...Student’s Name: Course Name: Instructor’s Name: Institution: Date: Consumer choice theory is a microeconomics branch that tries to relate preferences to both consumer demand curves and consumer expenditures. The theory analyses the way consumers maximize their need to consume which is measured by their preferences against the limited ways on their expenditure. Consumers do this by utility maximization subject to a constraint on their budget. Other times it gets referred to as the theory of consumer behavior. Through the study of this theory, researchers can explain why the consumers would buy more of the product when its price is less as compared to when its price is high. Another elaboration of the theory is that it shows the reason why the households spend their income as they always do (Haugtvedt, Herr, & Kardes, 2008). The greater assumption is that every consumer is rational and aims at maximizing their satisfaction. Some major theories explain the consumer behavior. First is the Cardinalist approach or the marginal utility theory and the second is the ordinalist approach or the analysis of the indifference curves. The former describes extra satisfaction a consumer derives after consuming an extra unit of a commodity while consumption of all other products remains unchanged. The law of diminishing marginal utility gives a thorough elaboration on why the demand curves always have a downward sloping nature. The latter shows the line of combinations (indifference curves)...
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...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 will analyze how I would frame certain decisions to benefit from the disparities in my own cognitive accounting. As a consumer, I will address how to avoid the pitfalls posed by the inequalities of again, my own cognitive accounting (Tvorik, 2014). Mental accounting is a term that describes how people categorize and quantify economic outcomes (Thaler, 1980). This is similar to financial accounting in the way of using a system of debits and credits and affects how people spend and save their money, thus consumer decision-making. Mental accounting determines “when an individual chooses to act or postpone a purchase, how he or she perceives gains and losses, and how timing bears on the individual’s choices” in relation to the three mental buckets: current income, current wealth and future...
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...Expected Value and Consumer Choices Name Institution Mental accounting and how it impact on consumer decision making Mental accounting can be described to be, a combination of cognitive operations that various individuals as well as households use in evaluating, and organizing their financial activities (Okada, 2001). Mental accounting can also be explained to be, some form of accounting mind set which people form psychologically so as to benefit from the costs, which are associated with the choices that they make. Mental accounting is therefore meant to help individuals in checking their financial undertakings, as well as controlling their consumption. Researchers have said that consumers have mental accounts in every economic situation that they may find themselves in, and this usually influence the decisions that the consumers make. In every decision that a consumer makes about purchasing any commodity, two things must be put into consideration that is the cost of the commodity, as well as its benefit. In this regard, mental accounting means that the cost of a commodity is viewed subjectively, and is usually linked directly to the use of the commodity (Thaler, 2008). Therefore, mental accounting makes the consumer to allocate certain budgets to various categories of commodities; this may subsequently affect the spending behavior of the consumer. In addition, due to this subjectivity, consumers tend to give similar amount of money varying weight. This therefore shows...
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...different levels of utility to each asset group, which affects their consumption decisions and other behaviors. The importance of this theory is illustrated in its application towards the economic behavior of individuals, and thus entire populations and markets. Rather than rationally viewing every dollar as identical, mental accounting helps explain why many investors designate some of their dollars as "safety" capital which they invest in low-risk investments, while at the same time treating their "risk capital" quite differently. (Investopedia) Money is fungible, meaning that it is all the same. When budgets are not fungible, their existence can influence consumption in various ways. Frequently, retailers take advantage of consumers’ mental accounting by utilizing the principle of segregate gains which allows a sellers multi-dimensional product to be evaluated separately. In addition, several bonus items are included. One example of the segregate gains principle that comes to mind for me is the Montel Williams’ juicer called the Healthmaster. The product was advertised on television and included the following benefits: one year subscription to company for recipes (for an additional fee), payment over three months for the product so that you did not have to pay it outright, and if you called during the advertisement, you could receive a price discount of $50.00. When the sales person goes through her spill of all the additional benefits that you can receive from...
