Wharton’s Deborah Small and Carey Morewedge from Boston University discuss their research on the evolution of consumption and psychological ownership.

Technology hasn’t just changed the way consumers use goods and services, it’s also changed the way they own them. Music collections, for example, have evolved from hundreds of alphabetically-organized records on a shelf, to carefully edited digital libraries, to the 2021 version — a list of songs stored on Spotify or some other streaming platform. What consumers used to think of as “mine” is now “ours” in the sharing economy, where everything from car rides to books has become less of a coveted item and more of an experience.

But marketers know that there is value in psychological ownership. When customers form an emotional attachment or self-identify with a product, that sense of “mine” enhances its luster and keeps them coming back for more. As shoppers shift away from owning material things, how can marketers preserve these benefits? Some answers can be found in a new study, “Evolution of Consumption: A Psychological Ownership Framework,” which recently appeared in the Journal of Marketing. Wharton marketing professor Deborah Small and Carey Morewedge, a marketing professor at Boston University’s Questrom School of Business, are two of the paper’s authors. They joined Knowledge at Wharton to talk about changes in consumption and offered some strategies for marketers.

Listen to the podcast above or read an edited transcript of the conversation below.

Knowledge at Wharton: This is such a timely topic for marketers. What made you want to study it and what questions were you trying to answer?

Deborah Small: There is this very classic and robust finding in the science of decision-making known as the “endowment effect.” The endowment effect is the fact that people value things more when they own them than they would if they were not in their possession. For instance, if you had a fancy bottle of wine in your possession, the amount of money you would be willing to [accept to] give it up is much higher than the amount of money you would be willing to pay to acquire it if you didn’t own it.

Scholars have understood for a long time that ownership takes on this special psychological significance, but much of this evidence was based on very traditional possessions, very tangible items that a person had all to themselves. Maybe a coffee mug or something like that. What really started this paper was our musings about all of these new business models and new technologies that are moving away from traditional forms of ownership. Rather than owning my own car or bicycle, I might participate in ridesharing or bike-sharing. Before, I had all these bookshelves filled with books and CDs and photo albums; now, I can store these things virtually. We used to keep all of our medical records and tax records and bank account records. All that personal data was stored in a filing cabinet in physical files in our homes. Now, that storage is mainly in the cloud in an opaque form.

These advances are no doubt fantastic and provide a lot of value to consumers, but we found that they’re missing some of the signature markers of ownership. One is tangibility: I can still experience music, but I don’t have a physical album. Second, permanence: When I use a rideshare, I don’t expect a long-term relationship with that car. We wrote this paper as a way to try to deepen our understanding of what is at stake here from a psychological ownership perspective.

Carey Morewedge: I remember in graduate school I would go to the library, and if I had to read an article, I would photocopy it and write all over it. Those articles became a treasured resource locked in a filing cabinet in my office, and I would go back to the same physical document each time, covered in notes, underlining, and my reactions. When I eventually moved offices, I recycled all of that because I had duplicates on my computer, but it still felt like a loss of the self. I use PDFs now. Everything is digital, and I can read it anywhere, but there’s something about that digital copy that I don’t care as much about. I don’t feel ownership for the collection of PDFs that I store in the cloud. At least not in the way that those tangible pieces of paper felt like part of me.

“The trend is shifting such that we’re owning less and less material, tangible things than we did in the past.” –Deborah Small

The second personal example is when I was younger, I was a DJ, and I have thousands of records in my house. I haven’t played them for a while. I’ve got a young child, a second on the way, and don’t have time to do that. But I still see them on the wall, and they remind me of a part of my identity and past. The music that I listen to now is no more or less important to me, but it somehow feels different because when I close my laptop or turn off my phone, it all disappears. There’s no permanence to that kind of content.

This exchange that we’re making is extraordinarily convenient. I can be on the beach and pull down from the cloud the exact song I want to listen to, or the book I want to read. At the same time, it feels like we’re losing something — the feeling of mine. Our paper tries to understand and explore the consequences of its absence.

Knowledge at Wharton: In the paper, you identify two important changes in consumer behavior. The first one is a change from legal ownership of goods to legal access of goods. The second one is that material possession is being replaced with experiences. Can you explain those?

Small: We’re not the first to notice these changes. There’s been much discussion about access-based consumption. Sometimes it’s referred to as “liquid consumption,” which essentially distributes or spreads out property rights across hundreds, even thousands of consumers. As Dr. Morewedge mentioned, this is very convenient for consumers. It’s cheaper, it’s less of a commitment, they can try out different things without the big expensive purchase. There’s a lot of freedom there for consumers, but they also lose a lot of control over the good because it’s not just theirs anymore. It’s also very temporary and short-lived, so they are less prone to develop psychological attachments and feel connections to their goods. These are critical aspects of psychological ownership — the ability to control things, the development of a relationship over time.

The feeling that something is mine is a function of believing I am in control and expect to maintain something for a long time. That’s the first dimension — legal ownership to legal access. The second is this shift from more material consumption to more experiential consumption. We’re moving away from physical goods in many categories, to things that we merely experience, or that are digital or ephemeral in some way. The key threat to psychological ownership here is the lack of tangibility. Tangibility is a signature marker of a possession. Consider the case of purchasing a DVD for your movie collection. We don’t do that anymore. We purchase access to consume music.

