In Simple Words
Think of a tailor custom-engraving a name on a coat versus selling a standard coat. If a customer cancels a standard coat, the tailor can easily sell it to someone else; if it is custom-engraved, it becomes worthless, so the tailor demands upfront cash to cover the downside risk before work begins.
Customized pen-order audits
- Different ethnic groups
- Group used for comparison
- Same ethnic group
- No clear reduction in advance payment
On customized orders, matching buyer and seller ethnicity did not clearly lower advance payments. This is not evidence that advance demands were exactly uniform. Customized orders in randomized buyer-seller audits. No equality claim or numerical advance-payment rates reported.
See source →Research question
Wholesale sellers face severe default losses when buyers cancel customized goods that lack secondary resale markets. Sellers require upfront advance payments as a direct measure to mitigate default risk and evaluate buyer trustworthiness.
Participants
107 pen and stationery stores in Chennai, India, covering Tamil, Marwari, and Andhra traders.
Study Design
Audit study splitting transactions into customized (printed logo) pens and plain (non-printed) pens to evaluate upfront payment variations.
Results
Customization elevates transaction risk because secondhand resale value is near zero, prompting advance payment demands that remain uniform regardless of whether buyer and seller share an ethnicity.
Takeaway
Utilize required advance payment percentages on customized orders as an objective proxy for counterparty trust levels in unmonitored B2B transactions.