Consumer Behaviour

Loss aversion, the tendency we have to attach more weight to potential future loss than future gain, has been well-documented since Kahneman, Knetsch and Thaler proposed it in 1990. Whilst it is hugely important in helping to explain a number of the ways in which consumers act, the simple act of reflecting on decisions of our own that turned out to be costly mistakes that could have been avoided with a little more thought, reveals that it is far from a universal determinant of our actions. Recently a very good friend of mine made two significant purchases within a matter of weeks: a luxury car and a luxury watch. The car cost him approximately £25,000 and the watch £4,500. What was interesting to me was that he negotiated hard on the price of one but not at all on the other. In fact, for one purchase he didn’t even shop […]

$9.99 It’s almost akin to a retail disease. Walk into any shop and the prices frequently end in the same way: $X.99 or $X.95. This used to have some unfortunate consequences. I’m old enough to remember the days when you might well end up carrying around a couple of kilos of small change in your pockets. Then, when the burden got to great, or you got irritated with sounding as though you were wearing a manacle as it ‘chinked’ with each step you took, you would act. The social consequence of spending a disproportionately long time at the checkout would be outweighed by the desire to move freely and you would pay for the next item using as many coins as you could. The upside of this was that it was very good for your mental maths. You would work out how the small change you had could be deployed […]

$9.99 It’s tempting to think that we don’t need anyone to tell us how to save money. Indeed, we may very well believe that we’re very good at saving money. A trip to most stores at the moment is a ‘money saving’ bonanza: with so many great deals around, coupons, voucher codes, referral sites that pay you a reward for buying something you were already going to get, loyalty discount vouchers, GroupOn-style great deals direct to your in-box… only a fool wouldn’t be saving money these days. Except for one thing. Most of the times we believe we’re saving money we’ve been duped into spending it first. A saving of $100 is only a saving if you had intended to spend $300 when you left the house (or started the internet search engine) and then ended up spending $200 because of the great deal you uncovered. If you left the […]

Choice is nice, but also confusing. Research about choice is nice, but also sometimes confusing. The classic psychological experiment on choice is probably the one involving jams in a supermarket. A choice of six was found to lead to substantially more jam being sold than a choice of 24. You may attract people to your abundant display, but they get confused and end up not buying. Other studies on choice have found that when people do choose from a large range they end up feeling less good about their decision: with the gap between good and bad inevitably condensed, unconscious nagging doubts remain about the option selected. However, the situation isn’t as simple as to say that reducing choice will lead to higher sales and happier customers. Customers may reject you for having too little choice. Alternatively, range rationalisation may remove a specific product that someone wants, leading them to […]