A shopper's smartphone buzzes, alerting her that she's eligible for $1 off a latte at a nearby coffee chain if she picks up the drink in the next few hours. If she makes the purchase, she's caffeinated for a reduced price, the merchant logs an additional sale and the company providing the coupon likely gets a cut.
Win-win-win, right? Not so fast.
Giving consumers merchant deals via mobile phone as they are shopping is a seductive concept in financial services these days. Financial institutions and technology companies are working hard to bring location-based advertising of this sort to life, in some cases by using consumer transaction data to more effectively target offers to interested buyers.
Such offerings are often billed as welfare-enhancing, because they help consumers get what they want for less money. They also help connect merchants with their likely customers much more efficiently than other forms of advertising. (The Sunday circular, mailed to you and thousands of your closest neighbors, seems charmingly antiquated these days.)
But at the same time, research by psychologists suggests those same offers may be draining an already limited resource: our willpower.
That's because every decision we make, even the seemingly frivolous ones, depletes us mentally.
Roy Baumeister, a social psychologist at Florida State University who's studied the effects of sapped willpower, says location-based advertising saddles us with "another decision to make, another impulse to resist."
"All these [decisions] consume willpower, which is limited and for many people is already stretched thin," he adds in an email. "And people will think, 'it doesn't hurt to look,' but some who look will then buy. That's what the marketers are hoping for, of course."
One popular experiment conducted by Baba Shiv, a professor of marketing at Stanford's Graduate School of Business, shines a bright light on the limitations of willpower, the kind we use to help keep our spending, among other habits, in check.
Shiv recruited several dozen college students and divided them into two groups. The first group was asked to memorize a seven-digit number, and the second was asked to remember two digits. The students were then led down a hall where they were presented with two snack choices: chocolate cake and fruit salad.
Remarkably, the students trying to keep track of the seven-digit number were more than twice as likely to choose the chocolaty treat as those charged with recalling just two digits.
"The reason, according to Shiv, is that all those extra numbers took up valuable space in the brain — they were a 'cognitive load' — making it that much harder to resist a decadent dessert," writer Jonah Lehrer explains in a Wired blog post.
"In other words, willpower is so weak, and the conscious mind is so overtaxed, that all it takes is five extra bits of information before it becomes impossible for the brain to resist a piece of cake."
A related phenomenon, so-called decision fatigue, says that continual and frequent decisions can drain us.
In a detailed New York Times Magazine article published last year, science columnist John Tierney explains the dangers of decision fatigue, including the kind brought on by shopping.
"To compromise is a complex human ability and therefore one of the first to decline when willpower is depleted. You become what researchers call a cognitive miser, hoarding your energy," he writes.
"If you're shopping, you're liable to look at only one dimension, like price: just give me the cheapest," Tierney adds. "Or you indulge yourself by looking at quality: I want the very best (an especially easy strategy if someone else is paying.)"
Having real-time coupons pop up on a smartphone at just the right moment requires consumers to juggle yet another tradeoff: shell out $2 to save $1 on that latte, or forgo its frothy goodness altogether?
Such offers can be tough to ignore if the deal is targeted well to a shopper's tastes. The technology is powerful because it removes so many hurdles that can stop consumers from making impulse buys.
Location-based deals delivered to a mobile phone don't rely on a consumer remembering to clip a coupon and can take advantage of the fact that she is already nearby. Removing pesky consumer lethargy may be a boon to marketers, but where does it leave the consumer?
Those supportive of location-based advertising and similar technologies may be right that some customers will be happy for the discount. But that doesn't mean the innovation is costless. Given that banks are considered trusted advisors, they should consider the potential effects of these new technologies before they jump into this field.
The industry has taken plenty of blame for the financial crisis. Do banks want to be blamed for making consumers fat or causing them to break New Year's resolutions as well?
Victoria Finkle is a reporter covering consumer finance for American Banker. The views expressed are her own.