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...The Driving Force Behind Consumer Choice Choice is determined through thought, from direct influences verbally, physically, and visually. So, by means of these three ways, a person could be guided in a direction where other people use these ways to direct a decision to an individual. Consumers fall prey to the market tricks of the corporate world. This essay will examine the phenomenon on what exactly triggers the motive to consume. Later, an examination of the strategies used by companies will give a detailed image of what the driving force is in consumer choice. The public argues that they make decisions for themselves with no outside thought, this paper argues against that and how companies use action to change a response in their favor. Factors such as product quality, people sponsorships, brand recognition, and the media are the most significant methods on consumer purchasing habits. The overall argument that will be demonstrated through this paper is what exactly creates the idea in a person’s mind to purchase a product or service. Throughout the course of this literary discussion, there will be points made for and against for each of the previously stated tactics, but to clearly define this topic is an art of its own. One of the major contributors towards consumer decision is that of sponsorships. An endorsement can bring brand value and brand recognition to a company. With increased attention, there is more incentive in any regular people to recollect that information...
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...Simon surrounded the limitation of humans to process the amount of information available to make a logical, economic decision and the consumer would therefore, settle for something that satisfyingly sufficient, or ‘satisfice’(Simon 1955). Furthermore, the theory expanded over time to also include mans use of heuristics to simplify cognitive effort in the decision making process (Simon and Newell 1972) and it was argued that ‘logical and economic’ decisions were never reached by humans due to emotions and judgement controlling the decision making process and causing a range of biases and errors (Tversky and Kahneman 1986). The theory identified that humans would use these heuristics, such as rule of thumb or an estimation, to find something that is satisfactory to their needs rather than making the ideal economic decision. I agree with the notion that the world is ‘too complex for people to solve problems by employing strict logical rules and comprehensive thought processes’ (Simon 1955) and am also of the belief that humans will rely on heuristics to make the cognitive process more straightforward. Rational Consumer Choice Rational consumer choice theory has been around for many years and stems from the ideal that consumers act in a ‘rational’ fashion when making economic decisions. Not as complex as strict rationality, rational consumer choice considers some of the objections to the aforementioned theory and alters them accordingly to a more evidence driven and therefore...
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...Problem Recognition. One model of consumer decision making involves several steps. The first one is problem recognition—you realize that something is not as it should be. Perhaps, for example, your car is getting more difficult to start and is not accelerating well. The second step is information search—what are some alternative ways of solving the problem? You might buy a new car, buy a used car, take your car in for repair, ride the bus, ride a taxi, or ride a skateboard to work. The third step involves evaluation of alternatives. A skateboard is inexpensive, but may be ill-suited for long distances and for rainy days. Finally, we have thepurchase stage, and sometimes a post-purchase stage (e.g., you return a product to the store because you did not find it satisfactory). In reality, people may go back and forth between the stages. For example, a person may resume alternative identification during while evaluating already known alternatives. Consumer involvement will tend to vary dramatically depending on the type of product. In general, consumer involvement will be higher for products that are very expensive (e.g., a home, a car) or are highly significant in the consumer’s life in some other way (e.g., a word processing program or acne medication). It is important to consider the consumer’s motivation for buying products. To achieve this goal, we can use the Means-End chain, wherein we consider a logical progression of consequences of product use that eventually...
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..."Choice, happiness, and spaghetti sauce" In the video, Mr.Gladwell speaks about choice and happiness. He mentions how Pepsi chose to get aspartame for their drink. He said that Pepsi had to choose on how much aspartame they should add in their drink for people to like it. Finally they thought why they shouldn’t try a new product. They came up with Diet Pepsi. They started experimenting with Diet Pepsi. While analyzing data of Diet Pepsi they came across a new question; why where they looking for the perfect Pepsi , when they should have been looking for the perfect Pepsis. Instead of looking at one choice they should have been looking at many choices. Later, Mr. Gladwell talks about Campbell’s Soup and their tomato sauce which were of two different kinds, Prego and Ragu. They strived in making the best tasting sauce ever for which they added different quantities of ingredients in their sauce. This took them a high two to three decades of great effort to figure out the choice of the consumer. Then they started adding flavor to the sauce where they dint go with the highest average. They had to stick to choose the best flavor instead of the best sauce. Mr.Gladwell quotes that a "surer way to true happiness" can be found by embracing diversity. In marketing terms, companies might be able to make profits by embracing the differences in consumer's preferences. A major challenge in the FMCG was that it was asking what the customers want. The fact is that the customers...
