Dilip Soman

Transaction Decoupling: How Price Bundling Affects the Decision to Consume

In todays marketplace, price bundling is widespread: Manufacturers and retailers routinely offer multiple products for a single, bundled price. Although the effects of price bundling on purchase behavior have been well researched, the effects of price bundling on postpurchase consumption behavior have received almost no attention. In this article, the authors build on the sunk cost literature (e.g., Thaler 1980, 1985) and predict that price bundling leads to a disassociation or “decoupling” of transaction costs and benefits, thereby reducing attention to sunk costs and decreasing a consumers likelihood of consuming a paid-for service (e.g., a theater performance). Four studies show this to be the case. In two lab studies, the authors show that having a bundled four-day ski pass as opposed to four one-day ski tickets decreases a persons likelihood of skiing on the final day of a four-day ski vacation. They replicate this result in a field study, showing that multiperformance ticket holders are more likely to forgo a given theatrical performance than are single-performance ticket holders, all else held constant. In a final study, the authors show that the decreased attention to sunk costs brought about by price bundling can be either cognitively driven (i.e., it is difficult to allocate a single payment across multiple benefits) or motivationally driven (i.e., there is an underlying desire to avoid consumption). Their findings have practical implications for managers interested in predicting or influencing actual product consumption.

Effects of Payment Mechanism on Spending Behavior: The Role of Rehearsal and Immediacy of Payments

Past expenses have been shown to influence future spending behavior by depleting available budgets. However, a prerequisite for this relationship is the accurate recall of past payments and the experiencing of the full aversive impact associated with them. This article shows that the use of different payment mechanisms influences both these factors and hence moderates the effects of past payments on future spending. Specifically, past payments strongly reduce purchase intention when the payment mechanism requires the consumer to write down the amount paid (rehearsal) and when the consumer’s wealth is depleted immediately rather than with a delay (immediacy). Two experiments show support for the proposed theoretical framework.

Managing the Power of Curiosity for Effective Web Advertising Strategies

Abstract This research investigates the effect of curiosity on the effectiveness of Internet advertising. In particular, we identify processes that underlie curiosity resolution and study its impact on consumer motivation and learning. The dataset from our simulated Internet experiment includes process tracking variables (i.e., clickstream data from ad-embedded links), traditional attitude and behavioral intention measures, and open-ended protocols. We find that a curiosity-generating advertising strategy increases interest and learning relative to a strategy that provides detailed product information. Furthermore, though curiosity does not dramatically increase the observed quantity of search in our study, it seems to improve the quality of search substantially (i.e., time spent and attention devoted to specific information), resulting in better and more focused memory and comprehension of new product information. To enhance the effectiveness of Internet advertising of new products, we recommend a curiosity advertising strategy based on four elements: (1) curiosity generation by highlighting a gap in extant knowledge, (2) the presence of a hint to guide elaboration for curiosity resolution, (3) sufficient time to try and resolve curiosity as well as the assurance of curiosity-resolving information, and (4) the use of measures of consumer elaboration and learning to gauge advertising effectiveness.

On the Perceived Value of Money: The Reference Dependence of Currency Numerosity Effects

Money illusion research shows that the nominal (face) value of money affects consumer perceptions of its real value. Recent mixed findings on consumer valuations in different currencies suggest that the underlying anchoring and adjustment processes are complex. We develop a framework to identify boundary conditions that specify the direction of anchoring effects on valuations in different currencies. Consumers anchor on the numerosity of the nominal difference between prices and salient referents (e.g., budgets) when evaluating transactions. Support for our framework comes from a series of experiments that evoke different reference standards. We discuss implications and opportunities for future research.

