominates transactions below $25. Accordingly, questions in the Gauthier Study referred to randomly selected value ranges (less than $25, $25 to $75, $76 to $125, and more than $125).
e. Size of discount or surcharge: The impact of a discount or surcharge steering mechanism depends on the magnitude of the incentive or penalty. 4 Respondents were randomly assigned to one of three levels (low, moderate, and high; i.e., 1%, 1.5%. 2.0%) of discount or surcharge in the Gauthier Study.
B. An Overview of Available Payment Options and Usage 20. Based on survey results, most consumers have a variety of payment options at their disposal. In addition to cash, most consumers surveyed possess a debit card (93%), have a checking account (91%), and at least one general credit card (87%) at their disposal. About one-quarter of respondents (27%) possess a store-specific credit card. Payments for purchases up to $25 are dominated by debit cards (38%) and cash (34%). However, consumer use of the various modes of purchase varies according to the purchase value. As the purchase value increases, the use of cash decreases in favour of premium and standard credit cards. 5 3 Arango, Carlos, Kim P. Huynh and Leonard Sabetti (2011), “How do you pay? The role of incentives at the point-of-sale,” Bank of Canada Working Paper 2011-23.
4 Ingene, Charles A. and Michael Levy (1982), "Cash discounts to retail customers: An alternative to credit card sales," Journal of Marketing, 46 (Spring), 92-103.
Bolt, Wilko, Nicole Jonker, and Corry van Renselaar (2010), "Incentives at the counter: An empirical analysis of surcharging card payments and payment behaviour in the Netherlands," Journal of Banking & Finance, 34 (8), 1738-44.
5 See Exhibit 3.1 “Ownership of Modes of Payment” in the Gauthier Study. See Exhibit 3.3 “Frequency of Use of Modes of Payment” in the Gauthier Study.
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10 - 8 - PUBLIC C. Steering Mechanism Effectiveness 21. Everyday retail purchases require consumers to choose a method of payment at the point-of-sale. While we know something about the odds of consumers using cash, credit, debit, or checks at the point-of-sale, we know very little about how consumers would react to alternative methods to disrupt the status-quo. The consumer survey reveals useful information about how consumers adjust their payment choices when they face various steering mechanisms.
22. A steering mechanism’s overall effectiveness was evaluated using the following set of performance indicators:
a. Steering success rate: a successful steering mechanism has a greater propensity to switch consumers to another method of payment;
b. Affective reaction: a successful steering mechanism evokes positive feelings that in turn influence cardholder attitudes, judgments and behaviours;
c. Future store patronage: a successful steering mechanism bolsters cardholder willingness to return to the store in the future to shop;
d. Acceptability: a successful steering mechanism meets or exceeds cardholder needs and requirements;
e. Walk-out incidence: an effective steering mechanism does not cause cardholders to abandon their cart or cancel their purchase.
The relative winners and losers in overall effectiveness are decided by comparing the performance of the steering mechanisms using this array of indicators.
23. The results of this survey establish consumer reaction to four basic types of payment steering mechanisms using eleven specific payment scenarios:
a. Discounts (financial incentives)
See Exhibit 3.4 “Mode of Payment Most Often Used for Various Purchase Values” in the Gauthier Study.
i. a retail store offers a rebate at the cash register, for example (1%, 1.5%, 2%, randomly selected), for paying by debit card, by cheque or cash instead of by (standard) credit card;
ii. a retail store offers a rebate at the cash register, for example (1%, 1.5%, 2%, randomly selected), for using a standard credit card instead of a premium credit card;
iii. a retail store offers a rebate at the cash register, for example (2%, 3%, 4%, randomly selected), for using a debit card, a cheque or cash instead of a premium credit card;
b. Surcharges (financial disincentives) iv. a retail store surcharges at the cash register, for example (1%, 1.5%, 2%, randomly selected), for paying by (standard) credit card instead of by debit card, by cheque or cash;
v. a retail store surcharges at the cash register, for example (1%, 1.5%, 2%, randomly selected), for using a premium credit card instead of a standard credit card;
vi. retail store surcharges at the cash register, for example (2%, 3%, 4%, randomly selected), for using a premium credit card instead of a debit card, a cheque or cash;
c. Inform and ask consumers to switch (education) vii. a retail store accepts credit cards but asks patrons to use a form of payment other than a credit card;
viii. a retail store informs patrons of the cost to the merchant of the use of a credit card;
ix. a retail store informs patrons of the cost to the merchant of the use of a credit card AND asks patrons to use a form of payment other than a credit card;
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d. Alter the honor-all-cards rule (card discrimination) x. a retail store accepts no premium credit card; xi. a retail store accepts some (brand name) but not other (same brand name) credit cards.
Discounts 24. In most situations, people act primarily out of self-interest. Knowing that money is a positive
motivator to many consumers, merchants regularly offer financial incentives such as sale prices, deals, and discounts to influence consumer decision making. Discounts also yield the most positive levels of consumer sentiment. Comparatively, consumers love discounts and display little affection for other steering mechanisms.
Findings 25. Our study found that discounts achieved the highest “steering success rates” in moving
consumers away from paying using credit cards (see Chart 1 below).
Chart 1: Steering Success Rate 1 Rebate, standard to cash 3 Rebate, premium to cash I 2 Rebate, premium to standard 4 Surcharge, cash to standard 5 Surcharge, standard to premium 6 Surcharge, cash to premium 10 Inform and ask away from credit … 8 Ask away from credit card 9 Inform on merchant fee 7 No premium card 11 Intra-brand discrimination 0% 20% 26. The positive affect performance indicator correlates very highly with consumers’ likelihood of returning to the store to shop again in the future. This result is consistent with operant conditioning, a form of learning during which consumers modify their own behaviour due to the consequences of the behaviour. In this case, the discount is a reward that reinforces store patronage. As noted in Chart 2 (below), rebates earn the highest affect ratings of all of the
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75% 73% 67% 59% 56% 50% 52% 51% 49% 51% 45% 40% 60% 80% 100%
steering methods. Chart 3 (below) confirms that positive sentiment translates into goodwill and future shopping intentions. Note that the rebate scenarios were the only ones that did not have an adverse impact on future store patronage.
Chart 2: Affective Reaction 1 Rebate, standard to cash 3 Rebate, premium to cash 2 Rebate, premium to standard 4 Surcharge, cash to standard 5 Surcharge, standard to premium 6 Surcharge, cash to premium 1.7 10 Inform and ask away from credit … 8 Ask away from credit card 9 Inform on merchant fee 7 No premium card 11 Intra-brand discrimination 1.0
Chart 3: Future Store Patronage 1 Rebate, standard to cash 3 Rebate, premium to cash 2 Rebate, premium to standard 4 Surcharge, cash to standard 5 Surcharge, standard to premium 6 Surcharge, cash to premium -80 10 Inform and ask away from credit … 8 Ask away from credit card 9 Inform on merchant fee 7 No premium card 11 Intra-brand discrimination -100 -80
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5.1 5.2 4.3 2.2 2.2 2.8 2.7 3.7 2.2 2.1 2.0 3.0 4.0 5.0 6.0 7.0 I would really hate it -- I would really love it
21 26 12 -63 -62 -47 -47 -24 -62 -64 -60 -40 -20 0 20 40 60 80 100 Net likelihood to return to the setore
27. Finally, as noted in Chart 4 (below) cardholders judged discounts as the most acceptable type of steering mechanism.
Chart 4: Acceptability 1 Rebate, standard to cash 3 Rebate, premium to cash 2 Rebate, premium to standard 4 Surcharge, cash to standard 5 Surcharge, standard to premium 6 Surcharge, cash to premium 10 Inform and ask away from credit card 8 Ask away from credit card 9 Inform on merchant fee 7 No premium card 11 Intra-brand discrimination
28. As noted in Chart 5 (below), discount steering mechanisms were the most effective at keeping customers in the store and completing the purchase. It would appear that discounting would be a more effective method for merchants to adopt in order to steer customers to alternative methods of payment unless, perhaps, there was an agreement among all competing merchants to surcharge.
