When Indulgence Gets the Best of You: The Unexpected Consequences of Prepayment: An Abstract

Abstract

Consumers often pay for consumption events up front. For example, consumers may pay an entrance fee for a food festival. However, research has yet to investigate how this prepayment affects consumers’ subsequent consumption decisions. We investigate the effect of prepayment in the form of money or time on escalation of commitment and consumers’ inclination to indulge and spend.

We propose that prepayment escalates commitment toward the course of action (Kahneman and Tversky 1979), causing consumers to make unexpected decisions as they attempt to validate their initial investment. Our research differs from traditional investigations of escalation of commitment: rather than investing in a failed project, people who prepay make decisions focused more on justifying the initial prepayment than on making a good decision. Because benefits of hedonic consumption are more salient and immediately gratifying (Homburg et al. 2006), consumers should seek to validate their initial investment (i.e., prepayment) by choosing more indulgent options that offer immediate positive feedback.

Our initial field study demonstrates that people who prepay for a buffet are more likely to choose indulgent drinks and desserts than people who pay at the end of the meal. In the first experiment, participants who imagined prepaying for a festival had a higher tendency to choose more indulgent options and were more likely to pay extra than those who were expected to pay after food selection, upon exiting the festival. The second experiment tests anticipation of prepayment (i.e., whether the prepayment was anticipated) and the type of prepayment (i.e., money vs. time) as moderators. Time is more subjective than money, and people typically underestimate anticipated time costs (Neumann and Friedman 1980) but overestimate unanticipated time costs (Antonides et al. 1991). In line with this prior research, when prepayment was anticipated, participants exhibited more indulgent behavior when payment was monetary versus nonmonetary. Conversely, when prepayment was unanticipated, paying with time resulted in more indulgent behavior than did paying with money.

Marketers may be wise to advertise online daily coupons (e.g., coupons which require an upfront payment to offer steep discounts on services) with high acquisition costs to target hedonic (indulgent) services. Additionally, the notion that behavioral prepayment (i.e., prepaying in time) induces temptation can be effectively employed in practice. Marketers should avoid alerting their customers of time costs associated with a consumption experience. Doing so may result in consumers spending and indulging more in subsequent consumption decisions.

References Available Upon Request