Rise of the Renter

Stores are increasingly offering products to rent at rates comparable to traditional purchase options. The big question is whether consumers make decisions differently in these two markets.

July 17, 2014

In the bottom corner on the final page of the July 22, 1904 edition of The Minneapolis Journal, Great Western Cycle Co. placed an advertisement: 20 percent discount on bicycle purchases, “Edison New Moulded Records” for 35 cents each, and automobiles for rent, no price named. Two stenciled images of cars face each other at an angle. This thumbnail advertisement reportedly marks the birth of the rental car market.

One hundred and ten years later, it is increasingly common for products—movies, designer bags, furniture, TVs, textbooks—to be offered for purchase by some retailers and for rent by others. The logic behind these parallel markets is simple: sometimes consumer demand is for temporary ownership. What if you only want to watch a movie once? Or when besides prom will gangly high schoolers need a tuxedo? For that matter, how long will Classics majors really want their college calculus textbooks?

“Considerable consumer research has examined how people choose among different products,” according to Anastasiya Pocheptsova, Assistant Professor at the University of Maryland. But “most choice research has not distinguished between different ways in which a product can be acquired.” Pocheptsova tackles this new ground in a working paper coauthored with Ravi Dhar from the Yale School of Management and Ran Kivetz from Columbia University. Do we make decisions differently, she asks, when renting a product rather than buying it?

The mentality of the renter is very different from that of the buyer.

The short answer is yes. The mentality of the renter is very different from that of the buyer. We have lower expectations when renting, even if the price to purchase the good is identical; part of this is due to the clear reversibility of the decision. When buying, we expend considerably more energy looking for and comparing alternative information, even if the information is difficult to obtain. We also keep higher, more stringent standards. As a result, we are more likely to acquire the same product for the same price when it is offered for rent rather than for purchase.

To distinguish the consumer processes in these markets, Pocheptsova and her coauthors ran a series of connected experiments to test the psychological distinctions between consumers deciding to rent or buy. The first experiment—the most foundational one—offered one group a discounted movie for purchase, and a second group the same discount on the same movie, but for rent. Far more people cashed in on the offer when renting. To make sure this wasn’t the result of a general preference for rentals, a second study tested three groups: one given the option to rent or not, one given the option to buy or not, and one given the option to rent, buy, or neither. When given this third option—rent or buy—far more subjects preferred to buy. Rental decisions are thus not “a result of consumers’ inherent preference for renting over buying,” note the authors, “but rather are driven by different decision processes used when consumers are making a buying as opposed to a renting decision.”

This fact—that consumer mentalities are distinctly different when renting and buying—ought to strike the marketer’s ear keenly, as it raises a number of questions and implications. For instance, prior work has shown that sales are more effective when applied to hedonic, or non-utilitarian, goods; buying these goods requires justification. Using similar reasoning, do price discounts encourage buying decisions more than renting decisions, given people apply more stringent standards to purchases? (A preliminary experiment found evidence for this idea: discounts influenced decisions to purchase far more than decisions to rent.) Along similar lines, should advertisers explicitly highlight the reversibility of a purchase decision, since most companies already offer a return policy? This tactic might encourage purchases by making them feel more similar to a rental—and therefore artificially lowering consumer standards.

Finally, because purchasers tend to analyze decisions more thoroughly than renters, companies’ credibility surfaced as an important variable for people who were deciding whether or not to buy a product.  In contrast, renters mentioned a relatively peripheral cue—the attractiveness of product advertising—as an important variable in deciding whether or not to rent.

Amid every facet of this study, a single note played continuously: products are increasingly available for rent, which means that people who once made purchases are opting to rent instead. For the world of marketing, this is not a negligible shift; it calls for better understanding of renters’ decision-making. More than a century after the first rental cars puttered along the roads of Minneapolis, insight into this transition is long overdue.