Panicky Irrational Consumer Behavior

☠FUTURE OF NEWSPAPERS AND READING HABITS

There was an indefinite strike by the newspaper agents in our part of the world. It might have been a small event when compared to the larger events taking place around the world. Yet it has brought forth a problem that when magnified could mean a lot for the world of newspapers on the whole. For one newspapers are taking the same old delivery method. They have to do this as a compulsion for reducing the cost from escalating. Yet they are facing an uphill task trying to give good information at a very low cost.

The newspaper industry faces a problem of readership or might face this problem sooner or later when compared to other media. The biggest advantage of the newspaper is that it gives a person ‘bed coffee’ type rejuvenating phenomena. The TV is a close competitor and so too one could say about the radio although that is decreasing somewhat. The visual and sound impact from the TV is pretty good for the early morning mind and therefore the mind is at once attracted to it and the eyes catches each and every information that is being rattled out as news without much of retrospective thinking.  Only some parts of important news that might have instilled the mind somewhere remains yet that too is passed out with the remote in hand blinking away over the channels with so much ease that everything is simply a passing fancy. Then of course there is the Internet where you may read the morning newspapers online.

Now where does the newspaper experience really counts? It comes only when you do serious retrospective thinking and are not just fed with a volley of information to forget them as easily as they are fed into the brain. The newspaper therefore has an edge over other media including the Internet and that is it habituates retrospective thinking. There are times when you will have to ponder over some matters in depth and this is perhaps best with the printed word. The same may be the case with the Internet, but people tend to skim over one information and then click for more and then more as quickly they can move the mouse giving very little room for after thoughts.

Will that be the case in the future? It is definitely a challenging and confusing scene with the consumer behavior and reading habits showing greater shifting and oscillation yet this is surely is not a death bell if some points are taken note of. The present way of solving the problem of hiking advertisement costs and not increase the cost of newspaper for consumers is really commendable and the best approach. Given the vast readership network the newspapers are better for ad penetration at least in India where other media and the Internet have yet to make inroads among the masses. Therefore, the base of the newspapers is its readership network and any dent to this will prove not only costly but prove to be the doomsday for the newspaper industry.

We shall analyze how this is going to be really dangerous if the cost of the newspaper goes up and where there is strong competition from other media.

Consumer Avoidance Attitude Syndrome

A consumer who is a rational thinker in economic terms surprisingly turns out to be quite an irrational being when he or she sees a threat to his or her income. If seen rationally this threat might be quite low yet for a consumer at a particular stage this might give forth to some irrational behaviors like extreme controls over the expenses due to price increase or sudden fanciful spending instilled by sharp lowering of prices. This random behavior of the consumer mainly arises out of psychological uncertainty and therefore quite important from the economic and business point of view.

This is seen when the consumers start to panic whether too much or too little. Even those who are sturdy in their minds start to doubt the very rationality of an offer. Here, the level of panic or excitement is ascertained by the degree of inconsistency or consistency or stagnation in the policy of the government or the industry both service and manufacturing and areas of marketing. When consumers are excited they go a few degrees below their rational behavior or go a few degree above their rational behavior to create a balance on the psychological pressure that has been unleashed out of an offer or pricing change.

The best example is the stock market where one sees panic selling below rational judgment when the index crashes due to bad news or shooting up beyond rational levels when there is tremendous response to positive news in the economy thus triggering panic buying. The same is the case with manufacturing and service sectors where organizations face such irrational behaviors from their consumers that it sometimes derails their marketing plan altogether. The consumers in such cases avoid purchasing the products in quantities they used to do earlier or they avoid them altogether and go in search for competitor’s products. These products need not be of homogeneous type or having similarities with the earlier products, but can be quite different altogether although their end satisfaction remains quite same.

In the above example the newspaper has to remain cheap at all cost to remain competitive with those products that give more or less the same end satisfaction. If on the contrary the prices go up too high people who are habitual readers of the newspapers would avoid it unless there standard of living rises considerably so that they care very little for any price rise. However, this is not the case in India and elsewhere where the majority of the readers of newspapers would never see a multi-fold increase of their earnings. Thus, in such cases if there is a hefty increase in the price of the newspaper then most readers would stop subscribing as they will feel the psychological pressure to forgo this medium of information to other form of information.

