When facing the same discount amount, consumers appear to overweight the discount of the cheap item than that of the expensive one. This irrational behavior is widely mentioned and explained by various behavioral economics theories, such as the “framing effect” and “prospect-theory value function” (Kahneman and Tversky, 1981, p.347), and “mental accounting” and “transaction utility” (Thaler, 1999, p.186-189).
In his journal “Do Consumers Mak Too Much Effort to Save on Cheap Items and Too Little to Save on Expensive Items? Experimental Results and Implications for Business Strategy”, Prof. Ofer Azar re-discusses this behavior by imposing “relative thinking” theory. Relative thinking presents the tendency of consumers to take into account the relative price difference in front of goods. Through analyzing an experiment among the Northwestern University students, he figures out that for participants, the value of their time is increasing as the items’ prices increase. In other words, consumers are willing to use more effort to save when they purchase merchandises with lower price. This result is “consistent with relative thinking” (Azar, 2011, p.1078) and rejects the assumption of other theories, because they only focus on the “absolute price differences” (Azar, 2011, p.1078), rather than “relative price differences” (Azar, 2011, p.1078). Further, Prof. Azar critiques five alternative explanations ---- prospect-theory value function, purchase frequency, transaction utility, fairness and wealth perception. In his opinion, prospect theory makes mistake to directly frame cost of goods as a loss; purchasing frequency has limitations, firstly the experiment presented is one-time purchase and is irrelevant with purchase frequency, secondly...
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...ntal accounting too. If consider this strategy deeper, the prospect theory value function plays is the base corner of the explanation.
Finally people are not rationally time-consistent, they are not good at predicting their behavior. They may exhibit in a different way when they face the real situation, because of the social presses and time limitation. But in many behavioral economic studies, using assumed scenarios to build the experiment is still the major measure. Therefore, this is maybe the third limitation in this literature, even in other articles.
Although there are some defects in this paper, Prof. Azar offers a comprehensive analysis of his thesis and well organized the contents and structure. Thus this is an excellent paper. It can be seemed as a strong alternative explanation to consumers’ different effort on saving on cheap items and expensive items.
Extreme shoppers get a thrill out of buying more than they would be able to otherwise because of the savings they obtain from their bargains. Lyz Lenz wanted to test using coupons vs. using a bargain store. She created a shopping list of groceries needed for the week. At the bargain store she spent $103.16 sticking strictly to her list and only buying what the family needed for the week. At the local store using coupons she s...
Not everything that is expensive is better. Rich people can get everything they want, but middle class people need to think if they need it, or they can find the same thing cheaper. Most people try to find cheaper things, but some buy expensive things, because they think that it will help them to feel that they are rich. First, people buy those expensive things, and after that they are in debt. Expensive things need a lot of money, but people don’t have them, so they use credit cards to buy for that. According to the article “All that glitters is not gold” says that auto exhibition 32% of attendees bought a car and 56% of attendees reported they were going to buy a car in the near future. It shows that that people don’t have money, but they saw that other people bought the car, and they want it also. My parents just last week bought a new car, because our old one broke. My dad said that everyone has big, and new cars, so we need to buy a costly car like other people have. I thought that it was a stupid idea to look at expensive car, but anyway he found a good car, nor costly, nor cheap car. It is middle cost, and it is a wonderful car. Running after expansive things people forget to look of prices. They forget that they will need to pay for that thing for many years after they buy
Not everything that is expensive is better. Rich people can get everything they want, but middle class people need to think if they need it, or they can find the same thing cheaper. Most people try to find cheaper things, but some buy expensive things, because they think that it will help them to feel that they are rich. First, people buy those expensive things, and after that they are in debt. Expensive things need a lot of money, but people don’t have them, so they use credit cards to buy for that. According to the article “All That Glitters Is Not Gold” 32% of attendees who were at the auto exhibition bought a car and 56% of attendees reported they were going to buy a car in the near future. It shows that that people don’t have money, but they saw that other people bought the car, and they want it also. For example, my parents just last week bought a new car, because our old one broke. My dad said that everyone has big and new cars, so we need to buy a costly car like other people have. I thought that it was a stupid idea to look at expensive car, but anyway he found a good car, nor costly, nor a cheap car. The cost is in the middle, and it is a wonderful car. Indeed, running after expensive things people forget to look at prices. They forget that they will need to pay for that thing for many years after they buy
In the article “Opportunity Cost Consideration”, Stephen Spiller aims at addressing the various issues that are involved in the decision making process of consumers. Spiller argues that buyers need to involve the concept of opportunity cost in their purchasing decisions so that they can manage to meet their unlimited wants using limited resources (Spiller 595). In relation to this, the article focuses on when buyers should embrace opportunity cost, individuals or parties that embrace opportunity cost, opportunity cost that spring into buyers’ minds and consequences involved in the consideration of the opportunity cost. The author accomplishes his goal by conducting several studies. These studies are fall under various categories such as application of multiple mechanisms in assessing opportunity cost consideration, self-reported consideration, thought listings and possibility of purchase. Thus, the author’s findings play a vital role in highlighting consumers’ need to embrace opportunity costs in their purchase decisions.
