There is a theory on consumerism that suggests how consumers make choices – expressing preferences for how they spend their money – sometimes within budget constraints and sometimes without. Why do consumers purchase certain things and not others? In many cases consumers choose to buy goods and services that appear to give them maximum benefits. While some consumers are careful to restrain their purchases to only items they can afford.
But for manufacturers and service providers how is it possible to know in advance what consumer preferences will be? This is the conundrum that Consumer Theory attempts to answer. It is relatively clear that consumers are not rational beings – or at the very least their resultant behaviour in any given situation does not follow a rational path. Sometimes consumers are ambivalent to the choices available; more times they are simply not familiar with them. Sometimes they are stoic in their decision making; other times they are emotionally charged.
Therefore, Consumer Theory makes several assumptions to simplify its approach. It assumes that consumers are discerning. Not necessarily that they are all-powerful decision makers always making the optimal choice; but simply that they are capable of distinguishing between a selection of products and services. It also assumes that there are sufficient choices for the consumer to make for every given decision – that supply and demand are in tandem.
Cynics argue that marketing has turned Consumer Theory on its head. Consumers no longer know how to make choices for themselves – they are demented by marketing! Glossy packaging; attractive colours and catchy tag lines divert consumer decisions away from the maximum benefits rule – meaning that consumers tend towards products and services that they “like” rather than items that hold out more advantages. Consumer Theory offers possible explanations as to the extent to which consumers value, say, safety over fuel consumption; or performance versus carbon emissions; or speed versus comfort; or status over cost efficiencies.
In MMPI’s experience, insofar as it affects finance, consumers need special protection from the extravagances of jargon and terminology. Too often the detail that is contained in the small print is vital in determining whether or not consumers purchase the product they were expecting. This is particularly galling in relation to insurance policies where many exemptions are not highlighted in bold print or where blurring language is used to offer equivocation on benefits or otherwise.
Insurance companies argue that in attempting to explain the intricacies of an insurance policy they are compelled by regulation to set out the terms in full and in unabridged format. Satisfying these requirements means that a policy of insurance is a complicated and technical document that is not at all consumer friendly.
Consumer Theory suggests that when matters get complex consumers try to make it simple. That invariably means that consumers are swayed by marketing hype and banner headlines. They go for the cheapest options – ignoring hidden pitfalls. As we have often said before – “Cheapest is usually fine until you have to make a claim!”