smart spending

'Bottom-dollar effect' makes shoppers blue

Robin Soster, University of ArkansasAmericans were born to shop. TV commercials, Internet banner ads and highway billboards promise happiness to anyone with the cash or credit card to pay for the latest consumer goods.

However, such spending binges often turn into hangovers of regret when we find that the latest gadget or shiniest new car brings less joy than advertised.

Pangs of dissatisfaction with a product are especially likely for buyers who spend their last few dollars on the item, according to Robin L. Soster, assistant professor in the Department of Marketing at the Sam M. Walton College of Business at the University of Arkansas in Fayetteville.

Understanding this phenomenon -- known as the "bottom-dollar effect" -- can help marketers better target buyers, Soster says. It also can help consumers make more satisfying purchases.

Soster outlines her thoughts in the following interview.

Your research confirms the bottom-dollar effect. Can you explain what that is and what your research found?

My colleagues -- Andrew D. Gershoff at the University of Texas at Austin and William O. Bearden at the University of South Carolina (in Columbia) -- and I set out to investigate whether spending the last bits of one's resources might actually impact feelings about the thing purchased.

Past research has found that people may think about costs and make spending decisions differently when they have very few resources available for spending.

For example, those of us with lots of resources at our disposal are more likely to spend these resources and to ignore the opportunity costs of our spending. In addition, we simply buy different sorts of things -- like more non-necessities -- when we are flush with cash versus when we feel financially strapped.

We found that when a product's purchase exhausts people's budgets, consumers end up less satisfied with the product itself.

Notably, we looked at consumers' satisfaction evaluations for the exact same products, which were purchased for the exact same amount of resources. (We only varied) the amount of resources that people had available at the time of purchase.

You found that consumers feel distress when spending their final dollars and that this distress alone influences satisfaction with products. Can you explain?

Researchers have found that people suffer psychological discomfort when they spend resources. Fortunately, we also derive pleasure from consuming! So long as the pleasure experienced outweighs the pain, we are satisfied.

However, some circumstances increase this pain, or increase the pleasure. For example, if one prepays for an all-expenses-included vacation, they don't have to shell out money for each meal, each beverage, each snorkeling excursion.

Because of this, they get to savor all the benefits without having to think about the costs associated with those benefits.

Conversely, if they paid for that vacation using a credit card, once the bill comes due, the opposite situation arises -- the consumer experiences all of the pain from spending money, but is no longer receiving those vacation "benefits" to compensate for the pain.

Another stream of research suggests that we may think about resources in a relative manner. Losing $50 seems like a much bigger deal when we started with $100 versus $1,000, even though the two $50 losses are equal from an economic perspective.

For bottom-dollar spenders, the product feels more costly, and they are less satisfied with what they buy.

The bottom-dollar effect seems to disappear in certain circumstances. Can you explain what these are and why they seem to negate the effect?

If I am about to spend the very last of my resources, but I get free money or an unexpected windfall gain, the spending no longer fully exhausts my budget. So, the bottom-dollar effect does not arise.

Interestingly, the receipt of a windfall does not make people with plenty of resources like the product more, since they are not faced with imminent budgetary depletion.

In addition, if it is especially easy for me to get more resources, this should lessen the pain associated with spending. Indeed, in our studies, when budgetary replenishment was easy, people reported less pain from spending and the bottom-dollar effect went away.

When we told study participants who were not spending the last of their resources that they would not be receiving additional resources for a very long time, a similar effect arose. That is, even though they weren't spending their bottom dollars, the idea that replenishment was a long way away increased their pain of paying, which reduced their satisfaction with the product purchased.

You mention that these findings might help marketing managers with the timing of their promotions. How so?

It may be possible for marketing managers to plan their promotions in a manner that lessens the bottom dollar's influence on satisfaction with products purchased.

For example, if a marketer wants to attract new customers or generate positive word of mouth, initial satisfaction with products is very important. So, advertising for products like this might be better timed to take place toward the beginning of the month or just after people typically receive some influx of resources, like tax returns.

This would ensure that most customers' budgets are not approaching exhaustion at the time of purchase.

The end of the month -- when more consumers are likely to be spending their bottom dollars -- may be the time to use special pricing incentives -- like surprise coupons -- to reduce the pain of paying, not only to make the sale, but also to increase satisfaction.

How are these findings significant for consumers? How can they use the insights here to make purchases that will be more satisfying?

Most of our budget balances follow cyclical patterns -- they go up on payday; they go down every time we face a regular expense or bill. So it seems likely that we all suffer from similar ups and downs in satisfaction based upon our account balances.

One way to mitigate the effects of bottom-dollar spending may be making important purchases when our budgets are flush with resources.

In addition, those who pay close attention to their personal budgets may also be more likely to recognize moments of bottom-dollar spending than people who pay little attention their financial situation. For both of these types of consumers, simply understanding the bottom-dollar effect may dampen the pain of this spending, as well as its influence on satisfaction.

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