Chapter

© 2010 South-Western, Cengage Learning

Personal Decision Making

20.1 Making Better Decisions 20.2 Spending Habits

20

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Chapter 20

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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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.

(continued)

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Chapter 20

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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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

(continued)

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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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Planning Major Purchases

Cash or credit? Research before buying Quality and price

(continued)

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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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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.

(continued)

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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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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.

(continued)

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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.