Sunday, July 1, 2012

Add Shopper Fun with Fungibility

Your shopper who feels her dollars are fungible believes that the more money she spends on clothes, the less she’ll have available to spend on entertainment, for instance. “Fungibility” means substitutability. A dollar spent on one item could have brought equal pleasure being spent on another item. At the extreme, this means the person maintains one overall budget for expenditures.
     It would seem that shoppers fully feeling fungibility would buy less than shoppers who have different categories of expenditures. When there are different categories, a shopper can dip into each one without it interfering with the others, you might think. But research at University of Chicago finds that when shoppers compartmentalize their expenditures, they become more like tightwads. They end up consuming less than they wish they had. This is especially true if an expenditure is unexpected and large.
     When you survey tightwads, they admit to making smaller purchases than they think they should. They generally believe they should be willing to spend more money. And tightwads have the money to spend. Annual income is similar for tightwads compared to spendthrifts, who believe they should be spending less. Tightwads don’t feel poor, and this is not the same motivation as with those who fret about the future.
     Tightwads aren’t the same as frugal shoppers. Frugality is driven by a pleasure in saving. Tightwads are driven by a pain of paying.
     So add fun for shoppers who compartmentalize expenditures excessively. Do it by stimulating fungibility. Here, too, there’s a bit of a surprise. Researchers at Yale University, Arizona State University, and Singapore Management University saw little use in saying to tightwads, “By getting a good deal on this item, you’ll have more money available to buy other items.” It’s not that the tightwads aren’t influenced by this reasoning. Rather, it’s that they’ve almost surely thought of it, so they’d consider a retailer telling them it to be a waste of their time.
     Instead, research suggests, catch things at the point where the customer is deciding into what category to place a large, unexpected expenditure. Specifically, findings from Princeton University and New York University indicate, encourage the customer to assign the expenditure to a category called “exceptional purchases.” The meaning of “exceptional” here is “unusual,” but the word works better because it also implies “superiority.”
     In switching the booking of the expense, you’re moving the shopper’s reasoning toward fungibility of money.

Click below for more: 
Loosen Up Tightwads’ Wallets 
Promise Tightwads Responsibility

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