Consider this. You buy a high-end laptop on a trip to the US. You are naturally excited about your purchase. For one, the model is yet to be launched in India. For another, you bought the computer at a significant discount to its retail price. Two weeks later, you realise that your computer requires a more powerful anti-virus software than the current pre-loaded one. You can buy the software for Rs 750 or install a cracked version of the software for free. Which would your choose?
To spend or not to spend
You will most likely choose the licensed version. You may reason that your computer is new and that Rs 750 is small money to spend on a computer that costs, say, Rs one lakh.
But what would your decision be the same if the computer were more than two years old? You may, perhaps, buy the licensed version but not before seriously considering installing the cracked version. Many would in fact prefer the latter.
Paying for a product or service activates the brain's pain centre. Now, the pain is suppressed when you buy the software soon after buying your laptop. This is because you already overcame the pain while buying the laptop, as the pleasure of owning it was much greater. The new software will be added to the price of that laptop. This “mental accounting” helps us overcome the pain of paying for the software now.
But suppose it is more than two years since you bought the laptop. The pain of paying for the computer has faded away. Your decision to buy the software is a separate event that the brain has to process. The pain is likely to be significant, prompting you to reason that the computer is old and that a cracked version will suffice.
Our spending decision is, hence, dependent on whether we experience more pain or pleasure when we make the decision. And this emotion, in turn, is driven by the perceived satisfaction from consuming the product or the service.
(The author is the founder of Navera Consulting. He can be reached at >enhancek@gmail.com )