![]() ![]() However, despite being really thirsty, this transaction creates significant negative transactional utility because you know $6 for a bottle of water is much higher than your usual reference price for water. The marginal utility of the water is greater than the $6. Suppose you are thirsty at the airport, and someone offers you a bottle of water for $6. The TV is only 1.5% cheaper so the transactional utility of saving $10 out of $640 feels much less.Īnother question – Buying expensive products The radio is nearly 30% discount – giving a large perceived transactional utility to buy the cheaper radio. Even though the amount saved – $10 is the same. Many consumers would buy the cheaper radio, but would not bother to travel to get the cheaper tv.But, 20 minutes away, you can buy the same tv for $630.ĭo you drive 20 minutes to save $10 on the two products? Suppose you are going to buy a new colour tv and it costs $640.But, 20 minutes away you can buy the same radio for $25. ![]() Suppose you are going to buy a cheap radio at one shop it is $35.Richard Thaler uses this example of discounts on goods, to show how perceptions of transactional utility can influence our decisions. Richard Thaler (1983) ,”Transaction Utility Theory.” Examples of Transactional utility ![]() The new concept transaction utility is modeled as depending the difference between the selling price and a reference price.” “A simple way of incorporating the terms of the transaction is suggested Using the features of Kahneman and Tversky’s prospect theory. (1979) This theory states that people are affected by relative changes from a reference point – with losses being felt more strongly than gains. The sale makes the whole transaction more desirable Transactional utility and Prospect Theory This trick of sales and discounts can encourage us to buy clothes we never expected to. You gain the utility of buying the new coat, but you also gain a transactional utility because you feel like you have saved $10 from your expected reference price. Therefore, the price you actually pay is $40. However, when you go into the shop, you find there is an unexpected sale of 20%. ‘Transactional utility’ was developed by Richard Thaler and is said to be the difference between the actual price and your reference price – the price you expect to pay.Įxample, Suppose you expect to pay $50 for a new coat. Additionally considering that the Indian market is price sensitive and Netflix had to reduce its price for the Indian market as compared to other markets in the world, it would be interesting to see what strategy Netflix will adopt for India.Transactional utility is a term to describe the happiness a consumer gets from the perceived value of the deal. These new charges and features have not yet been introduced in India. This feature will be available to Basic, Standard, and Premium plan members. And it will cost users CLP 2,380 (approx Rs 225) in Chile, USD 2.99 in Costa Rica, and PEN 7.9 in Peru.Īdditionally, the “Transfer Profile to a New Account,” feature will allow users to transfer the existing profile to a new account, keeping the user’s watch history, favorites, and personalized recommendations. Each user would have their own username and password. The “Add an Extra Member,” feature will provide users of Standard and Premium plans to add two sub-accounts for people they don’t live with. Netflix is introducing two new features, “Add an Extra Member” and “Transfer Profile to a New Account”, to overcome the problem of users sharing their passwords with members outside their household. So now, users will need to pay extra money on top of their subscription charges if they want to share their passwords with someone outside their premises. The move comes after Netflix repeatedly stated that users sharing their passwords with friends and family is hurting the company’s earnings. And over the next few weeks, we’ll launch and test two new features for our members in Chile, Costa Rica, and Peru.” In a blog titled “Paying to Share Netflix Outside Your Household”, Netflix said, “So for the last year we’ve been working on ways to enable members who share outside their household to do so easily and securely, while also paying a bit more. Netflix is working towards a new policy where users will have to pay a little amount on top of the plan fees to share the password with members outside their household. ![]()
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