People spend more money shopping when they are ‘paying it forward’

Generosity and fairness

photo credit: tochis

photo credit: tochis

As shoppers all around got more or less advantageous deals on Black Friday, researchers at the University of Berkeley are analyzing what happens to commerce and buyers when there’s no fixed price tag – when shoppers pay as much as they want for products. As it turns out, they spend more money when they can engage a chain of goodwill known as “Pay-it-forward” than when they can name their own price.

“It’s assumed that consumers are selfish and always looking for the best deal, but when we gave people the option to pay for someone else, they always paid more than what they paid for themselves,” said the study’s lead author, Minah Jung, a doctoral student at the Haas School of Business and a Gratitude Dissertation Fellow at UC Berkeley’s Greater Good Science Center.

First of all, the results showed that buyers have more in mind than just getting the best deal – interestingly enough, most people care more about being fair than about getting the best deal. For example, researchers found that people typically overestimate the financial generosity of others, until they learn what others have actually paid.

“People don’t want to look cheap. They want to be fair, but they also want to fit in with the social norms,” said Jung, whose findings have been presented at the annual meeting of the Society for Personality and Social Psychology, and the Association for Consumer Research, among other conferences, and are being submitted for publication.

Pay it forward vs Pay what you want

Image Source.

Pay it Forward is a really interesting system, in which you basically buy the item for the next shopper; patrons are told that a previous customer has paid for them, and the new customer pays as much as he wants for the next one. Such random acts of kindness have been reported at toll bridges, coffee shops and drive-thru restaurants, and they drive the business of Berkeley’s Karma Kitchen.

Pay what you want is pretty much what the name says – there’s no fixed price, you pay as much as you want.

In eight separate experiments, Jung and fellow researchers at UC Berkeley and UC San Diego compared how more than 2,400 individuals responded to these two pricing models. The same dynamic was reported in all the experiments: those who paid it forward spent more. Interestingly enough, students who were told exactly what the previous person paid adjusted their expense accordingly by paying the same amount or a little less.

“The results suggest that businesses that rely entirely on consumers’ social preferences can survive and even thrive,” Jung said. “It’s pretty amazing.”

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