As the holiday season approaches and consumers embark on their largest spending of the year, they may feel an extra jolt of generosity when purchasing for strangers rather than themselves, according to a study by researchers from UC Berkeley and UC San Diego.
In the study, researchers found that patrons spend more money in pay-it-forward situations, in which their goods were already paid for by the previous shopper and their payment goes toward the next person’s purchase, than in pay-what-you-want scenarios, in which vendors allow their customers to name their own prices for products.
“Pay-what-you-want by itself is partially related to generosity and giving, but it still feels like a market exchange,” said Leif Nelson, co-author of the study and associate professor of marketing at the Haas School of Business. “It’s like a negotiation with a really bad negotiator who will take any offer you make. When you add the charity aspect to it, it’s much more of an altruistic situation, and though all the money is still going to the company, just thinking of others is enough to make people want to pay more.”
In the study, which is under review for publishing in the Journal of Personality and Social Psychology, researchers observed consumers in traditional shopping situations, such as Bay Area farmers markets, and concluded that pay-it-forward schematics consistently yielded higher payments from customers than pay-what-you-want.
In a series of four laboratory experiments, the researchers investigated which psychological mechanisms led to patrons’ increased generosity in the pay-it-forward scenario. The study allowed one group’s participants to personally interact with the person whose purchase they would cover, while the other group’s participants were told the exact amount the person before them had paid.
Though the emotional interactions had no influence on the amount paid, being told how much the previous customer had spent did — participants who knew precisely how much their predecessor paid actually made slightly smaller donations for the next customer.
According to Minah Jung, the study’s lead author and a doctoral student at the Haas School of Business, the strongest factor influencing shoppers’ hospitality was their own perception of a social norm of generosity and an overestimation of their predecessor’s gift. When assuming that others are being charitable, individuals are influenced to do the same.
Though studies on these pricing schemes are in the preliminary stages, researchers say businesses that have already begun to use these pricing schemes are both sustainable and profitable.
“Pay-it-forward pricing is for companies whose brand value is largely based in being kind and generous both with their customers and with society in general,” Nelson said. “For all those companies that want to be seen and appreciated as giving and open and emphasize that they care so much, pay-it-forward pricing communicates it in a price tag.”