Abstract:

How does a health club or credit counselling service market itself when its consumer incurs short-term impulses for instant gratification? To examine this issue, we utilize a self-signalling model that accounts for the complex relationship between short-term impulses and long-term resolutions. First, the incidence of impulses implies that the consumer’s level of self-control varies over time: he plans a strategy for his resolution when relatively forward looking; however, he must ultimately endure periods of decreased self-control to follow through with this plan. Second, the fleeting nature of impulses complicates consumer learning, for the consumer quickly forgets any duress experienced and must observe past actions to deduce self-control limitations. Using this framework, we derive many significant marketing insights for self-improvement programs, products which assist the pursuit of long-term resolutions. We first characterize a wide range of equilibrium pricing policies for self-improvement programs. We determine that the seller charges larger upfront fees whenever its consumer exerts high self-control in planning periods; however, we also demonstrate that the firm imposes higher per-usage rates when the consumer better withstands his impulses. In addition, we examine a scenario in which the seller simultaneously selects product and pricing strategies. We find that, under certain marginal cost conditions, the seller’s joint strategy reduces the likelihood of program use, impeding the consumer’s progress in reaching his resolution. Finally, we analyse the use of variable per-usage fees. We establish the conditions in which the seller implements introductory and loyalty discounts, as well as how each pricing policy influences self-control learning.