Marketing strategies, Apuntes de Negocios Internacionales

¡Descarga Marketing strategies y más Apuntes en PDF de Negocios Internacionales solo en Docsity! Marketing Strategies for Consumers with Asymmetric Value Functions Recall the main properties of the asymmetric value function: 1. People evaluate their well-being from a wealth outcome relative to some reference point rather than in isolation 2. “Diminishing sensitivity”: (a) The rate at which happiness is increasing in gains is decreasing (b) The rate at which happiness is decreasing in losses is decreasing 3. Loss aversion: The decrease in happiness from losing x is strictly bigger than the increase in happiness from gaining x 4. People evaluate their well-being event-by-event rather than as some aggregate out- come. We had time to discuss two marketing strategies that can be used for consumers with these preferences in class, but rushed over a third and didn’t have time for a fourth. So, I will sketch the idea of the third and fourth. Marketing Strategy #3: Combine small loss with large gain Suppose you have a choice between presenting a consumer an outcome consisting of either a large gain and a small loss, or else just a slightly smaller gain with no loss. For example, should you report to your client that one stock has earned 60,000 in the last year while another has lost 1,000, or else just report that there’s been an overall gain of 59,000? Let v(x) be the asymmetric value function, where x > 0 is a gain and x < 0 a loss. The overall consumer payoff in the first case is v(60, 000) + v(−1, 000): the consumer experiences a gain of 60,000 and a loss of 1,000. The overall payoff in the second case is v(59, 000): there is only one event to evaluate, which is experienced as a gain of 59,000. So, in which case is the consumer better off? We can rewrite the payoff in the first case as v(60, 000) + v(−1, 000) = v(59, 000) + [v(60, 000) − v(59, 000)] + v(−1, 000) So really the question of whether the consumer is better off in the first case is whether the additional gain of v(60, 000)− v(59, 000) makes her more or less happy than the pain that experiencing the loss of v(−1, 000) makes her. But, given the properties of the value function we’ve discussed, it should be more or less straightforward to see that the decrease 1