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Behavioral Economics: Why Consumers Are Unreasonable Spenders



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Behavioral Economics: Why Consumers Are Unreasonable Spenders

  2. CONSUMERS DO NOT ALWAYS MAKE RATIONAL DECISIONS It's often assumed consumers always make buying decisions based on costs and benefits. It turns out personal biases and habits often divert them from what would seem to be rational thinking.
  3. “In this field, we don’t assume that people are perfectly sensible, calculating machines. Instead, we observe how people actually behave, and quite often our observations lead us to the conclusion that human beings are irrational.” THIS TYPE OF CONSUMER BEHAVIOR LED TO THE STUDY OF BEHAVIORAL ECONOMICS -DAN ARIELY-
  5. FIRST STOP: ELECTRONICS Out of all laptops with 1 TB storage, she chose the one that offered a 24- month installment plan.
  6. Consumers love layaway or installment plans because small delays of payment make the painful parting with your precious cash more bearable. ACCORDING TO BEHAVIORAL ECONOMICS… 24-MONTH INSTALLMENT PLAN
  7. SECOND STOP: WALLETS Annie fell in love with so many chic leather wallets that she got confused. She couldn’t pick one, so she opted not to buy any of them on this trip.
  8. ACCORDING TO BEHAVIORAL ECONOMICS… “Choice Overload” forces consumers to think harder before making a decision. This reduces the likelihood of purchase.
  9. THIRD STOP: SOCKS Annie walked past her favorite sock brand to choose from the huge buy- one-get-one pile.
  10. ACCORDING TO BEHAVIORAL ECONOMICS… Consumers love the word “free.” It magically evokes positive feelings toward a product.
  11. FOURTH STOP: TOWELS After comparing the absorbency, fiber content and style of several different towels, she narrowed down her options to two. Then she decided to buy the more expensive one.
  12. ACCORDING TO BEHAVIORAL ECONOMICS… Consumers associate price with product quality. The brain apparently assumes that the higher the price, the better the quality. HIGH QUALITY
  13. FIFTH STOP: CLOTHES Annie checked out the newest boutique in town. She noticed that their prices were much lower than at her favorite shop. She purchased a couple of blouses.
  14. Once consumers have mentally established a set price for a particular product or product type, their willingness to buy similar items depends on this “anchor price.” ACCORDING TO BEHAVIORAL ECONOMICS…
  15. “It is true that from a behavioral economics perspective we are fallible, easily confused, not that smart, and often irrational. We are more like Homer Simpson than Superman. So from this perspective it is rather depressing. But at the same time there is also a silver lining. There are free lunches!” - Dan Ariely -
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