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When indulgence gets the best of you: Unexpected consequences of prepayment
Journal of Business Research 92 (2018) 321–328
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Journal of Business Research journal homepage: www.elsevier.com/locate/jbusres
When indulgence gets the best of you: Unexpected consequences of prepayment
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Ali Besharat , Gia Nardini Daniels College of Business, University of Denver, 2101 S. University Blvd., Denver, CO 80208, United States of America
A R T I C LE I N FO
A B S T R A C T
Keywords: Escalation of commitment Prepayment Increased spending Food consumption Consumption experience
Consumers often pay for consumption events up front. For example, consumers may pay an entrance fee for a food festival or a VIP pass to skip the line at a nightclub. However, research has yet to investigate how this prepayment affects consumers' subsequent consumption decisions. This paper investigates the effect of prepayment on escalation of commitment and the unexpected effects on subsequent consumption decisions. Specifically, we investigate consumers' inclination to indulge and spend once they have made a prepayment in the form of money or time. Our findings from a field study and two experiments suggest that under certain conditions, prepayment results in increased spending and indulgent consumption.
1. Introduction Mrs. Anderson works in an office in Manhattan, New York. Twice a week, Mrs. Anderson and her coworkers meet at a local bar for happy hour. The local bar charges a $10 entrance fee on Fridays, but it is free to enter during the rest of the week. Although the menu does not change on Fridays, Mrs. Anderson notices that her bill is more expensive on Fridays than on any other day that she visits the bar. Like Mrs. Anderson in this scenario, consumers often encounter circumstances in which they make a prepayment before a consumption decision. For example, consumers prepay for goods or services when they purchase Online Daily Coupons (ODCs) that provide a large discount (e.g., paying up front for discounted restaurant meals or haircuts). Similarly, they may pay a $5 convenience fee to buy a movie ticket online or purchase a $50 membership to a warehouse club. However, research has yet to investigate how this prepayment affects consumers' subsequent purchase decisions. After making an initial investment, consumers may be reluctant to spend more money, and they may choose more responsible, utilitarian options over more indulgent, hedonic items. On the other hand, they may feel compelled to justify their initial payment by spending even more money and choosing more rewarding, indulgent options. We propose that prepayment escalates an individual's commitment to the course of action (Kahneman & Tversky, 1979) causing consumers to make unexpected financial and non-financial decisions as they attempt to validate their initial investment. Because spending money is painful (Prelec & Loewenstein, 1998), once consumers make a payment,
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they should be more inclined to continue that course of action than if they had not made the prepayment to ensure that their prepayment was not made in vain (Kahneman & Tversky, 1979). Drawing on this logic, making a payment toward a consumption goal (hereafter prepayment) should result in an escalation of commitment. However, unlike the traditional research on escalation of commitment that investigated situations where only one course of action was available (e.g., continue investing in a failing project, Staw, 1996), we investigate the effects of escalation of commitment in sequential decisions that have multiple options. That is, consumers are constrained at one level (e.g., eating at a restaurant for which they have prepaid) but not at a deeper level with multiple alternatives (e.g., the choice of food options at the restaurant). We propose that prepayment escalates commitment with consumption experiences as consumers attempt to ensure that their prepayment is justified. Consumers are cognizant of prepayments, and they will pursue actions to justify the cost of their investment. However, the outcome differs from traditional investigations of escalation of commitment; rather than investing in a failed project, people who prepay make decisions that are focused more on justifying the initial prepayment than on making a good decision. In line with and extending the literature on escalation of commitment, we propose that consumers who make a prepayment will continue spending toward that consumption goal even when there are multiple courses of action that are possible (Kahneman & Tversky, 1979; Staw, 1996). For example, although consumers may spend as little or as much as they like at a festival for which they paid an entrance fee, we contend that those who pay the entrance fee upfront will
Corresponding author. E-mail addresses: [email protected] (A. Besharat), [email protected] (G. Nardini).
https://doi.org/10.1016/j.jbusres.2018.07.051 Received 31 January 2017; Received in revised form 24 July 2018; Accepted 30 July 2018 0148-2963/ © 2018 Elsevier Inc. All rights reserved.
Journal of Business Research 92 (2018) 321–328
A. Besharat, G. Nardini
someone who bought the basic membership. Therefore, we contend that prepayment should escalate commitment as consumers attempt to recoup the cost they have just incurred. As we noted earlier, making a prepayment is painful (Prelec & Loewenstein, 1998). When consumers make a payment, they feel the pain of the incurred cost that may mitigate the positive feelings associated with future consumption (Gourville & Soman, 1998). One way to alleviate this pain is to indulge in rewarding behaviors that provide immediate gratification (Bagchi & Block, 2011). Given that a hedonic choice represents an affective decision (Homburg et al., 2006), prepayment may create a situation where consumers, in an attempt to lessen the pain of payment, increase their commitment to more indulgent outcomes (i.e., choosing more indulgent options and/or spending more on hedonic items).1
spend more at the festival than those who pay the fee upon leaving because the entrance fee becomes an investment that must be justified. Importantly, we propose that consumers do not necessarily overspend or spend irrationally, such as when they buy memberships to warehouse clubs in which increased spending is associated with increased saving. However, we maintain that consumers will spend more if they pay for the membership at the beginning of the year than at the end of the year. Thus, we propose that prepayment increases the amount that people spend, but this spending is not always irrational. Further, hedonic activities are more amenable to “going all the way” (Kivetz, 1999), and the benefits of hedonic consumption are more salient and immediately gratifying than are the benefits of utilitarian consumption (Homburg, Koschate, & Hoyer, 2006). Future hedonic consumption is also perceived as providing greater reward than future utilitarian consumption. This perception occurs because thinking about future hedonic consumption is more enjoyable than considering utilitarian consumption (Nowlis, Mandel, & McCabe, 2004). Thus, we propose that consumers should seek to validate their initial investment (i.e., prepayment) by choosing more indulgent options that offer immediate positive feedback. For example, a consumer who pays for their buffet meal up front will be more likely to choose indulgent drinks and food to justify the cost of the initial payment than will a consumer who pays at the end of the meal. The pain of paying up front increases the commitment that must be justified. This research provides several important contributions. Typically, consumers pay during or after consumption, and much research has investigated how various payment methods affect consumer decision making (Besharat, Carrillat, & Ladik, 2014; Thomas, Desai, & Seenivasan, 2011). However, there are many situations in which consumers make a payment toward a consumption goal. To our best knowledge, we are the first to investigate the effects of prepayment on subsequent consumption decisions. We demonstrate the unexpected consequences of prepayment on indulgent behavior and increased spending. Further, we explore two moderators – anticipation of prepayment and the type of prepayment (i.e., monetary vs. non-monetary) – that shape the effect of prepayment on subsequent behaviors. In the following sections, we present theoretical background and hypotheses that we subsequently test in one field study and two experiments.
3. Hypotheses Since a decision maker has an internal need to validate prior investments to avoid considering them as wasteful (Schaubroeck & Davis, 1994), we propose that consumers who make a prepayment will continue spending toward that consumption goal (Kahneman & Tversky, 1979; Staw, 1996). They will choose more indulgent options to help rectify the pain of payment. Thus, the desire to compensate for the perceived loss of a prepayment guides consumers toward increased spending and indulgent consumption compared to those who do not make a prepayment. For example, if a person, upon his arrival, is charged a $10 valet parking fee to go to his favorite restaurant, he will spend more money on food (and/or choose more indulgent items) to compensate for the fact that he paid $10 to get into the restaurant (e.g., “I paid to be here, so I better get my money's worth!”). Therefore, we hypothesize that when consumers make a prepayment toward a consumption goal, they are more likely to subsequently spend excessively and/or make an indulgent choice than are consumers who don't prepay. H1. People who make a prepayment toward a consumption goal subsequently spend more and choose more indulgent options than people who do not make a prepayment.
3.1. Non-monetary prepayment and anticipation
2. Literature review and theoretical development
Thus far, we have focused on the effects of prepayment on consumers' subsequent purchase decisions, and we have assumed that prepayment is monetary. However, prepayment can also be nonmonetary such as when consumers spend time in the pursuit of a consumption decision. How might non-monetary prepayments affect subsequent purchase decisions? We propose that prepayments made with time also result in more indulgent behaviors, but the magnitude of the effect compared to the monetary prepayment depends on the anticipation of payment. When making monetary investments, consumers tend to plan better and spend
2.1. Prepayment, escalation of commitment, and downstream effects Consumers' commitment to attain a planned decision escalates if they have already devoted resources to its attainment (Monga & Saini, 2009). This escalation of commitment usually results in suboptimal monetary and non-monetary decisions (Kelly & Milkman, 2013). For example, consumers are more likely to invest in failing projects once they have made an initial investment, thereby escalating their commitment to sub-optimal outcomes (Staw, 1996). Further, if consumers highly value the given course of action, they are more susceptible to escalation of commitment (Schulz-Hardt, Thurow-Kröning, & Frey, 2009). Therefore, we propose that prepayment should result in escalation of commitment as consumers typically prepay for goods and services that they deem valuable. The negative feeling of the depletion of financial resources (i.e., pain of payment) that consumers initially experience could cause one of two subsequent actions: 1) Consumers may be reluctant to spend money subsequently or they may want to spend their money responsibly to counteract the initial payment; or 2) Consumers may be inclined to spend more subsequently on more indulgent options to justify the initial expense. However, refraining from subsequent spending or choosing more responsible options (option 1) may leave the consumer feeling that the initial payment has been wasted. For example, an individual who purchased the most expensive Costco membership should feel more comfortable spending to get his initial investment's worth than
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Unlike pre-commitment to indulgence, consumers' options are not constrained upon prepayment (Kivetz & Simonson, 2002). All forms of pre-commitment involve consumers opting for a binding decision to counteract timeinconsistent preferences (Ariely & Wertenbroch, 2002). For example, people may prefer to save money (Thaler, 1980) or indulge in the future (Kivetz & Simonson, 2002), but their preferences change in the present—opting for spending money and paying bills, respectively. Therefore, people pre-commit to a course of action to ensure that their long-term preferences are satisfied. Conversely, prepayment simply involves making a payment before a consumption experience without binding people to a specific outcome. This does not mean that prepayment will always occur without pre-commitment, but rather that it can, and it can lead to escalation to commitment. For example, one could have prepayment with or without pre-commitment to a specific purchase such, as when paying for futures of wine since consumers would know exactly which wine they will be getting in the future, when it is bottled. 322
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the restaurant. In our sample, 86 consumers (47 males and 39 females) were asked to pay a $12 upfront admission fee when they entered the restaurant, and 97 customers (64 males and 33 females) paid the fee after they were done eating. We alternated the days for the assignment to the prepayment vs. post-payment conditions so that weekdays and weekends were equally represented. There was no difference in the type, amount, or order of food presentation between the two conditions. The payment instructions were clearly communicated to consumers via a sign that asked them to visit the hostess upon arrival and pay the buffet fee before being seated or after eating their meal. The hostess escorted consumers to their table and provided a brief instruction on how to use the buffet. In particular, consumers were allowed to use the buffet as much or as little as they wanted. To minimize intrusiveness, we did not record consumers' body weights/measures, number of visits to the buffet, and the types of food selected. Instead, we assessed consumers' indulgent behaviors by asking them to complete a short order form for one type of drink (e.g., Coke, unsweetened iced tea, Sprite, water, etc.) and one type of dessert (i.e., brownies, ice cream, or fruit salad). The customers gave the completed form to their server before they used the buffet. Customers could order as many drinks or desserts as they wanted and as often as they wanted, but they could have only the kind they requested. We used the completed forms as a proxy measure of indulgent consumption. The decision outcomes were whether consumers chose healthy (e.g., water, unsweetened iced tea, or fruit salad) or indulgent (e.g., sugary soft drinks, brownies, or ice cream) options for drinks and desserts. We coded the responses separately for drinks and desserts (0 = healthy, 1 = indulgent).
