MKTG 322 exam 2 - FLASHCARDS - Financial decision making and well being
What refers to the negative emotions people experience when they have to pay for goods or services?
Pain of paying
What is the level of pain in pain of paying affected by?
The payment method and the timing of the payment
What are the 5 principles of financial decision making?
- Mental accounting
- Sunk cost fallacy
- Price relativity
- Price bundling
- Price fairness
What is the property of a good or a commodity whose individual units are essentially interchangeable?
Principle of fungibility
What refers to the different values a person places on the same amount of money, based on subjective criteria?
Mental accounting
What is a good example of mental accounting
Imagine that you have decided to see a play where admission is $20/ticket. As you enter the theater, you realize you have lost a $20 bill.
Would you still pay $20 for a ticket for the play?
Now imagine that you have decided to see a play and paid the admission price of $20/ticket. As you enter the theater, you discover that you have lost the ticket. The seat was not marked, and the ticket cannot be recovered.
Would you pay $20 for another ticket?
What is the act of continuing an action just because of an unrecoverable investment rather than a rational decision that will maximize present utility?
Sunk cost fallacy
A family pays $40 for tickets to a basketball game to be played 60 miles from their home. On the day of the game there is a snowstorm. They decide to go anyway, but note in passing that had the tickets been given to them, they would have stayed home. What is this an example of?
Sunk cost fallacy
A man joins a tennis club and pays a $300 yearly membership fee. After two weeks of playing he develops an elbow injury. He continues to play (in pain) saying ‘I don’t want to waste the $300!’. What is this an example of?
Sunk cost fallacy
True or false: People ignore sunk costs, eventually?
TRUE
What is the gradual reduction in the relevance of prior expenditures?
Payment depreciation
What is price relativity?
• We make decisions in a relative way and compare them
locally
• The significance of small amounts are reduced in the
context of a large expenditure. 5 dollars is more significant in a 30 dollar calculator than in a 250 dollar coat
You see a coat for 250 dollars at Target and one for 240 dollars at Macy’s. These stores are 20 minutes away. Would you drive 20 minutes to save 10 dollars? What is this an example of?
Price relativity
You see a calculator for 30 dollars at Target and one for 20 dollars at Best Buy. Would you drive 20 minutes to save 10 dollars? What is this an example of?
Price relativity
What is payment decoupling?
Separating the pain of payment from the consumption decision
What are situations in which separating the payment from consumption is helpful for marketers?
• All-inclusive resorts
• Annual membership fees for health clubs
• Flat-fee services
Ernie and Bert are serious skiers who have each pre-
purchased four days’ worth of lift tickets. Having gone to
different vendors, Ernie paid $40 for each of four one-day
lift tickets, and Bert paid $160 for a four-day ski pass. Both
men have enjoyed three days of skiing in perfect
conditions.
Unfortunately each wakes up on the fourth day to find that
ski conditions have deteriorated considerably.
Who is more likely to ski in spite of the poor
conditions?
Ernie has unbundled tickets and has a nonrefundable, unused ticket for that fourth day. Bert has a bundled pass and has a partially used pass that expires on that fourth day
What is the formula for aqquisition unity?
Perceived Value – Price
True or false: Consumer feel entitled to an existing ‘reference’ price?
TRUE
True or false: It is perceived as unfair for firms to impose losses on its customers to profit more?
TRUE
What is repayment by purchase?
How do you decide how much of your credit card debt to pay each month?