But it’s also more than that. The goal of purchasing is more about experiencing that movie or song rather than the goal of owning it or having it. It’s not that we never did that before — we went on vacation and stayed in a hotel, and we rented things occasionally. But the trend is shifting such that we’re owning less and less material, tangible things than we did in the past.

Knowledge at Wharton: The paper identifies three macro trends in marketing. What are those?

Morewedge: The first would be growth of the sharing economy. We’re now engaging in many kinds of collaborative consumption like renting, reselling, and lending. We’re consuming things simultaneously. Many people are reading the same file or listening to the same music at once, and we’re resource pooling. It’s not that these things weren’t present in our economy before. People used libraries and shared with their friends and neighbors. The difference is that these platforms are mediating these kinds of transactions between strangers. What used to be public goods or things that you shared with your friends are now things that we’re using through this exchange with other people through these technologically-mediated platforms. You could think about a rideshare platform or a bicycle rental or renting an office from WeWork or renting clothes from Rent the Runway. We might not necessarily have wanted to spend the money on a fancy outfit for a wedding, and now you can rent that. It’s not that there weren’t places that you could rent clothes before, but it’s becoming much easier, and we’re using it for much more of our life.

“Our possessions become part of our self. And we see ourselves, and thus our things, through rose-colored glasses.” –Carey Morewedge

The second is the digitization of goods and services. Streaming is now the most popular way to consume music, and we see this kind of diffusion of digital consumption through books, email, films, magazines, maps, news, and television. Think about the last time that you opened a paper map or the last time that you sent letters. Most of our letters are exchanged in these kinds of digital communications. Those are not necessarily the ones that people consider identity-relevant (like a birthday card), but the kinds of goods that we used to think about as holding our cherished memories (like our communications, our photographs, our videos) are now all digital.

The last trend is expansion of personal data. Our interactions, whether with government or with businesses, were often constrained to a record that was a single exchange. We had a receipt, and that was the data that existed about our behavior. Now, governments and firms have incredibly personal information about all facets of our lives: where we visited, who we were with, what photographs and videos we’ve taken, what’s our search history, what’s our medical or even our genetic information.

As Prof. Small mentioned, we used to have physical paper copies of our financial transactions, for example, our tax records. Now, you might complete all of your taxes on a cloud-based platform, and the firm owns that data and is selling it to others for marketing purposes for loans or for credit cards. The question of who owns that kind of information is becoming increasingly relevant for consumers. That tension is being played out in really interesting kinds of policy arguments about what data should firms own, what data should consumers have rights to, and do we have a right to be forgotten. This is a developing literature, but it’s an important one, and we wanted to map paths for the field to explore.

Knowledge at Wharton: If psychological ownership is so beneficial in marketing, what can marketers do to preserve it?

Small: It’s important to start with an understanding of the underlying features of psychological ownership that are particularly meaningful and important to consumers. Feeling in control. Being able to express who you are through the goods that you possess. There’s a very seminal academic article in marketing titled “Possessions and the Extended Self,” which is all about how our possessions help define who we are and signal who we are both to ourselves and to others. Everything from the type of car you drive to your brand of blue jeans says something about who you are. To answer your question about how marketers need to think about this, it’s going to vary a lot across firms and product categories. But marketers need to be thinking about ways to offer those benefits in other forms and ways to retain psychological ownership as they shift to these new models.

Can they find new ways to offer their consumers choices even when they’re in an access-based consumption model? Let’s say they’re selecting a car for a rental or a rideshare. Can they still have choices over the features of that car, so they feel more in control? Are there other opportunities for them to express who they are within these platforms, where they’re creating profiles of themselves and interacting with other consumers and firms?

It’s going to vary a lot, but I think the crux is for marketers to recognize that those are some of the key features that provide value to consumers, and to try to kind of creatively find ways to bring those back.

“Everything from the type of car you drive to your brand of blue jeans says something about who you are. The question is: What is lost, psychologically-speaking, when much of consumption exists without ownership?” –Deborah Small

Morewedge: I would think first about the kinds of changes that are happening and how we find ways to either address them, offset them, or channel them. Think about the impermanence of things. If consumers access their health data through MyChart in the cloud, for example, are there ways to give them an extended feeling of permanence? Can firms guarantee access over an extended duration to that kind of experience? If I’m uploading my data, can I access it in perpetuity or for a number of years? If we’re losing the tangibility of material goods for these kinds of experiences, are there ways that we can offer control that aren’t necessarily physical, but that give us different kinds of control over the goods?

In experiential consumption, when you’re buying a trip from point A to point B in a rideshare like Uber or Lyft, it’s ambiguous who owns what. You’re purchasing a ride, but what do you really own in that kind of context? Give people some sense of clarity about what they own. For example, if you’re renting a house on Airbnb, do you get information about your upcoming visit and what you’re getting with your trip? Are there ways we can remind people of their usage history and all the kinds of experiences that they’ve had in these kinds of settings? Are there kinds of gamification we can use to show people a progression in their status through different kinds of programs? You’ve listened to this song 10 times! These were your top 10 songs on the streaming service in 2020. Give those experiences meaning, and connect them to memory cues, markers of having had them.

