Bottom Dollar Effect
We rate products negatively when they exhaust our budgets
When we buy a product that exhausts our remaining budget, the negative emotions associated with parting with money are transferred onto the product, thereby influencing its ratings.
Soster, Gershoff & Bearden (2014) The Bottom Dollar Effect: The Influence of Spending to Zero on Pain of Payment and Satisfaction. Journal of Consumer Research
In a recent study on the Bottom Dollar Effect, people were asked to purchase 3 online movies using assigned credits, with each movie costing 10 credits. Some people were given a budget of 30 credits, while others were given 50 credits. Essentially, those with the 30 credit budget would be exhausted by the third movie while the 50 credit people wouldn’t be. What could possibly happen as a result?? Well, let’s find out…
So, after purchasing and watching each film, both groups were asked to rate them. Fascinatingly, it was found that the people who’d exhausted their budget by the third film were less satisfied with it, compared to those whose budget hadn’t run out.
Going further, a follow up study found that this effect was even more pronounced amongst people who had earnings difficulties. They also found that the effect was heightened when consumers weren’t told when their budget would be replenished. However, such ill-effects disappeared when they were told their budgets would be replenished immediately (i.e. they would receive $60 tomorrow).
This research is based on earlier findings that we essentially chunk our money into mental accounts (e.g. Thaler, 1985). For example, we may treat our salary as being different from a monthly bonus. Additionally, we humans also find parting with money to be psychologically-painful (e.g. Prelec and Loewenstein 1998), and this is said to be affected by changes in our remaining budget. Buying something when our budget balance is relatively low is likely to be more painful than when our remaining budget is high. As shown by the curiously-named Bottom Dollar Effect, this payment pain (painment anyone?) can greatly influence the satisfaction and assessment of consumer purchases.
Takeaways for Decision-Makers
- Timing is key. Marketing a product may be more effective if timed at a period when consumer budgets are less likely to be exhausted, such as at the start of a month, rather than the end.
- Payday matters. Marketing promotional offers and discounts may be more effective when budgets are likely to be exhausted, such as towards the end of the month (Soster, Gershoff & Bearden, 2014).
- Understand segment behaviours. However, that the effect is reduced when budgets are said to be replenished immediately suggests that marketing just before this time can still increase sales. The key here is to identify your target audience and make an estimate of when their budgets are likely to be exhausted and replenished.
- Be considerate with feedback requests. There may also be an opportunity to delay any explicit request for a product review until after consumer budgets are likely to have been replenished.
- As consumers, we can help ourselves. Finally, the insight has strong implications for consumers themselves. Allowing the pain of parting with money to influence our product ratings can make us less satisfied with our purchase. Therefore, making more purchases when budgets are replenished can help us avoid such emotions and increase overall satisfaction with the products we buy.
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- Aspirational membership schemes and belonging The category size bias provides a credible explanation for why we human beings tend to associate with large groups that are viewed favourably by society. Being part of a large and “desirable” social group can make others believe that we also possess the many qualities of its members. For small businesses, it suggests that forming or being a part of a consortium or large and high quality networking group can dramatically elevate your brand image.
- Communicating category sizes to nudge effectively Highlighting the differences between the large and small categories is highly likely to enhance the effect of the Category Size Bias. For instance, for software companies, stating that there are 10 features in the premium version versus 4 in the free version will help nudge a decision towards the premium version
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- The findings from this braingem can nudge better healthcare choices, encourage consumption of a given product, and lead to more confident consumer decisions.
- We mistakenly believe that items in larger categories have a higher probability of being picked than ones in smaller categories, despite all items having an equal chance of being picked.
- We’ll spend or gamble more money on items put in larger categories.
- We’re more likely to take action from tasks when they’re in a bigger list, over a smaller list.
- We once we put something into a group, we perceive it to adopt all the characteristics of that group. This suggests that small companies should foster alliances with similarly-principled, more established companies.
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