Four things which stop us from buying
Before every purchase, an area of the brain (the Nucleus Accumbens) consistently lights up to indicate a desire to buy. Similarly, before a decision not to buy, the insula in your brain activates to tell you that the product is not worth it. This is largely determined by the cost of the product. This cost is made up of four things which overwhelm the insula if they are excessive. These four include monetary, time, energy, and psychic costs, which will be touched on below.
James feels thirsty on his way to the movie theatre. He knows that the theatre probably sells drinks, but they would be excessively expensive. Considering that the movie is starting soon, James does not have time to visit the supermarket before going to the cinema. Thinking more about it, he would not want to walk all the way there even if he had time. James considered searching on his phone for places to buy drinks, but also considered that too much effort. At the end, he conceded to just buy from the cinema out of convenience.
A monetary cost is the simplest: this type of cost is purely financial. If an item is overly expensive compared to alternatives or not affordable due to a budget, then this triggers the insula to prevent purchase. In the above example, we can see that James first considers the monetary cost of movie theatre drinks. The amount which he needs to pay represents this cost. Sometimes, there are also hidden financial costs. This also falls under monetary costs.
A time cost is also quite easy to understand. Time costs include products which require spending time to purchase. For example, opening a new bank account would usually take a long time. This would represent a cost of using that service. In the above example, the cost of a supermarket drink includes the time it takes James to walk there. Since he was strapped for time right before the movie showing, he was less willing to pay this cost.
Energy costs pertain to the amount of physical energy required to purchase. In this case, we do not mean the cost of gas and electricity when talking about energy. For large goods such as home appliances, this cost becomes more obvious. For example, customers who are worried about energy costs may choose a supplier which provides home delivery. A energy cost is very apparent in IKEA goods, which requires you to assemble it after purchase. In the example with James, the energy cost comes from walking to a supermarket to buy a drink.
Psychic costs include the amount of thinking or mental effort required in a purchase. This is usually the case with non-physical goods such as insurance and buying stocks. Alternatively, products which require you to learn how to use it represents also a psychic cost. Companies can reduce this cost by making the product more user friendly or simplifying what you need to do to purchase and use it. In the example above, the psychic cost would be the mental effort required to search for places on his mobile phone and compare distances from his current location. He would have to factor in how long it takes to walk there, and whether they would be open.
While these are the four costs which affect purchasers, it is important to remember the keyword “perceived” in talking about value. Often times, the main cost is considered without thinking about hidden fees or indirect costs.
I have a friend who is adamant about saving on fuel. She drives 15 kilometers out of her way to get to the cheapest petrol station. In this instance, I have told her that the cost of her time and energy to go out of her way would no justify that purchase, in addition to the amount she would have to pay in petrol to drive that far. Unfortunately, my arguments have fallen on deaf ears- her main concern is the amount shown on the pump, and she fails to realise how much the hidden petrol cost is.
It is important that in marketing, we realise that what something costs is not the same as what customers perceive it to be. Often, value can be distorted. Sometimes, customers may view a price as more expensive than it really is, considering the bonus savings it would bring. This is often true in the clean energy business, where the up-front costs can be mitigated through the long-term savings. Other times, customers view a price as less than it is. Signing up with a bank with low monthly costs could be a fatal decision when you want to switch and find exorbitant exit fees.
A final consideration would be that not all costs affect the individual the same way. A financial cost is often the main consideration when in a purchase decision. Often, customers do not think of other costs until the purchase is made. To give an example, a bargain hunter is willing to spend hours every day to try to find the cheapest bargain. In this example, the buyer places little to no importance to their time cost, and is willing to sacrifice time, energy, and mental effort to find the best price. On the other hand, disabled and elderly customers would place much higher importance in energy costs. Someone who is tired and mentally drained would not be willing to put up with psychic costs. Someone who is rushing would dislike time costs.
As a marketer, your flexibility in increasing value lies not only in price promotions, but also in recognising what is important to your customers and adjusting your product accordingly. Target the costs which are most important to your customer besides price, and you would have found a way to increase how attractive your product is without compromising on price and relying on customer greed.
Tags: buying, costs, energy, expensive, monetary, no, not worth, nucleus accumbens, psychic, stop, time, time consuming