Features of the Utility Graph
Utility graph is an indifference curve that connects different points in a graph representing different quantities of goods. Some of the features of utility graph include: first, utility curve slopes downwards from right to left, and for that case, it must have a negative slope. This is because, whenever a customer has limited income there might be an increase in the consumption of a given commodity but this will occur only if there is reduced consumption of the other good hence getting the same level of satisfaction. Secondly, utility graphs are convex to the origin. Whenever the satisfaction derived becomes less, the sacrifice will become less. However, in the case of a substitute, the utility curve will be straight.
Principals of Prospect Theory
The main purpose of prospect theory is to predict or describe a certain behavior, rather than characterizing optimal behavior. Prospect theory can be applied in explaining some illogical financial behaviors. The principle of prospect theory can be applied to describe a utility gained through extra money.
Combinations of gains and losses offered by Thaler
Multiple gains are the first combination offered by Thaler. According to multiple gain combination, whenever a given outcomes are valued separately, they are greater that when they are valued jointly and for this case, segregation is preferred. The moral value of this combination of gain and losses is Christmas gifts should not be wrapped in the same box. Secondly, multiple losses combination where integration is more preferred. The third combination is mixed gain where when the outcome is considered there is a net gain. In this combination, integration is preferred because loss function tends to be steeper than the gain functions. The last combination offered by Thaler is a mixed loss where the outcome is a net loss. In this gain losses combination, segregation is preferred.
Promotions or marketing offers that is related to retail and demonstrates a good application of two of the losses/gains integration/segregation combinations
The dental cover advertisement has used a good combination of combination of gain/losses integration/segregation where losses have been integrated. The seller has managed to sell the cover as an option to a group of health insurance through employers. Because the employee already pays for some share of health insurance, then there will be framing of extra premium as an increase in existing deductions.
The women clothes promotion has a good combination of combination of gain/losses integration/segregation where they have managed to give only one offer. This means that they have managed to segregate their gains. Each dimension has been separated and thus, every product the promotion manages to make customers happy without changing her feeling about the quality.
Promotions/marketing offers which demonstrate wrong application of the combinations of gains/losses
The marketing promotion or offer demonstrates the wrong combination of gain/losses integration/segregation because even though the seller has a product with more than one dimension, he did not evaluate the dimensions separately. The product has multiple uses where it can produce different types of juices, but still, several gifts are offered for those who buy the product. This is a basic format used by advertisement of kitchen utensils. To increase the appeal, the promotion needs to transfer the transaction disutility by turning over a product for sale to an agent who will be selling the product on auction hence no additional offer needed.
There is the wrong combination of gain/losses where giving a free citrus attachment may mean to the customers that the quality of the Kuvings blender is low. For online customers who might not inspect the juice physically, they might find it difficult to trust the quality of this product. With suggested retail price, the juicer can be able to trade at the best price in the market and in the same way; the seller will be able to bear less responsibility for the price.