In recent years, research in marketing has focused not only on what price marketers should charge for their products or services but also on how, when, where and in what form this price should be charged. This stream of research that deals with the psychology of pricing is gaining increasing importance since the use of the “right” pricing scheme is often critical to the success of a brand, consumers’ willingness to purchase the brand, satisfaction with the brand and the development of brand loyalty (Gourville and Soman 2002; Monroe 1990; Winer 1988). But what constitutes the “right” pricing scheme within a marketing mix?

A number of factors that influence consumer price perceptions have been examined by the extant marketing literature, however, one aspect which still remains to be fully understood, is with regard to consumers’ preference for timing of payment. Understanding when consumers are willing to pay for products and services and the factors that drive these preferences is a crucial element of the pricing mix and the focus of this research.

Previous research that has examined preference for payment timing suggests that consumers have an inherent preference to prepay for one-shot hedonic consumption such as vacations and to post-pay for durable utilitarian consumption such as washer dryers (Prelec and Loewenstein 1998).

In light of this extant research, we present a set of three studies that examines consumers’ preferences for payment timing and the robustness of the preference for prepayment under different conditions.

Prior literature suggests that preferences for payment timing vary depending on product type (hedonic vs. utilitarian) and durability (durable or nondurable). In study one we disentangle the effects that each of these dimensions independently exert on the preference for timing of payment. Specifically, in study one, conducted in two parts using different products and replicating the results using a single product, we compare the preference for timing of payment for products that vary along two dimensions, namely, product type (hedonic vs. utilitarian) and durability (non-durable vs. durable). Results of these studies reveal that only hedonic-nondurable purchases elicit a preference for prepayment.

We theorize that the motivations underlying the consumption of hedonic and utilitarian products are different and these differences drive the preferences for timing of payment. Specifically, we suggest that hedonic purchases elicit a motivation to enhance or maintain the pleasure of consumption, reflected by an approach focus, while utilitarian purchases elicit a motivation to minimize any displeasure or pain associated with consumption, reflected by an avoidance focus.

In the two studies that follow we examine the robustness of consumers’ preference for prepayment by 1) varying the favorability of the transaction (study two), and, 2) by eliminating the choice of payment timing from the transaction (study three).

The results of study two reveals that for hedonic-nondurable purchases the preference for prepayment was dependent on the characteristics of the transaction, while for the utilitarian-durable purchase the preference for post-payment was independent of transaction characteristics. When transaction characteristics were favorable, hedonic purchases elicited the anticipation of the pleasure of consumption that increased the preference for prepayment as evidenced by the increase in approach-related thoughts. However, this preference shifted to post-payment when unfavorable transaction situations did not warrant such pleasure. On the other hand, utilitarian purchases elicited a preference for post-payment, regardless of transaction characteristics, also supported by the predominance of avoidance-related thoughts. In sum, the study reveals a boundary condition for the preference for prepayment, namely the favorability of the transaction (or high transaction utility).

In study three, we examine a second boundary condition, namely the salience of timing of payment in a transaction. We suggest that the salience of the choice of when to pay is a particularly important issue because sellers rarely offer consumers this choice in reality. We thus examine whether the increased salience of payment timing, manipulated by having consumers make a choice about when to pay, influences consumers’ intentions to purchase the product under different transaction conditions. The results of this study indicate that when the choice of payment timing is not offered to consumers, it becomes less salient in the transaction, making consumers indifferent about when they prefer to pay for hedonic-nondurable products.

Finally, we discuss the theoretical and managerial implications of this research. We also note the limitations of the studies presented and propose directions for future research in this domain of investigation.