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Monday, August 18, 2014

Inconsistent Consumer Behavior

In economics, you often see statements such as “assume the consumer acts rationally.” This is the underpinning of many articles and predictive models. If you observe behavior of consumers you will find that they do not often appear rational. Often people seem to be of two minds and say one thing and do another. A growing area of economic study is Behavioral Economics which accepts that people do not always act rationally with consumer decisions. The field is perhaps best described as where psychology and economics meet.

Here are a few examples that I have observed of inconsistent behavior:

1) Way back in 1971, I was finishing college and spent a summer handing out state motor vehicle inspections among other tasks at a service station. We were the largest venue in the county for inspections so some days were busy as I filled out the forms and handled billing. A woman dropped off her car one morning and said, “Do whatever is necessary to pass the inspection. Call me if anything else is wrong.” The mechanic went through the state checklist and the car was in fairly good shape. A turn signal was out plus it needed a PCV valve. When the lady came to pick up the car after work, I showed her the invoice and she exploded. “What is this PCV valve for $4.95? I did not ask for that.” I explained that it was a pollution control device and was required by state law. She slammed her purse on the desk but paid the freight and left in a huff. As she pulled away, I laughed out loud when I saw her bumper sticker which read, “We support a pollution solution.”  Fast forward 40 years. I am finishing a lecture about Public Relations fumbles and I use the BP Oil spill in the Gulf of Mexico as a case study for poor handling of a problem during early days of the crisis. A young fellow raised his hand and gave a long speech about how evil oil companies were. I smiled and said that someone must have liked them as several hundred million people around the world enjoyed using their products. He shook his head and said, “Everyone hates everything about them. They are thieves.”  That seemed like an opportune time to wrap up the class. It was evening and several of the youngsters, including the oil expert, walked with me to the parking garage. When I reached my car, the angry man said, “Prof, what is a man like you driving a tin can like that thing.” I told him that I actually owned two Priuses  and, that after several years, I was still getting 47-50 miles per gallon on each. He shook his head and headed up one floor above to get his car while I continued to chat with a few of his classmates. Two minutes later, my young friend came by in a 4 wheel drive pickup truck. He lowered the window and shouted out, “I get 12 miles to the gallon,” laughed, and drove off into the night.
    For years, I have seen people preach against climate change, pollution, or oil company excess yet live their lives quite differently.

2) Often people tell me that they hate the big box retailers and wish the days of the small local businesses would come back. Some say that they avoid Wal-Mart and Target. I asked one such person whether a certain book might be available at a local bookseller. “Are you crazy, Don? Get it on Amazon. It will be cheaper, you can beat the sales tax, and will be at your door in a few days.” What these people do not seem to understand is that every time they use Amazon, they undermine small local businesses who cannot buy in bulk and compete with Amazon. Additionally, Amazon even hurts Wal-Mart and Target.
 3) “I hate Wal-Mart”--if you travel even occasionally in progressive circles, it is the height of fashion to trash Wal-Mart, the world’s largest retailer. They are all that is evil  in American business in the minds of many people. They do not pay entry level people well, resist unions, and have problematic health care coverage for their associates. How did they get so big? It is pretty simple--they gave people what they wanted at a very attractive price. If people truly do not like Wal-Mart, the way to hurt them is to simply stop shopping there. It amuses me that some towns brag about how they have kept Wal-Mart out of their communities. Wait for the weekend, however, and the roads are clogged to the town a few miles away that has a Wal-Mart. Today, Wal-Mart is struggling as the truly downscale find it expensive and some have moved on to the Dollar Stores. Others are doing more shopping on Amazon and fellow on-line travelers and this is hurting Wal-Mart at the upper end of their demographic appeal. People may want Wal-Mart employees to be paid more and have better insurance but, at the same time, they also want the very low prices that it currently offers. Many do not understand that they cannot have both.

These are just three examples of the inconsistency or hypocrisy of many American consumers. If you are a marketer, be careful. Consumers do not always act rationally so  watch what they do instead of what they might say.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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