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...has determined a trace contaminant is present in test samples for products that have already been released. The impurity is far below FDA standards and it has been determined that adverse reactions are extremely low in healthy adults; those with compromised immune systems have slightly elevated risk with prolonged use, but overall risk is low. Decision: To disseminate information on increased risk and allow consumers to make an informed decision. Reasons for the decision: Consideration of the problem acknowledged our duties of truthfulness and reparation. While this decision does not affect many, keeping in mind our values and shareholders enables us to avoid engaging in harmful actions and ensure actions taken are consistent with our core values and risk management protocols. Our consumers will not be put at unreasonable risk so that we may make profit; we have a responsibility to provide meaningful, accurate information. Customers need to be given enough information to make informed decisions about product choice and use and accept the responsibility for those choices. Forward-Looking Conclusion: I want to thank you for your attention to this matter. G-BioSport is committed to creating an engaging and challenging culture that adheres to effective core values during both good and bad times, and while disseminating this information might be awkward, our duty to our employees and customers must come first as per our core values and policies. Please do not hesitate to discuss...
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...EMPOWERMENT THROUGH CHOICE? A CRITICAL ANALYSIS OF THE EFFECTS OF CHOICE IN ORGANIZATIONS Roy Yong-Joo Chua and Sheena S. Iyengar ABSTRACT The provision of choice is one of the most common vehicles through which managers empower employees in organizations. Although past psychological and organizational research persuasively suggests that choice confers personal agency, and is thus intrinsically motivating, emerging research indicates that there could be potential pitfalls. In this chapter, we examine the various factors that could influence the effects of choice. Specifically, we examine individual-level factors such as the chooser’s socioeconomic status and cultural background. We also examine situational factors such as the content of choice and the number of choices offered. We then expand our discussion on the effect of giving employees extensive choice by looking at its influence on creative performance. In the second half of this chapter, we discuss implications for future organizational behavior research and examine how emerging research on choice making can inform specific managerial practices. Research in Organizational Behavior: An Annual Series of Analytical Essays and Critical Reviews Research in Organizational Behavior, Volume 27, 41–79 Copyright r 2006 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0191-3085/doi:10.1016/S0191-3085(06)27002-3 41 42 ROY YONG-JOO CHUA AND SHEENA S. IYENGAR INTRODUCTION Douglas McGregor’s (1960)...
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...Buyer Buyer When we as consumers think of making a purchases there are so many things that go through our heads, what to buy, price, location to make the purchase. These are the same thoughts that a manager has go through when they make large quantity of purchases, but there’s purchases are on a larger scale. When you are a consumer you want the quality of the product and also pricing must be reasonable. If traveling to a certain location, the question is does it take a lot of gas? Searching on the internet brings on the question, is this site safe and does this site take debit our credit? Some stores will sell refurbish items. What is the return policy if I don’t want the item? The first item I have chosen is a 70” flat screen television, the brand is Vizio it is a LED “235 ultra-slim 1080p 120HZ HDTV E7-li-A3, and the cost is only $1, 689.00 this does not include taxes and I looked around at Kmart and Target and there cost was about $30.00 dollars higher. With this Vizio Razor the resolution is very clear picture and also smooth display for the action scenes with a stunning detail and clarity. This television in the customer review is the number one choice. When choosing a television you must think of the environment, and if it the family will enjoy your choice. 2 My second choice would be shoes for the family or for you. There are billions of shoe sold all around the world from year to year. How we as consumers make the difficult choices of the right shoes for your...
