PSYCHOLOGICAL SPENDING BY CONSUMERS

Consumer spending is a complex phenomenon that is influenced by a variety of psychological and financial factors. Understanding the aspects of psychological consumer spending can provide insights into how consumers make purchasing decisions and how these decisions impact their finances.

 

• Consumers tend to spend more using credit and debit cards rather than cash

It is widely recognized that consumers tend to spend more when using credit and debit cards rather than cash. This phenomenon is known as the “credit card premium” or the “plastic premium.” There are several reasons why this may be the case. 

 

Psychological Distance: Using a credit or debit card can create a psychological distance between the consumer and their money. As the consumer is not physically handing the cash, they may not feel the same sense of loss that they would if they were paying with cash. This can easily increase the amount of spending for consumers.

 

Delayed Gratification: When consumers use credit or debit cards, they often do not have to pay for their purchases until later. This can create a sense of delayed gratification, where the consumer feels like they are getting something for nothing. As a result, they may be more likely to make purchases that they would not have made if they had to pay for them immediately.

 

Rewards Programs: Many credit and debit cards offer rewards programs that incentivize consumers to use them for purchases. For example, consumers may earn cashback or airline miles for every dollar they spend. These rewards can encourage consumers to use their cards more frequently, even if it means spending more money overall.

 

Convenience: Finally, using credit and debit cards is often more convenient than using cash. Consumers do not have to carry around large amounts of cash or worry about making changes. This convenience can make it easier for consumers to make impulsive purchases or to increase their spending overall.

 

• Do consumers spend more while shopping physically or when shopping online Individuals’ psychological characteristics change from consumer to customer. Some spend more physically, while others unintentionally spend more on online purchasing.

 

Depending on a variety of variables, customers’ spending patterns can differ significantly between in-person and online transactions. The person’s psychological traits and behaviors are important factors. When shopping in a physical store, for instance, someone who is prone to making impulsive decisions may be more likely to spend more money since they can be influenced by displays, promotions, and other visual cues. However, if a person is more thoughtful and frugal with their spending, they may be more inclined to spend less at a physical store.

Similarly, someone who appreciates the convenience and ease of online shopping may find themselves spending more money there because they can browse and purchase things quickly and simply without leaving their home. They may also be more likely to take advantage of online sales and deals, which can lead to higher spending in the long run.

Another crucial factor to consider is the individual’s buying environment. For example, if individuals are looking for a specific item that they require immediately, they are more likely to spend more money whether they are shopping online or in-person. Furthermore, the sort of product purchased can influence spending patterns. High-end luxury items, for example, may be more likely to be purchased in-person, where the consumer may see and feel the item before making a decision.

It’s also important to recognise that other factors, such as societal standards, cultural expectations, and personal values, might influence purchasing patterns. For example, some people may feel compelled to spend extra money on gifts for friends and family over the Christmas season, whether they purchase online or in person. Others may value sustainability and ethical manufacturing practices and be willing to pay extra money for products that fulfill those standards.

To summarize, whether consumers spend more money when shopping in person as opposed to online is determined by a variety of factors, including individual psychology, product type, and contextual factors. While there is no single answer to this issue, understanding these characteristics can help consumers make better-informed buying decisions regardless of the shopping context in which they find themselves.

 

• Consumers tend to spend on a product when a majority of the people are spending on it to prove that he belongs to a particular social class.

Consumers often get influenced by social proof, an idea that suggests individuals are more inclined to replicate the actions of others when struggling with uncertainty. In the study of Economics, this notion is termed as the Bandwagon Effect, which describes the human tendency to engage in something primarily because of its popularity, even if their personal beliefs are in opposition. Furthermore, a herd mentality refers to the inclination of people to conform their actions and beliefs to those of a larger group.

Influencers are people who have a relatively large audience in which to tout their beliefs. In the consumer world, influencers can impact the success or failure of a product by using it or shunning it. A marketer often targets influencers rather than the entire target market, because these influencers can alter the behavior of other people. Influencers can be influential buyers, retailers, or people, such as journalists or industry professionals.

The bandwagon effect is a combination of both psychological and sociological factors which drives this phenomenon. Being social beings, humans have a natural inclination towards group memberships. The pursuit of social acceptance and identity fuels this drive. The desire of being on the winning side and displaying social identity are also significant contributors. As individuals get involved in the group environment, their behaviour becomes more homogeneous, desirable, and often normalized due to repetitiveness and close proximity.

The human brain uses “shortcuts,” or heuristics, to make decisions quickly and efficiently. One of these heuristics is observing others. If many people follow a trend or make the same decision, your brain assumes it’s the right one. This approach makes economic sense since you save money on research by relying on others’ knowledge and opinions. For instance, if you’re expecting a child, you could spend hours researching different baby strollers. Alternatively, you might trust your network’s preference for a specific pram model and go with that option. Quality strolling replaces hours of needless inquiry. Mindlessly following the crowd yields complications. This was completely evident in the 2007 property crash.

Gathering information and evaluating goods’ quality is simpler for consumers who seek and trust in other consumers’ opinions and purchasing behaviors, which often results in substantial savings. Following the lead of others when their preferences and consumption decisions are rational and based on accurate information about relative product quality can be beneficial. However, this bandwagon effect can lead to free-riding on other consumer’s information and preferences, resulting in underproduction of product information that is sometimes solely or primarily produced by marketers. This can result in people buying popular electronic items regardless of their need, affordability, or even true desire for the item.

• Future Price Expectations

There are instances when a product or service becomes costlier due to economic conditions, which compels the buyers to purchase them as soon as possible to avoid further increments in the price levels, this creates a panic situation among the buyers and the quantity demanded by them increases and such transactions violate the demand-supply principle, and these price modifications might manipulate consumer psychology. Conversely, if the consumer anticipates that the cost of the product or service will decrease, they might hold back their purchase to enjoy substantially lesser prices in the future.

 

For example, In recent times, the prices of valuable metals such as gold and silver have been soaring and are anticipated to ascend even higher due to inflating world oil prices. This inflation has caused consumers to fear price surges and therefore purchase more of these metals. Conversely, if prices were to fall, consumers would delay their purchase to buy more at a later time.

Indian buyers often view these metals as investments and end up buying more with the expectation that prices will rise in the near future. However, this psychological play with prices often leads to hasty decisions resulting in monetary losses, instead of waiting for prices to stabilize.

One big challenge facing society is switching over to a more ecologically sustainable way of life. Making sustainable choices can be a tough sell for consumers, but in the long run, sustainable choices will help consumers to save more and contribute towards society in the correct direction.