Chart 5: Walk-out Rate 1 Rebate, standard to cash 3 Rebate, premium to cash 2 Rebate, premium to standard 4 Surcharge, cash to standard , 5 Surcharge, standard to premium , 6 Surcharge, cash to premium , 10 Inform and ask away from credit … ^ 8 Ask away from credit card 1 9 Inform on merchant fee 1 7 No premium card , 11 Intra-brand discrimination 0%
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5.3 I 5.4 I 4.3 2.0 1.7 1 2.2 3.1 2.7 3.8 I 3.1 I 2.2 1 2 3 4 5 6 7 Not at all -- Totally acceptable
7% 7% 7% 34% I I 34% I 46% I 22% 20% 10% 32% 33% 10% 20% 30% 40% 50%
15 - 13 - PUBLIC 29. To summarize, the three discount steering mechanisms were ranked as the top-3 for each of the five performance indicators. Discounts are highly effective steering mechanisms that move consumers away from credit card transactions, and do so in a manner that elicits positive feelings, supports and improves future store patronage, and is acceptable to consumers. For this reason, I conclude that overall, discounts would be as or more effective than surcharging to steer cardholders to use a payment method other than credit cards to make a purchase.
Surcharging 30. The Commissioner’s experts assert that surcharges are the most effective method to steer
cardholders away from credit (or “premium credit”) toward alternative payment methods, specifically that surcharging is more effective than discounting. For example, Winter (paragraph 115) asserts that “both theory and evidence, however, suggest that (in most markets) cash discounts are a poor substitute for surcharging.” Likewise, Carlton (footnote 16) states “the empirical evidence indicates that offering discounts is not as effective as being able to surcharge credit card.” More generally, Frankel (paragraph 167) remarks “In the real world customers react differently to surcharges and discounts, the economic effects of the two practices – and the magnitude of the competitive constraint they create on the card networks – differ.”
Results 31. We evaluated the effectiveness of surcharging at steering consumers away from credit card
purchases. The Gauthier Study indicates that surcharges are moderately successful at moving cardholders to other forms of payment; as noted in Chart 1 (reproduced again below for convenience) 6 they induce 50% to 59% of consumers to shift their payment mode to merchants’ preferred method.
6 I have reproduced Charts 1 to 5 for the reader. They are identical to the ones just presented for rebates, apart from the use of red to highlight the surcharge scenarios.
Chart 1: Steering Success Rate 1 Rebate, standard to cash 3 Rebate, premium to cash 2 Rebate, premium to standard 4 Surcharge, cash to standard 5 Surcharge, standard to premium 6 Surcharge, cash to premium 10 Inform and ask away from credit … 8 Ask away from credit card 9 Inform on merchant fee 7 No premium card 11 Intra-brand discrimination 0% 32. Surcharges are akin to a tax so it comes as no surprise that they yielded the highest levels of negative affect among consumers (see Chart 2 below). Simply put, Canadian consumers hate the idea. This result is consistent with an Angus Reid surcharge survey that reported that more than four-in-five Canadians oppose an initiative of surcharging consumers for using their credit cards. 7 Chart 2: Affective Reaction 1 Rebate, standard to cash 3 Rebate, premium to cash 2 Rebate, premium to standard 4 Surcharge, cash to standard 5 Surcharge, standard to premium 6 Surcharge, cash to premium 1.7 10 Inform and ask away from credit … 8 Ask away from credit card 9 Inform on merchant fee 7 No premium card 11 Intra-brand discrimination 1.0
7 Angus Reid (2011), Consumers Association of Canada Surcharge Survey.
16 - 14 - PUBLIC 75% 73% 67% 59% 56% 50% 52% 51% 49% 51% 45% 20% 40% 60% 80% 100% 5.1 5.2 4.3 2.2 _, 2.2 _, ^ ^ 1 2.8 2.7 3.7 2.2 2.1 2.0 3.0 4.0 5.0 6.0 7.0 I would really hate it -- I would really love it
17 - 15 - PUBLIC 33. Steering rate “success” – the rate at which surcharging moves transaction volume away from credit cards to other forms of payment – is undermined by two types of failure. First, cardholders faced with a surcharge may opt to pay the surcharge and use their credit card. Second, cardholders faced with a surcharge may opt to leave the store and take their business elsewhere (or pay and not patronize the store again). From the perspective of transaction volume, the purchase may be delayed (the cycle will repeat itself at another store), the purchase may be abandoned altogether, or the purchase (or future purchases) may be made at another store that accepts the form of payment (credit cards) the customer prefers.
34. As illustrated in Charts 3 and 5 (below), merchants who impose surcharges are most likely to incur lost sales in both the present and the future as dissatisfied customers walk-out and complete their immediate and future purchases elsewhere. This brings profound economic consequences. 8 A merchant’s decision to surcharge will evaluate the downside risk wrought by consumers who respond negatively to surcharges but refuse to be steered, i.e. leading them into (walk-out) actions that do not serve the merchant’s long-term interests.
Chart 3: Future Store Patronage 1 Rebate, standard to cash 3 Rebate, premium to cash 2 Rebate, premium to standard 4 Surcharge, cash to standard 5 Surcharge, standard to premium 6 Surcharge, cash to premium -80 10 Inform and ask away from credit … 8 Ask away from credit card 9 Inform on merchant fee 7 No premium card 11 Intra-brand discrimination -100 -80
8 For example, online shoppers often abandon their shopping carts upon encountering shipping surcharges. One study estimated that the average cost of abandoned goods in online shopping cart was $109. eMarketer (2009), “The sad tale of abandoned shopping carts” http://www.emarketer.com/(S(zhhedj45npbrdc2ajlx5u455))/Article.aspx?R=1007156 (accessed March 27, 2012)
21 26 12 -63 -62 -47 -47 -24 -62 -64 -60 -40 -20 0 20 40 60 80 100 Net likelihood to return to the setore
Chart 5: Walk-out Rate 1 Rebate, standard to cash 1 1 3 Rebate, premium to cash i 2 Rebate, premium to standard 4 Surcharge, cash to standard 5 Surcharge, standard to premium 6 Surcharge, cash to premium 10 Inform and ask away from credit … 8 Ask away from credit card 9 Inform on merchant fee 7 No premium card 11 Intra-brand discrimination 0% 35. From a customer point-of-view, surcharges are the least acceptable payment steering method (see Chart 4 below).
Chart 4: Acceptability 1 Rebate, standard to cash 3 Rebate, premium to cash 2 Rebate, premium to standard 4 Surcharge, cash to standard 5 Surcharge, standard to premium 6 Surcharge, cash to premium 10 Inform and ask away from credit card 8 Ask away from credit card 9 Inform on merchant fee 7 No premium card 11 Intra-brand discrimination
36. To summarize, surcharge steering mechanisms ranked poorly on the five performance indicators overall. The three surcharging mechanisms studied ranked fourth, fifth and ninth in moving customers to the preferred payment method; in the bottom four for affective reaction and acceptability; in the bottom five for future store patronage; and worst for customer walk-outs.
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5.3 5.4 4.3 2.0 1.7 2.2 3.1 2.7 3.8 3.1 2.2 1 2 3 4 5 6 7 Not at all -- Totally acceptable
Other Steering Mechanisms 37. The literature considers other ways of affecting the choice of payment method used by
consumers. Education and card discrimination strategies have been cited as viable steering mechanisms. Our study suggests that inform and ask strategies are moderately effective at steering consumer payment methods in the short term, with a “success” rate (= 49% to 52%) that is pretty well equivalent to the proportion of cardholders who do not accede to the request. Cardholders exhibit latent resentment to the “inform and ask” steering mechanisms as shown by the incidence of walk-out customers (= 10% to 22%), the mostly negative affective ratings, future retail patronage intentions, and acceptability.
