[Pricing Nugget #006] Renters are Spenders

Imagine you are selling durable products such as ice skaters, washing machines, or diamond necklaces.

Now, you think about how to let customers use these products before finally buying them.

You come up with three options:

  1. sell them right away without testing,
  2. rent them out at a fee, or
  3. borrow them for free.

By the way, if you have very lenient customer return policies – such as "no question asked, full return" – these policies are an example of "borrowing" as customers can use and return the product for free.

What would you do?

In one experiment, researchers joined a booth renting ice skaters at an ice skating site.

At random, the researchers would either make customers pay the rental fee of $6 or inform them about the fee but waive it because of an ongoing promotion.

After returning the skates, the customers were asked how much they were willing to pay to buy the skates. (The "non-possessors" were asked in the time window between choosing and paying for the skates. So they have not received the skates and have not paid for the skates yet.)

They found that customers who rented a product are willing to pay a higher price than borrowers or who do not own this product ("non-possessors").

The researchers discovered that renters paying $6 per hour had a 44% higher willingness to pay for the rented skaters than borrowers who did not pay the rental fee and lent the skates for free. (The rental fee was not deductible from the purchase price.)

The mechanism behind this effect is called "psychological ownership," which is stronger for renters than borrowers and non-possessors.

What does this finding mean for you?

It would be best if you considered renting durable products to customers for a fee before purchase.

You could even make the rental fee fully deductible from the final price (i.e., the total price renters are willing to pay is still higher than for borrowers and non-possessors).

For example, if you have a strict return policy that asks for a restocking fee, you could reframe this fee as rent.

References

Bagga, Charan K., Neil Bendle, June Cotte (2019), "Object valuation and non-ownership possession: how renting and borrowing impact willingness-to-pay," Journal of the Academy of Marketing Science, 47, 97-117.

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