Cash vs. Credit: More on the Debate about Payment Mechanisms

The following is a guest post from David Rodwell who shares my interest in whether using credit cards vs. cash actually change an individual's purchase behavior.  Here he discusses some recent research on the subject.  I respond with my thoughts after the article.


Payment Mechanism, Product Perception, and Spending

It’s been theorized for quite some time now that the method consumers use for payment can have an impact on the purchases they make. Conventional wisdom tells us that consumers are more likely to play fast and loose with credit cards than they are with cash.

This phenomenon – known as the “credit card premium” – has been demonstrated in studies going back as far as 1979. Researchers have tried to look at the nature of this premium, and how exactly it impacts consumer choices. In other words, they want to know why it is that we spend more with a credit card than we do with cash.

Professors Promothesh Chatterjee from the University of Kansas and Professor Randall L. Rose from the University of South Carolina set out to explore this exact question with a series of three studies. They argue that payment mechanism actually changes the way that consumers perceive and evaluate products in the marketplace.

Study 1: Recall

The first experiment looked at the issue of memory processes and how they related to payment method. The goal was to determine whether subjects primed with credit card concepts were more attentive to various aspects of the transaction when compared to customers that were primed with cash concepts.

In the study, subjects were primed with either credit card concepts or cash concepts via a series of tasks in which they unscrambled a sentence. Words in the sentence would have to do with either cash or credit cards.

After the “priming” took place, subjects were shown an image of a camera. They were then provided with three cost features of the product, as well as three benefits of the product.

The subjects were asked later on about specific aspects of the camera on a true/false basis. Those subjects who were primed for credit cards in the first step had better recall of benefits; those subjects who were primed for cash had better recall of cost information.

The researchers concluded from this that credit-primed consumers are more attentive to and concerned about benefits, while cash-primed consumers are more attentive to and concerned about cost.

Study 2: Word identification

The next experiment similarly divided subjects into cash and credit groups. They used a similar word unscrambling task to prime subjects either for credit cards or cash, essentially being “primed” in a similar manner to the first study.

Next, the subjects were provided with an image of a laptop computer, as well as an editorial review that included benefits as well as cost attributes.

The subjects were then later presented with a series of words that flashed on the screen for 200 milliseconds. The subjects were asked to type the words they saw. 12 words appeared randomly: four related to costs, four related to benefits, and four neutral words.

Supporting the researchers’ thesis, credit card primed subjects recognized more benefit-related words than cost-related words. Cash primed subjects recognized more cost-related words than benefit-related words. The results, then, were consistent with the results of the first study.

Study 3: Response time

The third study utilized the same priming methods as the first two studies.

Subjects were shown a product, including both positive and negative aspects in reviews. They were also told to decide whether the product should be purchased now, or one month in the future.

As in the first two studies, cash-primed subjects responded faster to cost-related aspects, while credit-primed subjects responded faster to benefit-related aspects.

Interestingly enough, the question of purchasing the product immediately or for later purchase didn’t have any impact on how the subjects responded to benefits or costs.

Study 4: Countering biases

Perhaps the most interesting study was the final one. In this study, researchers used various decoys to shift the attention away from purchase method to those customers who were primed for cash or credit. What they discovered was that introducing a decoy focused on quality would, for example, help sway cash primed subjects to focus more on benefits, and that credit primed subjects could be swayed to focus more on cost.

Overall conclusions

The study seems to suggest that when customers intend to use credit cards, they’re more focused on benefits. Even if a customer intends to use cash, offering benefit-related decoys could help the customer to focus on benefits over cost.

This also means that retailers could, for example, use priming in their stores to put consumers in a credit state of mind, even if they haven’t decided what payment medium to use. Credit card signs on the front doors, or a sign advertising a store credit card, could prime customers into a benefit mode where they’re more likely to spend more.

What this tells us is that our method of payment has a lot more to do with our purchase decisions than what we might realize. Responsible consumers need to be able to focus on the product they want, making their decision based on its functionality and value, without the distraction caused by payment method.

David Rodwell is a seasoned writer in business and personal finance who takes a particular interest in payment processing technology. You can find more of his articles located at

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