38. Card discrimination methods steer 45% - 51% to other payment methods, thus creating an equal number of dissenters. But payment acceptance is very important to about 32% of cardholders who chose to “walk-out” instead of completing the purchase. This generates negative affective reactions, lower future retail patronage intentions, and doubts regarding the acceptability of the policy.
A Direct Comparison of Discounts and Surcharges 39. Carlton (paragraph 70) claims that “evidence shows that surcharging is more effective than
discounting at influencing consumers’ choice of payment method.” Our findings are at odds with his claim and warrant a closer analysis.
40. Table 1 (below) provides a summary of steering mechanism effectiveness for each of the five performance indicators. Discount scenarios outperform the analogous surcharge scenarios across all performance indicators. Compared to surcharges, discounts are more successful at:
a. Switching consumers to an alternative form of payment at the same retailer; b. Generating positive reactions from consumers; c. Increasing the likelihood of future retail patronage; d. Meeting or exceeding consumers’ standards of acceptability; and e. Keeping customers in the store to complete transactions. For these reasons, we conclude that discounts are more effective than surcharges overall.
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Table 1 A Comparison of Performance Indicators for Discount and Surcharge Steering Mechanisms
Performance Indicator Scenarios Focus of Steering Mechanism Steering success rate 1 vs 4 standard card : cash (0 to 100%) 2 vs 5 premium card : standard card 3 vs 6 premium card : cash Affective reaction 1 vs 4 standard card : cash (1 to 7) 2 vs 5 premium card : standard card 3 vs 6 premium card : cash Future store patronage 1 vs 4 standard card : cash (-100 to 100) 2 vs 5 premium card : standard card 3 vs 6 premium card : cash Acceptability 1 vs 4 standard card : cash (1 to 7) 2 vs 5 premium card : standard card 3 vs 6 premium card : cash Walk-out incidence 1 vs 4 standard card : cash (0 to 100%) 2 vs 5 premium card : standard card 3 vs 6 premium card : cash 41. Previous research concludes: “One of the key stylized facts in retail payments is the strong relationship between transaction value and payment instrument choice.” predisposition to pay with a credit card depends on the transaction value. For example, statistics from the Bank of Canada 2009 Method of Payment Survey show how cash is the dominant mode of payment for transactions between $15-25 whereas credit is used most often for purchases in the $50+ range. For this reason it is important to consider the interactions between a steering mechanism and the purchase value because the combined effects are likely to impact consumers’ payment instrument choices.
42. Chart 6 (below) offers a representation of cardholders’ choice of payment method after being informed of a discount or a surcharge. Rebate Scenario 3 is compared to Surcharge Scenario 6 for illustrative purposes. These scenarios share the common focus on shifting consumers away from premium credit cards to cash or debit.
9 Page 2: Arango, Carlos, Kim P. Huynh and Leonard Sabetti (2011), “How do you pay? The role of incentives at the point-of-sale,” Bank of Canada Working Paper 2011-23.
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Rebate Surcharge 75% 59% 67% 56% 73% 50% 5.1 2.2 4.3 2.2 5.2 1.7 21 -63 12 -62 26 -80 5.3 2.0 5.4 1.7 4.3 2.2 7% 34% 7% 34% 7% 46% 9 Consumers’
Chart 6 The Interaction of Discount and Surcharge Steering Mechanisms and Purchase Value by Payment Method Choice
Panel A Switch to Cash by Purchase Value Rebate Scenarriioo 33 vvss Surcharrge Scenariio 6 60% 50% 40% 30% • 20% • • 10% ® 0% T Less than $25 $25 to $75 $75 ttoo $ $112255 MMoorere t thhaann $125 Purchase Value Rebate —•—Surcharge Panel C Stay with Crediitt C Carrdd bbyy Purrchasse Value Rebate Scenarriioo 33 vvss Surcharrge Scenariio 6 60% 50% 40% 30% 20% ® ® ® .
10% ! • +R ® 0% Less than $25 $25 to $75 $75 to $125 Morree than $125 Purchase Value ^ ^RRebate —Surcharge —y— Rebate Surcharge 43. As illustrated above in Chart 6 Panel A (switch to cash), cardholders are most willing to make a switch to cash when the purchase value is low. As purchase value increases, cardholders’ M e t h o d o f P a y m e n t S h a r e M e t h o d o f P a y m e n t S h a r e
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Panel B Switch to Debiitt byy Purrcchase Value Rebate Scenariio 3 vss Surcharge Scenario 6 60% 50% 40% • S 30% 20% 10% 0% T E Less than $25 $25 to $75 $75 ttoo $ $112255 Moorree t thhaan $125 Purchase Value Rebattee —•—SSuurrcchhaarrgge Panel D Walk--outt I Inncciiddeennccee b byy P Puurrcchasse Value Rebate Scenarriioo 33 vvss Surcharrge Scenariio 6 60% 50% ® 40% 30% 20%
10% 0% Less than $25 $25 to $75 $75 to $125 Morre than $125 Purchase Value Rebaattee —•—SSuurrcchhaarrgge M e t h o d o f P a y m e n t S h a r e M e t h o d o f P a y m e n t S h a r e
willingness to use cash declines in both rebate and surcharge scenarios. Cardholders’ proclivity to use cash is slightly greater in the surcharge scenario, but the difference is modest and becomes inconsequent for purchases over $125.
44. As illustrated above in Chart 6 Panel B (switch to debit), cardholder willingness to switch to debit is relatively high for both rebate and surcharge scenarios. As the purchase value increases, cardholders in the surcharge scenario become less inclined to use debit compared to their rebate counterparts, especially for purchase over $125 where debit usage exhibits a decline. This finding is important because it shows that rebate scenarios become more effective at steering cardholders as the purchase value increases. In contrast, surcharge scenarios are effective at steering cardholders until the purchase value exceeds a threshold. Once that threshold has been met, willingness to use debit declines – as does the effectiveness of the surcharging approach.
45. As illustrated above in Chart 6 Panel C (stay with credit card), cardholder willingness to use credit differs by steering mechanism. Few cardholders (about 4%) use their premium credit cards when faced with a surcharge. In contrast, some consumers (about 20%) are willing to forego a rebate offered by the retailer and persist in their desire to use a premium card. This pattern is relatively invariant across purchase value.
46. As illustrated above in Chart 6 Panel D (walk-out incidence), there are major differences in walkout behaviour across the two scenarios. Cardholders in the rebate scenario rarely leave the store, regardless of purchase value. In contrast, cardholders in the surcharge scenario are very much inclined to leave the store when faced with surcharges on premium card use, even for small purchases under $25. However, resistance to surcharging increases as the purchase value increases. Over 50% of consumers who planned a purchase worth more than $125 indicated that they would walk-out of the store if presented with a surcharge.
47. The results are very relevant to a merchant’s decision to use a discount or surcharge strategy, and equally importantly to the likely dollar value of transactions that would be steered away from credit cards if discounting or surcharging were to be adopted. First, rebate scenarios are more effective at directing consumers to debit - the lowest-cost payment option. Second, rebate scenarios are marginally more effective at getting consumers to pay cash for smaller purchases under $75. Third, and most importantly, adoption of a surcharging strategy can backfire and
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cause great harm to a merchant’s business. Specifically, firms that impose surcharges should expect that many consumers will choose to leave the store instead of paying a surcharge. Not only does the merchant lose the immediate sale, they are likely to suffer long-term consequences as those customers bring (and keep) their business, using their preferred payment method, elsewhere.
