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Cooling-off periods for consumers don’t work: study

Dr Paul Harrison discusses why cooling-off periods for consumers don’t work.

When customers are offered a “cooling off” period, they don’t change their minds, even when the alternative is considered subjectively better, our research finds. We also found that some consumers (around 30%) only responded when contacted by the seller and asked if they would still like to opt in.

Under current Australian consumer law, Australians have a 10-day cooling-off period on any sale that was unsolicited – usually through door knocking or telemarketing. The idea of a cooling-off period exists partially because external forces, such as high-pressure selling, can have a significant influence on the choices that consumers make.

It’s not simply a case of telling consumers to read the terms and conditions, and then leaving them to their own devices, particularly when business (and their salespeople) use tried and true methods to get customers to buy products that may not necessarily be the best option for them.

The problem with the current cooling-off periods is that they operate after a customer has taken ownership of something or signed an agreement. Our research finds cooling-off periods simply don’t overcome many of the inherent biases of human behaviour.

Dr Josh Newton and I, from Deakin University’s Centre for Employee and Consumer Wellbeing, tested how 759 consumers responded when presented with cooling-off and opt-in alternatives as part of an online survey.

A number of behavioural theories, such as the endowment effect, the status quo bias and consistency theory, show that once a person “owns” something, they value it more and are less likely to give it up – at least in the short term. This is particularly the case if they have put mental, physical or social effort into their decision.

Similarly, many agreements require customers to “imagine” what the service will be like. This is simply because when we buy something from a unsolicited sales process, we haven’t really had time to process what the purchase actually means. We all tend to imagine that our lives will be better with something new, because our current reality is real, whereas the future is abstract.

There’s also a power imbalance between a customer who has been targeted in an unsolicited context and a salesperson who has had training, significant sales experience and sometimes a script to anticipate our responses.

In the context of cooling-off periods (and thus changing our minds), research shows it takes a significant amount of cognitive resources to admit we made a mistake. Again, this is not a conscious use of resources, but happens regardless of how rational we think we are. The role of our ego is to protect us, so out of our conscious reach, our ego creates defences, including apathy, that restrict us from changing our mind after we have become endowed with something.

These behaviours were also shown in my 2009 research into in-home sales. I found once consumers had actually signed a large financial contract for a pretty poor educational software package, their likelihood of cancelling that contract within ten days (which until recently was the cooling-off period in Victoria) was remote.

In early 2017, Australia’s consumer protection agencies will deliver a review of the current laws, including these cooling-off periods. However, what should get more attention under these laws is the idea of an opt-in clause. This would give consumers a real chance to change their minds after they’ve had time to think.

How an opt-in clause works

The opt-in clause works in two parts. It’s based on the principle that we should give consumers, under certain circumstances, more time and resources to think about the consequences of a purchase.

We suggest that after a consumer has signed a sales agreement in their home, it does not take effect until the consumer then “opts in” (confirms) some time between 24 to 48 hours after first signing the agreement, by contacting the company and confirming that they wish to continue. If the consumer does not opt in, the contract lapses.

Our research shows that an opt-in clause would work most effectively if the seller is unable to contact the consumer during the opt-in period. The consumer would then be able to make their choice free of pressure-selling technique. The opt-in approach would empower Australians to make purchases free of predatory sales tactics — the contract is only final when you re-contact the trader after two days.

This approach would help to overcome the pressure and the psychological biases during the sales process. And the idea makes logical (and perhaps, business, sense) – if the product is good and the customer wants it badly enough, they will opt in. The sales process does not rely on predatory tactics, but on good products and good communication between the seller and the customer.

What this approach will do is force businesses to target the right consumers, design better products and undertake more honest sales processes, rather than relying on the high-pressure selling techniques – often targeting vulnerable people – that are common in some of these sectors.

The Conversation

Paul Harrison, Senior lecturer, Deakin Business School; Director, Centre for Organisational Health and Consumer Wellbeing, Deakin University

This article was originally published on The Conversation. Read the original article.

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