their money more wisely than when making behavioral investments (Frederick, Novemsky, Wang, Dhar, & Nowlis, 2009; Zauberman & Lynch Jr., 2005). Further, whereas the opportunity cost of money can be readily calculated and is approximately constant across situations (Hirschman, 1990), the opportunity cost of time is often neglected (Frederick et al., 2009). In essence, money is a common currency for transactions that keeps its face value in an exchange, but time is more subjective and people easily lose track of it (Ariely & Loewenstein, 2000). Consumers often fail to calculate or underestimate the equivalent monetary costs of time (Hoskin, 1983; Neumann & Friedman, 1980). Further, when consumers make non-monetary prepayments, they still escalate commitment to the consumption decision, but they are less sensitive to their loss when compared to monetary prepayments (Cunha Jr. & Caldieraro, 2009; Navarro & Fantino, 2009; Soster, Monga, & Bearden, 2010). Therefore, we propose that the increased spending and more indulgent choices caused by prepayment is greater for monetary prepayment than for non-monetary prepayment. H2. People who prepay with money spend more and choose more indulgent options in their subsequent purchase decisions than those who prepay with the equivalent time. Whereas consumers tend to underestimate known time costs, they overestimate unknown time costs (Antonides, Verhoef, & Van Aalst, 2002). Therefore, although consumers may underestimate time costs relative to monetary costs when those costs are known in advance – as hypothesis two predicts – the opposite may occur when costs are unknown or unexpected. This outcome occurs because consumers' perceptions of monetary payments are relatively stable, regardless of whether people know the monetary cost up front. Therefore, escalation of commitment that is invoked by monetary prepayments should remain relatively constant regardless of whether the prepayment is known in advance. However, consumers' perceptions of time payments are relatively unstable (Ariely & Loewenstein, 2000) such that people underestimate known time costs (Neumann & Friedman, 1980), but they overestimate unanticipated time costs (Antonides et al., 2002). Indeed, research shows that consumers tend to overestimate waiting times when they are not aware of the exact wait up front (Hornik, 1984). That is, unanticipated non-monetary prepayments may result in overestimation of costs relative to unanticipated monetary prepayments. For instance, when a club has an unanticipated wait, a consumer who waits for 50 min to enter the club may choose more indulgent food than a consumer who purchases a $10 VIP pass to be admitted right away.
4.2. Results and discussion We performed a logistic regression analysis with the payment condition (prepayment vs. post-payment) as a predictor. We also controlled for the number of consumers per party and gender. The dependent variable was the binary choice between an indulgent or healthy type of drink. Results showed a significant main effect of payment (Wald = 7.63, p < .05). Making a prepayment at the restaurant significantly increased the choice of indulgent drinks (94.37% vs. 78.14%; z = 2.98, p < .05). We obtained consistent results from another logistic regression analysis (Wald = 7.63, p < .05) when the dependent variable was the choice of indulgent desserts (83.52% vs. 70.64%; z = 2.66, p < .05). These findings confirm that individuals who prepaid for consumption had a higher tendency to indulge than those who paid after consumption. With initial support for our main hypothesis in a natural setting, we moved our investigation to more controlled settings. We began with a pretest to ensure effective manipulation of healthy and indulgent alternatives to measure indulging consumption in our subsequent experiments. We adopted a list (Laran, 2010) of eight indulgent snacks (chocolate bar, Chips Ahoy cookies, cheese curls, Doritos chips, ice cream, doughnuts, Oreos, and fruit roll-ups) and eight healthy snacks (raisins, celery sticks, Cheerios, low fat yogurt, baby carrots, granola bar, rice cake, and apple). A group of 17 undergraduate students indicated their overall preference for the snacks using a 7-point scale (1 = I don't like at all, 7 = I like a lot). Similar to Laran's (2010) study, the snacks on average were equally preferred (Mhealthy = 4.58 vs. Mindulgent = 4.71; F (1,16) = 0.93, p > .05), suggesting that no significant differences for healthy or indulgent options were observed. The cost of healthy snacks on average was estimated to be about the same as the indulgent snacks (Mhealthy = $2.31 vs. Mindulgent = $3.01; F (1, 16) = 3.67, p > .05). Further, there was a significant difference in the health perception of healthy versus indulgent snacks, measured on a 7-point semantic differential scale (1 = very unhealthy, 7 = very healthy) (Mhealthy = 4.92 vs. Mindulgent = 2.64; F (1, 16) = 85.32, p < .05). Therefore, we used this list to assess indulgent consumption in the next experiment.
H3. When a prepayment is unanticipated, people who prepay with time spend more and choose more indulgent options in their subsequent purchase decisions than those who prepay with the equivalent money. 4. Field study To show the main effect of prepayment on food choice in a realworld setting, we conducted a field experiment at an independentlyowned Chinese buffet restaurant in the western United States. The context was deemed to be appropriate for this experiment because the buffet lunch has a fixed price that could be paid before or after consumption. The restaurant owner agreed to participate in the study for a period of two weeks. 4.1. Design, participants, and procedure The restaurant accommodated approximately 55 guests and was classified as a middle-priced restaurant as it offered an all-you-can-eat lunch buffet for $12 per person. Consumers usually entered the restaurant and consumed as much food and drink as they wanted. They paid a $12 flat fee once they finished their meals and before they left 323
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information,” and “Calorie levels influence what I eat” on a 7-point scale (1 = strongly disagree, 7 = strongly agree). The scale (Cronbach's alpha = 0.90) was adapted from Chandon and Wansink (2007).
5. Experiment 1 Experiment 1 tests the prediction that a prepayment shifts people's preference toward more indulgent choices and increases expenditures for a consumption goal (H1).
5.2. Results 5.1. Design, participants, and procedure 5.2.1. Manipulation check We assessed the success of the manipulation of the payment conditions with two questions at the end of the survey. First, we asked participants in a multiple-choice question to select the amount that they paid to enter the festival. As expected, participants in the no prepayment condition chose the “free admission” option, whereas all participants, except one, in the prepayment and post-payment conditions chose the “$10 admission fee” option. Second, we asked whether the payment, if any at all, occurred before or after entering the event. All participants, depending on their experimental condition, responded to this question correctly.
