By Anastasiya Pocheptsova
SMITH BRAIN TRUST -- Commitment-shy shoppers carefully evaluate products before making a purchase, but something different happens when the same people think about renting.
New research from the University of Maryland’s Robert H. Smith School of Business, which I conducted with colleagues from Columbia and Yale universities, shows that shoppers make decisions differently when renting — even when they spend the same amount on the same products.
They are less stringent about what they take home and how much they acquire. They examine fewer options, invest less time gathering information and settle more willingly on second best alternatives.
Marketers have noticed these variable standards that consumers apply to buying and renting, which is one reason rental opportunities have exploded in recent years. Consumers today can rent almost anything, not just traditional big-ticket items such as houses, cars, furniture and appliances.
One of my favorite retailers is Bag Borrow or Steal, an online store that rents designer handbags and accessories for a few months. Other stores rent everything from tennis rackets to computer software.
Sometimes renting makes more economic sense than buying. Why purchase a textbook, for example, when you need it for just one semester? Or why buy a power tool you will use once and then store in your garage? Renters also save the hassle and expense of disposal when products break down or become obsolete.
Other advantages of renting are more psychological than practical. Completing a purchase can come with a sense of irreversibility that distresses shoppers concerned about the long-term consequences. Some shoppers anticipate buyer’s remorse or worry about foregoing better options that might appear later.
They perceive renting as something less daunting. Unfortunately, many do not realize their minds shift into a different mode when they make rental decisions, and their decisions are no longer based on rational reasons when they reach the cash register or online checkout.
To test how the different mindsets work, my colleagues and I conducted a series of experiments at the University of Maryland.
In the first study we offered a movie download for the bargain price of $1. When shoppers could choose between buying or renting, more chose to own the download. Other groups were offered only one option or the other. Despite the fact that offers were prices identically, more people said yes to the deal when it was framed as a rental.
Something similar happened in the next study, when shoppers could select up to five movie downloads from a list. The product and prices were the same for buying and renting, yet consumers chose to acquire more movies when they were offered for rent rather than for sale.
In the next studies we allowed shoppers to choose their movie downloads from larger lists. We also gave them access to movie review websites to gather information before deciding whether or not to complete their transactions. Despite being more likely to acquire movies., renters looked at fewer options and spent less time deliberating than buyers.
Our final studies changed the product from digital movies to small appliances, which University of Maryland students could rent or buy for the same prices during their study abroad experiences. Both promotions included the option of free disposal at the end of the term.
Students not only were more willing to spend their money when the deal was framed as a rental, but they also were more willing to accept their second best choices when told that their first choices were out of stock. The buying option only became more popular when sales promotions highlighted an unlimited return policy — something designed to soften the sense of irreversibility.
The studies suggest that marketers should not treat renting and buying as similar propositions. When promoting rentals, they can set prices at a premium and offer more limited menus. When promoting products for sale, they need to help consumers feel they have made elaborate choices. They also need to highlight decision reversibility to ease the sense of finality.
Consumers should be mindful of these tactics. Standards of diligence vary when shoppers think about renting versus buying. But a dollar is a dollar, no matter how it is spent.
Anastasiya Pocheptsova, Ph.D., is an assistant professor of marketing at the University of Maryland’s Robert H. Smith School of Business. Her working paper, “Buy Versus Rent: How Acquisition Mode Affects Consumer Decision-Making,” is co-authored with Ran Kivetz at Columbia Business School and Ravi Dhar at the Yale University School of Management.