The obvious reasoning here in economic language is that the consumers would try to be rational and try to calculate the cost of the newspaper on a periodical basis and compare it with that of other media and then slowly ascertain which is more valuable and which is cheaper and then subscribes for the one that he or she finds economical. Nothing of this sort ever occurs and once the consumer feels the psychological pressure he or she might totally avoid one media for the other setting aside any rational judgment whatsoever. In other words, newspapers have to remain cheap unless there is a paradigm shift in the way the newspaper is being portrayed before the readers. For instance, the newspapers can undergo a total transformation and perhaps making it a technological product altogether. However, this would make it more or less like other media and bitter rivalry and competitiveness would be unleashed. Thus, at best the newspaper has to remain a newspaper and nothing else for its readers. But remaining so, it has greater potential and opportunity to carve a niche area of its own in spite of all other media competition.

Creating psychological urge to forgo

Consumers may or may not adopt the rational approach to thinking when foregoing a particular product. When they feel that the psychological pressure brought about by a sudden spurt in prices of the service or product they will reason out ways other than pure rational approach to forgo the product. Those who rely on rationalization initially may do so but sooner or later simply start to lose their seriousness.

Yet another example is the airline industry which has to run in profits keeping in view both the cost of inputs and customer satisfaction. At a first glance it would seem that being an airline the companies can manage to increase the costs without much ado as all passengers who travel by plane have the means to do so. Again, all the airline company needs to do is to add a few extra luxuries that would justify the price increase.

Nothing of this sort ever happens and when the charges become quite high the consumers may suddenly forgo or cut down their flights both for official and holiday trips. So there is a particular point of no return for the consumer who would feel the psychological pressure and try to cut down their expenses on flights. This is perhaps the reason why low cost airlines despite no special facilities make more profits especially in short hops than do large luxurious airlines.

Another example is of the toy manufacturing industry which produces toys run on batteries. Suppose as an example, a working mother purchases hundred rupee worth of batteries for her son every month so that he can play with his toys for a whole month. The working mother doesn’t feel the pinch as it quite easy for her to spend that amount with the salary she gets. However, if for some reasons the price of batteries go up and the woman has to forgo an extra twenty five rupees then she may still be able to afford it and also having not reached the psychological pressure which we can state as deprived of psychological satisfaction (DPS).Yet for some reasons the companies manufacturing batteries increase their prices drastically once again such that the price of the battery goes up to say one hundred seventy five rupees. This time the working mother would feel the pinch and consequently high DPS. 

What would she do if she is rational? She would cut down the consumption of the batteries for her son and purchase for rupees hundred only to create that level of psychological satisfaction she previously had. In fact, she wouldn’t do this, but in most cases as we see in real life she would cut down her expenses on batteries to rupees seventy five seeing the unjustified way things have turned out against her thinking that she could do well by saving that amount or simply reason out that by foregoing the battery purchase altogether she might provide her son with something else to play with which of course has no need for batteries. This irrational behavior results out of high deprived of psychological satisfaction (DPS) for the consumer.

Psychological pressure has nothing to do with affordability but more to do with the mindset that every consumer has already made regarding a particular service or product. This is very important as in the above example the working mother could have easily afforded the extra battery costs and even when she gets a pay rise she will not revert back to her original behavior when the battery consumption was hundred rupees on monthly basis.

Irrational behavior of consumers

The irrational behavior of consumers is not merely wishful thinking but actually arises out of psychological pressure to forgo one product or service for another or a combination of others due to unjustified price increase or decrease in quality. Although the decrease in quality is surely one of the reasons here in reality the price is the most important determinant of the tendency for consumers to forgo a service or product.

What are the salient points to be considered for consumer’s irrational behavior towards a product or service?

• 1.       The consumers are not affected by increase in price of luxury items and products that are addictive by nature.

