Prepayment and future cross-buying: an exploratory analysis

Recent research has provided important insights on consumers’ preferences for prepayment mechanisms and on its impact on consumption of a given product or service. However, little is known about how prepayment influences future purchases of goods and services. We consider this question in a contractual setting within the services industry, involving different purchasing decisions over time. Based on a large-scale empirical test, we find that prepay customers make fewer changes to their cross-buying levels (i.e., the number of different services they buy from the company) from one contractual period to another, and that this effect is more salient for the firm's new customers. We propose possible explanatory mechanisms for this effect. For instance, based on mental budgeting theory, we suggest that prepayment customers may set mental budgets and track expenditures against this budget leading them to resist further investments. Alternatively, prepayment customers may be more certain about their consumption behavior leading to fewer changes over time.