This experiment is a 3-level (payment condition: no payment vs. prepayment vs. post-payment) between-subjects factorial design. To gather data, we used an internet survey administered via Amazon Mechanical Turk (hereinafter MTurk), an online crowdsourcing marketplace of human capital validated for conducting experiments and surveys (Buhrmester, Kwang, & Gosling, 2011; Mariconda & Lurati, 2015). The data collected are classified as a convenience sample because MTurk does not verify respondents' information. In order to participate, individuals must: 1) have attended an event (concert, festival, exhibition, or tradeshow), 2) have purchased snacks within the last three months, 3) be familiar with the type of snacks and their attributes, and 4) have a 100% approval rating on MTurk wherein their work as a participant has never been rejected by a requester (e.g., researchers). These criteria produced a sample of 138 participants. Each participant received a monetary reward of 75 cents (Mage = 32.39 years, SD = 9.41; females = 40, males = 80). To ensure the participants were attentively engaged in the survey, we removed those who took too little or too much time ( ± 3 SDs from the average time) to review the stimulus and/or to complete the survey. We also removed participants who failed to correctly answer multiple attention check questions (e.g., “choose 6”) embedded within the survey near the beginning and middle of the sections which indicated a lack of active engagement. Eighteen participants who did not complete the survey were excluded from the analyses. Participants completed the online survey and were randomly assigned to one of three conditions. The scenario asked participants to imagine that they are spending a day at an event that featured international food with a variety of tasty appetizers and refreshing beverages. In the no payment condition, participants learned that they will be admitted to this event free of charge. In the prepayment condition, participants were told that they will pay $10 to be admitted to this event, but they will leave with no charge. Participants in the postpayment condition were informed that they will be admitted with no charge, but they will pay $10 before they exit the event. Next, participants responded to a multi-item survey question, adapted from Bazerman, Giuliano, and Appelman (1984), to measure their escalation of commitment to the consumption experience. In particular, respondents were asked to indicate how much they agreed or disagreed with six statements that were measured using a seven-point Likert scale (1 = strongly disagree, 7 = strongly agree). The items were “I have put too much into this festival experience to consider changing now,” “Changing experiences now would be difficult for me to do,” “Too much of my life would be disrupted if I were to change experiences,” “It would be costly for me to go somewhere else now,” “There are no pressures to keep me from changing experiences” [reverse coded], and “Changing experiences now would require considerable personal sacrifice.” Then, participants imagined buying snacks from 16 possible snack options. They could choose as many snacks as they wanted. The decision outcomes were the number of unhealthy and healthy options they chose and how much they were willing to pay for their selected snack(s). Next, we recorded participants' gender and asked them to answer manipulation check questions and to rate the believability of the scenario. Participants indicated their level of involvement (Cronbach's alpha = 0.92), using measures adapted from Wang and Calder (2006). Finally, we measured healthy eating habits by asking participants to indicate their agreement with these statements: “I pay close attention to nutrition information,” “Eating healthy is important to me,” “I watch how much I eat,” “I actively seek out nutrition
5.2.2. Support for Hypothesis 1 We performed a one-way ANOVA with payment condition as the independent variable and the amount that participants were willing to pay for their snack serving as the dependent variable. The summated scale for eating healthy (Cronbach's alpha = 0.80) was a significant covariate and was kept in the main analysis (F (1,116) = 8.06, p < .05). However, neither gender nor believability of the scenario revealed a significant influence on the outcome variable or significantly interacted with prepayment condition (Fs < 2, ps > 0.05). Thus, they were excluded from subsequent analyses. As predicted, the results demonstrated a significant main effect of prepayment (F (1, 16) = 5.54, p < .05). Planned contrasts revealed a significant increase in willingness to pay for the snack(s) when participants prepaid to enter the event than when they did not prepay (Mprepayment = $5.14 vs. Mno-payment = $3.65; t (1, 116) = 2.82, p < .05). Similarly, those who prepaid to enter the event were willing to pay more for the snack(s) than those who paid as they exited the event (Mprepayment = $5.14 vs. Mpost-payment = $3.61; t (1, 116) = 2.64, p < .05). However, no significant difference in willingness to pay was observed between the no payment and post-payment conditions (Mpost-payment = $3.61vs. Mno-payment = $3.65; t (1, 116) = 0.26, p > .05). This finding supports H1. To test our hypotheses in the context of snack choices, we calculated a score for indulgent behavior by subtracting the total number of selected healthy snacks from unhealthy snacks for each participant. For instance, if a person chose two unhealthy snacks (e.g., chocolate bar and ice cream) and one healthy snack (e.g., granola bar) at the festival, the indulgent behavior score was one (2–1 = 1). After individually calculating these scores for the entire sample, we performed a one-way ANOVA with payment condition as the independent variable and the indulgent behavior score as the dependent variable. Again, excepting healthy eating habits (F (1,116) = 4.02, p < .05), the two other covariates (i.e., gender and believability of the scenario) revealed no significant influence on the snack choice and they did not significantly interact with the payment conditions. Therefore, they were not included in the subsequent analyses (Fs < 1, ps > 0.05). Results showed that on average, participants in the prepayment condition had a significantly higher indulgent behavior score (i.e., chose more indulgent than healthy snacks) than did participants in the no payment condition (Mprepayment = 2.01 vs. Mno-payment = 0.88; t (1, 116) = 2.82, p < .05). Similarly, those who prepaid to enter the event had a higher indulgent behavior score compared to those who paid as they exited the event (Mprepayment = 2.01 vs. Mpost-payment = 0.63; t (1, 116) = 3.07, p < .05). However, no significant difference in the indulgent behavior score was observed between the no payment and postpayment conditions (Mpost-payment = 0.63 vs. Mno-payment = 0.88; t (1, 116) = 0.59, p > .05). Overall, these findings lend support to H1. 324
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social psychologist Dan Ariely (2009) believes it is “the pain of payment” that actually triggers an individual's commitment to focus on the current payment rather than the future costs/benefits of a consumption experience. In the next experiment, to verify this claim, we test the “pain of payment” as the proximal measure of escalation of commitment and the mediator between the type of payment, willingness to spend, and indulgent consumption.
5.2.3. Process evidence We employed a maximum likelihood exploratory factor analysis (EFA) with varimax rotation to test the dimensionality of the escalation of commitment construct. Field (2009) indicates that an item should be deleted from a pool of items if it has an item-to-total correlation of < 0.5. He recommends that only factor loadings > 0.4 which explain around 16% of the variance in a variable, should be interpreted. Based on these two criteria, we dropped the item, “There are no pressures to keep me from changing experiences” from the pool of items as it had a 0.18 item-to-total correlation and a 0.22 factor loading. The escalation of commitment construct with the five remaining items was unidimensional; the first extracted factor explained 77.72% of the total variance. We created an index of escalation of commitment by averaging the five retained items (Cronbach's alpha = 0.93). A one-way ANOVA on this index revealed a significant effect of payment type (F (1,117) = 10.00, p < .05). As expected, participants in the prepayment condition demonstrated a significantly higher escalation of commitment (Mprepayment = 4.71) than did those in the no payment (Mnopayment = 3.38; t (1, 117) = 3.99, p < .05) and post-payment conditions (Mpost-payment = 3.47; t (1, 117) = 3.85, p < .05). Next, we conducted mediation tests to demonstrate that escalation of commitment in the prepayment condition leads to higher willingness to spend and more indulgent behavior. Given the categorical nature of the payment conditions with three levels, we created two binary predictors to test the effects of payment condition (post-payment or no payment, coded 1) relative to a reference condition (prepayment, coded 0). Using Model 4 in Process Macro (Preacher & Hayes, 2008), we found a positive, significant effect of escalation of commitment on the willingness to pay (β = 0.57, t(1, 120) = 4.32, p < .05) and the indulgent behavior score (β = 1.20, t(1, 120) = 2.67, p < .05). This result suggests that higher escalation of commitment toward a consumption experience leads to greater spending and more indulgent choices. Furthermore, our findings show that escalation of commitment exerts a significant mediating effect on the willingness to spend in the prepayment relative to post-payment condition (b = 0.47, 95% confidence interval [CI] = 0.05, 0.89) as well as in the prepayment relative to no payment condition (b = 0.44, 95% confidence interval [CI] = 0.11, 0.84). This result is because the confidence intervals in neither case include zero. Similarly, escalation of commitment significantly mediated the effect of prepayment on the indulgent behavior score relative to the post-payment condition (b = 0.36, 95% confidence interval [CI] = 0.14, 0.78) and no payment condition (b = 0.40, 95% confidence interval [CI] = 0.16, 0.83).
6. Experiment 2 Experiment 2 examines whether increased spending and choice of more indulgent options in subsequent purchase decisions varies as a function of consumers' anticipation of the prepayment and the type of prepayment (H2 and H3). We also test the pain of payment as the proximal measure of escalation of commitment. 6.1. Design, participants, and procedure This experiment is a 2 (prepayment type: money vs. time) × 2 (prepayment: anticipated vs. unanticipated) between-subjects factorial design. We gathered data for this experiment using MTurk with identical pre-qualification requirements to those used in experiment 1. A total of 167 people who were paid 75 cents participated in this experiment (Mage = 25.16 years, SD = 4.17; females = 91, males = 76). Eleven participants were deleted from further analyses due to incompleteness. Participants were randomly assigned to one of four treatment conditions in the online survey. They were told to imagine that they were going to a popular bar during Oktoberfest, an international beer festival. They learned that due to high demand and a live band performance, they had to pay a $12 admission fee or wait in line for 50 min to enter the bar.2 The prepayment information was conveyed such that it gave participants the impression that prepayment was either anticipated (e.g., expected and not surprising) or unanticipated (e.g., not expected and surprising). Then, participants imagined that they entered the bar and decided to order food by writing down the name of their desired appetizer (Laran, 2010). They also indicated how much they were willing to spend at the bar during the event and expressed their negative feelings toward the prepayment (Thomas et al., 2011). In particular, we asked, “Different factors may influence how consumers feel about their service experience. How did you feel about the wait time {admission fee} for this bar?” Participants indicated their responses on a 7-point nonverbal face pain scale with a happy face (☺) at the lower end of the scale and a sad face (☹) at the higher end of the scale. Finally, we collected responses pertaining to the manipulation checks, level of involvement, healthy eating habits, gender, and levels of hunger in the experiment. Among all covariates, only healthy eating habit responses had a significant influence and were retained in the subsequent analyses.
5.2.4. Discussion In line with the findings from the field study, results from the first experiment also support H1. Participants who prepaid had a higher tendency to choose indulgent options and spend more than those who did not prepay or expected to pay post-consumption. Despite the prepayment and post-payment conditions being subject to the same $10 admission fee, interestingly, the timing of the payment (e.g., pre vs. post food selection) made a significant difference in food choice and payment decisions. Thus far, we have argued that prepayment causes people to spend more and choose more indulgent options because the initial payment invokes an escalation of commitment. We empirically demonstrated that participants escalated their commitment to the consumption experience by paying extra for their chosen snacks, presumably to justify their initial payment. In the majority of studies in the literature, escalation of commitment is meant to measure people's willingness to continue pursuing a failed project (Staw, 1996). Although escalation of commitment was not particularly tied to a failed (or disrupted) consumption experience in Experiment 1, the construct operated as the underpinning process for the effect of prepayment on indulgent behavior. In most scenarios involving payments, however, the renowned
6.2. Results 6.2.1. Manipulation check First, we asked participants in a multiple-choice question to select the amount that they paid or the time they spent to enter the club. As expected, all but two participants selected choices consistent with their 2 To ensure the equivalency of prepayment values, a pretest among a different group of students (n = 20) was conducted. They imagined they had gone to a club that was free for individuals who waited in line, but the club charged $12 VIP for immediate admission. Participants were asked to indicate how long they were willing to wait in line to avoid paying the $12 cover charge (M = 47.64 min, SD = 12.05). We chose this value, which was not significantly different than 50 min (t (1, 19) =0.84, p > .05) to represent the time currency manipulation in the experiment.
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significantly mediated the interaction effect between prepayment anticipation (anticipated: coded 0; unanticipated: coded 1) and prepayment type on willingness to spend (anticipated: b = 0.81, 95% confidence interval [CI] = 0.65, 1.03; unanticipated: b = 0.71, 95% confidence interval [CI] = 0.58, 0.83) and indulgent choice (anticipated: b = 0.73, 95% confidence interval [CI] = 0.64, 0.82; unanticipated: b = 0.68, 95% confidence interval [CI] = 0.59, 0.78).
experimental conditions. Second, we asked participants to indicate to what extent the incurred prepayment was anticipated on a 7-point semantic differential scale (1 = completely unanticipated, 7 = completely anticipated). Participants in the anticipated prepayment group rated the anticipation of the prepayment significantly higher than did participants in the unanticipated prepayment condition (Manticipated = 5.88 vs. Munanticipated = 2.63; F(1, 153) = 28.12, p < .05).