III. The Commissioner’s Experts’ Reports Regarding Consumer Behaviour 48. The Commissioner’s Economic Theory rests on assumptions regarding consumer behaviour. The theory asserts that (Notice of Application: paragraph 66):
Relative to discounting, surcharging is a more effective means of promoting competition in respect to Card Acceptance Fees for at least two reasons:
(a) to remain competitive, merchants must be able to advertise the single lowest price they can offer for goods and services, as opposed to a price that may be further discounted at the point of sale; and
(b) consumers react more strongly to paying a surcharge (which is viewed as an out-of-pocket expense) than to foregoing a discount (which is viewed as an opportunity cost).
49. In my opinion, as discussed below, the evidence used to support the Commissioner’s Economic Theory, to the extent that it relates to consumer behaviour, suffers from serious limitations. Since study limitations are not always disclosed or apparent, the following sections identify some of the key concerns that limit the usefulness and relevance of the evidence seemingly relied upon by the Commissioner.
A. The Single Lowest Price 50. Winter (paragraph 111) claims merchants cannot and do not discount because they are “limited in their ability to advertise differential discounts based on payment method.” He observes that “merchants typically advertise one price even when prices differ by payment method.” He goes on to conclude that “to implement such pricing would have to take the form of setting the merchant's advertised price equal to the desired price level for the highest-cost payment method (typically the most expensive credit card), along with discounts from that higher price. The merchant would advertise the price applicable only to its highest-cost customers.” Winter does not offer any basis for his conclusions.
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51. I disagree with Winter’s observations about merchant pricing. Merchants frequently advertise prices that are discounted at the point of sale and also use multi-dimensional prices to influence consumer demand. The scope of pricing schemes extend well beyond a unidimensional price model, for example:
a. Simple discount (“$139, $20 off today”); b. Tensile pricing (“As low as” or “Starting at” or “Save up to 50% off”) c. Partitioned pricing (“$70 for a dress shirt, plus $12 shipping and handling”); d. Unit pricing (“$2.49 for a 16oz can of tuna = 15.5 cents per ounce”); e. Manufacturer Suggested Retail Price (“MSRP = $300, sale price = $200); f. Price bundling (“$750 for a computer, printer, monitor, and software”); g. Hi-low pricing (“Orange juice for $5 this week, $7 next week...”); h. Invoice external reference prices (“$500 over invoice”); i. No interest pricing offers (“Pay no interest for 12 months”); j. Payment plan (“$1 per issue for a 1-year 52-issue magazine subscription”); k. Price matching (“We’ll match competitors’ lowest advertised price”); l. Promotional pricing (“Buy one, get one free”); m. Promotional packs (“Get 6 bottles for $5); n. Rebates (“Send proof of purchase and get a $75 rebate”); and o. Coupons (“$.50 off a can of soup”). 52. The examples listed above illustrate how merchants use multi-dimensional pricing to blend monetary costs with unit counts and a temporal dimension to influence consumer response. Marketing experts with specialist knowledge in matters of pricing have produced a plethora of research studies that examine how consumers respond to these different types of multi-
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25 - 23 - PUBLIC dimensional prices. 10 Merchants are certainly free to use multi-dimensional pricing in the place of a single (lowest) price and savvy merchants have reasons for employing specific pricing tactics. In light of this evidence, I disagree with the Commissioner’s argument that “To remain competitive, merchants must be able to advertise the single lowest price they can offer for goods and services.”
B. The Credit Card Companies’ Purported Preference for Discounts over Surcharges 53. The expert economists point out that VISA and MC appear much more concerned about credit card surcharging than cash discounting steering mechanisms. They claim that “if surcharging and discounting were equivalent [in terms of steering consumers to alternative payment mechanisms], Visa and MasterCard would have no basis to allow discounting but oppose surcharging” (Carlton: paragraph 69) and that “the resources being devoted by the Respondents to defending the [No-Surcharge] restriction would be a waste” (Winter: paragraph 115).
54. I disagree with the Carlton and Winter analysis referred to above. It assumes that discounts and surcharges only have steering effects and concludes that MC’s and VISA’s preference for the former over the latter reveals that the steering effect of discounts is inferior. The flaw in this approach is in its opening assumption. In fact, the deep concerns VISA and MC share with respect to merchant surcharging are perfectly justified because, apart from steering effects, surcharges pose a much greater threat to brand reputation by undermining consumer trust. The resources being devoted to defending the No-Surcharge Rule are an effort to defend brand equity, the firms’ greatest asset, which is bound up in the ease of use and ubiquitous acceptance. In contrast, discounting schemes pose no immediate threat to the VISA and MC brands as merchants assume all of the risks and reap all of the rewards.
10 Estelami, Hooan (2003), "Strategic implications of a multi-dimensional pricing environment," Journal of Product & Brand Management, 12 (5), 322-34.
Estelami, Hooman (2003), "The effect of price presentation tactics on consumer evaluation effort of multidimensional prices," Journal of Marketing Theory and Practice, 1-16.
Hardesty, D. M., W. O. Bearden, and J. P. Carlson (2007), "Persuasion knowledge and consumer reactions to pricing tactics," Journal of Retailing, 83 (2), 199-210.
Morwitz, Vicki G., Eric A. Greenleaf, and Eric J. Johnson (1998), "Divide and prosper: consumers' reactions to partitioned prices," Journal of Marketing Research, 453-63.
26 - 24 - PUBLIC 55. In my opinion, providing merchants free range to surcharge would be harmful to the VISA and MC brands. Implementation of surcharging schemes would be uneven across retailers making it difficult for consumers to compare the “true price” of a purchase before visiting a store. Furthermore, consumers may ask themselves why there is a surcharge and who is responsible for it, and then mistakenly infer that VISA or MC were responsible for the policy. VISA and MasterCard are among the world’s most trusted brands and are consistently ranked in the Top 100 global brands. 11 Brand is about reputation, it generates trust for a company and for its products and services. A brand’s success is rooted in customer perceptions and behaviour, and is valuable only if the brand can translate customer sentiment into financial value.
56. Surcharges undermine the value that VISA and MC offer their customers and pose a great threat to brand value for a variety of reasons:
a. Price precedence and fairness. Traditionally, Canadian consumers have not paid surcharges on credit card purchases. Surcharges will generate ill will because consumers’ reference point for completing credit card transactions, based on a lifetime of experience, is $0. Breaking out a “normal cost of doing business” as an itemized charge will be judged as unfair by consumers who suspect profit-seeking motives.
b. Price uncertainty and search costs. In countries where surcharging is allowed, 12 there are differences both in the adoption of surcharging practices and the surcharging rate. Consumers may not understand the “true price” until they arrive at the register to pay and are faced with a surcharge that varies from merchant-to-merchant. Consumers must incur new search costs to discover the surcharge levels imposed by merchants.
c. Surcharges represent penalties to cardholders. From a cardholder perspective surcharges are negative and there is widespread disapproval and opposition to
11 For example, VISA ranked #20 on Millward Brown Optimor’s 2011 BrandZ Top 100 Most Valuable Brands list with an estimated brand value of $28,553 Million and #75 on Interbrand’s Best Global Brands 2011 list. MasterCard ranked #60 on the 2011 BrandZ Top 100 Most Valuable Brands list with an estimated brand value of $13,543 Million. http://www.millwardbrown.com/Libraries/Optimor_BrandZ_Files/2011_BrandZ_Top100_Report.sflb.ashx; and http://www.interbrand.com/en/best-global-brands/best-global-brands-2008/best-global-brands-2011.aspx (Accessed March 24, 2012)
12 Reserve Bank of Australia (2011), Review of Card Surcharging: A Consultation Document.
surcharges. They don’t believe they should have to pay extra when they pay with a credit card.
d. Consumers are confused. People do not understand the reason for surcharges and it is unlikely that the supposed benefits will have been properly explained. Can VISA and MC trust that merchants will assume responsibility to educate consumers and explain their actions?
e. Profiteering on credit card transactions. Surcharge gouging in Australia 13 provides a cautionary tale about empowering retailers with an unchecked opportunity to surcharge. Rather than setting surcharges to recover card processing costs, merchants use surcharging as new profit centre.
f. Masked surcharge responsibility causes confusion. Surcharging breaks the price into two components: a large base price and a comparatively small surcharge, akin to the Harmonized Sales Tax (HST) which appears as separate item following the subtotal on a sales receipt.
g. Misattributions and guilt by association. It is very difficult for consumers to know if the surcharges are fair and reasonable. Also, a lack of transparency may prevent consumers from knowing that merchants are wholly responsible for surcharging. Consumers, misled and deceived, will not know who to blame. Yet blame they will, and many consumers will wrongly assume that that VISA or MC is responsible for the surcharge.
