Expected Value and Consumer Choices
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 ...view middle of the document...
For instance, companies exploit this weakness by offering discounts on commodities. This usually has an immediate effect on the consumers, to buy such a product without necessarily considering the arithmetic facts behind the discount offered on a particular commodity (Pareek & Moore, 2009). By doing this the companies are able to attract many customers to buy the products, although the consumers may not get much value from the discount offered.
Another way that companies take advantage of consumer’s mental accounting is in packaging of their products. Companies sometimes take this advantage by attractively packaging their commodities. This usually attracts consumer to buy their products even when their prices are higher. In the same way, some companies label their service to be of high standards (Thaler, 2008). This usually makes them to charge high prices for the services, despite offering the same services like any other company. The consumer usually do not mind paying the higher price and therefore, the companies ends up exploiting the consumers.
Another way that companies can take advantage of consumer’s mental accounting is by reducing the vividness of costs (Pareek & Moore, 2009). This is where the companies for instance portray their price in a reduced form. For instance, a company can say that it is offering its products at 50 cents a day instead of $182.50 a year. This way the customers might think that the products are cheaper if you buy the product on daily basis, rather than annually the company may therefore end up attracting many customers on this basis.
How marketers can frame certain decisions to benefit from consumers mental accounting
For a marketer to benefit from consumers mental accounting, he has to frame his marketing decisions in such away that they make the customers feel that the price they are paying for a certain product, is much far lees compared to the benefits that products bring. Researchers have pointed out that every consumer experiences some pain, when paying for a certain commodity, especially...