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Customers buy a coffee and donut from a Dunkin’ Donuts store on Wellington Street in Verdun, Queb. (Christinne Muschi For The Globe and Mail)
Customers buy a coffee and donut from a Dunkin’ Donuts store on Wellington Street in Verdun, Queb. (Christinne Muschi For The Globe and Mail)

BUSINESS SCHOOL RESEARCH

Why a latte tastes better when you pay with cash Add to ...

The Globe’s monthly roundup of research from business schools.

It was a Starbucks skinny latte that inspired Avni Shah to take a closer look at how the payment methods used by consumers can change the way we think about the things we buy.

Cash, cheque, debit or credit – they all affect how much connection, or lack thereof, we feel toward our purchases, big or small, according to Dr. Shah, an assistant professor of marketing at the University of Toronto Scarborough and Rotman School of Management.

Dr. Shah was a grad student in North Carolina when she began asking questions on the topic. One day, she stopped by a coffee chain before class, as was her usual habit, and placed her regular order.

Everything about the purchase that morning was the same as it always was – with one exception: She paid for the latte with cash, rather than with her debit card.

Coffee in hand, she was surprised to find her attachment to the product was positively affected by the exchange almost immediately.

“I was really enjoying it and found myself wondering: Why is this cup of coffee any different than usual?” she recalls.

That moment later led to a series of controlled experiments that found consumers tend to place a much higher value on products or services when they pay for them using cash.

Conversely, with a debit or credit card, or some other convenient or automatic form of payment, our sense of connection lessens.

She attributes the difference in emotional attachment to what’s called the “pain of payment” – that is, you feel something when you physically part with your money.

The sliding scale of “pain” decreases as the form becomes less tangible: Cash is more painful than paying by cheque, which hurts more than using a card, and so on.

Dr. Shah says she isn’t personally resistant to new, convenient forms of payment, but believes consumers can do themselves a financial favour by becoming more aware of their spending habits.

She recommends adopting payment methods (whether cash or an app that tracks user behaviour) that “kick up the pain” of each transaction and remind us to make more careful, deliberate and meaningful purchases.

“We live in a high-waste society, so I always try to ask myself: Do I really need this, even if I am using a [debit card]?,” she says of her own purchasing behaviour. “And if I do purchase it, then I want to make sure I value it. I don’t need the new latest and greatest.”

Dr. Shah’s study was published in Journal of Consumer Research. It was co-authored by Noah Eisenkraft of the University of North Carolina at Chapel Hill, and James R. Bettman and Tanya L. Chartrand of Duke University.

Entrepreneurship ‘ecosystem’ flourishes in Kitchener-Waterloo

Ontario’s Kitchener-Waterloo region has proven an undeniable entrepreneurial hotbed that, despite its modest size, manages to incubate some of the most forward-thinking businesses in the world, from once-mighty BlackBerry to the group chat app Kik.

The region has a population of about 500,000 residents, yet, in 2012, had attracted a startup density second only to California’s Silicon Valley, according to researchers at the Lazaridis School of Business and Economics at Wilfrid Laurier University in Waterloo.

Steve Farlow, interim executive director at Laurier’s Lazaridis Institute for the Management of Technology Enterprises, and business professor Scott Ensign recently collaborated on an academic study examining the impact of that success through the experience of the people who have launched multiple business ventures.

The study posits that these so-called “serial entrepreneurs” are plentiful in Waterloo (making up 32 per cent of regional entrepreneurs in 2012) because they help to create a culture of entrepreneurship that allows other startups to flourish.

“Anyone can hit a home run once,” says Mr. Farlow. “But here there is evidence of repeat success. It has become core to the economic development, core to the community, and I have trouble thinking of other parts of the country where the ecosystem is quite the same.”

Published in the Journal of Innovation and Entrepreneurship, the study draws on the contributions of 12 serial entrepreneurs within the Waterloo region, and what they have learned in the process of leading multiple ventures. Those interviewed included Marc Morin, Carol Leaman and Dan Silivestru.

Chief among the lessons is the acknowledgment of failure as a possibility, but not a reason to give up.

“Each of the 12 serial entrepreneurs profiled in the paper have had failures,” says Mr. Farlow. “It is so clear that one’s experiential learning – learning by doing – is so critical to entrepreneurship.”

The research is intended as a road map of sorts for other communities and countries that want to foster their own entrepreneurial heritage as a means for economic growth.

“Young emerging entrepreneurs need role models, and success stories are a big part of building the entrepreneurial pool. If you can point to a dozen people in your community and say they’ve done it and I can be like them, that’s huge,” says Dr. Ensign.

The researchers are now examining how companies can build and scale their businesses, again using real-life examples.

That’s the next stage in the evolution of Canadian business, says Dr. Ensign. “We don’t want just lots of little companies, but a few things in the oven of various sizes and shapes.”

Story ideas related to business school research in Canada can be sent to darahhansen@yahoo.ca.

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