Making a payment lights up regions in the brain associated with pain. So in tough economic times, companies need to look at ways to ease the pain of paying to keep consumers on board. Hardhat’s Dan Monheit reckons pre-paying could be a winner.

The cost of living, inflation, and interest rate hikes mean consumers are feeling financial pain in their hip pockets. Yet, the reality is when it comes to paying, scientists have discovered that the real pain happens deep inside the brain.

In 1998, Olyer Zellermayer at Carnegie Mellon University first defined The Pain of Paying as the notion that a consumer who pays for a product or service experiences emotions associated with that payment. Further, it was discovered that these emotions were being felt deep in the insula, a region of the brain linked with negative feelings and pain. 

Pricing - a different take

As we intuitively know, not all payment types are created equal when it comes to the acuteness of such pain. We’d all be familiar with the stab of loss we feel when handing over a wad of cold hard cash for an item, compared to the liberation of tapping or swiping away with free abandon. In these cases, the pain is delayed until we finally get around to opening our bank statement, credit card bill or checking our account balance. Then, ouch! 

Professor of Marketing Carey Morewedge at Boston University’s Questrom School of Business conducted a study where his team inspected the receipts of people leaving a grocery store. Customers who paid cash spent less money ($6.65) than customers who paid with credit ($11.45) or even a debit card ($11.08).  While in 2018, researchers in Germany found evidence that consumers feel lower levels of pain when paying with their mobile phones and watches compared to credit cards as they further diminish the connection with real money. 

To test their hypothesis, use cash instead of mindlessly tapping for your ham and cheese croissant and coffee every morning at the cafe. You’ll immediately find the pain of paying more visceral; therefore, you'll likely do it less. This is because humans are loss averse: we’re wired to avoid losses over pursuing equivalent gains. In other words, losing something we once owned feels disproportionally painful. 

Business leaders know that pricing is important. In fact, it’s one of the original, enduring 4Ps of marketing. The problem is, when we think about pricing, it’s usually in the context of our strategy relative to competitors, how and when we discount or whether we implement techniques like charm pricing. Strangely, we rarely think about pricing in the context of how much pain we are or aren't causing customers. If there are behaviours, we want to make easier and more favourable, minimising the pain of paying is a surefire way to go about it.

Amazon's approach 

Amazon has long been a trailblazer and beneficiary of making payments as psychologically pain-free as possible. First, there was Amazon’s one-click checkout, patented in 1999 and subsequently licensed to Apple in 2000. The ease of one-click payments became a major part of Amazon’s appeal to customers, especially as it expanded its model to include Amazon Marketplace, which brought millions of independent sellers onto the platform. 

More recently Amazon has opened Amazon Go convenience stores and Amazon Go Grocery stores across the US, while Amazon Fresh is gobbling into the UK market. Branded as a ‘Just walk out’ shopping experience, these stores don’t have cash registers or cashiers at all. Instead, consumers pick up what they want and walk out, bypassing the immediate pain of paying until their statement arrives. 

Payment options

It seems that the further we can separate the payment experience from the consumption experience, the less painful and more enjoyable consumption can be. Duke University’s Professor of Behavioural Economics Dan Ariely uses paying for your holiday in advance as a prime example of how to minimise the pain of paying.  

Let’s say you have two options for how you can pay for a holiday. Option one is to pay for an all-inclusive trip three months before leaving.  

Alternatively, you could take the more rational, financially responsible option, hold your cash and pay nothing at all before you leave. At the end of each day, however, you’ll be required to pay for everything you’ve consumed, including a proportion of the flights and accommodation. 

At the end of either option, you’ll have spent the same amount of money on the same holiday, but the experience will be entirely different. The constant worry about spending will likely be a major detractor from the quality and overall enjoyment if you were to take the second option.

I experienced this first hand on our first ‘post-covid family holiday blowout’ in July 2022. Somewhere in the depths of the world’s longest lockdown, my well-intentioned wife had promised the kids that when it was all over, we’d take them to Disneyland Paris. Well, ‘all over' it was and headed for Paris, we suddenly were.

Thanks to my wife’s Navy Seal level planning skills, we’d pre-purchased our heinously expensive Disneyland tickets months before arriving. By the time we walked through those glorious entry gates, the experience of paying was so far back in my memory it was like it had never happened. The purchase experience and consumption experience were now entirely decoupled. This not only made the day more enjoyable but also left us primed to spend up a second storm on the day, splashing out on queue cutting ‘fast passes’, questionable souvenirs and the most expensive face painting session my six-year-old daughter will ever experience.

Prospective accounting for marketers 

If Amazon and Disney have found ways to tap into the Pain of Paying, you can be sure there are lessons for most marketers too. Research has demonstrated that my Disneyland experience was not an isolated incident and that consumers do, in fact, get more enjoyment from consuming products that they have paid for in advance. Known as Prospective Accounting, getting something you’ve paid for in advance evokes the feeling of getting it for free, enhancing the experience as the pain of paying is bypassed. We’ve all enjoyed some version of this, be it from pre-purchasing concert tickets, pre-ordering sneakers online or backing an upcoming Kickstarter project. 

If you have a product or service that you want people to buy more of and feel happier about buying, find a way to separate the moment of payment from the moment of consumption. Businesses can do this by creating incentives for customers to prepay. Doing so will not only increase the enjoyment level for customers but will also bring the extra benefit of positive cash flow for the business.  

Beyond this, marketers should consider designing payment cycles as two or three larger payments (versus smaller, more regular ones) and structuring the payments around periods when customers are more likely to have extra money, such as the end of the monthly payment cycle, bonus times or when they’re receiving tax returns. 

These techniques can help numb the pain of paying and ensure that customers not only come back – but are far happier about doing so.