Consumer Behavior

Traditional economics teaches us that consumers are rational and accordingly make decisions in a rational manner. They seek to maximize their utility (the use or happiness they get out of products and services) by purchasing and consuming until they reach diminishing marginal returns, or the utility they get is no longer worth the money. That sounds really good to a CFO–it becomes an easy recommendation to our clients if a marketing formula were proven and constant.

The question is, are these really the only forces that shape purchase behavior, or does a company’s marketing play a fundamental role as well? If so, how effective is marketing? In a recent article published in Psychology Today, Dr. Murray argues that rational behavior is not always the case, and that indeed marketing can have a strong influence over purchasing decisions. The details can get a bit confusing, but he argues that although we are taught that consumers are rational, and consumers themselves are convinced that they are rational, this may not be the case.

A psychological phenomenon called consumer bias is revealed when consumers overestimate their immunity to marketing influences. In fact, when asked to explain the reasoning behind their purchasing decisions, most will assert that they make decisions based on a rational thought process, void of the influences of marketing. However, the human mind simply does not have access to the processes involved in decision making, that’s why it is referred to as the subconscious. So in reality, no one really knows what these processes are for each individual, but we do know that sensory information has a tendency to stick and have an impact on decisions.

Research has revealed that although technology used to be perceived objectively and rationally, the internet and smartphones now have perceived emotional benefits. In other words, technology has shifted from an objective to a subjective relationship. Packaged goods is a category in which consumers again explain their purchasing habits as rational, but studies reveal that consumers often match their personality to that of the brand.

Marketing’s Impact

So the point is, although traditional economics and consumers themselves are convinced that purchasing decisions are made rationally, marketing can have a powerful impact on the subconscious. John Wanamaker said “Half the money I spend on advertising is wasted, the trouble is I don’t know which half.” T

This presents quite the problem to those who are making budget allocation decisions. Finance and accounting personnel in particular often don’t see the touchy feely value that marketing and advertising can create and add to a brand. We at Preferred CFO deal with all types of companies in all types of situations. We understand the importance of all functions of the business and pride ourselves in our ability to collaborate with those in the two groups that are most often misunderstood in an organization: the marketers and the technologists. Our CFOs bring their experience to the c-suite to help business owners make challenging tradeoff decisions—we try to add perspective where only years of sage experience can.

Give us a call if you want to talk about the pros and cons of your marketing plans.