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Disproportionate redemption discounting: Mental accounting of discounted credit

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  • Cheng, Andong
  • Baskin, Ernest

Abstract

Redeeming purchases using discounted credit (i.e., store credit bought at a lower price than its face value) is widespread, but its mental accounting implications remain unclear. This work finds that consumers making multiple redemptions on separate occasions with the same discounted credit do not perceive all redemptions as equally discounted. Redemptions made earlier in that discounted credit’s spending life cycle (upstream redemptions) are perceived as less discounted than redemptions made later (downstream redemptions). This “disproportionate redemption discounting” effect occurs because users feel more certain that they can deplete their credit when they make downstream redemptions and feel like they have the freedom to mentally assign the discounted credit savings unevenly among multiple redemptions. Relatedly, individuals have higher willingness to pay when making downstream redemptions than upstream redemptions. Disproportionate redemption discounting and its’ behavioral consequences are unique to discounted credit and do not generalize to all store credit.

Suggested Citation

  • Cheng, Andong & Baskin, Ernest, 2021. "Disproportionate redemption discounting: Mental accounting of discounted credit," Journal of Business Research, Elsevier, vol. 128(C), pages 156-163.
    • Handle: RePEc:eee:jbrese:v:128:y:2021:i:c:p:156-163
    DOI: 10.1016/j.jbusres.2021.02.010
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