Podcast Insight In Person
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In a time of economic downturn, many Americans seem to be spending beyond their means to purchase status-related items. At the end of 2009, the combined debt of Americans, excluding real estate debt, was nearly $2.5 trillion dollars. While consumers can buy a pair of sneakers or a toaster for $30, they frequently choose instead to spend $175 for a pair of Air Jordan’s or $380 for a Dualit Toaster. What drives consumers to spend their precious resources on such lavish purchases? New research by Derek D. Rucker, an associate professor of marketing, and Adam D. Galinsky, a professor of management and organizations, both at the Kellogg School of Management, suggests that insecurity may be the driving force behind this apparently irrational behavior and demonstrates that a compensatory process partly underlies the desire to acquire status-related consumer goods.
“This increased willingness to pay for status-related products stems from the belief that obtaining such objects will restore a lost sense of power,” the authors comment. Rucker and Galinsky found that lacking power increased consumer desire to purchase products that convey high status, boosting their willingness to pay for them. Essentially, feeling powerless is an aversive psychological state that people try to eliminate or diminish. Given that high status is often a signal of power, demonstrating high status through the purchase of consumer products is one possible means for people to restore their sense of power. Hence, consumers are willing to pay higher prices to acquire such status-oriented items.
Three experiments were conducted to test this compensatory hypothesis. In all experiments, subjects were asked to recall either times when they had power over other individuals (high power) or times when someone else had power over them (low power). In one experiment, after completing this power-related recall task, participants were asked to express their willingness to pay for different types of products. When experiencing a sense of low power, subjects were willing to pay a higher price to acquire status-oriented items, like silk ties and fur coats, but not regular products like minivans and dryers.
A second experiment provided further evidence for the compensatory hypothesis by showing that the same product can be more or less appealing to people in different psychological states according to how that product is presented or framed. In particular, subjects experiencing a sense of low power, compared to high power and control conditions, expressed increased willingness to pay for a picture of Northwestern University, but only when it was portrayed as an exclusive item providing high status, rather than a mass-produced item available to anyone.
Finally, a third experiment confirmed that status-oriented products are indeed perceived to provide a sense of power to those experiencing a state of powerlessness. In particular, participants perceived obtaining a high-status product—an executive pen—as conveying a greater sense of power when they had experienced an aversive psychological state of powerlessness.
This research offers intriguing insights and important practical implications for both brand managers and policy makers.
Brand managers should keep in mind that purchasing behavior is often influenced by particular psychological states. Consumers who perceive an absence or loss of personal power seem to be more sensitive to products linked with, or emphasizing, status. The same product could therefore be marketed in different ways to different targets. Consider two individuals: one a recently demoted banker who feels powerless and the other a successful millionaire who feels powerful. Both people might be considering buying a Rolex wristwatch. For the demoted banker, the desire to buy the watch could be driven by the need to restore a sense of power. He will therefore be especially sensitive to claims emphasizing Rolex’s high-status luxury image. In contrast, the successful millionaire might find an approach emphasizing performance and style more persuasive then one that relies on brand image.
In a society where savings are dramatically dropping and debt levels are skyrocketing, policy makers and consumer advocacy groups can also benefit from understanding how people use purchases to compensate for psychological states of insecurity. This research suggests that consumers belonging to low-power social groups might be more prone to overspending, despite their economic conditions. Furthermore, individuals going through difficult life stages involving power struggles, such as teenagers with their parents, or college graduates with their bosses, might be particularly sensitive to status-oriented claims and willing to overspend to acquire such products.
Anecdotal evidence on differences in consumption support the idea that deprivation of economic resources and status might prompt compensatory processes. Ten-time Grammy Award-winning American rapper Kanye West highlights this idea in one of his songs when he sings, “Couldn’t afford a car so she named her daughter Alexus.” Some researchers have found racial differences in visible consumption, such as clothing, jewelry and cars, with Blacks and Hispanics devoting a larger percentage of their income to these visible consumption items than do comparable Whites.
“Spending beyond one’s means to purchase status-related items is however a costly coping strategy for dealing with psychological threats such as feeling powerless,” warn Rucker and Galinsky. They believe healthy communities should offer alternative ways for individuals to self-affirm and gain status, such as through sports, events, or community activities.