July 23, 2019

Haskayne study has implications for growing ‘Netflix economy’

People’s decisions influenced by feelings of ownership toward objects or products they rent

Consumers need to be aware that their prior rental of a product or a property may cloud their judgment when negotiating things such as lease renewal contracts, says a researcher.

“It might be affected just because of the feelings of ownership you’ve developed toward what you rented,” says Dr. Charan Bagga, PhD, who is an assistant professor of marketing at the Haskayne School of Business. “Just take a step back and look at the situation devoid of the feelings you may have developed due to a prior rental relationship.”

Consider this thought experiment: Would you be willing to pay more to purchase an apartment that you rented for a year than what you would for the exact same unit if you hadn’t rented it? A recent study co-authored by Bagga found that renting can create a sense of psychological ownership that boosts the value people place on an object or product, even if they are not the actual legal owners.

Implications for ‘Netflix economy’

The study, which was recently published in the Journal of the Academy of Marketing Science, has interesting potential implications for an economy where renting is increasingly playing a larger role in how people consume products, says Bagga.

Some observers term this the ‘Netflix economy,’ in which renting is a preferred alternative to outright purchase for many people because they either want a more financially responsible way to consume, or they just value getting different experiences compared to getting stuck with purchased possessions.

Bagga’s study partly looked at how people value an object or product depending on whether it is rented or borrowed. It found that borrowing something for free doesn’t have the same impact, although both renting and borrowing involve actual physical possession of a product — a factor vital in forming feelings of psychological ownership, he says.

“If you rent something, what we demonstrated in Behavioral Lab studies is that you tend to develop a greater level of financial self-investment than if it is borrowed,” he says.

“You also have greater feelings of control over it. Because of higher self-investment and control toward a rented object, you tend to develop higher feelings of psychological ownership, and consequently, you place a greater value to it.”

Charan Bagga co-authored a study that explores how renting affects consumer’s willingness to pay.

Charan Bagga co-authored a study that explores how renting affects consumer’s willingness to pay.

Courtesy Charan Bagga

Feelings will vary

The depth of such feelings will vary depending on the different formal arrangements of physical possession, says Bagga. Feelings of control for a rental car that has severe mileage restrictions will be lower than when unlimited mileage is available for the same rental car, he says, adding that feelings of self-investment for an apartment rented for six months will be greater than for an apartment rented for a week.

A potential implication of the study is that sales of eco-friendly electric vehicles can be encouraged by getting drivers to first rent them, he says. “Car manufacturers could work with rental agencies to increase consumer knowledge about such vehicles, for example, Enterprise Car Rental’s offering of Tesla Model-S electric vehicles through its Exotic Car Rental Program,” he says.

Other implications range from product trials and return policies to rent-to own arrangements. Although rent-to-own in particular only amounted to 0.05 per cent of the U.S. economy in 2012, this figure translates to $8.5 billion in terms of actual dollars, says Bagga.

Rent-to-own arrangements could become “much more mainstream” if consumers perceive the rental payments as fair, he says. In many rent-to-own contracts, only about half of the payments go toward the eventual ownership of the product, with the remaining half typically going to rental companies, he says.

Besides Bagga, the study was co-authored by Dr. Neil Bendle, PhD, associate professor of marketing at the Ivey Business School at Western University in London, Ont.; and Dr. June Cotte, PhD, who is faculty director of research at the school, as well as the Scott and Melissa Beattie Professor in Marketing.