The Fees -> Savings Link, or Purchasing Fifty Pounds of Pasta

32 Pages Posted: 16 Nov 2007

See all articles by Leonard Lee

Leonard Lee

Columbia Business School - Marketing

Michael I. Norton

Harvard Business School - Marketing Unit

Date Written: November 2007

Abstract

Many consumers have had the experience of entering discount membership clubs to make a few purchases, only to leave with enough pasta to outlast a nuclear winter. We suggest that the presence of membership fees can lead consumers to infer a "fees -> savings" link, spurring them to increase their spending independent of the actual savings afforded by such clubs. Using both field data and studies in which we created our own membership clubs, we show that 1) fees serve as a signal of price discounts, such that stores that charge fees are perceived as offering better deals for identical items; 2) the presence of fees can increase consumer spending and overall store profitability; and 3) the presence of fees can drive choice of retail outlets, such that stores with membership fees are more popular even when they offer the same goods at the same prices as stores without fees.

Suggested Citation

Lee, Leonard and Norton, Michael I., The Fees -> Savings Link, or Purchasing Fifty Pounds of Pasta (November 2007). Harvard Business School Marketing Research Paper No. 08-029. Available at SSRN: https://ssrn.com/abstract=1029695 or http://dx.doi.org/10.2139/ssrn.1029695

Leonard Lee

Columbia Business School - Marketing ( email )

New York, NY 10027
United States
212 854 2177 (Phone)
212 854 7647 (Fax)

Michael I. Norton (Contact Author)

Harvard Business School - Marketing Unit ( email )

Soldiers Field
Boston, MA 02163
United States

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