This website uses cookies to ensure you have the best experience. Learn more

Expected Value And Consumer Choices Essay

1441 words - 6 pages

Expected Value and Consumer Choices

Argosy University

Abstract
Consumers’ choices are prey to subtle discrepancies that arise in cognitive accounting and identifying how and when you are susceptible is an important step in improving the decision making process (Tvorik, 2014). This paper will consider why people value gains and losses differently in different circumstances by addressing what mental accounting is and how it impacts consumer decision making; and how a company can take advantage of their consumers’ mental accounting (Tvorik, 2014). This writer will also consider different scenarios from differing points of view; as a marketer and as a consumer. As a marketer, this writer ...view middle of the document...

This is used more frequently as discretionary money because it is being considered “free” income even though it is really just their own money, minus interest, being returned to them (Vedantam, 2007).
The sunk cost effect is “paying for the right to use a good or service will increase the rate at which the good will be utilized” (Thaler, 1980). Thaler (1980) explains the sunk cost effect concept in terms of pleasure and pain:
In terms of prospect theory, pleasure can be thought of as the value function in the domain of gains while pain corresponds to the value function in the domain of losses. When will a customer feel pain? Pain will not be felt when a purchase is made for immediate consumption (like buying a hamburger for lunch) as long as the price is ‘reasonable’… Only in the event of a loss will there be actual net pain.
Alternately if one was purchasing an asset, or something that will provide future benefit, no pain or pleasure is felt at time of purchase, but at the time the good is used or service has been provided (Thaler, 1980).
Marketing is a company’s best tool to take advantage of consumers’ mental accounting. “People prefer a supposedly free incentive to an equivalent price discount [and] people often behave irrationally when thinking about future consequences” (Welch, 2010). The challenge is not only beating competitors but convincing consumers to spend their money since they always have the option of not doing so (Welch, 2010). According to Welch (2010), by offering a delay of payment companies can increase their customers’ willingness to buy; even small delays in payment can soften the sting of parting with their money. Some mental accounts for spending include windfall gains, pocket money, income and savings. Income is less easy for consumers to spend and savings is the most difficult so understanding this and acknowledging the barrier can benefit a company by adjusting their marketing strategy (Welch, 2010).
Another way to leverage consumer mental accounting is to make the product something the customer would deem as a necessity. The concept of reason-based choice explains that consumers make purchasing choices using mental accounting based on reasons that are constructed to justify decision implicitly or explicitly (Kivetz, 1999). Kivetz (1999) explained that consumers who reasoned with themselves implicitly may be more likely to purchase necessities because they are needed rather than purchase luxury goods which could be considered waste, where as customer’s who have the opportunity to explicitly defend their purchases to others find it easier to purchase luxury items. Marketers and their companies can benefit from this by creating the perception that a product is a necessity rather than a luxury item, making it more likely to increase sales, or to encourage consumers to talk about it.
As a marketer, recognizing and understanding my own mental accounting tendencies will only benefit my career. I will be able to...

Other assignments on Expected Value And Consumer Choices

Custommer Retaiing Essay

3921 words - 16 pages indispensable. Another notable approach is charismatic and value-driven leadership (Levy &Weitz pg 29 2004). This helps reduce customer complaints concerning the services offered by the different shop attendants. The business also collects information from customers as an after service process to ensure that the service expected was received. Scholars present two research tools for measuring service, which are quantitative and qualitative methods

Healtcare Research Essay

1005 words - 5 pages What Do Americans Want Out of Healthcare? Team 2: Michael Drescher, Tim Geiger, Heather O’Dell, Carla Raynor Part A: Consumer Preferences and Desires Overview We began with online research, surveying a group of healthcare consumers, in an effort to better understand what Americans want out of their healthcare system. Our aims were to determine what these consumer’s valued, their product and service preferences, consumption patterns

Psy322 Week 5

1834 words - 8 pages appeals to consumer social processes. Healthy food options are an example of the large financial incentives available in the marketplace for this segment of the food industry. McDonald’s reported they will “allow customers to get a side salad, fruit or vegetable instead of fries with value meals and promote water, milk and juice as the drinks for Happy Meals on its menus and in ads” (Nichols, 2013, para. 3). According to Robinson, Bloom, and Lurie

Food And Beverage Industry

1700 words - 7 pages FOOD & BEVERAGE INDUSTRY PRODUCTION OPTIMIZATION SOLUTIONS FOR RESPONSIBLE AND PROFITABLE OPERATIONS TRENDS & ISSUES IN THE FOOD & Global market forces are driving the continual evolution of the food and beverage industry. Consolidation, changing consumer preferences and increasing government regulations are dramatically impacting manufacturing and business strategy. In this fiercely competitive marketplace, you must offer a greater

