I’ve been thinking about this topic for a couple of months now and it’s really having an effect on how I approach pricing studies and conjoint analysis. In April, the Journal of Marketing Research published an article entitled, “Money, Time, and the Stability of Consumer Preferences”. Among other findings, they discovered that time and money have differing effects on consumer choice.
To summarize what they did, they had a series of experiments where a set of products were shown to study participants—much like we do in conjoint analysis. Respondents were allowed to review all of the products before proceeding to a choice exercise where they were shown two at a time and asked to the choose one (otherwise known as a pair-comparisons exercise). The dependent variable (the one being measured), was a measure of how consistent the respondents were able to be in making the choices. As an example, if the respondent says product A is better than product B, and B is better than C, then we know that they would prefer A to C. If they actually chose C over A, then the choice was inconsistent.
Using this experiment, the researchers actually tested a number of effects but the primary takeaway for us marketing researchers is that people do not really understand the value of money. This is a profound finding, since we often hold dollar value to be the stable measure of value.
What they found was that when price is not shown, respondents made choices somewhat consistently (I’m calling the control “somewhat consistent” but since it’s a control, the label here is arbitrary). If a time cost—say, needing to wait a certain period before receiving the product—were added, respondents were a little less consistent (perhaps due to the mere addition of additional information). But when the monetary price was added to the product feature set, respondents were even less consistent. Odd that the price would make the value of a product less clear!
So we can conclude, at least colloquially, that time is not money, since people have a better understanding of the value of time than they do the value of money.
Okay, thinking a little more practically, is there anything we can do about the inconsistent valuations of the dollar? For starters, as the authors suggest, is to consider the amount of analytical reasoning that goes into the decision making process. This is what the authors say is really being measured that causes the inconsistency of choice, since the respondents (consumers) can feel their preferences more consistently than they can rationalize. A recommendation is to consider not including the price in the marketing messaging, especially when the product is more experiential.
Further experiments sought to put the monetary cost into a particular context. One context tested was to tell respondents to “imagine that given recent expenditures, they hoped to exercise restraint and avoid overspending” (pg 193). The researchers called this the “Money-Expense” condition. Another context tested was the “Money-Quality” condition where respondents were told “that they were buying an anniversary gift for their parents and, given the occasion, hoped to purchase a camera that their parents could use for many years to come” (pg 193). In both cases, respondents made more consistent choices than when the price was given no context, and in the particular experiment, the Money-Expense condition was as consistent as the control group.
Dale Gilliam is the CEO of Troubadour Research & Consulting, a marketing research and analytics firm committed to delivering true understanding of the story behind the data. Dale can be found on Twitter @data_modeler and LinkedIn.
Leonard Lee, Michelle P. Lee, Marco Bertini, Gal Zauberman and Dan Ariely (2015), “Money, Time, and the Stability of Consumer Preferences,” Journal of Marketing Research, Vol. LII (April 2015), 184–199.