C. The Dangers of Using Anecdotes as Evidence 57. Identifying trustworthy findings is a challenging task because the conclusions ought to be generalizable and relevant to the Canadian marketplace. Reasonable and defensible decisions should rest on a robust evidence base. Though anecdotes are sometimes used to assert or illustrate ideas in expert reports, they do not qualify as scientific evidence. It can be hard to separate the rhetoric from the reality unless the reader appreciates that anecdotes may be true but unreliable because they are based on small non-representative sample sizes and are selected to advance a position.
13 Reserve Bank of Australia (2011), Review of Card Surcharging: A Consultation Document.
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IKEA 58. The IKEA experience with surcharges and discounts (Carlton: paragraph 73; Frankel: paragraph
171) is of little value in establishing the effectiveness of surcharges because:
a. Financial gains (discounts) should be compared to financial losses (surcharges), pure and simple. The rival treatment scenarios are not conceptually equivalent: (a) Surcharge = an immediate financial loss, whereas (b) Coupon = a deferred financial gain incurred at an unknown time in future, subject to making another purchase from the same merchant. A true analogy would be free of confounds that foster erroneous conclusions.
b. The IKEA anecdote is confounded by the implicit assertion that consumers in the UK and USA are equivalent, and that they are similar to Canadian consumers. Extreme cultural differences exist in the marketplace, for example “credit cards are rarely used in the Netherlands” (Carlton: paragraph 75).
c. There is no way to replicate or verify the conclusions. 59. The Symons witness statement offers an IKEA insider’s view of payment methods. The report discusses the assorted issues, many of them financial/accounting in nature. Though Symons’ statement says little about marketing or consumer behaviour, 14 he does suggest the connection between pricing strategy and brand image at IKEA and shares some anecdotes about discounts and surcharges. Of course, some of IKEA’s pricing initiatives are more effective than others. One idea shared by myself and Symons is that pricing decisions are crucially important to building a strong brand image. As a low-price affordable furniture store, IKEA adopts pricing practices that support the image they want to convey to their customers. This image-based approach to pricing is shared by MC and VISA – both brands aim for consistency in pricing, which is why MC and VISA are tenacious in their fight to uphold the No-Surcharge Rule.
Woolworths 60. Australian merchant Woolworths apparently stated that the ability to surcharge helped achieve
in “certain brands… an almost 50% reduction in pricing” (Frankel: paragraph 137). Is there any way to confirm this cause-and-effect relationship? Would such a reduction in pricing have been
14 Aside from some comments about consumer perceptions of surcharges and discounts, which repeat the basic ideas of prospect theory and the principle of loss aversion.
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offered without the ability to surcharge, i.e. did they exist before the reforms? Woolworths’ story is not proof of any economic effects of the elimination of the No-Surcharge Rule, certainly not in comparison to other steering methods such as discounting.
IV. Conclusion 61. A large-scale consumer survey of Canadian cardholders established the relative effectiveness of four basic types of steering mechanisms using five performance indicators. The survey provides much-needed multi-dimensional empirical evidence to sort out the true relative performance of discounts, surcharging, ask and inform, and card discrimination steering mechanisms. The evidence strongly supports the conclusion that discounts are the most effective steering mechanism. Furthermore, the evidence exposes the limitations of surcharging, notably its capacity to arouse negative feelings among cardholders and their deleterious impact on immediate and long-term store patronage. These findings go against some of the Commissioners’ economics experts’ expectations, which are largely based on theoretical models and findings gathered outside the domain of methods of payment. 15 In my opinion, the prevailing belief seemingly shared by the Commissioner’s experts is incorrect, and certainly not based on “empirical evidence.” In my opinion, the evidence affirms the superiority of discounts over surcharging as a means to steer consumers to payment methods other than credit cards or premium cards.
62. In my opinion, the Commissioner’s Economic Theory, to the extent that it relates to consumer behaviour, suffers from serious limitations:
a. I disagree with the Commissioner’s argument that “To remain competitive, merchants must be able to advertise the single lowest price they can offer for goods and services.”
15 For example, in his 1980 paper, Richard Thaler gives examples of consumer choice to illustrate situations where consumers act in a manner than is inconsistent with economic theory due to weighting of opportunity costs (i.e. a wine collector’s willingness to pay vs willingness to sell) and sunk costs (i.e. use of tickets for a basketball game [purchased vs gifted] in poor weather). The 22-page article contains a single paragraph on credit card use (page 45): it does not cite any empirical evidence to verify the claims; instead it sums up an expert’s position.
Thaler, Richard (1980), "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, 1 (1), 39-60.
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Multi-dimensional pricing tactics are frequently used by merchants in the place of a single (lowest) price. Savvy merchants draw from this portfolio of pricing tactics to influence consumer demand.
b. I contend that MC and VISA’s defense of the No-Surcharge Rule is driven by a desire to defend brand equity: the firms’ greatest asset. Surcharges pose a great threat to brand reputation and may undermine consumer trust in the brands. In contrast, discounting schemes pose no immediate threat to the VISA and MC brands as merchants assume all of the risks and reap all of the rewards.
c. In my opinion, conclusions regarding the impact of steering mechanisms should be based on research rather than speculation. There are dangers in using anecdotes as evidence. A , Date: April 4, 2012 MICHAEL S. MULVEY
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EXHIBIT A Curriculum Vitae of Michael S. Mulvey
Michael Sean Mulvey (Date: April 2011)
Education Ph.D. in Business Administration (Marketing), Penn State University, 1997 M.S. in Management Systems (Marketing), Clarkson University, 1992 Honours Bachelor of Commerce (Marketing), University of Ottawa, 1991
Academic Experience Assistant Professor Telfer School of Management, University of Ottawa ▪ Faculty, Department of Marketing, January 2003 – present ▪ Tenure granted 2010
Visiting Faculty ▪ Bucharest School of Management, Romanian-Canadian MBA, 2006 – 2010 ▪ Rutgers Business School - Newark and New Brunswick, 2005 – 2006
Assistant Professor Rutgers Business School - Newark and New Brunswick ▪ Faculty, Department of Marketing, 1996 - 2002 ▪ Instructor, Center for Management Development, 2000 – 2002 ▪ Vice Chair, Department of Marketing, June 2000 – July 2001, July – December 2002
Instructor Penn State University, Department of Marketing, 1993 – 1996 Research Assistant Penn State University, Department of Marketing, 1993 – 1995 Clarkson University, Department of Marketing, 1991 – 1992
Teaching Experience Courses Taught I am a confident and effective teacher, and have taught a variety of courses at multiple levels, from large core courses to small specialized electives, including: Consumer Behaviour, Principles of Marketing, Strategic Marketing Management, Marketing Research, Selling and Sales Promotion, and Consumer Products Marketing.
