Abstract
The digitization of money has led to the emergence of numerous virtual currencies. Despite their great financial relevance, virtual currencies have not received much attention in marketing research. We classify virtual currencies into three different schemes and highlight potential factors that influence consumer behavior related to these new payment methods. This article provides marketing researchers with a research framework as well as specific research questions to initiate discussions and future research on this novel topic.
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1 Introduction
Whenever people think about money, their home country’s official currency, real economic money (REM), typically comes to mind first. Yet, many consumers generate non-cash resources, and businesses generate value through points, miles, and other virtual currencies (VCs) that form the backbone of their loyalty programs. These VCs encourage consumer engagement, and offer consumers real goods and services, as well as social standing and the perks accompanying them.
Gaming, an industry forecast to be worth $314.40 billion by 2027Footnote 1 commonly uses VCs (e.g., CandyCrush gold bars). Then, there are VCs such as Pearls at the music festival Tomorrowland in Belgium, retailer store credits (e.g., BestBuy) and crypto currencies (e.g., bitcoin) that have started being advertised, despite concerns.Footnote 2 Given their financial relevance, VCs remain understudied. We introduce different VC schemes that vary across eight dimensions (Table 1), and suggest areas for research across seven information-processing stages (Fig. 1), with consequences for spending and post-purchase attitudes and behaviors. Payment systems (e.g., credit cards, Venmo) are out of the scope of this article.
2 VC schemes
The European Central Bank defines VCs as “[…] electronic money issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community.”Footnote 3 VCs can be classified into (1) closed system and (2) unidirectional or (3) bidirectional flow depending on their connection to real economy money.
2.1 Closed system
Closed system VCs cannot be bought with or resold for REM. They must be earned to buy virtual goods within the specific closed environment, and are often referred to as “soft” in-game currency. The aim is to increase consumer engagement, monetizing it through upselling and advertising. For example, World-of-Warcraft players earn “gold”. Other examples include FIFA21 (coins), Guild Wars (gold), and GTA V ($).
2.2 Unidirectional flow
VCs in this category are issued by the issuing company with limited fungibility across customers, restricted convertibility to REM and no legal recognition. The exchange rates vary and are set by the issuing company, and the purpose is to encourage engagement and repurchase with the company and its partners.
Consumers can acquire unidirectional VCs by buying them directly with REM or indirectly by spending REM. This leads to three types of VCs where the acquisition is through:
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a)
Indirect and direct purchase: Consumers can trade in VCs earned through flights, hotel stays, or credit-card usage, for products and services from the issuing company (e.g., Marriott-Bonvoy), or products available in their marketplace (e.g., United MileagePlus). There is limited transferability across users although VCs can be monetized by converting them into gift cards/products to be gifted, used, or donated.
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b)
Direct purchase and engagement: Referred to as “hard” in-game currency, such as CandyCrush (gold bars), Clash of Clans (gems), Brawl Kings (gems), and Words-with-Friends (power-ups).
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c)
Indirect purchase: Typical of loyalty programs, VC points are used to reward loyal customers and encourage repurchase (e.g., Starbucks stars, Best Buy and Expedia points, and Macy’s Money).
Unidirectional VCs cannot be converted back to REM without resorting to unauthorized third-party platforms.
2.3 Bidirectional flow
Bidirectional flow VCs share many similarities to REM. They can be exchanged from and into REM, but they lack legal recognition and are not issued by a central bank. There are three types: virtual economic money (e.g., Second Life’s tradable Linden dollars), company-specific money (e.g., Tomorrowland Pearls, virtual casino chips), and crypto currencies (e.g., bitcoin). Companies issue company-specific VCs for payments within their ecosystem. For example, Tomorrowland’s “Pearls” must be purchased with REM, used for all payments at the festival, with unused Pearls refunded.
3 Research opportunities
VCs open new avenues for academic research. VC features (Table 1) are antecedents to seven information processing stages discussed below, with user characteristics moderating these relationships. Consequences include spending and post-transaction outcomes. Research questions that arise from this framework are presented below.
3.1 Economic utility
Economic utility refers to a VCs purchase price and its expected appreciation/ depreciation, volatility, and REM convertibility. Companies choose their own conversion rate when introducing a VC which can be either a fraction or a multiple of REM (e.g., Pearls = €1.6; $1 = 100 miles = 0.000015 BTC), a factor that can affect spending (Raghubir & Srivastava, 2002).
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Do VC exchange rates influence consumers’ price perceptions and purchase behavior?
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Is price elasticity contingent on VC versus REM?
Exchange rates of VCs can be pegged to REM (e.g., Pearls-€), be determined by market supply and demand (e.g., Bitcoins), or by company-related factors (e.g., miles devaluation).
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How do different exchange rate schemes, and their stability, influence their perceived value and affect purchase behavior, satisfaction and loyalty?
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How do usage and purchase behavior change when the VC is considered a stored value versus a medium of exchange?
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Does devaluation affect spending of VCs, loyalty, satisfaction, and engagement?
