Question

Consumers often create a system of budgets for various activities when deciding on consumption activities. In class we studied mental accounting, which is a theory of grouping and categorizing money and transactions so that the consumer can systematically evaluate the potential tradeoffs. Assume you are interested in how narrowly people define their mental accounts. In particular you are interested in whether clothing expenses and movie expenses are part of the same metal account or not. Design an experiment to test whether they belong to the same mental account for an average OWU student. Describe in detail the experiment and how you would analyze the data.

Answer 1

The rate of spread of innovation depends on a number of factors listed below:

1. Type of group: Some groups, who are young, affluent and highly educated, accept changes faster than the old, traditional and poor groups. This shows that the target market is an important determinant of the rate of diffusion.

2. Perceived risk: The more the risk associated with changing to new innovation, the slower is the rate of diffusion. The risk consists of the product not performing as expected, the risk of the consequences of change-over, and the risk of reverting back to the old product, if not satisfied with the innovative product.

3. Type of decision: An individual vs. a collective decision. Individual decisions lead to faster diffusion than collective ones.

4. Marketing effort: This also affects the diffusion process. More aggressive marketing effort, consisting of high and continuous advertising expenditure, diffuses faster than otherwise.

5. Trial: The trial can be taken at low cost and low risk, the diffusion is faster. Some products can be borrowed, rented or, their trial can be taken at retail outlets. These products like medicines and other low priced items have faster diffusion. These days even car outlets are giving free trials and rides to prospective customers, to make their new models of cars diffuse faster.

6. Fulfillment of felt need: The faster a need is satisfied or fulfilled by a product, the greater is the rate of its diffusion.

7. Compatibility: The more the product is compatible with the beliefs, attitudes and values of the individual or group the faster the diffusion - vegetables soup for vegetarians, ordinary microwave no roasting.

8. Relevant advantage: The advantage could be of price, quality, ease of handling, product quality. To have quick diffusion, the product must offer either a price advantage or a performance advantage. Washing machine is expensive, but a labour saving device.

9. Complexity: If the product is complex (difficult to understand and use) the diffusion is slower. The product may be complex but its use must be easy. Complexity may be because of many attributes (at- tributes complexity which are difficult to under- stand). The other complexity may be trade off complexity. The trade off takes place between cost of purchase and economy. Convenience vs. space or speed of cooking, vs. quality of cooking, as in microwave ovens.

10. Observability: The more easily the positive effects of the products can be observed, the more discussion takes place and faster the diffusion process, e.g. cell phones.

Expectations People see what they expect to see. What they expect to see is usually based on familiarity, previous experience, or preconditioned set expectations. Stimuli that conflict sharply with expectations often receive more attention than those that conform to expectations. Motives People tend to perceive things they need or want. The stronger the need, the greater the tendency to ignore unrelated stimuli in the environment. An individual‘s perceptual process attunes itself more closely to those elements of the environment that are important to that person. Marketing managers recognize the efficiency of targeting their products to the perceived needs of consumers. Selective Perception The consumer‘s ―selection‖ of stimuli (selective perception) from the environment is based on the interaction of expectations and motives with the stimulus itself. Selective exposure—consumers actively seek out messages they find pleasant or with which they are sympathetic.

a. Consumers actively avoid painful or threatening messages. Selective attention—consumers have a heightened awareness of the stimuli that meet their needs or interests.

b. Consumers have a lower awareness of stimuli irrelevant to their needs.

c. People vary in terms of the kind of information in which they are interested and the form of message and type of medium they prefer. Perceptual defense—Threatening or otherwise damaging stimuli are less likely to be perceived than are neutral stimuli. Individuals unconsciously may distort information that is not consistent with their needs, values, and beliefs. Perceptual blocking— consumers screen out enormous amounts of advertising by simply People do not experience the numerous stimuli they select from the environment as separate and discrete sensations. People tend to organize stimuli into groups and perceive them as unified wholes. Gestalt psychology (Gestalt, in German, means pattern or configuration) is the name of the school of psychology that first developed the basic principles of perceptual organization. Three of the most basic principles of perceptual organization are figure and ground, grouping, and closure. Figure and Ground Stimuli that contrast with their environment are more likely to be noticed. The simplest example is the contrast between a figure and the ground on which it is placed. The figure is usually perceived clearly. The ground is usually perceived as indefinite, hazy, and continuous. The figure is more clearly perceived because it appears to be dominant—the ground appears to be subordinate and less important. Advertisers have to plan their advertisements carefully to make sure that the stimulus they want noted is seen as figure and not as ground. Marketers sometimes run advertisements that confuse the consumer because there is no clear indication of which is figure and which is ground.