Neuroeconomics: The Psychology of Consumer Behaviour and Purchasing Decisions

handsI’m going to start this article by posing a question, how much would you pay for a cool refreshing beverage after 2 days in the desert with no fluids? An extreme situation but the point I’m trying to make is that the reason the answer to that question is ‘ANYTHING!’ is because humans aren’t always rational beings, feelings and situations affect how much we will pay for items.

I was recently having a very interesting debate on the uncommon forum about why people might pay more for items even if they know they can get it cheaper elsewhere. What other factors affect our spending?

Time Constraints

I’m sure so many people have come across the dilemma of forgetting a birthday or leaving all of your christmas shopping until yule tides eve, so what would you do if all the shops but one were open? You would go in there and you would buy your presents because you have run out of time no matter what the cost. This is where convenience comes into play, sometimes its better just to go to your local shop and pay a little extra than it is to haul yourself to the supermarket. Time was found to be the most dominant factor of consumer behaviour in the study performed by Ragaert et al, 2004.

Taking Other costs into Account

A great example of explaining this is when your boiler explodes. You’ve got water slowly filling up your house like a rising panic and its late on a sunday night. Now you could wait until tomorrow morning, by which time the water will have damaged your beautiful lime green sofa with aqua marine stripes or you could call out an emergency plumber. While this might cost more upfront you will have prevented damaging your property and so potentially saved yourself money over all. People are willing to pay a premium for perceived safety of themselves and their property.

Another prime example of this is the convenience store v supermarket argument. You have to consider that yes the eggs might be cheaper at the supermarket but will the saving be greater than the time and petrol spent getting there.

Going to a Shop v Online

There is a very satisfying thing about going to a shop and purchasing an item straight away. You get the full experience of going in, looking at, touching and deciding which product is best for you. Many of your senses are involved in the experience and sometimes you could be approached by the salesperson and then involve your auditory sense in making the purchase.

When you compare this to online shopping there is nothing that can replace some of those experiences, there is no way you can see the item in the flesh before purchasing and the only enhancements that you get are the anticipation and the often cheaper price tag. Some people believe that this is not enough and that is why the high street has not completely caved in the face of online opposition.

Brand Awareness and Loyalty

Some products have stayed at the top of their particular markets for so long due to excellent branding. One of the best examples of this is the red bull campaign of advertising. They have practically adopted the extreme sports such as snowboarding and skateboarding as their own and therefore made themselves familiar to millions.

Now we see a wide range of other energy drinks on the market why do people still pay for the much more expensive red bull? Brand loyalty. It has been found in a study by Kasper and Bloemer, 1995people get more satisfaction buying from a brand that they know and trust rather than to risk buying something new that they may not like. It’s one of the reasons there are so many places selling full english breakfasts in Spanish sea side resorts.

Ethical Items

What I mean by the term ethical items is things like organic food, fair trade products and local produce. These are all items that some people would add value to because of a percieved benefit on top of the normal use of the product. ‘Yes carrots will feed me but organic carrots are helping the environment too’ kind of argument.

Even though the item is not going to make their lives better they are buying it because they believe that it has other benefits to the planet as a whole and so they get a sense of satisfaction out of paying a little extra. This is very similar to the reasons that people give to charity, they have trouble seeing the benefits themselves but they get a kick knowing that they have done their bit. A study performed by Mainieri et al, 1997 found that you can link several characteristics to people who make purchasing decisions based on ethical considerations, the most significant being homeownership.

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