The case study about prospect theory and irrational, biased consumer behavior suggests that consumers are not always rational in their decisions as for certain purchases and do not take reasonable considerations into account. Even having the same outcome, they do not receive the same pleasure or do not get upset to the same extent because of the process they achieve this outcome. Thus, it is necessary to have a look at whether business consumers are eligible for application to business customers – it is evident that the organization and inner structure of the decision-making process in this sphere is designed in a completely different way and is affected by a set of other factors. In order to understand the core tendencies o consumer behavior in the discussed respect it is necessary to fully understand the concept of business customers and their distinguishing peculiarities:
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“Business customers, also known as industrial customers, purchase products or services to use in the production of other products. Such industries include agriculture, manufacturing, construction, transportation, and communication, among others” (Business Customer, 2009).
Business customers work with larger volumes of products and have to make strategically beneficial decisions that are likely to affect their business every day, with every business transaction. It is more probable that the prospect theory cannot be applied to this specific segment of consumers because of a set of factors. Business customers are usually not individuals but organizations consisting of a number of people involved in professional economic and business activity, so it is probably not appropriate to apply the assumption of limited access to financial information and personal biases the underlie the prospect theory:
“In marketing, prospect theory has been widely used to explore decision behavior regarding prices and other financial criteria, and to a lesser degree to time. Although quality is a primary consideration in consumer decisions, it has largely been overlooked” (Betts & Taran, 2003:1).
Proceeding from this point and illustrating it with the help of the case with Qantas described in the second question of the case study in Kotler et al. (2007), it is possible to refer to the issue of losses and gains in the subjective perception of a customer:
“If consumers are used to a particular service, and the service is taken away, consumers are likely to notice and be dissatisfied. Marketers will often try to compensate for taking away one service by offering something in return, thereby offsetting the loss with a gain” (Kotler et al. 2007: 260).
The prospect theory states that under such circumstances the firm tries to compensate some losses at the cost of some gains; however, practice proves that the awaited results cannot be achieved this way as customers are more oriented on the losses they suffer but not on the gain they get.
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The situation is completely different from the point of view of business customers – they are more inclined to thinking rationally because the decision-making process is not an individual, subjective process but a thoroughly considered procedure in which specialists, economists and marketers are involved. There are even special departments the responsibility of which is to monitor the market for the most favorable prices and offers, so that the decision is made on the basis of statistics, facts and undisputable benefits for the company.
- Betts, S.C. and Taran, Z. (2003). Prospect theory and perceptions of quality: non-linear effects of quality comparisons on price in the used car market. Academy of Marketing Studies Journal. [Online].
- Business Customer. (2009). Encyclopedia Britannica. [Online]. Web.
- Kotler et al. (2007). Marketing. 7th ed., Australia: Pearson Education.