Johnson, G., Scholes, K., Johnson, G. and Whittington, R. 2011. Exploring strategy. Harlow: Financial Times Prentice Hall.
When decisions bases on a consumers finances have following consequences further than the near future, then an individuals' success economically could depend on the ability they have to foresee the upcoming rate of inflation. according to statistics, higher expectations for inflation were reported by females who were poorer, they were single and they were less educated. More specifically, higher expectations for inflation were reported by people who focused more-so with how they can cover future purchases and expenses and the prices they will pay, and by ones who have lower knowledge on financial literacy.
Tversky, A., & Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science, 211(4481), 453–458.
Consumers make choices every day that affect the economy we live in, and in return these choices impact one’s personal finances. Take for instance, buying clothing at retail establishment that is trending,
Do you think the absolute lowest price for an item is most important for many consumers? What percent would you say comparison shop for the lowest price? What implications, if any, do you see from your estimate?
This report aims to provide a mix review of theories and personal case study. I will apply two consumer behaviour theories in relation to my own purchase decisions.
Consumers are motivated to spend more when there are incentives presented in the form of discounts and special promotions. Their satisfaction in spending less to buy a desired item indicates how incentives work by influencing an individual’s decision making ability. The fact that the item was on a discount enabled the individual to buy it as the reduction in the price of the item was a strong economic incentive. The concept of incentive is present in everyday life situations as it basically impacts the actions of every individual. Incentives are efficient tools used to manipulate the human behaviour in order to achieve desired outcomes.
Individuals make economic decision based on a variety of reasons. The rational is based on each individual’s need or desire for a commodity. People go through several decision-making processes before making the final decision and are often not conscious of the process. Obviously, decision- making covers a wide area, involving virtually the whole of human action. Often people are not conscious of the process.
Customer can get the same amount of product in lesser prices due to products are more and transaction is high so the customer enjoys higher discounts in respect to the customer who buys less (R. P Bagozzi, 2002).
The phenomenon of impulse buying is becoming increasingly commonplace in developed countries. Our culture of consumption makes us less likely to resist temptation and consider the consequences before purchasing things. The impacts could be varied dramatically depended on where it takes place. For instance, the things that you purchase impulsively could be a bar of chocolate; however, it could also be a Louis Vuitton handbag and the consequences would be much severe. Hence, a lot of researchers are interested in studying the causes of this phenomenon in terms of different parameters such as age and gender. In relation to gender, researchers attempted to find whether there will be a gender difference in impulse buying and the possible
The first type of shoppers are smart shoppers, I believe these are the best type of shoppers because they make a plan before going and spending all of their money. They separate their money and set up a budget. Smart shoppers go straight to buy his or her necessities and leave; they do not waste time or money shopping crazily. In fact, smart shoppers save their time and most of all their money. They do not buy stuff that they want; they purchase items that they need. These kinds of shoppers think about their money first, rather than their desires. For example, smart shoppers will think long and hard before purchasing something they really want, they would rather save it for something that they actually need. Therefore smart shoppers are cautious people, they are careful when it comes