When Goals Are Counterproductive: The Effects of Violation of a Behavioral Goal on Subsequent Performance

A considerable body of research supports the idea that individuals who set behavioral goals perform better than others who set no goals. In this article, we propose that in addition to the positive effects, goals may also have a counterproductive effect. Specifically, we propose that violating ones goal may cause a deterioration of subsequent performance as compared to individuals who have no goals. When the violation of ones goal is coded as a failure, it can result in demotivation, negative emotion, and consequently a poorer performance. We report two experiments that demonstrate the counterproductive effects of goals and discuss potential moderators of this effect along with several possible process explanations.

The Effect of Payment Transparency on Consumption: Quasi-Experiments from the Field

Recent research suggests that the method of making a payment can influence the willingness to pay and consumption behavior. In this manuscript, we argue that payment mechanisms differ from each other along the dimensions of transparency, and that the degree of transparency correlates positively with the pain of paying using the mechanism, and negatively with consumption and spending. We replicate previous experimental results using quasi-experiments from the field, and find that the lower the payment transparency, the greater is the consumption. However, this effect is weak for products whose consumption rates are inflexible.

The Effect of Partitions on Controlling Consumption

The authors demonstrate that partitioning an aggregate quantity of a resource (e.g., food, money) into smaller units reduces the consumed quantity or the rate of consumption of that resource. Partitions draw attention to the consumption decision by introducing a small transaction cost; that is, they provide more decision-making opportunities so that prudent consumers can control consumption. Thus, people are better able to constrain consumption when resources associated with a desirable activity (which they are trying to control) are partitioned rather than when they are aggregated. This effect of partitioning is demonstrated for the consumption of chocolates (Study 1) and gambles (Study 2). In Study 3, process measures reveal that partitioning increases recall accuracy and decision times. Importantly, the effect of partitioning diminishes when consumers are not trying to regulate consumption (Studies 1 and 3). Finally, Study 4 explores how habituation may decrease the amount of attention that partitions draw to consumption. In this context, partitions control consumption to a greater extent when the nature of partitions changes frequently.

Earmarking and Partitioning: Increasing Saving by Low-Income Households

This research examines the effects of earmarking money on savings by low-income consumers. In particular, the authors test two interventions that are designed to enhance the effects of earmarking: (1) using a visual reminder of the savings goal and (2) dividing the earmarked money into two parts. Consistent with prior research suggesting that partitioning increases self-control, people save more when earmarked money is partitioned into two accounts than when it is pooled into one account. In addition, the presence of the visual reminder increases the savings rate. The authors conclude with implications for consumer welfare and directions for further research.

Virtual Progress: The Effect of Path Characteristics on Perceptions of Progress and Choice

In goal-oriented services, consumers want to get transported from one well-defined state (start) to another (destination) state without much concern for intermediate states. A cost-based evaluation of such services should depend on the total cost associated with the service--i.e., the price and the amount of time taken for completion. In this paper, we demonstrate that the characteristics of the path to the final destination also influence evaluation and choice. Specifically, we show that segments of idle time and travel away from the final destination are seen as obstacles in the progress towards the destination, and hence lower the choice likelihood of the path. Further, we show that the earlier such obstacles occur during the service, the lower is the choice likelihood. We present an analytical model of consumer choice and test its predictions in a series of experiments. Our results show that in choosing between two services that cover the same displacement in the same time (i.e., identical average progress), consumer choice is driven by the perception of progress towards the goal (i.e., byvirtual progress). In a final experiment, we show that the effects of virtual progress may outweigh the effects of actual average progress.

The Effect of Windfall Gains on the Sunk-Cost Effect

Prior research has extensively documented the sunk-cost effect – an irrational attention to irrecoverable past costs while making pending investment or consumption decisions. In a series of experiments, we show that the sunk-cost effect weakens and sometimes disappears when consumers receive a windfall (unexpected) income at the time of making a decision. This unbudgeted income allows consumers to write off their past losses, thereby eliminating the pressure to consume in order to satisfactorily close the account. We further show that the similarity between the nature of the windfall income and the past sunk-cost moderates this relationship. More generally, we argue that mental accounts can be flexible and consumers may have discretion in moving money between different mental accounts.