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Paying for our purchases with cold, hard cash hurts!

Why is this so? Let us look at how one cup of coffee led to a revealing discovery in consumer science.

Avni Shah, an assistant marketing professor, relies on a latte for a morning fix. Her routine is simple. She walks into a coffee shop, orders her usual cup of joe, and swipes her card.

These steps were automatically embedded into her daily regimen - as if her morning was on repeat. However, she forgot her debit card one day. Forced to take a break from her routine, she paid for her coffee by counting her cash. As she sipped her warm cup of coffee, she felt a significant difference. The cup that she paid for cash seemingly tasted better!

You can imagine that her genuine curiosity was stimulated. Is there a correlation between our customer satisfaction (i.e., feelings associated with consuming a particular product) and our means of purchases?

Years passed and Avni became a PhD student at the Duke University. She launched a research to assess her theory.

Image Credits: pixabay.com

MUGS STORY

For her first experiment, she sold coffee mugs worth US$6.95 for a discounted price of US$2. She asked one group to pay for it with cash. The other group was asked to pay for it with cards.

She offered each buyer a new, enticing deal. She would repurchase the mug at a price they wanted. Customers who paid for cash asked for US$6.71 on average. While, the people who paid with their plastic cards asked US$3.83 on average.

Paying for something with cash was associated to increased perceived value for it. 

What could account for the difference between these two groups (about US$3)? 

“Those who paid with cash reported feeling more emotionally attached to their mugs. Some cash folks literally blocked their hand over the mug and said, ‘You can’t take it back!’"

There are other reasons for cash payers charging more, such as their efforts trying to find ATMs, paying bank fees, or the profit. These independent factors must be ruled out before Avni’s research could come to an irrefutable conclusion. Needless to say, another social experiment was carried out.

TO GOOD WILL

The next test involved two diverse sets of participants. One group was given US$5 in cash to donate to charity; the others were given vouchers. Ribbons were given to be worn as an expression of their donation.

The result: almost 50% of those who donated through cash wore their ribbons compared to only 14% of those who contributed through vouchers. The latter seemingly held more sense of pride with their act of kindness.

“We found that the people who donated by cash felt more connected to their chosen charities than those who donated by voucher. Cash donors also reported feeling less attached to the charities they didn’t choose."

PAYMENT HURTS

Professor Shah’s research shows that payments through physical methods like cash or cheque resulted in a greater emotional attachment to the purchased good. Conversely, intangible payments (such as digital payments) lead to less emotional attachment to the items or brands bought.

Her research complements what behavioral economists call as “the pain of payment”. According to this theory, people are generally loss averse, and we don’t like parting away with money. But when we do, we become fully aware of how much our purchases cost us.

Image Credits: pixabay.com

Seeing how our cash is depleted could immensely help us in making monetary decisions. If your budget is limited or if you want to be a exercise wiser consumerism - use cash! Stash those cards away in a safety deposit or leave it at home.

This post appeared first on the BankBazaar blog and was edited by Anna Agoncillo. BankBazaar.sg is an online marketplace in Singapore that helps consumers compare and apply for the best offers across all financial products: personal loans, home loans, credit cards & investments.

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