PDF Ebook Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay
Since the 1970's there has been growing evidence supporting the frequently heard conjecture that credit cards encourage spending. For example, it is known that people who own more credit cards make larger purchases per department store visit (Hirschman 1979), and that restaurant tips are larger when payment is by card (Feinberg 1986). There is also evidence that credit card users are more likely to underestimate or forget the amount spent on recent purchases (Soman 1999). Perhaps the most compelling evidence, however, is that offered in an experimental analysis of the effect by Feinberg (1986). In that investigation participants were asked how much they would be willing to spend for various consumer products in a setting where credit card paraphernaliaÐostensibly unrelated to the taskÐwere displayed on the experimental desk. He found that by so decorating the experimental setting, he could boost hypothetical willingness-to-pay estimates by 50± 200%, relative to the estimates of a control group. We refer to this increase as the credit card premium. Feinberg also found that response times were substantially shorter in the presence of the credit card stimuli. In a similar vein, Soman (1999) demonstrated that framing hypothetical purchases as credit card payments may signi®cantly increase purchase likelihood and willingness to pay.
While these studies offer suggestive evidence supporting a credit-card premium, this evidence is indirect, and the causal mechanism that produced these results has been left uncertain. For example, ®eld evidence in support of higher spending with credit cards (such as Hirschman 1979), could naturally be explained by differences between credit card owners and non-owners, or differences in the occasions on which cash and credit cards are the preferred methods of payment. While Feinberg's and Soman's results are free of this confound, the generality of their ®ndings is also limited, but by different factors. For example, only one of these studies (Feinberg, Study 3) involved real money transactions; charitable donations to the United Way. Although the presence of credit card logos in the study did increase donation size, the absolute amounts were small (average donations were 11¢ and 33¢ for the cash and credit card conditions). Second, Feinberg's studies only manipulated exposure to credit card stimuli and not the payment method itself. Payment was left ambiguous in the perceived value studies, while the United Way study requested donations in cash.
This empirical note presents new evidence supporting the proposition that consumers are willing to spend more for a product when using a credit card (in at least some purchase contexts). We extend Feinberg's and Soman's experiments in two separate studies. In the ®rst study, we manipulate the payment method, while using real-money transactions. Recall that only one of the previous studies used real money transactions and in that study the payment method was not manipulated (all respondents paid in cash). Furthermore, we use desirable goods of potentially high value. This allows us to investigate whether the Feinberg result is limited to transactions of very small magnitude or whether it also extends to transactions involving much larger amounts. In the second study we further explore the necessary and suf®cient conditions that support the effect. In particular, we separately manipulated payment method and exposure to a credit card logo to investigate which of these factors stimulate purchasing. Moreover, we investigate whether the effect only arises when the market price of the product is uncertain. In the second study we use a product for which the market price is known.
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