Imagine that you go to a restaurant, and after having a wonderful meal, and the bill arrives. If you had the option of paying the bill either by cash or credit card, which option will be a bit more unpleasant? Research shows that paying the bill by cash is more unpleasant than paying the bill by credit card. Prof. Dan Ariely of Duke University describes this effect as the Pain of Paying. He explains this concept as the agony of parting away from the money. It is worse when we see the money going.
Though we cannot make the Pain of Paying go away, but as a marketer it is necessary to decrease the Pain of Paying of the customer. For example, if you are planning to go on a trip with your family, consider you have the option to pay the money to the agent either before the trip or after the trip. Which one would you choose? You would generally prefer to pay after the trip as it is a safer option and also as you can enjoy the interest for a longer duration of time and a variety of other reasons.
But, imagine yourself on the last day of the trip. What would be your state of mind? You would feel terrible, the agony of parting away with money will roll in your mind. During the entire trip you would question yourself if is this trip worth the amount you are going to pay? You would push yourself to forcibly enjoy things which you generally won’t enjoy. All these things make the entire experience of the trip unpleasant. Also considering the Indian context of transaction, the customer would always demand for more and would complain for expectations not being matched. So after a year when you recollect the memories of the trip you would recollect the distasteful moments you faced.
To diminish this effect of pain which is caused due to paying, it is better to pay the money before the start of the trip. Since you get to enjoy your vacations calmly, it becomes a more efficient way of payment. Going back to the meal example, since you would like to enjoy the meal, it is better that you pay via Credit Card.
All the same, there is also the question that is this Pain of Paying good or bad for the consumer? To limit the buying behaviour of a consumer, this Pain of Paying is necessary.The consumer would buy more if this Pain of Paying is lessened. The same thing is being done by credit cards. When you pay by credit card, you don’t see any physical money going from your wallet, thus the pain is a bit lesser. This may be one of the reasons why retailers encourage customers to pay by credit cards.
Ultimately it comes down to what you want to derive from the transaction. If your aim is to gain maximum pleasure, then you should consider using Credit Cards. And if you want to restrict your buying behaviour, you should consider paying by cash.
The article is authored by Malhar D. Lakdawala from Great Lakes Institute of Management