Charities that encourage people to donate “just dollars a day” may have the right idea—and more businesses should consider following suit. University of Rhode Island’s Stephen A. Atlas and Chicago Booth’s Daniel Bartels find that framing a cost as a series of small daily expenses makes an offer more tempting—plus people think they’re getting more for their money, whether the outlay is for charity or a purchase.
The researchers established this preference for periodic pricing in a series of experiments that asked participants about charitable donations, car leases, and meal-delivery services.
Donate to a charity
In one experiment, participants read about either donating $1 a day or making an annual donation of $350 to a charity helping underprivileged people. They were more likely to want to donate when the amount was framed as a per-day cost, and they were more likely to say they’d derive greater pleasure from the donation.
Start a subscription
Results of another experiment suggest that the effect held for MBA students, who said they were more likely to sign up for newspaper and streaming-music subscriptions when the cost was framed as a small daily amount. And the student participants who chose the periodic-pricing option were happier with their purchases than people who chose to pay a lump sum, even though the lump sum was a better deal in some cases.
Participants who said they would sign up for a subsidized annual subscription
Lease a fancy car
In an experiment involving major transactions, researchers asked participants how likely they would be to lease a luxury car. To some, the researchers pitched the cost as $20 a day (which comes to $7,300 over the course of a year). For others, they framed the lease as an annual payment of $7,250. Again, participants offered the daily price were more likely to say they’d lease the car and derive greater pleasure from it.
Sign up for a meal-delivery service
Finally, the researchers teamed up with a meal-delivery service that agreed to run ads offering services at $16 a day or $99 a month. First-time subscribers bought 77 percent more meals when the service was pitched as a daily expense.
“Our framework and results suggest that periodic pricing can help people appreciate the benefits they accrue from a purchase,” the researchers write. “So, under the right conditions, marketers can encourage purchase with periodic pricing, even for significant sums of money.”