Consumer Behavior and Spending Decisions

consumerUniversity of California – Berkley recently conducted a study that consumer behavior is fueled by a complicated mix of psychological and social forces.[1] In fact, getting the best deal is often not the issue.1 Instead, spending decisions are influenced by fairness, obligation, and reciprocity.1

UC Berkley researchers studied how commerce is affected when there was no set price tag.1 In a study of consumer behavior, researchers found that shoppers spend more money when engaged in a chain of goodwill, known as “pay-it-forward” than when they could name their own price.1 With “pay-it-forward,” patrons are told that a previous customer has paid for them, and they get the opportunity to pay for someone else.1 When people were given the option to pay for someone else, they always paid more than when they paid for themselves, squashing the stigma that most consumers are selfish and always seeking out the best deals.1 These random acts of kindness have been reported at toll bridges, coffee shots, and drive-thru restaurants.1

“Pay-what-you-want” is also an economically similar approach, in which consumers are given the option to pay any price they want.1

People typically overestimate the financial generosity of others, until they learn what others have actually paid.1 People don’t want to look cheap—they want to be fair and fit in with the social norms.1

In eight separate experiments researchers at UC Berkley compared how more than 2,400 individuals responded to the two elective pricing models at venues such as San Francisco’s Cartoon Art Museum, the farmers market at Oakland Jack London Square, and in laboratory settings.1 At the museum and farmers market, consumers consistently paid more for another customer than they did for themselves when purchasing a cup of coffee or an admission ticket.1 The same was found in the laboratory setting when consumers were given mugs sporting the Cal logo.1

While some were given the choice to pay what they wished for the mug, others were told that someone else had paid for the mug and they could continue the giving and pay for someone else’s.1 Those who paid-it-forward spend more; however, when told exactly what the previous person had paid, the consumer adjusted their expenses accordingly to pay that amount or a little less.1 It was also found that if the consumer was acquainted with the person who had covered their cost, they would be influenced to pay more.1

Businesses that rely entirely on consumers’ social preferences can survive—even thrive.1

[1] Nauert, R. (2013). Cost is Only One Factor in How Much We Spend. Psych Central. Retrieved on December 2, 2013, from http://psychcentral.com/news/2013/11/29/cost-is-only-one-factor-in-how-much-we-spend/62623.html

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