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The Miser and the Spendthrift: Two Very Different Mindsets

Disciplines > Marketing > Pricing > The Miser and the Spendthrift: Two Very Different Mindsets

Misers and spendthrifts | Relative and absolute price assessment | See also

Misers and spendthrifts are two very different mindsets that may need to be considered when setting prices.

Misers and spendthrifts

Misers are people who hoard money. They like having it more than spending it. When they have to spend on something, they hence are more likely to go out of their way to save a little.

Spendthrifts are the opposite of misers. They like spending money. When they are buying something, they are more likely to purchase the first satisfactory item they find.

Most of us are somewhere in between. Yes, having money is nice. So is spending it. Most of hence have some blend of miserliness and the spendthrift attitude.

Relative and absolute price assessment

A question for everyone is how far they would go to get something cheaper. The most common approach might seem to be that the greater the possible savings, the further we would travel and accept greater inconvenience. Yet while this can be true, there is also another effect. In other words, relative pricing is an important decision criterion as well as time/inconvenience. Azar (2011) found that consumer's valuation of their time is approximately proportional to the square root of the price.

Absolute price can also be important. We look at expensive things in different ways to how we view cheap things. This is partly because we buy cheap things far more often and assume that 'counting the pennies' in such things is a good strategy. For expensive things, we may take a more spendthrift approach, challenging the price less.

Being spendthrift now and again helps us feel good. For a cheap meal, we may worry about minor price changes between restaurants, while for an expensive meal we will 'push the boat out' and pay far less attention to the price. This gives us a sense of largesse, of feeling, even for a while, what it might like to be rich and feel more in control. It lets us show off and gain esteem that boosts our sense of identity.

See also

The Need for a Sense of Identity, The Need for a Sense of Control

Azar, O.H. (2011). Do consumers make too much effort to save on cheap items and too little to save on expensive items? experimental results and implications for business strategy, American Behavioral Scientist, 55, 8, 1077-1098