21 January 2014

Traditional Winter Payments and their Pain of Paying

When putting together the words “Traditional” and “Winter” the first thought goes to Christmas and New Year since these are the main events of winter and they happen each and every year. Naturally, both Christmas and New Year come with some expenses and subsequent payments. Every payment hurts and I believe that payments made for the usual Christmas and New Year purchases are less painful than are other payments. For Christmas and New Year people have money allocated for things such as gifts, food, booze (after all it’s a reason to party) etc. Moreover, Christmas and New Year most often come with joy and reasons to celebrate or at least party.

There are, however, other payments that are specific to the winter season and are completely unrelated to the holidays. These payments include paying (local) taxes, paying the regularization (balancing) for utilities such as energy, water etc., paying one-year fees for very necessary services such as sanitation (picking up the garbage) and sewerage. All these payments are due in the winter months (at least in some countries).

Naturally all these payments have to be made and everyone is more or less aware of this fact. However, these payments come with an increased level of pain of paying – the psychological discomfort experienced when making payments.

Let’s take the example of paying the regularization (balancing) for utilities bills. In The Netherlands (and in some other countries) for energy people pay a fix amount each month and at the end of the year a computation is made in order to see whether the individual paid more or less than she has actually consumed.  Not surprisingly there are quite some cases in which people consumed more than what was estimated. When the invoice comes it is a painful one. Energy is something we don’t see; it’s the electricity that powers my laptop, the heat in the room (in The Netherlands usually it is quite cold) and the electricity or gas that makes the cooking stove work. Moreover, when being informed at the end of the year that you need to pay more for something that you have consumed during the entire year, there is a feeling of paying for nothing. Those 400 Euros you have to pay extra include the electricity consumed by the light that you forgot to switch off in March. It simply feels awkward…

A very important factor involved in the pain of paying experienced in relation to these “traditional winter payments” is the way in which the payment is made. Let’s stick to the example with balancing energy bills. Usually in The Netherlands such bills are paid using the “Direct Debit” method which means that the amount due to be paid is withdrawn from the bank account of the client by the company that issued the bill. In essence, the payer does not have to do anything, except for making sure that there are enough money in her bank account, which can be quite challenging since a lot of money was spent on Christmas and New Year.

Now, imagine that this method of payment would not be available and the only way in which someone could pay this bill would be to go to one office of the energy company which is half-way across the city in winter weather and the payment can be made only in cash (bills and coins).

It is obvious that the level of discomfort associated with the payment is higher in the second case than it is when using direct debit.  

“Traditional Winter Payments” are annoying by their very nature. However, most people simply accept them as a given status-quo. Everyone realizes that energy bills have to be paid and that annual payments for sanitation and sewerage services are mandatory if one wants to have the benefits of civilization…  Minimizing the pain of paying associated with these payments is a worthy endeavor.

Take a moment and think of how other payments that are less vital for a civilized standard of living (having energy and sewerage) influence purchasing behaviour and customer satisfaction. Purchasing behaviour is influenced by many factors including the price, income etc. What is often ignored is the level of pain of paying associated with a purchase…


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