I just booked a flight with points and it reminded me how virtual currency can alter our feelings and decision making. Whether we’re talking about a rewards program or monetary exchange, separating the currency from a dollar value can be a powerful framing tactic.
When multiple units of virtual currency are assigned to a single dollar it can inflate the amount of value we perceive. Getting 100 points for every dollar spent seems better than 10 points even if they possess the same purchasing power. This phenomenon is the crux of why virtual currency alters our spending behavior.
Here’s a few behavior changes I’ve noticed when I’m dealing with points instead of dollars:
The inflated perception virtual currency inspires can change spending allocation. Specifically, when we have a greater number of units to spend, we’re likely to engage in a greater number of small transactions (vs. fewer more expensive ones). This is rooted in both practical and psychological grounds.
A specific example that comes to mind is the first time I used my buddy Adrian’s philanthropic platform GoodKarma. On GoodKarma, users can purchase 100 Karma Points for every $1 to donate to their favorite local charities.
The first time I took GoodKarma for a test drive I purchased 1000 Karma Points ($10). I donated 600 points to RestoreNYC and 400 points to StartSmallThinkBig. Outside this site, I’d never cut a check to a charity for $4.00 or split $10.00 amongst two. I’d feel like Cheapo Felipo. But with a war chest of 1000 Karma points, I felt good about each contribution…so much so that I wanted to spread my points out.
In this instance, virtual currency changed my allocation preferences from 1 to 2 transactions. The greater volume of monetary units distracted me from the true value which facilitated the additional transactions. It also made me feel better about a micro transaction which is pretty sweet.
I don’t play Facebook games but I’d venture a guess that part of the reason people are spending $20 on digital tractors has to do with the departure from dollars to points. Points are less tangible. I never subject myself to viewing the leather fold of my wallet pocket because I spent all my points last night. Less tangible => Less attachment => Blowing $$ faster on less meaningful purchases.
An alternative explanation for the decreased attachment is that points are later in the purchasing funnel. I spend $20 to get points to spend on something. Though the actual exchange of currency for the final good hasn’t occurred, people may already feel “bought in” after they’ve purchased points. The cost-benefit analysis of the purchase, which is where we endure feelings of attachment, may be long gone by this point.
The Need to Spend Them All
Regardless of whether points are refundable or transferable to cash, I can’t help but notice my desire to spend them all when I’m cashing them in. Yet when I have $100 and spend $70, I’m perfectly content saving $30 for a future purchase. I can save leftover points for when I actually need to buy something just like dollars. But for some reason, I always want to immediately spend them all. Many times this results in impulse buys. I’ll even buy something that needs supplemental dollar spending just to use the points…what’s a few extra bucks right? So stupid, yet so hard to resist! Make sense why corporate rewards programs work with virtual currency instead of dollars.
*This may revert back to decreased attachment, but hey, 5 bullet points looks better than 4.
As consumers, users, and players, we’re incentivized to relinquish a resource in order to earn points.
If you’ve ever hung out with management consultants odds are you’re familiar with the allure of credit card/travel points. Credit card providers tell consumers they use points to “reward” their customers. This is true. But they also use points to maximize the amount of value they extract from customers. Spend $1,000 for the next 3 months and get 50,000 points! These type of offers sound amazing. Sometimes they are. Other times our inflated perception of value distracts and convolutes our perception of return. We end up justifying extra and unnecessary spending by saving on future purchases. Spend to Save = Spave = A definite No No
Do you ever feel better about spending an extra $50 to to get $.05 back? Probably not. Five points however, definitely helps ease the pain.
Influencing Purchasing Decisions
In the same way that points are used to extract value from existing customers, they’re also used to attract new ones. At times we don’t really understand the scale or value of points when making a purchasing decision, but we know we want them and whichever offering provides the most.
I’m guilty of this with credit cards. I’ll forgo a slightly lower APR for an additional 10,000 points without a comprehensive understanding of the points value and/or the scale which I’m comparing them on. The funny thing is usually the point scales aren’t the same. Maybe I’m the only one out there who feels this allure. As a consumer, I guess I like feeling like I got a deal and points are very effective at engendering that.
Prior to a transaction, we initiate a cost benefit analysis. Is giving up X amount of currency going to be worth Y return? It’s really interesting to me that our assessments can change so much by manipulating the unit of currency holding the value constant. There’s no shortage of entrepreneurs and big companies that have realized this and are taking advantage of it. As consumers it’s important to be aware how this can affect our choices.
Anybody else have additional observations about how points affect our behaviors? I’d love to hear them