• 2.       The consumers belong to the lower and middle order income level and not very rich

• 3.       The product or the service is not a monopoly but is heavily competed in the market.

• 4.       Quality may or may not be a factor, but cheapness alone can be a factor for consumer preference.

• 5.       Consumers may lower themselves on the choice of adopting a single pronged product or service as an alternative to multi-pronged product or service if the price is sharply increased on the latter.

• 6.       If the wages are increased multi-fold then consumers may not exhibit irrational behavior.

• 7.       If the cost of the product or service is too negligible in relation to the overall income of the consumer there might be no irrational behavior.

• 8.       Consumers tend to spend much more in ecstatic psychological state of mind irrespective of the cost factor when they move out of their routine purchase zones like during holiday trips, highly priced jewels, gifts, special shopping and outings and such others.

It is generally seen that although price rise initially can be checked with extra service facilities or bonus products they nevertheless fail to create any effect on consumer demand. For example, if a family belonging to the average class goes to a premium restaurant once every week for dinner they would continue to do so every week at the initially accepted price of dinner for the family. If the restaurant slightly increases the price then the family may still continue to go every week as it only affects them marginally. However, if the price of dinner shoots up due to inflationary pressures on raw food items then the family would start avoiding it and reduce it to once in a month or avoid the restaurant altogether and go for cheaper options. This is in spite of the fact that the manager of the restaurant adds two additional dishes to compensate for the psychological loss the consumer would suffer from. Here, the accepted price is the cheapest possible psychological price the consumer is willing to pay at the outset and not more even if the quality is increased.

It is not a small percentage of buyers who exhibit such an irrational behavior during a price rise leading to psychological pressure, but what is initially seen to be a small percentage triggers off widespread influence thus leading to avoidance.

Organizations running with restricted margins

There are numerous organizations that run their routine business activities with restricted margins. These are not self imposed restrictions, but due to their peculiarities in not able to create a paradigm shift and total overhauling of business activities. These organizations remain afloat for a considerably long time as large numbers of consumers require these organizations to supply them cheap products with good or moderately good quality.

Yet, if these organizations raise their prices beyond a certain level then the consumers tend to avoid them altogether. The biggest paradox about such organization is that if they were to make a total overhaul in their whole system of manufacture or service then they face competition from other competitors and become one among them. However, remaining in their traditional business without increasing their cost of inputs they can survive for a considerable period of time with little or no competition.

Such enterprises have their costs reduced to such a low level that it is also not quite easy for other companies from outside to easily enter the market as seen in barriers to entry in Porter’s Five Forces. Yet even if these companies do enter the market and are full of funds they would find themselves at wits end as to how to raise the prices as consumers would instantly resort to avoidance as there are more attractive alternatives or more or less equal substitutes. A few consumers may remain due to attachment to the brand and which generally would last till the time of that generation. Hence, any hefty increase in price can spell doomsday for these enterprises. The substitutes here can be very different in kind yet give the more or almost same level of satisfaction to the consumers when the latter looks at the cost. For example, the air travel and other road travels or rail, newspaper and other media, cars and two wheelers or public transport, products from primary and secondary markets, high featured products to low cost simple featured products and so on.

Usefulness of such organizations in an economy

• ·         These organizations satisfy a large section of consumers who are recklessly tossed around by the vagaries of the economic cycle and inflation.

• ·         They provide low cost affordable goods or services in spite of the presence of large industries.

• ·         They provide employment to a large section of people and there acts as a cushion against social unrest resulting out of downswing of the economy. In fact, these companies employ a larger percentage of employees proportionate to their capital than larger industries.

• ·         They provide good revenue to the government by way of taxes and duties.

• ·         They narrow the gap of providing some specialized services and products which are not possible by large scale high tech industries.

• ·         These companies run on load cost rather than on high margins of profit in many cases and by dexterous maneuvering they can sustain themselves amidst competition.

• ·         They are at times target of greedy and unreasoning mergers and acquisitions which results in mismanagement and closure of these firms. In most cases the takeovers by other larger groups are made by looking at the fixed assets of the company which could be sold off at a future date than trying to run it properly.