Why you prefer to pay $20 a day for a luxury car

written by Meena Azzollini

Young man sitting in convertible in driver seat.

Credit:123

Many purchases that we make are based on periodic payments such as phone plans, mortgage, memberships and more.

Standard economic models assume that we place the same value on products with periodic payments and those that involve a one-time payment equivalent – for example, a single payment of $250 a year versus periodic payments of $69 cents per day.

The researchers also found that periodic pricing resulted in a 77 percent increase in sales for a meal delivery service.

Previous studies have shown that pricing affects perceived costs but new research now shows that pricing also affects how we represent a contract’s benefit.

To examine how periodic pricing influences purchase decisions, researchers conducted nine experiments.

In the studies, participants were asked to consider either a daily cost or yearly cost for products and services like charitable donations, newspaper subscriptions, car leases, music streaming services and meal deliveries.

In another experiment, the participants were given a scenario where they can purchase a luxury car for a periodic price of $20 a day or an aggregate price of $7250.

The participants were more likely to agree to daily pricing and they also reported greater perceived benefits.

The researchers also found that periodic pricing resulted in a 77 percent increase in sales for a meal delivery service.

More frequent payments help people appreciate the distinct benefits they derive each day of their purchase, encouraging them to purchase and increase the likelihood of a purchase.

The researchers state that periodic pricing also increases the appeal of the contract when there is high affective involvement such as for hedonic product categories, contracts that contain emotional appeal or under circumstances where the customers fail to appreciate the full magnitude of contract’s appeal.

This can also foster scope-insensitive valuation – where the first few units of a product are valued higher than the subsequent units.

The study provides insight to marketers who can present periodic pricing under the right market conditions to encourage purchasing even for significant sums of money.

It also shows us the psychology behind our decisions to purchase under periodic payments and why we would pay $20 a day for a luxury car– because we feel better about the benefits we receive from our purchases on a daily basis.

Source: University of Chicago Booth School of Business


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Meena Azzollini

Meena is passionate about holistic wellbeing, alternative healing, health and personal power and uses words to craft engaging feature articles to convey her knowledge and passion. She is a freelance writer and content creator from Adelaide, Australia, who draws inspiration from family, travel and her love for books and reading.

A yoga practitioner and a strong believer in positive thinking, Meena is also a mum to a very active young boy. In her spare time, she loves to read and whip up delicious meals. She also loves the smell of freshly made coffee and can’t ever resist a cheesecake. And she gets tickled pink by anything funny!