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Do fluctuating and volatile exchange rates increase price complexity?
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Can increasing VC fungibility across customers increase engagement?
Many hard in-game currencies can be bought in different bundles with volume discounts (e.g., 6 packages of “CandyCrush gold bars”, with the price/bar half in a 1000- vs. 10-bar pack), and be used to purchase additional in-game packages, leading to several different prices.
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How do consumers account for different exchange rates?
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Do consumers’ expected volume discounts differ for REM versus VC?
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Does price complexity affect purchase intentions, satisfaction, and engagement?
3.2 Transaction utility
Transaction utility relates to the acceptance of a VC. Paying with company-specific (vs. fungible) funds increases consumer preference for company-typical products (Reinholtz et al., 2015).
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Are VCs typically used for purchases similar to how they were earned?
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What individual differences moderate the likelihood of saving versus spending a VC?
Priornted that consumers spend more using credit cards and gift certificates than they do using cash (Raghubir & Srivastava, 2008). This suggests:
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Are company-specific VCs more likely to be spent versus REM?
3.3 Accounting
Accounting refers to the mental accounts that consumers use to categorize their VCs (with each account used for a different purpose), and includes whether a VC is thought of as a resource to be spent (vs. invested in). On occasion, VCs are issued into two separate accounts (e.g., United’s Miles, PlusPoints).
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Do consumers have different mental accounts for different VCs from the same issuing company?
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Do consumer include VC balances in their net worth assessment?
3.4 Perceptions
Perceptions include the perceptual fluency of a VC as well as consumers’ price perceptions. When paying with gift cards, consumers try to avoid unspent funds (White, 2008), sometimes leading them to spend over the gift card’s face value. Uneven prices in in-app purchases lead to residual values.
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Do residual values in VCs enhance spending or purchase avoidance?
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Do residual values affect post-purchase satisfaction and engagement?
3.5 Cognitions
Cognition includes the similarity of a VC to REM, price-complexity, conversion-ease, and perceived value. The lower the similarity, the lower the negative feelings associated with spending, and the higher purchase likelihood, especially for hedonic products (Thomas et al., 2011).
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How similar do consumers perceive different VCs to be to cash?
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What are the antecedents of these similarity perceptions?
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What offerings should loyalty programs offer to encourage purchase?
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What individual differences moderate the effect of perceived similarity on spending?
Consumers depreciate costs over time (Gourville & Soman, 1998), with longer gaps making costs less relevant at the time of consumption.
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Do consumers depreciate VC costs over time?
3.6 Affect
Pain-of-paying is a negative affective reaction, and positive feelings associated with higher loyalty status are positive affective reactions. Shah et al. (2016) showed that the greater the pain-of-payment, the greater brand attachment.
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Is pain of payment lower for VCs than for REM?
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Is brand attachment lower when purchased with VCs?
3.7 Memory
Memory refers to the strength of the memory trace for the price paid, and is weaker for credit cards versus cash (Srivastava & Raghubir, 2002).
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Is the memory trace for a VC weaker than REM?
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Does a weaker memory trace encourage VC spending?
3.8 User characteristics
Approximately 3.5% of gamers spend REM on hard in-app money.Footnote 4
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What personality traits increase likelihood to spend REM on VCs, and VCs?
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What policies should be implemented to prevent overspending?
Alter and Oppenheimer (2008) show that consumers who pay with unfamiliar (vs. familiar) forms of currency believe they have less purchasing power.
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Does a VCs name affect familiarity perceptions?
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How does consumer familiarity with a VC affect processing fluency of VC prices and purchase intentions?
4 Conclusion
VCs are a prevalent, growing, yet understudied, subject in marketing. Their shared features and their heterogeneity offer novel research questions along the purchase process, especially as virtual environments bear untapped potential to predict real-world behavior (e.g., Lofgren & Fefferman, 2007).
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Notes
Mordor Intelligence (2022). Global Gaming Market—Growth, Trends, COVID-19 Impact, and Forecasts (2022—2027). Retrieved February 11, 2022, from https://www.mordorintelligence.com/industry-reports/global-gaming-market
Daily Beast (2022). Matt Damon’s Viral Crypto Ad Is an Embarrassing Cash Grab. Retrieved February 11, 2022, from https://www.thedailybeast.com/matt-damons-viral-crypto-ad-is-an-embarrassing-cash-grab
European Central Bank (2012). Virtual Currency Schemes. Retrieved February 11, 2022 from http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf
AppsFlyer (2016). The State of In-App Spending: Golbal & Regional Benchmarks. Retrieved February 11, 2022 from https://cdn2.hubspot.net/hubfs/597489/IAP_Guide/The_State_of_In-App_Spending_AppsFlyer.pdf
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Scheidegger, G., Raghubir, P. Virtual currencies: different schemes and research opportunities. Mark Lett 33, 351–360 (2022). https://doi.org/10.1007/s11002-022-09620-z
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DOI: https://doi.org/10.1007/s11002-022-09620-z