As we have talked about before, consumers are traditionally risk-averse. We would almost always refrain from losing what we have, versus risking a little to get more. And there is a reason for that.
Today we will talk a little about the "pain of paying."
We heard our fill of "pain of paying" after listening to and analyzing the studies done by Dr. Dan Ariely, an economics professor at Duke University, and a renowned speaker on behavioral economics and decision-making.
His studies suggest that the pain of paying is the cost we associate with when we use money (or some other valuable item) in exchange for something else. The closer we are to the loss, the less we will tend to spend. There is a positive correlation to distance; the more we distance ourselves from the actual money, the more we spend.
Here is an example you can do at home: get $50 in cash, and limit yourself to $50 on your check/debit card. Which type of money will go first? According to Dr. Ariely's studies, the money on the card will go away much faster than the cash. Why? Because the cash places us right in the mix of the money exchange. We physically see the money leave our hands.
Why is this important to the marketing industry? Well, we are in the business of influence, and helping businesses make sales, and therefore profit. If we can create methods that separate the consumer as far away from their money as possible, they will be more likely to spend. Methods such as PayPal, Google Wallet, and other digital means will make the paying process much less painful, and make the consumer much happier about your products.
Dwayne W. Waite Jr. is partner and principal at JDW: The Charlotte Agency, a marketing and advertising shop in Charlotte, NC. He enjoys consumer behavior, economics, and football.
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