6.2.4. Discussion We demonstrated that the anticipation and type of prepayment significantly moderate the effect of prepayment on subsequent purchase decisions. Time is more subjective than money, and people typically underestimate anticipated time costs (Hoskin, 1983; Neumann & Friedman, 1980), but they overestimate unanticipated time costs (Antonides et al., 2002; Hornik, 1984). In line with this prior research, people had higher escalation of commitment, were willing to pay more, and chose more indulgent options when payment was monetary versus non-monetary. Conversely, when prepayment was unanticipated, paying with time increased escalation of commitment and resulted in higher willingness to pay and more indulgent behavior than did paying with money. We also established the pain of prepayment as the proximal measure of escalation of commitment underlying the effect of prepayment on indulgent choices and willingness to spend.
6.2.2. Support for Hypothesis 2 and Hypothesis 3 We used a logistic regression analysis to test the influence of prepayment type (money vs. time) and prepayment anticipation (anticipated vs. unanticipated) on the choice of indulgent appetizers. Two judges coded the responses and categorized the listed appetizer by each participant as healthy (e.g., “salad,” “spinach dip”) or indulgent (e.g., “French fries,” “calamari”). The definitions of indulgent and healthy were adopted from Khan and Dhar (2007). Indulgent was defined as “something tempting that may have fewer long-term benefits. It is something that you want, but at the same time feel more guilty choosing.” Similarly, healthy was defined as “something that is not very tempting now but may be more beneficial in the long run. It is something that you feel less guilty choosing.” A value of zero (or one) was assigned when a given participant listed healthy (or indulgent) appetizers. The inter-judge reliability was approximately 81%, and inconsistencies were resolved through discussion. Our results showed a significant main effect of anticipation (Wald = 9.37, p < .05) qualified by a significant prepayment by anticipation interaction (Wald = 6.92, p < .05). Planned contrasts revealed that when prepayment was anticipated, participants were more likely to choose indulgent appetizers when they made monetary prepayment compared to time-based prepayment (75.9% vs. 57.1%; z = 2.01, p < .05). This finding supports H2, as the indulgent consumption caused by prepayment is greater for anticipated monetary than for anticipated non-monetary prepayment. Conversely, when prepayment was unanticipated, the pattern of preference for indulgent appetizers reversed among prepayment conditions. Specifically, in the unanticipated prepayment condition, participants had a higher propensity to choose indulgent appetizer(s) when they prepaid with time (57.7%) than when they prepaid with equivalent money (34.5%; z = 2.55, p < .05). Hence, H3 is supported. Similar results in support of H2 and H3 also emerged when we ran an ANOVA with the amount that participants reported they were willing to pay for their appetizers. In particular, planned contrasts revealed a significant increase in willingness to pay for the appetizer when the anticipated prepayment was made with money rather than time (Manticipated-money = $10.24 vs. Manticipated-time = $7.82; F(1, 153) = 9.04, p < .05). However, when the prepayment was unanticipated, the difference in willingness to spend on the appetizer between prepayment made with money versus time was reversed (Munanticipated-money = $8.18 vs. Munanticipated-time = $11.03; F(1, 153) = 9.52, p < .05).
7. General discussion and conclusion Consumers often encounter situations where they are asked to make a payment before a consumption experience. Making a payment is painful (Prelec & Loewenstein, 1998) and may increase consumers' commitment to their consumption goal (Kahneman & Tversky, 1979), motivating them to seek justification for that initial payment. Further, consumers may seek to justify that initial payment through immediate gratification (Bagchi & Block, 2011). In this research, we explored the effect of prepayment on consumers' escalation of commitment and indulgent behavior in subsequent consumption decisions. Specifically, we investigated the role of prepayment toward a consumption goal and its influence on spending and food choice. Our findings in the field study provided preliminary evidence of the detrimental effect of prepayment on indulgent behavior in subsequent consumption decisions. Experiment 1 demonstrated that people who prepaid toward the consumption goal (i.e., paying an admission fee at a food festival) had a higher tendency to choose indulgent snacks and spend more money than did those who either did not pay at all and those who were expected to pay after the food selection. Put differently, making a payment toward a consumption goal impacts indulgence and spending decisions only when it occurs prior to the task. Otherwise, there was no difference in the food choice and spending decisions between no payment and post-payment conditions. Further, people who prepaid indicated greater feelings of escalation of commitment compared to those who did not pay at all and those who were expected to pay after the food selection. Experiment 2 extended the notion of prepayment to another type of payment. Consistent with the existing literature, our findings indicated that the magnitude of the escalation of commitment (i.e., indulgent consumption caused by the prepayment) decreased when prepayments were made with time. However, when the prepayment was unanticipated, time had a bigger effect on indulgent consumption than did money. Because time is more subjective than money (Ariely & Loewenstein, 2000), and people underestimate anticipated time costs (Hoskin, 1983; Neumann & Friedman, 1980) but they overestimate unanticipated time costs (Antonides et al., 2002; Hornik, 1984), we found that the effect of time prepayment on indulgent behavior depends upon whether the cost is anticipated. The pain of prepayment that escalates commitment served as a mediating role for the interactive impact of prepayment and anticipation on indulgent behavior.
6.2.3. Process evidence To formally test whether the escalation of commitment due to the pain of payment mediates indulgent behavior, we ran an ANOVA with the pain of payment (i.e., the mediating variable) as the dependent variable and prepayment type and anticipation as the independent variables. The main effect of anticipation (F(1,147) = 21.02, p < .05) and the interaction between prepayment type and anticipation were significant (F(1,147) = 5.73, p < .05), suggesting that the difference in the pain of payment for different types of prepayment varied based on the anticipation level (anticipated: Mtime = 4.12 vs. Mmoney = 5.24; F(1,147) = 5.11, p < .05; unanticipated: Mtime = 6.18 vs. Mmoney = 5.45; F(1,147) = 4.28, p < .05). Following the bootstrapping procedure that Preacher and Hayes (2008) outline and using the Model 8 template, our findings show that the pain of payment 326
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7.1. Managerial implications
References
The results of our experiments are fruitful for marketers in different ways. First, despite the fast growth and significant prominence of online daily coupons (i.e., coupons which require an up-front payment for steep discounts on services), many practitioners are still doubtful about the profitability of this marketing tool for business owners (Kumar & Rajan, 2012). Many small and local businesses recently stopped paying premium prices to online couponing providers because the fees that they pay typically consume half of the coupon value (Sherr, 2010). Our findings regarding the increase in consumers' spending after monetary prepayment suggest that business owners should not merely focus on the forgone profit of promoting their services and/or products on coupon websites. Since our results suggest that escalation of commitment justifies indulgent decisions, marketers may be wise to advertise coupons with high acquisition costs to target hedonic (indulgent) services. This suggestion seems to have started taking place in the market. For example, the average discount per online daily coupon was 53% and consumers, on average, prepaid $38.04 per coupon in the fourth quarter of 2010. However, in the first quarter of 2011, the average price per online coupon reached $42.45 and most deals were promoting luxury and other high-end goods and services (Rueter, 2011). Additionally, the notion that behavioral prepayment induces temptation can be effectively employed in practice. Marketers should avoid alerting their customers about the time costs associated with a consumption experience. Doing so may result in consumers spending and indulging more in subsequent consumption decisions.
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7.2. Limitations and future research Our research is not without limitations, which provide avenues for future research. Our two main experiments relied on Mturk panel data, which limits the generalizability of our findings. Future research should also examine whether the framing of the time lag between the prepayment and the redemption may influence people's tendency to spend more money and indulge. Although the depreciation of the cost of prepayment over time should intuitively attenuate escalation of commitment (Soman, 1998), research on sales promotion suggests that the presence of a restriction (i.e., purchase or time limit) draws individuals' attention to the value of the deal (Inman, Peter, & Raghubir, 1997). Another fruitful area for future research entails understanding how prepayment affects the total number of options chosen as an alternative assessment of indulgence. People who prepay may choose to buy more options overall regardless of their valence (healthy vs. unhealthy) than people who pay at the end. Additionally, this alternative assessment of indulgence could be coupled with moderators such as time vs. money and timing of prepayment (i.e., immediately before a consumption goal vs. well before it). Experiment 2 demonstrated that the effect of prepayment on indulgent choices, and the spending amount depended on whether the prepayment was anticipated and whether the prepayment was monetary vs. nonmonetary. However, we did not investigate whether these moderators also affected the total number of choices that consumers made. Such an extension of our findings would elevate our understanding of the effects of prepayment on consumers' decision making. Finally, in our research, we focused on prepayments that did not legally and contractually obligate consumers. For example, consumers who pay to enter a beer festival do not sign a contractual obligation, and they are free to make any subsequent consumption decision (e.g., purchase indulgent options, purchase healthy options, or purchase nothing at all). Conversely, certain prepayments involve contractual obligations such as prepaying to use a cell phone. Future research should investigate how prepayment affects consumption decisions that legally bind consumers to specific courses of action.
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Ali Besharat is an Associate Professor of Marketing and the Co-director for Consumer Insights and Business Innovation Center at the University of Denver. He has received numerous college-wide and university-wide fellowships, research and teaching awards. He has been frequently featured in popular media outlets, including Yahoo!, Wallethub, Business Insider, Bankrate, Nasdaq, Creditcards, 9NEWS, The Week magazine, iHeartRadio, FOX 31 NEWS, Denver Post, Colorado Public Radio, Business Observer, etc.
Sherr, I. (2010, August 24). Online coupons get smarter; Groupon, rivals add personalized bargains, staff as some merchants gripe. The Wall Street Journal (Online) (p. N/a.). Soman, D. (1998). The illusion of delayed incentives: Evaluating future effort-money transactions. Journal of Marketing Research, 35, 427–437. Soster, R. L., Monga, A., & Bearden, W. O. (2010). Tracking costs of time and money: How accounting periods affect mental accounting. Journal of Consumer Research: An Interdisciplinary Quarterly, 37, 712–721. Staw, B. M. (1996). The escalation of commitment: An update and appraisal. In Z. Shapira (Ed.). Organizational decision making (pp. 191–215). New York: Cambridge University Press. Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior and Organization, 1, 39–60. Thomas, M., Desai, K. K., & Seenivasan, S. (2011). How credit card payments increase unhealthy food purchases: Visceral regulation of vices. Journal of Consumer Research, 38, 126–139. Wang, J., & Calder, B. J. (2006). Media transportation and advertising. Journal of Consumer Research, 33, 151–162. Zauberman, G., & Lynch, J. G., Jr. (2005). Resource slack and propensity to discount delayed investments of time versus money. Journal of Experimental Psychology: General, 134, 23–37.
