Description

The bottom-dollar effect is a concept important to those in the sales and retail industries. It explains the fact that a product is more likely to garner a negative review if purchasing it exhausts the consumer’s budget. Regardless of the price of an item, consumers experience negative emotions when parting with the last of their money. They then transfer these negative emotions to the product, resulting in more negative reviews than would be expected. This means that salespeople must be conscious of the financial situation of their potential buyers. There are strategies that can be used to avoid the bottom-dollar effect. For example, a company could wait to ask for reviews until after their customers receive a paycheck so that consumers feel more financially secure when they provide the feedback. They could also offer end-of-month discounts to leave consumers feeling better about their purchases as they near the end of their budget.

Example

As an example, consider someone with a monthly entertainment budget of $100. If he spends $90 on a basketball game ticket early in the month and $10 on a movie ticket later in the month, he will feel more negative emotions when parting with the final $10 than the first $90 and thus will be less likely to enjoy the movie than he would have been if he had bought it first.

Further Reading

The Decision Lab

The Decision Lab is a think tank focused on creating positive impact in the public and private sectors by applying behavioral science.

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