CustomerThink recently featured this article by Rosetta Consulting’s Managing Partner Nick Hahn and Consulting Director Kimika Sergeant. The original piece can be found here.
‘Tis the season of giving, but retailers’ bottom lines will depend on how many gifts consumers snag for themselves as they shop for others. While forecasts predict that consumers will spend more overall this holiday season, self-gifting will actually decrease.1 Because of the uncertain economy, consumers feel guilty about spending on themselves. They may also feel that treating themselves goes against the holiday spirit of altruism. With an understanding of the underlying emotional mechanisms that drive purchase decisions, retailers can capture incremental revenue by encouraging a little self-indulgence.
The psychology of giving
Humans have been giving gifts since ancient times to meet emotional and social needs despite the fact that economists agree that it is an irrational and inefficient behavior.2 Gift giving is a surprisingly complex and important part of social interactions, helping to define relationships and strengthen bonds with family and friends.3
Around the holidays, consumers are particularly geared toward treating others and may feel uneasy about buying for themselves, for economic and/or psychological reasons. However, researchers at Yale University found that when people perform a selfless act (such as buying a gift for another) they feel better about themselves. When people feel better about themselves, they are more likely to make self-indulgent choices.4 The Yale study found that if a person simply imagines himself giving to charity, he is subsequently more likely to purchase a luxury item for himself than a person who did not imagine giving to charity.
This phenomenon is called the licensing effect, and retailers can use it to free buyers from the guilt that prevents them from self-gifting during the holiday season, benefiting both consumers and retailers. An altruistic act can be anything from donating to charity to helping a friend, and there is no magic threshold for achieving this effect – any action that puts consumers in a giving mindset will give them permission to self-indulge.
Leveraging the licensing effect
So how can retailers give consumers permission to spend on themselves without abandoning the giving spirit?
1. Demonstrate that giving is important to your brand by establishing a giving ecosystem.
Consider participating in #GivingTuesday to put consumers in a giving mindset. You can also create a donation program similar to Macy’s “Thanks for Sharing” campaign, which donates a percentage of proceeds to a variety of charities – even when consumers are buying for themselves, they are giving back, which will encourage them to spend even more.
2. Once you have established a giving-focused environment, make sure your consumers know about this ecosystem by leveraging key omnichannel touch points.
The dynamic nature of digital enables retailers to control the order in which consumers receive messaging. Consider a call-out or pop-up about your giving ecosystem when consumers first visit the site or mobile app, followed by messages about picking up something for themselves when they check out. In-store and email messages should clearly highlight the giving programs.
3. Remove pain points from holiday shopping in order to make the entire process more pleasant, putting buyers in the good mood that leads to some healthy self-indulgence.
Lessen frustration by making it easy for consumers to find the right gift for each person on their list by providing the ability to create wish lists and offering tailored recommendations. Consider decoupling holiday gift-giving guides from the main website by creating holiday microsites or a gift-focused mobile app. Free and easy returns (such as online purchases that can be returned at retail locations) can help to alleviate some of the pressure of gift giving.
4. Help consumers avoid the last-minute rush.
Sending consumers reminders and making suggestions based on their order history can also help increase their share of wallet with you. For example, you might send messaging such as, “Last year you purchased a necklace for this person. Here is some other jewelry she might like.” Once they select their gifts, suggest something they might want for themselves based on past purchases.
No one enjoys feeling guilty, especially around the holidays. If retailers recognize that the licensing effect is a good guilt-reducing mechanism that will not only help consumers feel good about buying gifts for others but also remind them that it’s okay to treat themselves, it can generate a win for both retailers and consumers.
View the Rosetta Consulting white papers “Customer Engagement from the Marketer’s Perspective” and “Customer Engagement from the Consumer’s Perspective.”