Teaching Effectiveness Have earned outstanding teaching evaluations (4.5/5.0 and above) at the undergraduate, MBA and executive levels. Named GE Teaching Fellow (2000) for innovative use of technology the classroom. Two-time nominee for the University of Ottawa Award for Excellence in Teaching (2010, 2011) and once for TVOntario’s 2010 Best Lecturer Competition. Three-time finalist for the Paul Nadler Teaching Excellence Award (1999, 2000, 2001) and finalist for the Thomas H. Mott Teaching Excellence Award (2002).
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32 - 30 - PUBLIC Professional Experience Marketing Consultant A specialist in the study of consumer behavior, branding and advertising issues using advanced qualitative research methods. Have worked as a research and marketing consultant for Bank of America, Commissionaires, Corporation for Public Broadcasting, Harrah’s Casino, Hilton Hotels, Motorola, New York State, Panasonic, ShopRite Supermarkets, Toyota, United Way, and others.
Expert Witness Have advised and provided expert testimony and pre-trial research regarding consumer perception and behaviour, trademark infringement and price deception. Clients include the Competition Bureau and law firms for Alavida Lifestyle, Colgate-Palmolive Canada, Doris Hosiery Mills, Fairweather, Johnson & Johnson, Legacy Hotels, Loblaws, MGA Entertainment, Mövenpick-Holding, Novartis, Oy Panda AB, Parmalat Dairy, Pernod Ricard, Plaisirs Gastronomiques, Playtex Limited, Procter & Gamble, Ringling Bros. and Barnum & Bailey, SPI Group, and Wyeth.
Media Relations A frequent commentator in the media, I have offered expertise on consumer behaviour, branding and marketing in 140+ interviews in over 100 media outlets including: newspapers (e.g. Financial Post, Globe & Mail, Toronto Star, New York Times), magazines (e.g. Canadian Business, Maclean’s), trade journals (e.g. Marketing Magazine, Opt!k), radio (e.g. CBC Radio One, CHQR AM770 Calgary) and television (e.g. CTV News, Radio Canada – Le Téléjournal). For a complete listing visit: http://business.admin.uottawa.ca/~mulvey/id6.html
Grants, Honors and Awards Service Finalist, President’s Award for Media Relations, University of Ottawa, 2010.
Teaching Finalist, University of Ottawa Award for Excellence in Teaching, 2009-2010 & 2010-2011. Nominee, TVO’s 2010 Big Ideas Best Lecturer Competition. Finalist, Thomas H. Mott Teaching Excellence Award, Rutgers Business School, 2002. Profiled in Who’s Who Among America’s Teachers 2002, 7th edition. Finalist, Paul Nadler Teaching Excellence Award, Rutgers Business School, 1999, 2000, 2001. Awarded GE Teaching Fellowship ($5,000), Course Management Institute, Rutgers University, 2000. Awarded Smeal College of Business Teaching Fellowship, Penn State University, 1994-96. Awarded fellowship to attend National Direct Marketing Institute for Professors, Dallas, 1994.
Research School of Management Research Fund Award ($700 grant), University of Ottawa, 2011. School of Management Travel Fund Award ($1,500), University of Ottawa, 2010. School of Management Research Fund Award ($3,500 grant), University of Ottawa, 2008. School of Management Travel Fund Award ($2,000), University of Ottawa, 2008. School of Management Travel Fund Award ($1,500), University of Ottawa, 2007.
33 - 31 - PUBLIC School of Management Research Excellence Award ($4,000 grant), University of Ottawa, 2007. School of Management Research Excellence Award ($3,000 grant), University of Ottawa, 2004. School of Management Travel Fund Award ($1,500), University of Ottawa, 2007. Competitive Research Grant ($10,000), University of Ottawa, 2003-2004. School of Management Travel Fund Award ($1,000), University of Ottawa, 2003. FOM Competitive Summer Research Fellowship ($2,000), Rutgers Business School, 1999. Henry Rutgers Scholars Project Grant ($400), Rutgers College, with C. Medina, 1999. FOM Competitive Summer Research Fellowship ($3,000), Rutgers Business School, 1998. Mabel Douglass Smith Honors Thesis Grant ($500), Douglass College, with B. Kavalam, 1998.
Academic Selected to represent Penn State at 25th Albert Haring Symposium, Indiana University, 1995. Awarded Smeal College of Business Research Fellowship, Penn State University, 1992-94. Selected as participant IAREP Summer School in Economic Psychology, Linz, Austria, 1993. Selected as Clarkson delegate to Canadian Graduate Business Conference, York University, Canada, 1992. Awarded Graduate School of Business Research Fellowship, Clarkson University, 1991-92.
Research Interests Consumer behaviour Perceived value and product choice Brand image and positioning strategy Advertising comprehension and testing Qualitative research methodology Marketing of financial services
Publications and Presentations Dissertation Michael Mulvey (1997). Understanding the Meanings of Money and Consumers’ Money Strategies, Penn State University. Copies available from UMI ProQuest Digital Dissertations. Adviser: Jerry C. Olson.
Articles in refereed journals Michael Mulvey and Beena Kavalam (2010). “Mining Deeper Meaning in Consumer Decision Maps” Qualitative Market Research, 13(4), 372-388.
Dan Padgett and Michael Mulvey (2009). “Experiential Positioning: Strategic Differentiation of Customer-Brand Relationships,” Innovative Marketing, 5(3), 81-90.
Dan Padgett and Michael Mulvey (2007). “Differentiation via Technology: Strategic Positioning of Services Following the Introduction of Disruptive Technology,” Journal of Retailing, 83(4), 375-391 [lead article].
Charles Gengler, Michael Mulvey and Janet Oglethorpe (1999). “A Means-End Analysis of Mothers’ Infant Feeding Choices,” Journal of Public Policy and Marketing, 18 (2), 172-188.
Charles Gengler, David Klenosky and Michael Mulvey (1995). “Improving the Graphic Representation of Means-End Results,” International Journal of Research in Marketing, 12 (3), 245-256.
David Klenosky, Charles Gengler and Michael Mulvey (1993). “Understanding the Factors Influencing Ski Destination Choice: A Means-End Analytic Approach,” Journal of Leisure Research, 25 (4), 362-379. ▪ Article is based on my Master’s thesis research.
Chapters in edited books Michael Mulvey and Carmen Medina (2003). “Invoking the Rhetorical Power of Character to Create Identifications,” Persuasive Imagery: A Consumer Response Perspective, Linda M. Scott and Rejeev Batra, eds., Mahwah, NJ: Lawrence Erlbaum Associates, 223-245.
David Klenosky, Charles Gengler and Michael Mulvey (1999). “Understanding the Factors Influencing Ski Destination Choice: A Means-End Analytic Approach,” Consumer Behavior Travel and Tourism, Abraham Pizam and Yoel Mansfeld, eds., New York: The Haworth Hospitality Press, 59-79. ▪ Chapter is a reprint of 1993 Journal of Leisure Research article.
Papers in refereed conference proceedings Michael Mulvey and Barbara Stern (2004). “The Invisible Narrator: Attributes and Consumer Attitudes,” Advances in Consumer Research, Volume 31, 178-185. ▪ Presented at 2003 ACR Conference, Toronto.
Michael Mulvey and Barbara Stern (2004). “Content Analysis Research Themes 1977-2000: Evolution and Change,” Advances in Consumer Research, Volume 31, 728-734. ▪ Presented at 2002 ACR Conference, Atlanta.
