The Bottom Dollar Effect and the Dissatisfaction

The bottom-dollar effect indicates that if you give yourself Rs 10,000 a year to spend on new clothes, you would be less content with the last item you buy with that last remaining part of the money 

In a study that appeared in the Journal of Consumer Research’s October 2014 issue, academics first used the term “bottom-dollar.” Robin Soster, who teaches marketing at the University of Arkansas, worked on the study with professors from the University of Texas at Austin and the University of South Carolina.

The term was coined by Soster and her coworkers to describe the sensation of dissatisfaction with an item acquired with one’s final remaining funds, regardless of the item’s quality or price.

As money becomes tighter, those who live paycheck to paycheck may experience the bottom-dollar effect. Nevertheless, the agony of spending the last of the apportioned budget, such as the amount set aside in one’s monthly budget for eating out, is felt even by individuals who have a more comfortable standard of living. Or maybe it’s the emptying of a special savings account for a trip that triggers unpleasant emotions. This is possible even if there is no physical account set up and the funds are just set aside in the mind.

Hence, the “bottom dollar effect” argues that we experience more discomfort and less satisfaction when making purchases with our last remaining funds. It doesn’t make sense to spend money without enjoying the fruits of our labour, so to speak. It’s not the product itself that we’re unhappy with, but the timing of our purchase. 

The “bottom-dollar effect” suggests we might not always make the most financially sensible decisions. When funds are plentiful, we tend to be frivolous, whereas when they are scarce, we become too cautious. Inconsistency in decision-making is a sign of irrationality and puts us at risk for less-than-ideal results.

Impact on Marketing

Knowing that consumers are less likely to feel positive about a purchase when they are nearing the end of their budget allows advertisers to arrange their campaigns to coincide with times when consumers have more discretionary cash, such as after they have received a bonus or salary.  When trying to get new customers, it’s important for companies to make sure that their products make a good first impression.

Marketers may take advantage of the fact that individuals are less likely to make purchases when they are nearing the end of their budget by offering deals or deep discounts. If we believe that the price we paid was fair for the value we got, it will minimize the “bottom dollar effect.”

These promotional methods benefit consumers and businesses by ensuring a steady stream of revenue and customer satisfaction with every transaction.

The bottom-dollar effect, however, shows that humans do not think about money in this logical way and that we experience more distress when parting with our last dollar. After repeatedly being exposed to the “bottom dollar effect,” we may let our emotions guide our purchase decisions, leaving us open to making poor economic choices.

Reference

https://thedecisionlab.com/biases/bottom-dollar-effect

https://www.coglode.com/research/bottom-dollar-effect