Psychological factors, like decision paralysis and the cashless effect, influence consumer purchasing habits:
When it comes to subscriptions, two areas of the brain compete for control when a customer tries to balance short-term and long-term rewards – the rational, forward-thinking side, and the irrational, emotionally-driven side.
A study by psychologists at Harvard and Princeton found that participants who are offered either a small pay-out immediately or a larger pay-out tomorrow are more likely to choose the smaller amount, but, if given a choice between the small amount in one year or the larger amount in a year and a day, people would tend to choose the higher amount.
The Cashless Effect is the greatest friend of any e-commerce business; customers are more willing to part with their money if they aren’t handing over any notes or coins. Once they’re over the hurdle of signing up to your product or service, the monthly charging fades into the background as automated recurring billing steps in.
Businesses can make purchasing decisions easy for customers by incorporating “nudges” to aid them in their choice. Website designers may employ the Centre-Stage Effect, for example, presenting their most preferred product in the centre of a side-by-side display; in these circumstances, customers will typically choose the middle option.
Sometimes, when purchasing a subscription, the consumer may be their own worst enemy when it comes to decision-making; the Paradox of Choice, outlined by psychologist Barry Schwartz in his 2004 book of the same name, dictates that, when faced with a large number of options, consumers are in fact less likely to make a choice, leading to decision paralysis.
While subscriptions can, in many cases, allow for a vast amount of granular control of the service they receive, customers can become vulnerable to choice paralysis. People are, in fact, more likely to act when faced with fewer options.
Psychology doesn’t offer any guaranteed hacks for increasing your funnel or growing revenues; these studies, having been undertaken under controlled circumstances that may be difficult to replicate outside of laboratory settings. After all, your business is dealing with real people, not subjects in a lab. (Hughes, 2021, paras. 12-14, 21, 23, 24, 26)
The psychology of subscriptions is relevant to my topic of personal financial and wellness, as it offers a look into consumer habits and how we perceive and manage recurring payments. Subscription services may go unnoticed overtime, and people are more likely to spend when not using cash, both of which can lead to overspending and financial strain.
Part of my scope is to offer an extension towards self-growth, and amplify freedom of choice. Diving into the psychology of subscriptions allowed me to hear about the Paradox of Choice, how more options will make people less likely to act. With this in mind, how can I balance the paradox of choice while not limiting people’s freedom of choice? How can I incentivize people to define their own options, but also not steer them away with the thought of all the possibilities? If there is no mental model for living today while balancing a responsible future, how does that begin?
References
Hughes, A. (2021, July 6). The psychology of subscriptions. Cerillion. https://www.cerillion.com/blog/the-psychology-of-subscriptions/