Investment Analysis And Recommendation Paper For Apple Inc

5828 words - 24 pages growth rate of dividends uses the formula: P=Divk-g | ( 1 ) | P is the common stock investments present value. Div represents the per share dividends expected to be paid one year from the day. The denominators k and g show the firm’s growth rate. K is the required rate of return for equity investors, and g is the growth rate in dividends. The formula necessary to determine the value of g is: g = Retention ratio × ROE | ( 2 ) | The retention

Pepsico

2290 words - 10 pages . Criticisms of the MM Model and Assumptions……………7-8 VIII. PepsiCo’s Capital Structure……………………………………….8-9 IX. Conclusion…………………………………………………………………..9 X. Refrences…………………………………………………………………..10 ABSTRACT The following research will examine the capital structure of Pepsico and how the choices that the company makes affects their return on investment and their risk profile. The traditional theory of capital structure theorizes, “when the

Business

7113 words - 29 pages -game advertising * Product demonstration * Word-of-mouth * Brand ambassador * Drip marketing * Visual merchandising | * v * t * e | Marketing is communicating the value of a product, service or brand to customers, for the purpose of promoting or selling that product, service, or brand. Marketing techniques include choosing target markets through market analysis and market segmentation, as well as understanding consumer behavior

Eco 550

625 words - 3 pages wages without improving productivity, then the value of the firm decreases. However, labor costs may rise but be offset by increases in productivity, then the change in the value of the firm depends on which increased more, wages and productivity. D) Inflation tends to increase costs and increase prices. The full impact is indeterminate depending on the ability of the firm to pass along higher costs to consumer and on the specific impact of

Argumentatiove Essay On Obesity Solutions

1057 words - 5 pages personally (Verduin, Agarwal, Waltman, p. 1, par. 4). Studies have, however, found that consumers are more interested in price and taste than in the nutritious value of the products (Verduin, Agarwal, Waltman, p. 1, par. 4). Moreover, consumers are confronted with a true lack of choice, as they are always keen to choose what is convenient, which is, at the same time, not healthy (Begley, 2012, p. 2, par. 16). Undoubtedly, the consumer is the most

Casa Analysis

894 words - 4 pages |366877.96 | If Spiegel issued the stocks immediately the Expected net present value gained by the company would be $526734.24 thousand. |2. Decision Tree Analysis | Here we consider three types of demand a. high, b. average, and c. low. Then we calculated the average cash flow for each scenario, then we got net present value. Then we calculated expected NPV. Then we compare this NPV with

Analysis

4019 words - 17 pages environment, availability and value for money. So consumer can develop image regardless of many other unidentified factors. Markets consist of number of buyers with the differences in wants, resources, geographic locations, consumption, 29 Factors effecting…. Abasyn Journal of Social Sciences Vol. 5 No. 2 Attribute lifestyles and buying. According to Kotler (2009), The American Marketing Association defines brand as 'a name, term, sign

Similar Documents

Define Consumer Behaviour And The Value Of Studying It

738 words - 3 pages Mental, emotional processes and the physical activities of people in regards to a product or service they provide is something marketers need to study in order to be market leaders in their respective industries thus the study of consumer behaviour is very vital for firms to survive. Consumer behaviour is the study of individual, group, or organisations and the processes they use to select, secure use and dispose of products, services

Consumer Essay

8106 words - 33 pages Interrupt interpretation and response Consumer Choice Behavior Functional Value Conditional Value Social Value Emotional Value Epistemic Value How does a consumer decide that he/she needs a product? What are the best sources of information to learn more about alternative choices? How are consumer attitudes toward products formed and/or changed? What cues do consumers use to infer which products are

Consumer Behaviors Essay

8162 words - 33 pages Value Conditional Value Social Value Emotional Value Epistemic Value How does a consumer decide that he/she needs a product? What are the best sources of information to learn more about alternative choices? How are consumer attitudes toward products formed and/or changed? What cues do consumers use to infer which products are superior to others? CONSUMER'S PERSPECTIVE MARKETER'S PERSPECTIVE Is acquiring a product a

Introduction To Marketing Essay

595 words - 3 pages Introduction to Marketing Dahlia El-Manstrly Department of Management Marketing Concepts . Marketing dynamics . Consumer behaviour . Market segmentation . Marketing mix . Customer relationship management Marketing definition 'The management process responsible for identifying, anticipating and satisfying customer requirements profitably' (CIM) 'satisfying needs and wants through an exchange process' (Kotler,2009