It really exists?
First, imagine there is a secret formula hard-wired in all of us that dictates whether we buy or not to buy something. What would be the formula?
Second, do you think such a formula even exists? Could we all possibly have the same logical equation programmed or indoctrinated in us?
The Formula
Let me explain my model, which is really very simple.
We have to use our earlier assumption in Truth #2 that every individual has his own valuation of money.
So suppose Joe walk into a supermarket, when do Joe put items into his shopping cart? When Joe picks up an item to consider, he will "read" the product to understand its attribute (e.g. contents, packaging, manufacturer, etc), consider his own needs and mentally assess the product's value to him. He will buy when V(Product) > V (Price). ie. his valuation of the product is greater than his valuation of the money required to buy it. If the equation is positive, then there is value-add in his buying action. He "creates" or gains value of V(Product) - V (Price). Its that simple.
If Joe has a fixed shopping budget to spend on, then he will be trying to find the collection of items that maximises the total value-add: T[(V)Product - V(Price)].
While V(Product) > V (Price) seems to be a static equation, it is actually a very dynamic one that fluctuates with changing circumstances and perception.
Valuation against needs
Note that Joe's valuation of things changes over time depending on his needs. Imagine how much would he value a toilet (and willing to pay for it) when he runs into desperate stomach trouble? At other times when he does not need it, his valuation will be zero and he would not use it even if its free. How much more would he value a good meal when he skips the last two meal times? How much less would he value a movie at the cinema after watching it once? Our needs change from time to time and so do our valuation of solutions, i.e. V(Product) that solve those needs.
Valuation with more inputs
In addition, his valuation of products also change with more inputs. His friends may have given him good feedback of a newly launched golf set. Or he may have watched Tiger Woods win a tournament with it on TV. Or read rave reviews of it in magazines. Or he may be influenced by product advertisements. The job of a markeeter (through branding, advertisements, endorsements, packaging, etc) is merely to increase your valuation of their products. With more inputs, V(Product) will again increase or decrease as a result.
Valuation of money
As discussed in Truth #2, an individual's valuation of a unit of money is dependent on his wealth (absolute or perceived). If, for instance, Joe just got a pay raise or collected a huge annual bonus, then his V(Money) will decrease. At this point in time, Joe's V(Price) of numerous products and services will fall below the respective V(Product) and he will be more tempted to buy these things, which has become relatively more affordable.
Does this resonate with your own behaviour and your observation of others'? Think about this next time you have an urgent urge to buy something.
Is it because:
- Your needs for that thing has increased or become more urgent [V(Product) increase]?
- You have received more positive inputs about the product [V(Product) increase]?
- You feel wealthier for various reasons [V(Price) decrease]?
- There is a discounted sale of the product [V(Price) decrease]? More accurately, its V(Decreased Price).
Whichever, the change in circumstances and the variables has just turned the V(Product)>V(Price) equation from negative to positive, increasing your tendency to buy.
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