Dan Padgett and Michael Mulvey (2001). “Same Ad, Different Story: Consumer Readings of Storied Ads,” Proceedings of the Seminar on Marketing Communications and Consumer Behavior, Christian Derbaix et al., eds., Aix-en-Provence, France: Université d’Aix – Marseille, 413-427. ▪ Presented at 28 th International Research Seminar Marketing, 2001, La Londe les Maures, France. Michael Mulvey and Carmen Medina (2000). “How does it feel? Reading the Emotions Displayed by Characters in Ads,” Working Papers, Yaffe Center for Persuasive Communications, University of Michigan, http://www.yaffecenter.org/yaffe.nsf. ▪ Presented at 2000 Advertising and Consumer Psychology Conference, Ann Arbor.
Michael Mulvey, Jerry Olson, Richard Celsi and Beth Walker (1994). “Exploring the Relationship Between Means-End Knowledge and Involvement,” Advances in Consumer Research, Volume 21, 51-57. ▪ Presented at 1993 ACR Conference, Nashville.
Charles Gengler and Michael Mulvey (1993). “Exploring Cultural Differences Using Laddering: An Analysis of French and English Canadians’ Ski Destination Choices,” Proceedings of the Fourth Symposium on Cross-Cultural Consumer & Business Studies, Gerard Albaum et al., eds., 111-115. ▪ Presented at 1993 Symposium on Cross-Cultural Consumer and Business Studies, Honolulu.
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35 - 33 - PUBLIC Abstracts and papers presented at refereed conferences (other than those already listed) “Experiential Positioning: Strategic Differentiation of Customer-Brand Relationships,” Competitive paper presented at the 2009 Society for Marketing Advances Conference, New Orleans (with D. Padgett). Summary brief in Advances in Marketing: Embracing Challenges & Change - A Global Perspective, William J. Kehoe and Linda K. Whitten, eds. Tuscaloosa, AL: Society for Marketing Advances, 2009, 177-178.
“Money Meets Motivation: Segmentation via Reservation Prices and Perceived Value Tradeoffs,” Research abstract presented at 2008 Behavioral Pricing Conference, Philadelphia (with C. Gengler).
“Relationship Segmentation: Analyzing Donor Behavior for a Public Good,” Research poster presented at 2007 European Association for Consumer Research (EACR) Conference, Milan (with C. Gengler). Abstract in European Advances in Consumer Research, Vol. 8, 285-286.
“Differentiation via Technology: Strategic Positioning of Services Following an Influx of Technological Innovation.” Research abstract presented at 2004 INFORMS Marketing Science Conference, Rotterdam (with Dan Padgett).
“Caveat Investor: A System-Level Analysis of Comparative Advertising the Brokerage Industry.” Research presented at 2003 Marketing and Public Policy Conference, Washington, DC (with Dan Padgett).
“Experiential Positioning: Strategic Differentiation of Customer-Brand Relationships.” Competitive paper presented at 2001 European Association for Consumer Research (EACR) Conference, Berlin (with Dan Padgett). Abstract in European Advances in Consumer Research, Vol. 5, p. 196.
“Do-It-Yourself Investing: Exploring the Ethos of Online Trading.” Competitive paper presented at 2000 ACR Conference, Salt Lake City (with Carl Stech). Abstract in Advances in Consumer Research, Vol. 28, p. 87.
“Experiential Perspectives on the Economics of Everyday Life.” Special topic session organized for 1999 ACR Conference, Columbus (with Doug Allen). Abstract in Advances in Consumer Research, Vol. 27, p. 12.
“Understanding the Meanings of Money and Consumers’ Money Strategies.” Research presented at 1999 ACR Conference, Columbus (with Jerry Olson). Abstract in Advances in Consumer Research, Vol. 27, p. 12.
“Weighting the Value of Qualitative Positioning Data.” Research presented at 1998 American Marketing Association Summer Educators’ Conference, Boston (with Charles Gengler and Dan Howard). Abstract in AMA Educators’ Proceedings, Vol. 9.
“The Invisible Persona: Who speaks advertising?” Research presented at 1997 ACR Conference, Denver, Colorado (with Barbara Stern). Abstract in Advances in Consumer Research, Vol. 25, p. 24.
“The Reading Profile: An Interpretive Framework for Analyzing the Meaning of Ads.” Research presented at 1996 ACR Conference, Tucson (with Doug Holt). Abstract in Advances in Consumer Research, Vol. 24, p. 98-100.
“A Qualitative Analysis of Infant Feeding Decisions.” Research presented at 1995 Marketing & Public Policy Conference, Atlanta (with Janet Oglethorpe and Charles Gengler). Abstract in Marketing and Public Policy Conference Proceedings, Vol. 5, p. 319.
Research Colloquia and Invited Presentations “A Consumer View of Canada-United States Cross-Border Shopping.” Invited expert witness, Senate Committee on National Finance, Meeting No. 12, Ottawa, 2011.
“Greenwashing: Are Five-cent Plastic Bags Making a Difference?” Invited panelist, Café Scientifique, hosted by Canada Science and Technology Museum, Ottawa, 2011.
“Barbara Stern’s Legacy to Consumer Research.” Roundtable panelist. Association for Consumer Research Conference, Jacksonville, FL, 2010.
“Fielding Possibilities: Strategic Communication of Roles in Service Relationships.” University of Ottawa, 2001.
“Content Analysis Consumer Research.” Ph.D. seminar, Rutgers University-Newark, 2000. “Understanding the Meanings of Money and Consumers’ Money Strategies.” School of Business, Rutgers University – Camden, 1997. Pamplin College of Business, Virginia Tech, 1995. Faculty of Management, Rutgers University – New Brunswick, 1995.
“Toward Understanding the Meanings of Money.” 25th Albert Haring Symposium, Indiana University, 1995. IAREP Summer School in Economic Psychology, Linz, Austria, 1993.
Working Papers “Previewing Experiences: Movie Trailers, Audience Expectations and Taste” (with C. Gengler). Telfer Working Paper 08-10. “Technology’s Relevance: A Means-End Model of Innovation-Values Fit and Adoption” (with C. Gengler). Telfer Working Paper 09.10. “Maintain the Chain: An Argument for Thematic Analysis of Laddering Data” (with C. Gengler). Telfer Working Paper 09.20.
Business Cases “Promoting Pride in Canada's Capital Region / Promouvoir la fierté envers la région de la capitale du Canada” (with Michael Guolla), Marketing Case - Jeux du Commerce 2011, Ottawa.