His areas of research interest within the domain of consumer behavior include: a) behavioral judgment and decision making and b) marketing communications and branding. His work has been published in the Journal of Consumer Psychology, International Journal of Research in Marketing, Journal of Advertising, Journal of Public Policy & Marketing, Marketing Letters, Industrial Marketing Management, Journal of Business Research, European Journal of Marketing, and Psychology & Marketing, among others. Gia Nardini is Assistant Professor of Marketing at the University of Denver. Her research focuses on how people process, consume, and evaluate experiences. Additionally, she investigates what makes decisions difficult, and the downstream consequences of decision difficulty, such as choice deferral and purchase likelihood. She has presented her work at the Association for Consumer Research and the University of Houston Doctoral Symposium.
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Journal of Business Research journal homepage: www.elsevier.com/locate/jbusres
When indulgence gets the best of you: Unexpected consequences of prepayment
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Ali Besharat , Gia Nardini Daniels College of Business, University of Denver, 2101 S. University Blvd., Denver, CO 80208, United States of America
A R T I C LE I N FO
A B S T R A C T
Keywords: Escalation of commitment Prepayment Increased spending Food consumption Consumption experience
Consumers often pay for consumption events up front. For example, consumers may pay an entrance fee for a food festival or a VIP pass to skip the line at a nightclub. However, research has yet to investigate how this prepayment affects consumers' subsequent consumption decisions. This paper investigates the effect of prepayment on escalation of commitment and the unexpected effects on subsequent consumption decisions. Specifically, we investigate consumers' inclination to indulge and spend once they have made a prepayment in the form of money or time. Our findings from a field study and two experiments suggest that under certain conditions, prepayment results in increased spending and indulgent consumption.
1. Introduction Mrs. Anderson works in an office in Manhattan, New York. Twice a week, Mrs. Anderson and her coworkers meet at a local bar for happy hour. The local bar charges a $10 entrance fee on Fridays, but it is free to enter during the rest of the week. Although the menu does not change on Fridays, Mrs. Anderson notices that her bill is more expensive on Fridays than on any other day that she visits the bar. Like Mrs. Anderson in this scenario, consumers often encounter circumstances in which they make a prepayment before a consumption decision. For example, consumers prepay for goods or services when they purchase Online Daily Coupons (ODCs) that provide a large discount (e.g., paying up front for discounted restaurant meals or haircuts). Similarly, they may pay a $5 convenience fee to buy a movie ticket online or purchase a $50 membership to a warehouse club. However, research has yet to investigate how this prepayment affects consumers' subsequent purchase decisions. After making an initial investment, consumers may be reluctant to spend more money, and they may choose more responsible, utilitarian options over more indulgent, hedonic items. On the other hand, they may feel compelled to justify their initial payment by spending even more money and choosing more rewarding, indulgent options. We propose that prepayment escalates an individual's commitment to the course of action (Kahneman & Tversky, 1979) causing consumers to make unexpected financial and non-financial decisions as they attempt to validate their initial investment. Because spending money is painful (Prelec & Loewenstein, 1998), once consumers make a payment,
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they should be more inclined to continue that course of action than if they had not made the prepayment to ensure that their prepayment was not made in vain (Kahneman & Tversky, 1979). Drawing on this logic, making a payment toward a consumption goal (hereafter prepayment) should result in an escalation of commitment. However, unlike the traditional research on escalation of commitment that investigated situations where only one course of action was available (e.g., continue investing in a failing project, Staw, 1996), we investigate the effects of escalation of commitment in sequential decisions that have multiple options. That is, consumers are constrained at one level (e.g., eating at a restaurant for which they have prepaid) but not at a deeper level with multiple alternatives (e.g., the choice of food options at the restaurant). We propose that prepayment escalates commitment with consumption experiences as consumers attempt to ensure that their prepayment is justified. Consumers are cognizant of prepayments, and they will pursue actions to justify the cost of their investment. However, the outcome differs from traditional investigations of escalation of commitment; rather than investing in a failed project, people who prepay make decisions that are focused more on justifying the initial prepayment than on making a good decision. In line with and extending the literature on escalation of commitment, we propose that consumers who make a prepayment will continue spending toward that consumption goal even when there are multiple courses of action that are possible (Kahneman & Tversky, 1979; Staw, 1996). For example, although consumers may spend as little or as much as they like at a festival for which they paid an entrance fee, we contend that those who pay the entrance fee upfront will
Corresponding author. E-mail addresses: [email protected] (A. Besharat), [email protected] (G. Nardini).
https://doi.org/10.1016/j.jbusres.2018.07.051 Received 31 January 2017; Received in revised form 24 July 2018; Accepted 30 July 2018 0148-2963/ © 2018 Elsevier Inc. All rights reserved.
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someone who bought the basic membership. Therefore, we contend that prepayment should escalate commitment as consumers attempt to recoup the cost they have just incurred. As we noted earlier, making a prepayment is painful (Prelec & Loewenstein, 1998). When consumers make a payment, they feel the pain of the incurred cost that may mitigate the positive feelings associated with future consumption (Gourville & Soman, 1998). One way to alleviate this pain is to indulge in rewarding behaviors that provide immediate gratification (Bagchi & Block, 2011). Given that a hedonic choice represents an affective decision (Homburg et al., 2006), prepayment may create a situation where consumers, in an attempt to lessen the pain of payment, increase their commitment to more indulgent outcomes (i.e., choosing more indulgent options and/or spending more on hedonic items).1
spend more at the festival than those who pay the fee upon leaving because the entrance fee becomes an investment that must be justified. Importantly, we propose that consumers do not necessarily overspend or spend irrationally, such as when they buy memberships to warehouse clubs in which increased spending is associated with increased saving. However, we maintain that consumers will spend more if they pay for the membership at the beginning of the year than at the end of the year. Thus, we propose that prepayment increases the amount that people spend, but this spending is not always irrational. Further, hedonic activities are more amenable to “going all the way” (Kivetz, 1999), and the benefits of hedonic consumption are more salient and immediately gratifying than are the benefits of utilitarian consumption (Homburg, Koschate, & Hoyer, 2006). Future hedonic consumption is also perceived as providing greater reward than future utilitarian consumption. This perception occurs because thinking about future hedonic consumption is more enjoyable than considering utilitarian consumption (Nowlis, Mandel, & McCabe, 2004). Thus, we propose that consumers should seek to validate their initial investment (i.e., prepayment) by choosing more indulgent options that offer immediate positive feedback. For example, a consumer who pays for their buffet meal up front will be more likely to choose indulgent drinks and food to justify the cost of the initial payment than will a consumer who pays at the end of the meal. The pain of paying up front increases the commitment that must be justified. This research provides several important contributions. Typically, consumers pay during or after consumption, and much research has investigated how various payment methods affect consumer decision making (Besharat, Carrillat, & Ladik, 2014; Thomas, Desai, & Seenivasan, 2011). However, there are many situations in which consumers make a payment toward a consumption goal. To our best knowledge, we are the first to investigate the effects of prepayment on subsequent consumption decisions. We demonstrate the unexpected consequences of prepayment on indulgent behavior and increased spending. Further, we explore two moderators – anticipation of prepayment and the type of prepayment (i.e., monetary vs. non-monetary) – that shape the effect of prepayment on subsequent behaviors. In the following sections, we present theoretical background and hypotheses that we subsequently test in one field study and two experiments.
3. Hypotheses Since a decision maker has an internal need to validate prior investments to avoid considering them as wasteful (Schaubroeck & Davis, 1994), we propose that consumers who make a prepayment will continue spending toward that consumption goal (Kahneman & Tversky, 1979; Staw, 1996). They will choose more indulgent options to help rectify the pain of payment. Thus, the desire to compensate for the perceived loss of a prepayment guides consumers toward increased spending and indulgent consumption compared to those who do not make a prepayment. For example, if a person, upon his arrival, is charged a $10 valet parking fee to go to his favorite restaurant, he will spend more money on food (and/or choose more indulgent items) to compensate for the fact that he paid $10 to get into the restaurant (e.g., “I paid to be here, so I better get my money's worth!”). Therefore, we hypothesize that when consumers make a prepayment toward a consumption goal, they are more likely to subsequently spend excessively and/or make an indulgent choice than are consumers who don't prepay. H1. People who make a prepayment toward a consumption goal subsequently spend more and choose more indulgent options than people who do not make a prepayment.
3.1. Non-monetary prepayment and anticipation
2. Literature review and theoretical development
Thus far, we have focused on the effects of prepayment on consumers' subsequent purchase decisions, and we have assumed that prepayment is monetary. However, prepayment can also be nonmonetary such as when consumers spend time in the pursuit of a consumption decision. How might non-monetary prepayments affect subsequent purchase decisions? We propose that prepayments made with time also result in more indulgent behaviors, but the magnitude of the effect compared to the monetary prepayment depends on the anticipation of payment. When making monetary investments, consumers tend to plan better and spend
2.1. Prepayment, escalation of commitment, and downstream effects Consumers' commitment to attain a planned decision escalates if they have already devoted resources to its attainment (Monga & Saini, 2009). This escalation of commitment usually results in suboptimal monetary and non-monetary decisions (Kelly & Milkman, 2013). For example, consumers are more likely to invest in failing projects once they have made an initial investment, thereby escalating their commitment to sub-optimal outcomes (Staw, 1996). Further, if consumers highly value the given course of action, they are more susceptible to escalation of commitment (Schulz-Hardt, Thurow-Kröning, & Frey, 2009). Therefore, we propose that prepayment should result in escalation of commitment as consumers typically prepay for goods and services that they deem valuable. The negative feeling of the depletion of financial resources (i.e., pain of payment) that consumers initially experience could cause one of two subsequent actions: 1) Consumers may be reluctant to spend money subsequently or they may want to spend their money responsibly to counteract the initial payment; or 2) Consumers may be inclined to spend more subsequently on more indulgent options to justify the initial expense. However, refraining from subsequent spending or choosing more responsible options (option 1) may leave the consumer feeling that the initial payment has been wasted. For example, an individual who purchased the most expensive Costco membership should feel more comfortable spending to get his initial investment's worth than
1
Unlike pre-commitment to indulgence, consumers' options are not constrained upon prepayment (Kivetz & Simonson, 2002). All forms of pre-commitment involve consumers opting for a binding decision to counteract timeinconsistent preferences (Ariely & Wertenbroch, 2002). For example, people may prefer to save money (Thaler, 1980) or indulge in the future (Kivetz & Simonson, 2002), but their preferences change in the present—opting for spending money and paying bills, respectively. Therefore, people pre-commit to a course of action to ensure that their long-term preferences are satisfied. Conversely, prepayment simply involves making a payment before a consumption experience without binding people to a specific outcome. This does not mean that prepayment will always occur without pre-commitment, but rather that it can, and it can lead to escalation to commitment. For example, one could have prepayment with or without pre-commitment to a specific purchase such, as when paying for futures of wine since consumers would know exactly which wine they will be getting in the future, when it is bottled. 322
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the restaurant. In our sample, 86 consumers (47 males and 39 females) were asked to pay a $12 upfront admission fee when they entered the restaurant, and 97 customers (64 males and 33 females) paid the fee after they were done eating. We alternated the days for the assignment to the prepayment vs. post-payment conditions so that weekdays and weekends were equally represented. There was no difference in the type, amount, or order of food presentation between the two conditions. The payment instructions were clearly communicated to consumers via a sign that asked them to visit the hostess upon arrival and pay the buffet fee before being seated or after eating their meal. The hostess escorted consumers to their table and provided a brief instruction on how to use the buffet. In particular, consumers were allowed to use the buffet as much or as little as they wanted. To minimize intrusiveness, we did not record consumers' body weights/measures, number of visits to the buffet, and the types of food selected. Instead, we assessed consumers' indulgent behaviors by asking them to complete a short order form for one type of drink (e.g., Coke, unsweetened iced tea, Sprite, water, etc.) and one type of dessert (i.e., brownies, ice cream, or fruit salad). The customers gave the completed form to their server before they used the buffet. Customers could order as many drinks or desserts as they wanted and as often as they wanted, but they could have only the kind they requested. We used the completed forms as a proxy measure of indulgent consumption. The decision outcomes were whether consumers chose healthy (e.g., water, unsweetened iced tea, or fruit salad) or indulgent (e.g., sugary soft drinks, brownies, or ice cream) options for drinks and desserts. We coded the responses separately for drinks and desserts (0 = healthy, 1 = indulgent).
