New service model based on present biased preferences

Abstract

New goal-setting service models betting on consumers not fulfilling their obligations in the future, a human tendency identified and supported in economics and marketing literature, have been proliferating recently. Of critical interest is whether these new service models generate a higher profit than the traditional retailer model. Our research shows that consumers’ valuation of the underlying product or service, how naïve consumers are in believing meeting the requirement in the future (i.e., their present-biased preferences), and how differently consumers treat losses versus gains (i.e., the mental account effect) are three key factors affecting the profitability of these new service models.