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...Individual Marketing Assignment – Consumer Behavior in Group/Individual Contexts For the analysis of consumer behavior, I visited to the local Shoppers Drug Mart on the past Friday, October 14, 2011. I was particularly interested in observing consumers that were making purchase decisions for cosmetics therefore, I went over to the Beauty section of the Shoppers Drug Mart. I was fortunate to witness a group of teenage girls (ages between 16 to 20) who were trying to decide which brand of mascara to purchase. One of the girls expressed her current mascara was not satisfactory, and her friends were there to help her choose the best one. To simplify things, we will call the girl who disliked her current mascara “A” while her friends are referred as “B”, “C”, and “D”. They began by walking along the Beauty section and checking all the different brands. As they passed by each brand, “B”, “C” and “D” would give their own comments of that brand to “A”; they commented on the price, quality, and their overall brand impression of each brand. Although the opinions and preferences of “B”, “C”, and “D” conflicted, they finally came to the same conclusion - that “Maybelline” had the best quality of mascaras with a price that was affordable for “A”. “B”, “C”, and “D” also remarked that Maybelline products are exceptional because they have heard positive reviews from their friends and also because of their cute packaging. Now that they have settled on a brand, they started comparing different...
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...much choice do we really have when we want to purchase goods? Choice is something most people just assume they have when they are picking their cable company, choosing a bank, or even walking through your local food mart. The goal of this essay is to show that while at first glance choices may seem endless, but when you do a small amount of research you can quickly realize that most brands link back to the same parent company. The majority of foods, drinks, and health products we buy trace their way back to 10 major corporations. Society today has this false idea that they have a choice in what they buy at the grocery store. For example you may not like large soda companies and decide to not buy their products. But if you buy bottled water, sports drinks, energy drinks, or fruit juice chances are you are buying a brand from a soda producing parent company. Most retailers charge a fee to get products on the most visible shelves which keeps small companies away from your line of sight. This is because large consumer good companies have a special relationship with retailers. Like an “I’ll scratch your back if you scratch mine ideology”. Many of the products that you see on store shelves are direct competitors that are linked to the same company. “ConAgra sells six varieties of popcorn” (http://www.alternet.org/food/how-big-food-creates-illusion-choice-supermarket). Different brands of products is a ploy that most parent companies use to help give you a false idea of choice. This...
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...Consumer Behavior Homework Exercise 1a. Problem Recognition: Occurs whenever a consumer sees a significant difference between his or her current state of affairs and some desired or ideal state. e.g. My dad notices his TV is getting old and outdated, some pixels are dying and the image is no longer very clear and bright. Information Search: Step of the decision-making process in which the consumer checks his memory and surveys the environment to identify what options are out there to solve his problem. e.g He does some market research through google and looks for TV’s on websites that sell electronics. He reads customer reviews on the products and checks for the best price on the market to see which ones are worth it. He also visits the closest electronic retail store to check for product quality and features and ask questions to the sellers. Evaluation of Alternatives: e.g After conducting extensive market research he is able to narrow his choices down to three to four televisions. He is now comparing them and carefully analyzing the good and bad features of each. Product choice: e.g He chooses one TV because he really likes the price and all the features that comes with it. He selects the one that is affordable, has good image and size and is durable. Post-purchase Evaluation: e.g He finally watches his favorite TV shows and movies on the television and is very happy with his choice. 1b. Situational: Situational Influences include two factors which is the physical...
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...FACTORS AFFECTING CONSUMER BEHAVIOUR ON PRODUCTS CHOICES:A SURVEY OF SUPERMARKETS IN ELDORET TOWN ABSTRACT This study will look on the ability of the local supermarket to take in to account the consumer buying behavior and characteristic as a baseline for defining marketing programs. To better understand why consumers buy as they do, many marketers turn to the behavioral sciences for help. Similarly, there are numerous theories, models and concepts making up the the field. These variables and the buying process are usually affected by relations with other people too. The study will look at how individuals interact with family, social class, and other group who may have influences. The study will be conducted in Eldoret town in the month of January 2011, and will adopt a survey design. The study will target customers, managers from 10 major supermarkets, cashiers, accountants and supermarkets attendants. Data will be collected using questionnaires, and analyzed using statistical techniques. Similarly some variables of special interest to marketers include motlvation, perception, learning, attitudes, and lifestyle. Much of what we know a bout these psychological [interprets} variables draws from ideas originally developed in the field of psychology. Inadditon,a solid understanding of consumer behavior is necessary because consumer actions influences the success or failure of marketing strategy, and because firms must create marketing mix that satisfies customers. Moreover...
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