their money more wisely than when making behavioral investments (Frederick, Novemsky, Wang, Dhar, & Nowlis, 2009; Zauberman & Lynch Jr., 2005). Further, whereas the opportunity cost of money can be readily calculated and is approximately constant across situations (Hirschman, 1990), the opportunity cost of time is often neglected (Frederick et al., 2009). In essence, money is a common currency for transactions that keeps its face value in an exchange, but time is more subjective and people easily lose track of it (Ariely & Loewenstein, 2000). Consumers often fail to calculate or underestimate the equivalent monetary costs of time (Hoskin, 1983; Neumann & Friedman, 1980). Further, when consumers make non-monetary prepayments, they still escalate commitment to the consumption decision, but they are less sensitive to their loss when compared to monetary prepayments (Cunha Jr. & Caldieraro, 2009; Navarro & Fantino, 2009; Soster, Monga, & Bearden, 2010). Therefore, we propose that the increased spending and more indulgent choices caused by prepayment is greater for monetary prepayment than for non-monetary prepayment. H2. People who prepay with money spend more and choose more indulgent options in their subsequent purchase decisions than those who prepay with the equivalent time. Whereas consumers tend to underestimate known time costs, they overestimate unknown time costs (Antonides, Verhoef, & Van Aalst, 2002). Therefore, although consumers may underestimate time costs relative to monetary costs when those costs are known in advance – as hypothesis two predicts – the opposite may occur when costs are unknown or unexpected. This outcome occurs because consumers' perceptions of monetary payments are relatively stable, regardless of whether people know the monetary cost up front. Therefore, escalation of commitment that is invoked by monetary prepayments should remain relatively constant regardless of whether the prepayment is known in advance. However, consumers' perceptions of time payments are relatively unstable (Ariely & Loewenstein, 2000) such that people underestimate known time costs (Neumann & Friedman, 1980), but they overestimate unanticipated time costs (Antonides et al., 2002). Indeed, research shows that consumers tend to overestimate waiting times when they are not aware of the exact wait up front (Hornik, 1984). That is, unanticipated non-monetary prepayments may result in overestimation of costs relative to unanticipated monetary prepayments. For instance, when a club has an unanticipated wait, a consumer who waits for 50 min to enter the club may choose more indulgent food than a consumer who purchases a $10 VIP pass to be admitted right away.
4.2. Results and discussion We performed a logistic regression analysis with the payment condition (prepayment vs. post-payment) as a predictor. We also controlled for the number of consumers per party and gender. The dependent variable was the binary choice between an indulgent or healthy type of drink. Results showed a significant main effect of payment (Wald = 7.63, p < .05). Making a prepayment at the restaurant significantly increased the choice of indulgent drinks (94.37% vs. 78.14%; z = 2.98, p < .05). We obtained consistent results from another logistic regression analysis (Wald = 7.63, p < .05) when the dependent variable was the choice of indulgent desserts (83.52% vs. 70.64%; z = 2.66, p < .05). These findings confirm that individuals who prepaid for consumption had a higher tendency to indulge than those who paid after consumption. With initial support for our main hypothesis in a natural setting, we moved our investigation to more controlled settings. We began with a pretest to ensure effective manipulation of healthy and indulgent alternatives to measure indulging consumption in our subsequent experiments. We adopted a list (Laran, 2010) of eight indulgent snacks (chocolate bar, Chips Ahoy cookies, cheese curls, Doritos chips, ice cream, doughnuts, Oreos, and fruit roll-ups) and eight healthy snacks (raisins, celery sticks, Cheerios, low fat yogurt, baby carrots, granola bar, rice cake, and apple). A group of 17 undergraduate students indicated their overall preference for the snacks using a 7-point scale (1 = I don't like at all, 7 = I like a lot). Similar to Laran's (2010) study, the snacks on average were equally preferred (Mhealthy = 4.58 vs. Mindulgent = 4.71; F (1,16) = 0.93, p > .05), suggesting that no significant differences for healthy or indulgent options were observed. The cost of healthy snacks on average was estimated to be about the same as the indulgent snacks (Mhealthy = $2.31 vs. Mindulgent = $3.01; F (1, 16) = 3.67, p > .05). Further, there was a significant difference in the health perception of healthy versus indulgent snacks, measured on a 7-point semantic differential scale (1 = very unhealthy, 7 = very healthy) (Mhealthy = 4.92 vs. Mindulgent = 2.64; F (1, 16) = 85.32, p < .05). Therefore, we used this list to assess indulgent consumption in the next experiment.
H3. When a prepayment is unanticipated, people who prepay with time spend more and choose more indulgent options in their subsequent purchase decisions than those who prepay with the equivalent money. 4. Field study To show the main effect of prepayment on food choice in a realworld setting, we conducted a field experiment at an independentlyowned Chinese buffet restaurant in the western United States. The context was deemed to be appropriate for this experiment because the buffet lunch has a fixed price that could be paid before or after consumption. The restaurant owner agreed to participate in the study for a period of two weeks. 4.1. Design, participants, and procedure The restaurant accommodated approximately 55 guests and was classified as a middle-priced restaurant as it offered an all-you-can-eat lunch buffet for $12 per person. Consumers usually entered the restaurant and consumed as much food and drink as they wanted. They paid a $12 flat fee once they finished their meals and before they left 323
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information,” and “Calorie levels influence what I eat” on a 7-point scale (1 = strongly disagree, 7 = strongly agree). The scale (Cronbach's alpha = 0.90) was adapted from Chandon and Wansink (2007).
5. Experiment 1 Experiment 1 tests the prediction that a prepayment shifts people's preference toward more indulgent choices and increases expenditures for a consumption goal (H1).
5.2. Results 5.1. Design, participants, and procedure 5.2.1. Manipulation check We assessed the success of the manipulation of the payment conditions with two questions at the end of the survey. First, we asked participants in a multiple-choice question to select the amount that they paid to enter the festival. As expected, participants in the no prepayment condition chose the “free admission” option, whereas all participants, except one, in the prepayment and post-payment conditions chose the “$10 admission fee” option. Second, we asked whether the payment, if any at all, occurred before or after entering the event. All participants, depending on their experimental condition, responded to this question correctly.
