Use your imagination and picture a market in the mid XV-th
century in Europe. Farmers and tradesmen sell their products in the square of
the city. Others want to buy and search for the best offer. At one point the
buyer chooses one seller and buys, say wool. In exchange for the wool the buyer
will give the seller a number of coins – money.
If we think about this transaction – wool for coins – we notice
that it is a very visible one. The buyer takes the coins out of his bag
(pocket) and gives them to the seller in exchange for the product. Putting things
a bit differently, for the buyer it is impossible to not see the coins (money)
going out of his pocket and going into the seller’s hand and pocket.
Nowadays things are a bit different than in the mid XV-th
century. Now we can pay without seeing the money going out of our pockets and
into the seller’s hand. We can use checks, bank cards, vouchers, bank transfers
etc.
The visibility of a payment – of money going out of one
pocket and into a hand – influences the amount of pain of paying associated
with a payment. Think of the following scenario: Linda goes out on a weekend
day and wonders the streets of the city center. At one point her eyes are drawn
to a shop window and she sees a wonderful pair of shoes. They look absolutely gorgeous
and she goes into the shop and tries them on. Miraculously they do not only
look great, they also fit close to perfect. Linda looks at the price tag and feels
a bit of chill; the shoes cost 129 Euros. Linda is perfectly aware that she
doesn’t really need this pair of shoes since she has already more than 15(0) pairs.
However she felt in love with them. In her wallet she has three 50 Euros bills
and her bank card on which she has more than 129 Euros.
Do you think that Linda will pay in cash or using her bank
card?
Most likely Linda will use her bank card because by doing
so she will not see the (quite large) amount of money going out of her purse
and into the hands of the cashier. The bank card transaction represents the
same thing as paying in cash… Linda will still have 129 Euros less and a
wonderful pair of new shoes. However, Linda will not see the payment. She will
experience less pain of paying by using her bank card.
Linda goes out of the shop happy because she got a
wonderful new pair of shoes and feeling quite good that she still has 150 Euros
in her wallet. She didn’t see the 129 Euros (price of the shoes) going out of
her purse and this contributed to her experiencing a low level of pain of
paying. She goes into the street and walks around with a bright face (due to happiness).
After about two minutes Linda’s phone rings. She received an SMS which says:
“Your Bank Inc. informs you that a payment of 129
Euros was made out of your account to Fantastic Shoes Ltd. If you do not
recognize this transaction contact Your Bank immediately”
How do you think Linda feels now? She paid with her bank
card so that the payment would be less visible and decrease her discomfort of
paying a large price for a pair of shoes. Now the bank informs her that this
payment was made, thus making it more visible. In terms of pain of paying
reduction, almost the entire benefit of using a bank card is gone. Linda’s face
is no longer bright and a feeling of pain mixed with guilt (for paying 129
Euros for a pair of shoes she didn’t really need) go through her mind…
The bank introduced this SMS service to prevent fraud and
if people would be perfect reasoning machines without feelings it would be a
very useful tool for increasing the safety of using bank cards. However, people
have feelings and it is no wonder that when Linda got home she unsubscribed
from this service.
The learning from the story of Linda buying shoes is that
the more visible (salient) a payment is, the higher the level of pain of paying
is experienced. So if you want to increase the pain of paying you should make
the payment as visible as possible. Similarly, if you want to decrease the pain
of paying you should make the payment as less visible as possible.
Just as a note… the difference between levels of pain of
paying experienced when making a visible and respectively a less visible payment
will be smaller for purchases that are frequent (e.g. groceries) and planned
(e.g. buying a new laptop). This is not to say that there is no difference,
rather it is to say that the difference is smaller than in the case of impulse,
unplanned (even unnecessary) purchases.
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