Brain Study Suggests Consumers Are More Likely to Over-Spend Online
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Written By Kate Zimmermann | January 4, 2007 | Share This
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Today Stanford University released a study showing that brain activity can be used to predict a consumer’s purchase decision. By identifying different areas of the brain that were active when volunteers viewed an object and its subsequent price, scientists were able to predict whether or not the volunteer would purchase the object.
Furthermore, the results suggest that purchase decisions are made by weighing the pleasure associated with having an object against the pain associated with spending money. This contradicts the conventional theory that purchase decisions are made by comparing immediate pleasure of having an object vs. potential pleasures of alternative objects that could otherwise be had. In other words, rather than considering ‘cost’ as what can’t otherwise be purchased, consumers consider ‘cost’ as the loss of what they already have - namely, cash. As Science Blog writes, “The results can explain the growing tendency of consumers to overspend when purchasing items with credit cards instead of cash, because consumers do not immediately pay for items charged to credit cards and the “pain” of the potential loss is minimized.”
The same logic can be applied to payments made online vs. payments made in the store. Over the past year, online retail spending increased 24%, with record-breaking sales during the holiday season. As methods of online payment become more sophisticated, trusted and efficiently executed (or “Painless”), online sales will increase. This seems like an obvious statement, but it has dramatic implications for whether retailers should encourage the point of purchase online or in the store. A related study by Grizzard Performance Group reports that “more than half of American consumers (62%) do not bother to compare prices at even two land stores before making most of their purchases. However…of those who researched and decided to purchase a particular product on the Internet, 64% would consider purchasing a competitive product if they received a direct response offer of 15% off a comparable brand.”
Together, the studies suggest that a) consumers spend more money online, because it’s less “painful”, and b) consumers are more likely to respond to competitive promotions online as opposed to offline. Marketing Vox writes, “Over 90 percent of consumers say free shipping would serve as an incentive to spend more online this holiday season, and more than 65 percent say special offers or deals not available in stores would boost their online spending”. Indeed, “Online holiday (Nov. 1-Dec. 31, 2006) e-commerce accounted for $24.6 billion, up 26 percent from last year”.
Topics: ECommerce |