Managing my money
Managing my money

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Managing my money

3.2.5 Heuristics and spending

One reason why people sometimes pay higher prices for certain goods and services is that they think a higher price equates to higher quality. The price of a product is often used as a mental short cut to assess quality. Such short cuts are called heuristics and they’re used to help assess situations when there’s limited information available.

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MARTIN UPTON
One reason why people sometimes pay higher prices for certain goods and services is that they think that a higher price equates to a higher quality. So price is used here as a mental short cut to assess quality. Such short cuts are called heuristics - mental short cuts that may or may not be accurate which lead to certain beliefs about the things we buy. They're used to assess situations when there's limited information available.
Marketing departments employ these market beliefs to influence peoples' spending. Of course, a link between price and quality may or may not be accurate; or at least the differences in price may not reflect differences in quality, especially when it comes to more expensive branded items.
Here's list of some common market heuristics. Think about what each heuristic is suggesting to you to do, and who wants you to believe it.
- Generic products are just brands sold under a different label at a lower price.
- Larger sized containers are cheaper per unit than smaller sizes.
- When in doubt, a national brand is always a safe bet.
- Items tied to 'give-aways' are not good value.
- Stores that have just opened usually charge attractive prices.
- Larger stores offer lower prices than smaller stores.
- Small shops give you better service than large stores.
- Higher prices indicate higher quality.
- When buying heavily advertised goods, you are paying for the label not quality.
- More recent products are likely to incorporate newer and better technology.
Some of these heuristics are suggesting that you should buy from large stores; some from small stores. Some are telling you that you should search out bargains; others that it's not worth it. Some suggest that buying named brands is a protection; others that they're a waste of money. In each case, there are some particular groups, producers or retailers, who would like you to believe in what is being said so that you spend your money on their products rather than their competitors'.
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