Mental Accounting and Buyer Behavior

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Ignatius D
Manager, India
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 (...) Read more? Sign up for free

  Jaap de Jonge
Editor, Netherlands

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