License to Shop: Charitable Acts Increase Consumers’ Willingness to Buy Luxury Goods

New Haven, Conn., September 19, 2005—How much do you really desire a designer handbag or an exclusive watch but feel guilty about purchasing it? Maybe you should donate to the United Way or spend a weekend building homes with Habitat for Humanity. According to a new research study, “Licensing Effect in Consumer Choice,” consumers who act or feel altruistic are more likely to subsequently splurge on luxury goods.

The study, conducted by Ravi Dhar, Director of the Yale Center for Customer Insights and Professor of Marketing at the Yale School of Management, and Uzma Khan, Assistant Professor of Marketing at the Tepper School of Business at Carnegie Mellon University, will be published in an upcoming issue of the Journal of Marketing Research.

According to the study, this phenomenon called the “licensing effect” illustrates that by engaging in—or merely expressing a preference for—a virtuous behavior creates a positive self-concept that acts as a license to purchase a luxury or a more indulgent product. The boost in self-concept helps offset the pang of guilt and negative self-attributions consumers often feel when buying expensive or frivolous items. It becomes easier to justify the purchase of a luxury good after the performance of a charitable act.

“Consumers are often looking to justify their choices,” said Dhar. “Performing a charitable act makes you think, ‘I am a good and helpful person.’ That positive self-concept is enough to liberate you from the guilt and responsibility associated with choosing a luxury like designer jeans over a necessity like a vacuum cleaner.”

The marketing of luxury goods has changed over time depending on the social climate. The “I’m worth it” approach was followed by the “heirloom” approach of passing the expensive item onto children. Currently marketers of luxury products frame the purchase as a necessity in an attempt to reduce consumers’ negative feelings.

Dhar and Khan’s findings suggest that another way to reduce resistance is to highlight other decisions consumers make that are likely to boost their self-concept. The marketing implications are even greater for online and catalog retailers who can control the sequence of events customers go through leading up to a purchase. “Providing customers with the opportunity to perform licensing acts before browsing might increase the likelihood of purchase,” said Dhar. “For online retailers, this can be as simple as offering a list of charitable causes a customer can donate to.”

Not all charitable acts produce this effect. In fact, Dhar and Khan found that the licensing effect does not work if the virtuous behavior is externally motivated. For example, performing community service as a penalty for a driving violation does not increase consumers’ willingness to buy luxury goods.

The Yale Center for Customer Insights at the Yale School of Management is a research center that studies the behavior of customers and marketplace dynamics. The Center welcomes inquiries from organizations interested in research partnership and sponsorship opportunities. For more information visit: http://www.cci.som.yale.edu or contact Eugenia Hayes at 203-432-6069.