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The Credit Card Effect

 

DisciplinesMarketing > Pricing > The Credit Card Effect

Description | Example | Discussion | See also

 

Description

When people pay by credit card, it typically seems to them that they are not paying as much as if they had to hand over cash.

People paying by credit card are also less sensitive to odd numbers, as opposed to round numbers that are at or near currency values or multiples of ten.

This means it makes sense to encourage people to pay with a credit card.

Example

A retailer uses several large 'credit cards welcome' signs. As customers pay, they chat in friendly ways to further distract them from the transaction process.

When taking money, a retailer always asks ask 'do you want to pay for that with a credit card'.

Discussion

Paying money is, in general, a distressing activity as people feel they are losing their hard-earned cash. When people see and feel money, they get a more visceral sense of the cash value. When paying by credit card, it is more like 'just a number' and hence has less evocative effect. This makes people less price-sensitive when they pay by credit card.

Paying by credit card has the same experience and takes the same amount of time whatever the value. This means that unusual prices can easily be paid.

The only down-side of this is that credit card companies usually charge retailers a percentage when customers pay with a credit card. This means you need to understand the difference between the effects of easier purchase by credit card and reduced amount you get when customers use one.

See also

The Black Art of Pricing

 

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