Sophisticated Consumers with Inertia: Long-Term Implications from a Large-Scale Field Experiment
35 Pages Posted: 25 Mar 2022
Date Written: March 23, 2022
Consumer inertia, the tendency to remain inactive, is a robust and well-documented phenomenon. However, if consumers are aware of their future inertia they can act to mitigate its effects on their outcomes. Using a large-scale randomized field experiment with a leading European newspaper we investigate consumer response to inertia inducing subscription contracts and study, in the same setting, both the actual inertia, and the inertia consumers anticipate before it actually takes place. We vary the promotional subscription price, the duration, and whether the contract automatically renews by default, or not, after the promotional period. Indeed, we find strong inertia (53%-75% chance of not taking a desired action within a month), such that the auto-renewal contract takers have a seven times higher tendency of continuing their subscription after the promotional period, relative to the auto-cancel contract takers. However, consumers preempt inertia; 24%-36% of potential subscribers avoid taking the auto-renewal offers, and 9% avoid subscribing at all for two years due to being offered the auto-renewal contract. Still, our estimates show that consumers underestimate inertia and, on average, anticipate one-sixth of it. Overall, even though auto-renewal generates a higher revenue in the short term, auto-renewal and auto-cancel are revenue equivalent after one year, but with fewer subscribers in auto-renewal. Our results highlight the often-ignored effects of potentially exploitative inertia-inducing contracts: lower take up in the short- and long-run driven by sophisticated consumers.
Keywords: consumer sophistication, inertia, subscription, contracts, default effects, procrastination, naivete, nudges
JEL Classification: L82, M21, M31, C93, D90
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