Mental Accounting and Buyer Behavior




Consumption Behavior
Knowledge Center

Translate

Forum
7
Aniket Deolikar
Consultant, India

Mental Accounting and Buyer Behavior

WHAT IS MENTAL ACCOUNTING?
Mental accounting questions the microeconomic principle of fungibility of money. As per the microeconomic theory, money does not have labels attached to it, therefore money may be used seamlessly across all the purchases. But in reality, people in their minds allocate money into separate accounts such as "entertainment", "food", etc.

THE MENTAL ACCOUNTING CONCEPT
It is a model developed on mental coding based on combinations of gains and losses perceived by the customers using the prospect theory value function. People tend to behave in a pattern to minimize loss: so called "loss aversion". We can distinguish 4 joint outcomes (x, y) to be considered and the proposed advice/strategy in such case for marketers is as follows:
  • MULTIPLE GAINS: Segregate gains, because consumers perceive separate gains to be more than the overall gain according to the value function of prospect theory. For example it is better to show gains of $20 and $30 separately rather than showing one gain of $50.
  • MULTIPLE LOSSES: Integrate losses. If a consumer is facing multiple losses then we must not tell them the losses separately, rather we should combine the value of losses and tell them such that the perceived value of the loss is lesser. E. G.If there are losses of $10, $20, $40 them rather than telling that there are these three losses, we must tell that there is a loss of $70.
  • MIXED GAINS: Cancel losses against larger gains. In this case, if the gain is more and loss is less then we should cancel the losses from the gains and tell the final gain to the consumer such that he/she feels that loss has not happened. For example if there is a gain of $100 and a loss of $20 then you must tell the consumer that there is a gain of $80 rather than telling the separate incidences.
  • MIXED LOSSES: Segregate silver linings. In the case of a huge loss and small gains, show the gains separately. For example if the loss is $100 and the gains are $20 and $10 then we must show the gains separately which creates a sense of lesser loss.
⇨ Is Mental Accounting a useful tool for marketers?

Sources:
Richard Thaler, "Mental Accounting and Consumer Choice", Marketing Science, 1985, Month, Vol 4, pp. 199-214
 
Comments

Rating

 
3
Jaap de Jonge
Editor, Netherlands
 

Mental Accounting Examples

I think it is... According to Wikipedia, mental accounting is useful for marketers, as it makes usef... Sign up

   

More on Consumption Behavior:
Summary
Discussion Topics
4 Types of Consumer Buying Behavior (Assael)
Why do Consumers Rescind Products/Purchases?
2- and 3-part Cost Structures in Consumer Behavior: The 'Free' Allowance
Behavior of Consumers Using Price Comparison Sites
How Social Networks Influence Product Adoption
List of Uses of the Halo Effect in Advertising and Branding
Why Consumers Purchase Goods or Services in the Informal Economy?
👀Mental Accounting and Buyer Behavior
How to Manage Motivational Conflicts in Consumer Decision-making
Buying Behavior: How Consumers Handle Perceived Risk
Consumer Behavior in Tourism: Concept and Importance
The Customer Perspective to your Business? the Empathy Map
The Role of Ethics in Consumer Purchasing Behavior
🔥How are Customer Behaviours Impacted by Pandemics?
Linking Consumer behaviour with Marketing
Special Interest Group

Do you know a lot about Consumption Behavior? Become our SIG Leader

Consumption Behavior
Knowledge Center



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
© 2023 12manage - The Executive Fast Track. V16.1 - Last updated: 26-3-2023. All names ™ of their owners.