There are really important consequences here, where a lot of the things that we used to think of as goods that we owned are becoming commodities. If I’m renting a car, I rent it by a class of car, not a particular model. If I’m using a rideshare, I don’t really care what brand of car I’m riding in, I just care about getting from point A to point B in comfort and safety. So, brands have to start thinking about whether or not they want to engage in vertical integration to keep consumers caring about their brand. Brands have to think about becoming commodities in cases where they were once these really strong markers of a consumer’s identity. Disney pulled most of its content from Netflix, for example, and started its own streaming platform. That may save Disney movies from becoming fungible with all the other programming for kids available through Netflix (or Amazon).

These kinds of threats are also giving rise to new kinds of opportunities. In many cases, we’re engaging in new ways of collaborative consumption with other people. We have these communities of people consuming things that didn’t exist before. In those cases, we’re moving from mine to ours. Can brands tie into thinking about how we get people to feel membership in a group of consumers? There’s a lot of work in marketing looking at these kinds of brand communities. Harley Davidson is always touted as a firm that successfully built up a community around its products. Reddit is a place these communities appear to be forming organically. Other brands may have to start to think about that kind of development and get consumers to think about their membership in a group rather than their use of a particular good.

Knowledge at Wharton: I was surprised to read in your paper that there are some instances where companies would actually benefit if their customers do not have a sense of ownership in the product. What kind of instances are those?

Morewedge: We identify four in the paper, and I’ll run through each and then give you an example. The first is when changes in access rights are likely. The next is when consumers are the product, like lots of advertising-based and freemium services. The third is when it creates frictions in sharing markets. And the last is when service quality is inconsistent.

Getting to this question of access rights, for example, Microsoft ended sales of e-books in 2019, and it also deleted and refunded all books purchased through that platform. So, if I built this library on Microsoft e-books, it’s suddenly gone and I get a check in the mail for what I purchased. That kind of sudden change in access, if consumers do feel strong psychological ownership, may leave them to feel a sense of loss or anger when their access rights are revoked. So, when the catalog that firms are offering in terms of these access-based models is highly fluid, they may not want consumers to feel psychological ownership if it’s going to disappear later on.

“Brands have to think about becoming commodities­, even in categories where brands were once strong signals of identity to consumers and to their social world.” –Carey Morewedge

The second case is when firms are using consumers as the product. When firms are profiting from advertising or mining and selling consumer personal data, they’re going to benefit from cases in which consumers feel little psychological ownership for their behavior online. Amazon may not want you to think about all of the data they have about all of the records and transactions that you’ve engaged in. Google may not want you to think about your search history as something that you have a right to control. When those kinds of services are monetized, firms profit when consumers don’t feel like they have ownership rights, when they don’t feel they should be compensated for their use.

The third case would be when it creates frictions in sharing markets. For example, if I feel really strong psychological ownership for a particular brand of car, whether it be BMW or Toyota or Honda or Ford, that may create frictions for Uber when they try to give me a substitute like a Hyundai. If you think about these different kinds of goods needing to be highly substitutable, encouraging a feeling of ownership for any one of those goods may be deleterious for the firm because it’s leading consumers to search elsewhere for that kind of good.

The last case is when service quality is inconsistent. As Dr. Small mentioned, this kind of endowment effect, or feeling of psychological ownership, has a value-enhancing effect. We see the things that are ours through these rose-colored glasses. If I feel psychological ownership for something, I may have higher expectations for the performance of that product, and firms have difficulty living up to that. We know that customer satisfaction is performance minus expectations, and so if you’re going to have variable kinds of performance, then it may not need to have that kind of value enhancement that psychological ownership engenders.

Knowledge at Wharton: What is next for this line of research?

Small: Many possibilities. We joke and use the term “me search,” which refers to studying things that are self-relevant to us, that we, as researchers, are going through or experiencing.

One thing we talked about, as we were putting the finishing touches on this paper over the summer as we were all working from home, was the subject of remote work. We discuss in the paper how there’s a parallel between the changing nature of work, for which there is no longer a physical office. The boundaries between home and work are becoming more liquid just in the way that a lot of consumption is becoming more liquid. That’s just one example of the kinds of things that we discuss in the paper and have thought about taking in a new direction.

Morewedge: I think a big question that we don’t answer in the paper is looking at whether or not our notion of ownership will change as a result of these changing trends. Are the cues that we used before — like physical control or touch or investing money in something or knowing a lot about it — are those kinds of cues that gave rise to a sense of ownership going to be replaced?

The question of how what we feel is mine has for a long time tracked legal ownership, and this paper is looking at cases where there are divergences. And part of that is because for thousands of years, owning things was a way that people expressed themselves, or built up their identity, or their wealth, or passed things on to their children. How malleable is that sense of “mine,” and how will it respond to these kinds of changes in our lives and in the economy?