This experiment is a 3-level (payment condition: no payment vs. prepayment vs. post-payment) between-subjects factorial design. To gather data, we used an internet survey administered via Amazon Mechanical Turk (hereinafter MTurk), an online crowdsourcing marketplace of human capital validated for conducting experiments and surveys (Buhrmester, Kwang, & Gosling, 2011; Mariconda & Lurati, 2015). The data collected are classified as a convenience sample because MTurk does not verify respondents' information. In order to participate, individuals must: 1) have attended an event (concert, festival, exhibition, or tradeshow), 2) have purchased snacks within the last three months, 3) be familiar with the type of snacks and their attributes, and 4) have a 100% approval rating on MTurk wherein their work as a participant has never been rejected by a requester (e.g., researchers). These criteria produced a sample of 138 participants. Each participant received a monetary reward of 75 cents (Mage = 32.39 years, SD = 9.41; females = 40, males = 80). To ensure the participants were attentively engaged in the survey, we removed those who took too little or too much time ( ± 3 SDs from the average time) to review the stimulus and/or to complete the survey. We also removed participants who failed to correctly answer multiple attention check questions (e.g., “choose 6”) embedded within the survey near the beginning and middle of the sections which indicated a lack of active engagement. Eighteen participants who did not complete the survey were excluded from the analyses. Participants completed the online survey and were randomly assigned to one of three conditions. The scenario asked participants to imagine that they are spending a day at an event that featured international food with a variety of tasty appetizers and refreshing beverages. In the no payment condition, participants learned that they will be admitted to this event free of charge. In the prepayment condition, participants were told that they will pay $10 to be admitted to this event, but they will leave with no charge. Participants in the postpayment condition were informed that they will be admitted with no charge, but they will pay $10 before they exit the event. Next, participants responded to a multi-item survey question, adapted from Bazerman, Giuliano, and Appelman (1984), to measure their escalation of commitment to the consumption experience. In particular, respondents were asked to indicate how much they agreed or disagreed with six statements that were measured using a seven-point Likert scale (1 = strongly disagree, 7 = strongly agree). The items were “I have put too much into this festival experience to consider changing now,” “Changing experiences now would be difficult for me to do,” “Too much of my life would be disrupted if I were to change experiences,” “It would be costly for me to go somewhere else now,” “There are no pressures to keep me from changing experiences” [reverse coded], and “Changing experiences now would require considerable personal sacrifice.” Then, participants imagined buying snacks from 16 possible snack options. They could choose as many snacks as they wanted. The decision outcomes were the number of unhealthy and healthy options they chose and how much they were willing to pay for their selected snack(s). Next, we recorded participants' gender and asked them to answer manipulation check questions and to rate the believability of the scenario. Participants indicated their level of involvement (Cronbach's alpha = 0.92), using measures adapted from Wang and Calder (2006). Finally, we measured healthy eating habits by asking participants to indicate their agreement with these statements: “I pay close attention to nutrition information,” “Eating healthy is important to me,” “I watch how much I eat,” “I actively seek out nutrition
5.2.2. Support for Hypothesis 1 We performed a one-way ANOVA with payment condition as the independent variable and the amount that participants were willing to pay for their snack serving as the dependent variable. The summated scale for eating healthy (Cronbach's alpha = 0.80) was a significant covariate and was kept in the main analysis (F (1,116) = 8.06, p < .05). However, neither gender nor believability of the scenario revealed a significant influence on the outcome variable or significantly interacted with prepayment condition (Fs < 2, ps > 0.05). Thus, they were excluded from subsequent analyses. As predicted, the results demonstrated a significant main effect of prepayment (F (1, 16) = 5.54, p < .05). Planned contrasts revealed a significant increase in willingness to pay for the snack(s) when participants prepaid to enter the event than when they did not prepay (Mprepayment = $5.14 vs. Mno-payment = $3.65; t (1, 116) = 2.82, p < .05). Similarly, those who prepaid to enter the event were willing to pay more for the snack(s) than those who paid as they exited the event (Mprepayment = $5.14 vs. Mpost-payment = $3.61; t (1, 116) = 2.64, p < .05). However, no significant difference in willingness to pay was observed between the no payment and post-payment conditions (Mpost-payment = $3.61vs. Mno-payment = $3.65; t (1, 116) = 0.26, p > .05). This finding supports H1. To test our hypotheses in the context of snack choices, we calculated a score for indulgent behavior by subtracting the total number of selected healthy snacks from unhealthy snacks for each participant. For instance, if a person chose two unhealthy snacks (e.g., chocolate bar and ice cream) and one healthy snack (e.g., granola bar) at the festival, the indulgent behavior score was one (2–1 = 1). After individually calculating these scores for the entire sample, we performed a one-way ANOVA with payment condition as the independent variable and the indulgent behavior score as the dependent variable. Again, excepting healthy eating habits (F (1,116) = 4.02, p < .05), the two other covariates (i.e., gender and believability of the scenario) revealed no significant influence on the snack choice and they did not significantly interact with the payment conditions. Therefore, they were not included in the subsequent analyses (Fs < 1, ps > 0.05). Results showed that on average, participants in the prepayment condition had a significantly higher indulgent behavior score (i.e., chose more indulgent than healthy snacks) than did participants in the no payment condition (Mprepayment = 2.01 vs. Mno-payment = 0.88; t (1, 116) = 2.82, p < .05). Similarly, those who prepaid to enter the event had a higher indulgent behavior score compared to those who paid as they exited the event (Mprepayment = 2.01 vs. Mpost-payment = 0.63; t (1, 116) = 3.07, p < .05). However, no significant difference in the indulgent behavior score was observed between the no payment and postpayment conditions (Mpost-payment = 0.63 vs. Mno-payment = 0.88; t (1, 116) = 0.59, p > .05). Overall, these findings lend support to H1. 324
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social psychologist Dan Ariely (2009) believes it is “the pain of payment” that actually triggers an individual's commitment to focus on the current payment rather than the future costs/benefits of a consumption experience. In the next experiment, to verify this claim, we test the “pain of payment” as the proximal measure of escalation of commitment and the mediator between the type of payment, willingness to spend, and indulgent consumption.
5.2.3. Process evidence We employed a maximum likelihood exploratory factor analysis (EFA) with varimax rotation to test the dimensionality of the escalation of commitment construct. Field (2009) indicates that an item should be deleted from a pool of items if it has an item-to-total correlation of < 0.5. He recommends that only factor loadings > 0.4 which explain around 16% of the variance in a variable, should be interpreted. Based on these two criteria, we dropped the item, “There are no pressures to keep me from changing experiences” from the pool of items as it had a 0.18 item-to-total correlation and a 0.22 factor loading. The escalation of commitment construct with the five remaining items was unidimensional; the first extracted factor explained 77.72% of the total variance. We created an index of escalation of commitment by averaging the five retained items (Cronbach's alpha = 0.93). A one-way ANOVA on this index revealed a significant effect of payment type (F (1,117) = 10.00, p < .05). As expected, participants in the prepayment condition demonstrated a significantly higher escalation of commitment (Mprepayment = 4.71) than did those in the no payment (Mnopayment = 3.38; t (1, 117) = 3.99, p < .05) and post-payment conditions (Mpost-payment = 3.47; t (1, 117) = 3.85, p < .05). Next, we conducted mediation tests to demonstrate that escalation of commitment in the prepayment condition leads to higher willingness to spend and more indulgent behavior. Given the categorical nature of the payment conditions with three levels, we created two binary predictors to test the effects of payment condition (post-payment or no payment, coded 1) relative to a reference condition (prepayment, coded 0). Using Model 4 in Process Macro (Preacher & Hayes, 2008), we found a positive, significant effect of escalation of commitment on the willingness to pay (β = 0.57, t(1, 120) = 4.32, p < .05) and the indulgent behavior score (β = 1.20, t(1, 120) = 2.67, p < .05). This result suggests that higher escalation of commitment toward a consumption experience leads to greater spending and more indulgent choices. Furthermore, our findings show that escalation of commitment exerts a significant mediating effect on the willingness to spend in the prepayment relative to post-payment condition (b = 0.47, 95% confidence interval [CI] = 0.05, 0.89) as well as in the prepayment relative to no payment condition (b = 0.44, 95% confidence interval [CI] = 0.11, 0.84). This result is because the confidence intervals in neither case include zero. Similarly, escalation of commitment significantly mediated the effect of prepayment on the indulgent behavior score relative to the post-payment condition (b = 0.36, 95% confidence interval [CI] = 0.14, 0.78) and no payment condition (b = 0.40, 95% confidence interval [CI] = 0.16, 0.83).
6. Experiment 2 Experiment 2 examines whether increased spending and choice of more indulgent options in subsequent purchase decisions varies as a function of consumers' anticipation of the prepayment and the type of prepayment (H2 and H3). We also test the pain of payment as the proximal measure of escalation of commitment. 6.1. Design, participants, and procedure This experiment is a 2 (prepayment type: money vs. time) × 2 (prepayment: anticipated vs. unanticipated) between-subjects factorial design. We gathered data for this experiment using MTurk with identical pre-qualification requirements to those used in experiment 1. A total of 167 people who were paid 75 cents participated in this experiment (Mage = 25.16 years, SD = 4.17; females = 91, males = 76). Eleven participants were deleted from further analyses due to incompleteness. Participants were randomly assigned to one of four treatment conditions in the online survey. They were told to imagine that they were going to a popular bar during Oktoberfest, an international beer festival. They learned that due to high demand and a live band performance, they had to pay a $12 admission fee or wait in line for 50 min to enter the bar.2 The prepayment information was conveyed such that it gave participants the impression that prepayment was either anticipated (e.g., expected and not surprising) or unanticipated (e.g., not expected and surprising). Then, participants imagined that they entered the bar and decided to order food by writing down the name of their desired appetizer (Laran, 2010). They also indicated how much they were willing to spend at the bar during the event and expressed their negative feelings toward the prepayment (Thomas et al., 2011). In particular, we asked, “Different factors may influence how consumers feel about their service experience. How did you feel about the wait time {admission fee} for this bar?” Participants indicated their responses on a 7-point nonverbal face pain scale with a happy face (☺) at the lower end of the scale and a sad face (☹) at the higher end of the scale. Finally, we collected responses pertaining to the manipulation checks, level of involvement, healthy eating habits, gender, and levels of hunger in the experiment. Among all covariates, only healthy eating habit responses had a significant influence and were retained in the subsequent analyses.
5.2.4. Discussion In line with the findings from the field study, results from the first experiment also support H1. Participants who prepaid had a higher tendency to choose indulgent options and spend more than those who did not prepay or expected to pay post-consumption. Despite the prepayment and post-payment conditions being subject to the same $10 admission fee, interestingly, the timing of the payment (e.g., pre vs. post food selection) made a significant difference in food choice and payment decisions. Thus far, we have argued that prepayment causes people to spend more and choose more indulgent options because the initial payment invokes an escalation of commitment. We empirically demonstrated that participants escalated their commitment to the consumption experience by paying extra for their chosen snacks, presumably to justify their initial payment. In the majority of studies in the literature, escalation of commitment is meant to measure people's willingness to continue pursuing a failed project (Staw, 1996). Although escalation of commitment was not particularly tied to a failed (or disrupted) consumption experience in Experiment 1, the construct operated as the underpinning process for the effect of prepayment on indulgent behavior. In most scenarios involving payments, however, the renowned
6.2. Results 6.2.1. Manipulation check First, we asked participants in a multiple-choice question to select the amount that they paid or the time they spent to enter the club. As expected, all but two participants selected choices consistent with their 2 To ensure the equivalency of prepayment values, a pretest among a different group of students (n = 20) was conducted. They imagined they had gone to a club that was free for individuals who waited in line, but the club charged $12 VIP for immediate admission. Participants were asked to indicate how long they were willing to wait in line to avoid paying the $12 cover charge (M = 47.64 min, SD = 12.05). We chose this value, which was not significantly different than 50 min (t (1, 19) =0.84, p > .05) to represent the time currency manipulation in the experiment.
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significantly mediated the interaction effect between prepayment anticipation (anticipated: coded 0; unanticipated: coded 1) and prepayment type on willingness to spend (anticipated: b = 0.81, 95% confidence interval [CI] = 0.65, 1.03; unanticipated: b = 0.71, 95% confidence interval [CI] = 0.58, 0.83) and indulgent choice (anticipated: b = 0.73, 95% confidence interval [CI] = 0.64, 0.82; unanticipated: b = 0.68, 95% confidence interval [CI] = 0.59, 0.78).
experimental conditions. Second, we asked participants to indicate to what extent the incurred prepayment was anticipated on a 7-point semantic differential scale (1 = completely unanticipated, 7 = completely anticipated). Participants in the anticipated prepayment group rated the anticipation of the prepayment significantly higher than did participants in the unanticipated prepayment condition (Manticipated = 5.88 vs. Munanticipated = 2.63; F(1, 153) = 28.12, p < .05).