Supervision of Student Theses, Projects & Internships Doctoral Dissertations “Interactivity and its implications on consumer behavior” Y. Liu (2002, committee) Masters Theses “Marketing Strategy in Social Enterprises: An Exploratory Study” A. Mitchell (2011, committee)
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37 - 35 - PUBLIC “Is control at work necessarily linked to less work-life conflict?” M. Ferguson (2007, co-supervisor) “Project investment analysis of Beijing – Shanghai high speed railway” F. Qiu (2005, committee) Masters Projects “Strategic Marketing Plan for Ornamental Branches” A. Zahedi (2011) “A study of retail gift cards” C. Snasdell-Taylor (2008-09) Undergraduate Honors Theses “How does it feel? Reading the emotions displayed by characters in ads” C. Medina (1999-2000) “Marketing Douglass College the new millennium” B. Kavalam (1997-1998) Ph.D. Seminars “Topics in content analysis” Y. Liu and Z. Taran (1998) Undergraduate Research Projects “Marketplace deception and consumer persuasion knowledge” C. Beaupré (2011) “A study of direct-to-consumer advertising of prescription drugs” M. Amandine (2007) “Advertorials: How do consumers react?” L. Adamski (2004-05) “Anatomy of a boycott: Dissecting international media coverage” A. Houel (2003-04) “Net threats: The strategic use of online information monitoring” G. Damnon (2003-04) “Publicizing CSR initiatives via corporate websites: A benchmarking study” L. O’Leary (2003-04) “Fans’ favorite NASCAR drivers: A qualitative analysis of perceptions and preferences” J. Dukes “Auditing the positioning strategies used by online brokers” C. Stech (1999) “A means-end study of students’ college choice” B. Kavalam (1997) “Measuring consumers’ perceptions of value and preference” M. Boss, D. Friedlander, J. Fujii (1998) “Deriving marketing insights from consumer stories” K. Anastario and D. Friedlander (1997) “New methods for assessing controversy in advertising” P. d’Angelo and C. Wymbs (1997) “Understanding consumer responses to credit card ads” E. Chou, R. Murphy, C. Halligan (1996) “A benchmarking study of visual images women’s college brochures” B. Kavalam (1996) “Comparing print versus broadcast executions of a Nike ad” J. Arce (1996) “Students: New targets of credit card advertisers?” K. Barber (1996) Internships A. Houel, Annexe Communications (2004) G. Damnon, SéguLabelle Communication (2004) L. O’Leary, Juste Pour Rire / Just for Laughs (2004) E. Lebow, Federated Department Stores (2000) D. Theran, CNBC (1998) J. Harris, Madison Square Gardens (1997)
Service to the Fields of Marketing and Consumer Research Reviewer, Journals and Books California Management Review (2011) Revue Gestion (2011) Services Industries Journal (2010) Journal of Historical Research in Marketing, special Canadian issue (2010) Journal of Institutional Economics (2005) Marketing Theory, special issue on advertising theory (2003) Journal of Advertising (1998, 2002) International Journal of Research in Marketing, special issue on means-end theory (1995) Psychology and Marketing (1995)
38 - 36 - PUBLIC Understanding Consumer Decision Making (2001), T.J. Reynolds and J.C. Olson (eds.) Reviewer, Conferences Administrative Sciences Association of Canada Conference (2007, 2008, 2012) IIML Conference in Marketing (2011) Society for Marketing Advances (2010) American Marketing Association Educators’ Conference (1995, 2001, 2005) European Marketing Academy Conference (2004) Association for Consumer Research – European Conference (1999, 2001, 2003, 2007) Academy of Marketing Science Conference (2001) Advertising and Consumer Psychology Conference (2000) Association for Consumer Research Conference (1994) Reviewer, Grant Proposals External Assessor, SSHRC Grant Programs (2007, 2008, 2009, 2010, 2011) PSC-CUNY grants award program (2010) Member, Ontario Graduate Scholarship Selection Panel (2004-2005)
Service to the University Community University of Ottawa School of Management Member, Executive Committee, 2009-present. Member, Graduate Programs Committee, 2008-present. Member, Graduate Admissions Committee, 2009-present. Member, International Strategic Work Group, 2009-2010. Member, Library Committee, 2005. Member, Task Force on Research-Based Graduate Programs, 2004-05. Faculty Advisor, Marketing Club, 2003-05. Member, MBA Branding and Ranking Committee, 2003. Member, M.Sc. Development Committee, 2003. Rutgers Business School Associate Member of the Graduate School. New Brunswick Admissions & Policy Committee, 1997-98, 2000-01. Junior Faculty Issues Committee, 1998. Chair, Marketing Undergraduate Curriculum Review, 1998. Teaching Effectiveness Committee, 1996-97.
Courses Taught Undergraduate Courses Marketing Consumer Behaviour Marketing Research Selling and Sales Promotions Marketing Strategy Marketing Communications
Number of Sections Most Recent 24 2011 20 2012 13 2006 2 2005 1 2006 1 1992
MBA and Executive Courses Strategic Marketing Management Consumer Product Marketing (½ course) Marketing Research (½ course) Incorporating the Consumer Marketing Research (1 day) Graduate Courses Taken (M.S. and Ph.D. level) Marketing Marketing Theory Development of Marketing Thought Introduction to Consumer Behavior Theoretical Perspectives on Buyer Behavior Cultural Consumer Research Research Methods Marketing I & II Math for Marketing Models Marketing Models Market Response Models Marketing Channels Business-to-Business Marketing Individual Study (4 times)
39 - 37 - PUBLIC 15 2012 2 2004 2 2004 4 2001 Research Methods and Psychology Field Methods Ethnology Advertising and Culture Social Networks and Organizations Multivariate Analysis for Business Decisions Analysis of Discrete Data Introduction to Econometrics Economic & Business Forecasting Design of Experiments History of the Higher Mental Processes Advanced Social Psychology Social Psychological Perspectives on the Self Experimental Psychology
EXHIBIT B Acknowledgement of Expert Witness
I, Michael S. Mulvey, acknowledge that I will comply with the Competition Tribunal’s code of conduct for expert witnesses which is described below:
» An expert witness who provides a report for use as evidence has a duty to assist the Tribunal impartially on matters relevant to his or her area of expertise.
» This duty overrides any duty to a party to the proceeding, including the person retaining the expert witness. An expert is to be independent and objective. An expert is not an advocate for a party.
A , Date: April 4, 2012 MICHAEL S. MULVEY
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Exhibit C: List of Materials Relied Upon in Report 1. Angus Reid (2011), Consumers Association of Canada Surcharge Survey. 2. Arango, Carlos, Kim P. Huynh and Leonard Sabetti (2011), “How do you pay? The role of incentives at the point-of-sale,” Bank of Canada Working Paper 2011-23.
3. Bagnall J, S Chong and K Smith (2011), Strategic Review of Innovation in the Payments System: Results of the Reserve Bank of Australia’s 2010 Consumer Payments Use Study.
4. Bolt, Wilko, Nicole Jonker, and Corry van Renselaar (2010), "Incentives at the counter: An empirical analysis of surcharging card payments and payment behaviour in the Netherlands," Journal of Banking & Finance, 34 (8), 1738-44.
5. Borzekowski, Ron, K. Kiser Elizabeth, and Ahmed Shaista (2008), "Consumers' use of debit cards: patterns, preferences, and price response," Journal of Money, Credit and Banking, 40 (1), 149-72.
6. BrandZ Top 100 Most Valuable Global Brands, http://www.millwardbrown.com/Libraries/Optimor_BrandZ_Files/2011_BrandZ _Top100_Report.sflb.ashx (accessed March 24, 2012).
7. EMarketer, “The sad tale of abandoned shopping carts” http://www.emarketer.com/(S(zhhedj45npbrdc2ajlx5u455))/Article.aspx?R=10 07156 (accessed March 27, 2012).
8. Estelami, Hooan (2003), "Strategic implications of a multi-dimensional pricing environment," Journal of Product & Brand Management, 12 (5), 322-34.
9. Estelami, Hooman (2003), "The effect of price presentation tactics on consumer evaluation effort of multi-dimensional prices," Journal of Marketing Theory and Practice, 1-16.
10.Expert Report of Benoît Gauthier (in this proceeding). 11.Hardesty, D. M., W. O. Bearden, and J. P. Carlson (2007), "Persuasion knowledge and consumer reactions to pricing tactics," Journal of Retailing, 83 (2), 199-210.
12. Ingene, Charles A. and Michael Levy (1982), "Cash discounts to retail customers: An alternative to credit card sales," Journal of Marketing, 46 (Spring), 92-103.
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13.Interbrand Best Global Brands 2011, http://www.interbrand.com/en/best-global-brands/best-global-brands-2008/best-global-brands-2011.aspx (accessed March 24, 2012).
14.Jonker, Nicole (2007), "Payment instruments as perceived by consumers– Results from a household survey," De Economist, 155 (3), 271-303.
15.Morwitz, Vicki G., Eric A. Greenleaf, and Eric J. Johnson (1998), "Divide and prosper: consumers' reactions to partitioned prices," Journal of Marketing Research, 453-63.
16.Reserve Bank of Australia (2011), Review of Card Surcharging: A Consultation Document.
17.Thaler, Richard (1980), "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, 1 (1), 39-60.