Business Psychology - Latest Findings
Article No. 304
Customer Psychology, by James Larsen, Ph.D.
The Tightwad Scale
Researcher explores tightwads, spendthrifts, ways to identify them, and ways to modify their behavior.
Which of the following two kinds of customers are more common for your business?
“Now, Martha, I’m sure you can get one more year out of your winter coat. No one’s going to notice that little bit of fraying. Do you know how much they’re asking for coats now-a-days? Seems like an awful lot to me.”
“You know, Honey, your winter coat has seen better days. Why don’t you get a new coat this year? Get one with fur trimming. I’ve seen some pictures in the magazines, and I like the fur trimming. It’s the latest fashion, and you’ll look good in it. We can charge it.”
Business owners call the first customer a tightwad, and they don’t mean it as a compliment. They call the second customer a spendthrift, and they wish they saw more of them in their businesses.
Scott Rick, from the Wharton School at the University of Pennsylvania, recently completed a study involving tightwads and spendthrifts. He created a tightwad/spendthrift scale and a survey to measure where people fell on it. He gave his survey to over 13,000 people along with other measures, and he asked questions about spending practices, credit card debt, income, and savings. Finally, he completed two experiments that tested ways to modify the spending practices of tightwads. When Professor Rick finished crunching all his numbers, he’d gained some fascinating insights into tightwads, and he also demonstrated some simple ways to help them loosen their grip on their money.
Both tightwads and spendthrifts make purchases. They both have to provide for their needs in our money economy, but the difference between them reveals itself at the moment of choice. Tightwads feel pain the moment they choose to make a purchase. Spendthrifts feel no pain. This pain of purchase leads tightwads to avoid purchasing situations, even when purchases are necessary. The coat purchase described above can be put off so long that the spring merchandise will have long replaced the winter coats before the tightwad can drag himself to the store. A desirable motion picture will have long since left town before the tightwad can get himself to the movie theater to see it.
Both tightwads and spendthrifts know who they are. Indeed, they are uncomfortable with their spending practices. These practices differ from their desired spending habits. Tightwads wish they could loosen up and spend more. Spendthrifts wish they could control themselves and spend less.
Tightwads outnumber spendthrifts by 3:2. Of the 13,000 people Rick surveyed, 3,248 proved to be tightwads and 2,046 were spendthrifts. Females are no more likely to be tightwads than spendthrifts, but males are nearly three times more likely to be tightwads. Tightwads are more likely to be older and better educated. For those who completed college, tightwads are more likely to have majors in the humanities and social sciences while spendthrifts are more likely to have majors in engineering and the natural sciences.
People who are tightwads resemble frugal people, and many people are both tightwads and frugal, but Rick found an important distinction between them. Frugal people gain pleasure by saving money. The sound of a coin dropping into a piggy bank gives them pleasure. Tightwads feel pain when the moment of choice leads them to a purchase. The pain of purchase distinguishes a tightwad.
Spendthrifts are three times more likely to carry credit card debt than tightwads, and the amount of their debt is higher. Spendthrifts are twice as likely to have less that $10,000 in savings while tightwads are twice as likely to have more than $250,000 in savings. There are slight differences in income, with tightwads slightly more represented at the higher income levels, but these differences do not explain the large differences in debt and savings.
Rick next carried out two experiments that tested strategies to loosen tightwads’ grip on their money. The first called attention to a bargain price just before the moment of choice. The second called attention to a healthful benefit of the purchase just before the moment of choice. In both cases, the results were dramatic. Tightwads were three times more likely to make a purchase when the bargain price was pointed out to them, and they were also three times more likely to make the purchase when the healthful benefit was pointed out to them. Convincing tightwads to loosen their grip on their money seems to be much easier than anyone had expected. Professor Rick believes that anything we can do to reduce the pain of paying will help tightwads spend their money. For example, it might be helpful to insist that tightwads delay a purchase decision and focus first on a judgment of utility. They should decide if a product or service would help them before they consider making a purchase.
Finally, Rick addressed the question of how we might identify tightwads. Since we can’t stop people as they enter our businesses and hand them a survey, he suggests we pay close attention to customers and note their price consciousness. People who search airline reservations by price, for example, would likely be tightwads. When customers seem concerned about the price of a purchase, then it will be safe to assume that they are tightwads, and salespeople can modify their conversation accordingly.
Reference: Rick, Scott, Cynthia Cryder, and George Loewenstein (2008) Tightwads and Spendthrifts. Journal of Consumer Research, 34 (April), 767-780. www.businesspsych.org
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