Spending Our Bottom Dollar

“Short Talks From The Hill” is a new podcast highlighting research and scholarly work across the University of Arkansas campus. Each segment features a university researcher discussing his or her work. In this podcast, Robin Soster, assistant professor of marketing in the Sam M. Walton College of Business, discusses her research on the so-called “bottom-dollar effect,” how spending our last dollar affects the way we feel about purchases.

Matt McGowan: Hello, and welcome to Short Talks From The Hill.  A new podcast from the University of Arkansas.  My name is Matt McGowan.  On this episode, Robin Soster, Assistant Professor of Marketing in the Sam M. Walton College of Business discusses her research on the so-called “Bottom Dollar Effect,” how spending your last dollar effects the way you feel about purchases.

Robin Soster: The phrase, “bet your bottom dollar” originated in the United States in the mid-1800s. Imagine a saloon in the Wild West. At the poker table in the back corner sits a grizzled prospector who’s down to the final chip in his stack, literally his bottom dollar. So, “bet your bottom dollar” means an outcome is a “sure thing.” Why else would you even consider the bet?

My colleagues and I – Andrew Gershoff at the University of Texas at Austin and Bill Bearden at the University of South Carolina – wanted to see if spending the last of one’s resources influenced satisfaction with the purchased item. In other words, does resource availability impact consumption outcomes?

Based on past research, we thought this question would be related to the psychological pain consumers may feel when spending, also called “pain of payment.” Two pilot tests confirmed that people consider their budget balances as a reference point when spending and that consumers with fewer resources feel worse about potential purchases than those with plenty of money.

Our remaining experiments were designed to explore whether budget-depleting purchases hurt worse than purchases made when plenty of resources remain in the budget—and whether this pain influenced the ultimate satisfaction with a purchase.

For most of our studies, people used credits to purchase films that they watched and then rated. Half of the participants received just enough credits to purchase three films; the other half had credits left over after the third purchase. Everyone paid the same price for the film. Everyone saw the same three films. The only difference was whether buying the third film exhausted people’s budgets.

The results? People who spent the very last of their budgets on the third movie didn’t enjoy it as much as those with money remaining. Not only were bottom dollar spenders less satisfied, they also felt the film’s value was lower!

We next wanted to test if the pain of spending one’s bottom dollar was actually the driving force behind these satisfaction differences. In other words, does bottom dollar spending hurt more than spending non-bottom dollars? And does this pain—not the movie itself—determine one’s ultimate satisfaction with the film?

So, in one experiment, people earned their film credits. Everyone performed a series of boring tasks, but some participants’ tasks were difficult; others’ were easy. We found that spending the bottom dollar influenced satisfaction only for those people who completed hard tasks, not for those who completed easy tasks. In other words, if it seemed especially easy to recoup those resources, spending the last of them didn’t hurt as badly.

In fact, when we told bottom-dollar spenders that their resources would be replenished very soon, they felt less pain and were just as satisfied as those people with resources left over. However, when participants with plenty of resources remaining were told that their replenishment wouldn’t occur for a long time, they acted like bottom dollar spenders—they felt more pain from spending and were less satisfied with the purchased product.

But who cares? Why does this matter for real consumers?

Well, from a managerial perspective, our findings shed light on how marketers might schedule advertising and promotions. For example, advertising alone might work better at the beginning of the month, when people tend to have plenty of resources available. Or during those times when many of us receive gifts or extra income—such as Christmas or once tax refunds are received.

At the end of the month, budgets have likely dwindled; consumers may be approaching their bottom dollar. So managers might try to dampen the pain of parting with those dollars by offering pricing incentives or coupons.

We also believe these findings have important lessons for consumers. If I want to buy something and I have enough money to do so, does it really matter when I make that purchase? Absolutely. There are solid reasons for waiting until you’re flush with resources. Of course, waiting a day or two for your paycheck may be a difficult exercise in self-control, but our findings indicate it’s worth the wait. Otherwise, much like that grizzled prospector, when you spend your bottom dollar, the one thing you’ll still be leaving on the table is your own satisfaction.

Chris Branam: Music for Short Talks From The Hill was written and performed by Ben Harris, guitar instructor at the University of Arkansas.  For more information and additional podcasts go to KUAF.com or ResearchFrontiers.uark.edu, the home of research news at the University of Arkansas.