6.2.4. Discussion We demonstrated that the anticipation and type of prepayment significantly moderate the effect of prepayment on subsequent purchase decisions. Time is more subjective than money, and people typically underestimate anticipated time costs (Hoskin, 1983; Neumann & Friedman, 1980), but they overestimate unanticipated time costs (Antonides et al., 2002; Hornik, 1984). In line with this prior research, people had higher escalation of commitment, were willing to pay more, and chose more indulgent options when payment was monetary versus non-monetary. Conversely, when prepayment was unanticipated, paying with time increased escalation of commitment and resulted in higher willingness to pay and more indulgent behavior than did paying with money. We also established the pain of prepayment as the proximal measure of escalation of commitment underlying the effect of prepayment on indulgent choices and willingness to spend.
6.2.2. Support for Hypothesis 2 and Hypothesis 3 We used a logistic regression analysis to test the influence of prepayment type (money vs. time) and prepayment anticipation (anticipated vs. unanticipated) on the choice of indulgent appetizers. Two judges coded the responses and categorized the listed appetizer by each participant as healthy (e.g., “salad,” “spinach dip”) or indulgent (e.g., “French fries,” “calamari”). The definitions of indulgent and healthy were adopted from Khan and Dhar (2007). Indulgent was defined as “something tempting that may have fewer long-term benefits. It is something that you want, but at the same time feel more guilty choosing.” Similarly, healthy was defined as “something that is not very tempting now but may be more beneficial in the long run. It is something that you feel less guilty choosing.” A value of zero (or one) was assigned when a given participant listed healthy (or indulgent) appetizers. The inter-judge reliability was approximately 81%, and inconsistencies were resolved through discussion. Our results showed a significant main effect of anticipation (Wald = 9.37, p < .05) qualified by a significant prepayment by anticipation interaction (Wald = 6.92, p < .05). Planned contrasts revealed that when prepayment was anticipated, participants were more likely to choose indulgent appetizers when they made monetary prepayment compared to time-based prepayment (75.9% vs. 57.1%; z = 2.01, p < .05). This finding supports H2, as the indulgent consumption caused by prepayment is greater for anticipated monetary than for anticipated non-monetary prepayment. Conversely, when prepayment was unanticipated, the pattern of preference for indulgent appetizers reversed among prepayment conditions. Specifically, in the unanticipated prepayment condition, participants had a higher propensity to choose indulgent appetizer(s) when they prepaid with time (57.7%) than when they prepaid with equivalent money (34.5%; z = 2.55, p < .05). Hence, H3 is supported. Similar results in support of H2 and H3 also emerged when we ran an ANOVA with the amount that participants reported they were willing to pay for their appetizers. In particular, planned contrasts revealed a significant increase in willingness to pay for the appetizer when the anticipated prepayment was made with money rather than time (Manticipated-money = $10.24 vs. Manticipated-time = $7.82; F(1, 153) = 9.04, p < .05). However, when the prepayment was unanticipated, the difference in willingness to spend on the appetizer between prepayment made with money versus time was reversed (Munanticipated-money = $8.18 vs. Munanticipated-time = $11.03; F(1, 153) = 9.52, p < .05).
7. General discussion and conclusion Consumers often encounter situations where they are asked to make a payment before a consumption experience. Making a payment is painful (Prelec & Loewenstein, 1998) and may increase consumers' commitment to their consumption goal (Kahneman & Tversky, 1979), motivating them to seek justification for that initial payment. Further, consumers may seek to justify that initial payment through immediate gratification (Bagchi & Block, 2011). In this research, we explored the effect of prepayment on consumers' escalation of commitment and indulgent behavior in subsequent consumption decisions. Specifically, we investigated the role of prepayment toward a consumption goal and its influence on spending and food choice. Our findings in the field study provided preliminary evidence of the detrimental effect of prepayment on indulgent behavior in subsequent consumption decisions. Experiment 1 demonstrated that people who prepaid toward the consumption goal (i.e., paying an admission fee at a food festival) had a higher tendency to choose indulgent snacks and spend more money than did those who either did not pay at all and those who were expected to pay after the food selection. Put differently, making a payment toward a consumption goal impacts indulgence and spending decisions only when it occurs prior to the task. Otherwise, there was no difference in the food choice and spending decisions between no payment and post-payment conditions. Further, people who prepaid indicated greater feelings of escalation of commitment compared to those who did not pay at all and those who were expected to pay after the food selection. Experiment 2 extended the notion of prepayment to another type of payment. Consistent with the existing literature, our findings indicated that the magnitude of the escalation of commitment (i.e., indulgent consumption caused by the prepayment) decreased when prepayments were made with time. However, when the prepayment was unanticipated, time had a bigger effect on indulgent consumption than did money. Because time is more subjective than money (Ariely & Loewenstein, 2000), and people underestimate anticipated time costs (Hoskin, 1983; Neumann & Friedman, 1980) but they overestimate unanticipated time costs (Antonides et al., 2002; Hornik, 1984), we found that the effect of time prepayment on indulgent behavior depends upon whether the cost is anticipated. The pain of prepayment that escalates commitment served as a mediating role for the interactive impact of prepayment and anticipation on indulgent behavior.
6.2.3. Process evidence To formally test whether the escalation of commitment due to the pain of payment mediates indulgent behavior, we ran an ANOVA with the pain of payment (i.e., the mediating variable) as the dependent variable and prepayment type and anticipation as the independent variables. The main effect of anticipation (F(1,147) = 21.02, p < .05) and the interaction between prepayment type and anticipation were significant (F(1,147) = 5.73, p < .05), suggesting that the difference in the pain of payment for different types of prepayment varied based on the anticipation level (anticipated: Mtime = 4.12 vs. Mmoney = 5.24; F(1,147) = 5.11, p < .05; unanticipated: Mtime = 6.18 vs. Mmoney = 5.45; F(1,147) = 4.28, p < .05). Following the bootstrapping procedure that Preacher and Hayes (2008) outline and using the Model 8 template, our findings show that the pain of payment 326
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7.1. Managerial implications
References
The results of our experiments are fruitful for marketers in different ways. First, despite the fast growth and significant prominence of online daily coupons (i.e., coupons which require an up-front payment for steep discounts on services), many practitioners are still doubtful about the profitability of this marketing tool for business owners (Kumar & Rajan, 2012). Many small and local businesses recently stopped paying premium prices to online couponing providers because the fees that they pay typically consume half of the coupon value (Sherr, 2010). Our findings regarding the increase in consumers' spending after monetary prepayment suggest that business owners should not merely focus on the forgone profit of promoting their services and/or products on coupon websites. Since our results suggest that escalation of commitment justifies indulgent decisions, marketers may be wise to advertise coupons with high acquisition costs to target hedonic (indulgent) services. This suggestion seems to have started taking place in the market. For example, the average discount per online daily coupon was 53% and consumers, on average, prepaid $38.04 per coupon in the fourth quarter of 2010. However, in the first quarter of 2011, the average price per online coupon reached $42.45 and most deals were promoting luxury and other high-end goods and services (Rueter, 2011). Additionally, the notion that behavioral prepayment induces temptation can be effectively employed in practice. Marketers should avoid alerting their customers about the time costs associated with a consumption experience. Doing so may result in consumers spending and indulging more in subsequent consumption decisions.
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7.2. Limitations and future research Our research is not without limitations, which provide avenues for future research. Our two main experiments relied on Mturk panel data, which limits the generalizability of our findings. Future research should also examine whether the framing of the time lag between the prepayment and the redemption may influence people's tendency to spend more money and indulge. Although the depreciation of the cost of prepayment over time should intuitively attenuate escalation of commitment (Soman, 1998), research on sales promotion suggests that the presence of a restriction (i.e., purchase or time limit) draws individuals' attention to the value of the deal (Inman, Peter, & Raghubir, 1997). Another fruitful area for future research entails understanding how prepayment affects the total number of options chosen as an alternative assessment of indulgence. People who prepay may choose to buy more options overall regardless of their valence (healthy vs. unhealthy) than people who pay at the end. Additionally, this alternative assessment of indulgence could be coupled with moderators such as time vs. money and timing of prepayment (i.e., immediately before a consumption goal vs. well before it). Experiment 2 demonstrated that the effect of prepayment on indulgent choices, and the spending amount depended on whether the prepayment was anticipated and whether the prepayment was monetary vs. nonmonetary. However, we did not investigate whether these moderators also affected the total number of choices that consumers made. Such an extension of our findings would elevate our understanding of the effects of prepayment on consumers' decision making. Finally, in our research, we focused on prepayments that did not legally and contractually obligate consumers. For example, consumers who pay to enter a beer festival do not sign a contractual obligation, and they are free to make any subsequent consumption decision (e.g., purchase indulgent options, purchase healthy options, or purchase nothing at all). Conversely, certain prepayments involve contractual obligations such as prepaying to use a cell phone. Future research should investigate how prepayment affects consumption decisions that legally bind consumers to specific courses of action.
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A. Besharat, G. Nardini
Ali Besharat is an Associate Professor of Marketing and the Co-director for Consumer Insights and Business Innovation Center at the University of Denver. He has received numerous college-wide and university-wide fellowships, research and teaching awards. He has been frequently featured in popular media outlets, including Yahoo!, Wallethub, Business Insider, Bankrate, Nasdaq, Creditcards, 9NEWS, The Week magazine, iHeartRadio, FOX 31 NEWS, Denver Post, Colorado Public Radio, Business Observer, etc.
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His areas of research interest within the domain of consumer behavior include: a) behavioral judgment and decision making and b) marketing communications and branding. His work has been published in the Journal of Consumer Psychology, International Journal of Research in Marketing, Journal of Advertising, Journal of Public Policy & Marketing, Marketing Letters, Industrial Marketing Management, Journal of Business Research, European Journal of Marketing, and Psychology & Marketing, among others. Gia Nardini is Assistant Professor of Marketing at the University of Denver. Her research focuses on how people process, consume, and evaluate experiences. Additionally, she investigates what makes decisions difficult, and the downstream consequences of decision difficulty, such as choice deferral and purchase likelihood. She has presented her work at the Association for Consumer Research and the University of Houston Doctoral Symposium.
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