The Hindu Business Line : Nudged by the payment design

One of my friends had an interesting experience at a recently-opened mall in one of the metros. As you are aware, all malls have a large food court. And so does this mall, except that it is different. This mall requires you to buy food coupons first and redeem them at various food stalls of your choice. The payment design seems to have altered my friend’s food-spend. How?

The food court sells coupons in multiples of Rs 100. Suppose you buy coupons for Rs 200. You then redeem the coupons at a certain food stall to buy burgers and cola.

Assume that the total amount comes to Rs 160. You can surrender the balance coupon amount and collect Rs40. Or you can simply exhaust the amount at the food court. Which would you do?

Cost-benefit analysis

If you behave like a typical person, you would prefer to exhaust Rs 40. Why? Spending is all about cost-benefit analysis. Or put in another way, it is about pain of paying versus the pleasure of consuming the product purchased.

You already experienced the pain of spending when you bought Rs 200 worth of coupons. Exhausting the balance of Rs 40 does not cause additional pain. You may, therefore, indulge, as your self-control on eating greasy food leaves a lot to be desired. Besides, cashing-in Rs 40 is not exciting enough.

Coupon system

Your decision is beneficial to the mall. Think about this. If the mall had a normal system of allowing cash payment at each store, you may be very conscious of how much you are spending and, perhaps, even what you are eating. The coupon system, however, made you spend more.

The payment design essentially contains two elements that change our choice patterns — the upfront payment and the payment that is not directly related to any particular product. This, perhaps, disturbs the direct linkage between pain and pleasure. And that, in turn, may be driving us to make spending decisions not entirely logical to the rational mind.

(The author is founder of Navera Consulting. He can be reached at enhancek@gmail.com)

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