Transcript Chapter 20 Personal Decision Making

Chapter
20
Personal Decision
Making
20.1 Making Better Decisions
20.2 Spending Habits
© 2010 South-Western, Cengage Learning
Lesson 20.1
Making Better Decisions
GOALS
Apply the decision-making process to
solve consumer problems.
Explain economic needs and wants that
influence consumer decision making.
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The Decision-Making Process
Step 1: Define the problem
Step 2: Obtain accurate information
Step 3: Compare choices
Step 4: Make a decision
Step 5: Take action
Step 6: Reevaluate
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Step 1:
Define the Problem
 The first step in the decision-making process is
to define the problem or a goal you wish to
achieve.
 Once it is identified, you can look for ways to
resolve it in a manner that fits your financial
resources now and in the future.
 Because your resources are limited, you may
have to make a tradeoff, which involves giving
up one option in exchange for another.
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Step 2:
Obtain Accurate Information
List all alternative solutions and the cost
of each.
Do not consider sunk costs.
A sunk cost is an expense that occurred in
the past for which money was spent and
cannot be recovered.
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Step 3:
Compare Choices
When you make choices, they often
involve getting something in return for
giving up something else (tradeoff).
The tradeoff results in an opportunity
cost, which is the value of your next best
choice—what you are giving up.
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Step 4:
Make a Decision
The decision you make will be based on
careful consideration of the problem,
thorough information gathering, and
analysis of that information.
The wise decision in any situation is the
one that best meets your needs, is within
your budget, and gives you the most
value for your dollar investment.
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Step 5:
Take Action
Take action to implement your chosen
solution.
Because you have made a thorough
analysis of choices for solving your
problem, you can be sure that you have
made the best decision you could with
the available information.
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Step 6:
Reevaluate
 After several months have passed, revisit your
decision.
 Are you happy with the choice you made?
 If not, what could you do differently next time to
make a better decision?
 Should you do something different now?
 If your needs have changed or your initial
decision isn’t working out, go through the
decision-making process again to decide
whether to make a change.
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Economic Wants and Needs
Basic needs are the items necessary for
maintaining physical life.
Life-enhancing wants are items beyond
basic needs that add to your quality of
life.
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Individual Wants
Values
Personal preferences
Personal preferences or tastes are your
likes and dislikes.
Income
Leisure time
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Collective Values
Collective values are things that are
important to society as a whole.
Society also influences our values, goals,
and choices because it demands social
responsibility from its citizens.
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(continued)
Collective Values
 Legal protection
 Employment
 Progress
 Innovations are new ideas, products, or services
that bring about changes in the way we live.
 Quality of environment
 Public goods
 Public goods are the goods and services provided
by government to its citizens.
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Lesson 20.2
Spending Habits
GOALS
List and describe factors that influence
spending decisions.
Explain how to plan for major purchases.
Analyze marketing strategies that
influence spending decisions.
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Factors that Influence Spending
Personal Factors
Personal resources
Position in life
Customs, background, and religion
A custom is a long-established practice that
takes on the force of an unwritten law.
Values and goals
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(continued)
Factors that Influence Spending
Outside Factors
The economy
The economy refers to all activities related to
production and distribution of goods and services
in a geographic area.
Technological advances
The environment
Social pressures
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Planning Major Purchases
Questions to ask before making a purchase:
1. Why do I want this product?
2. How long will this product last?
3. What substitutes are available and at what cost?
4. By postponing this purchase, is it likely that I will
choose not to buy it later?
5. What types of additional costs are involved, such as
supplies, maintenance, insurance, and financial risks?
6. What is the opportunity cost of this purchase?
7. What is the total cost of this product?
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(continued)
Planning Major Purchases
Cash or credit?
Research before buying
Quality and price
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Marketing Strategies
Influence Spending
Advertising
Pricing
Sales
Promotional techniques
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Advertising
Product advertising
Advertising intended to convince consumers
to buy a specific good or service is called
product advertising.
A target market is a specific consumer
group to which the advertisements are
designed to appeal.
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(continued)
Advertising
Company advertising
Advertising intended to promote the image
of a store, company, or retail chain is known
as company advertising.
Industry advertising
Advertising intended to promote a general
product group without regard to where these
products are purchased is called industry
advertising.
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Pricing
The price of merchandise depends on
several factors.
Some of the factors that determine the
price of a product include:
Supply and demand
The cost of raw materials and labor
Competitive pressures
Seller’s need to make a reasonable profit
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(continued)
Pricing
Examples of pricing devices used to
persuade consumers to buy:
Odd-number pricing is the practice of
setting prices at uneven amounts rather than
whole dollars to make them seem lower.
Discounts are often available for buying in
large quantities.
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Sales
 Stores advertise end-of-month sales, holiday
sales, anniversary sales, clearance sales,
inventory sales, and so on.
 A loss leader is an item of merchandise
marked down to an unusually low price,
sometimes below the store’s cost.
 The store may actually lose money on every sale of
this item because the cost of producing the item is
higher than the sale price.
 However, the loss leader is used to get customers
into the store in the hope that they will buy other
products as well.
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Promotional Techniques
 Displays
 Contests and games
 Coupons
 Frequent-buyer and customer-loyalty cards
 Packaging
 Sampling
 Micromarketing
 Micromarketing is a marketing strategy designed
to target specific people or small groups who are
likely to want certain products.
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