The economic man approach to consumer behaviour perceives consumers to be highly rational and adequate engaging in economic transactions in a beneficial manner for self-interest (Tyagi, 2004). According to this principle consumer rational behaviour includes being aware of all alternative options, as well as, having knowledge of advantages and disadvantages associated with each option (Kahle and Close, 2006). Blackwell et al. (2006) adopt a sceptical approach to the level of applicability of economic man theory in today’s marketplace in practical levels arguing that nowadays consumers are more tempted to make ‘irrational’ purchase decisions due to the highly sophisticating levels of marketing strategies. References Blackwell, R., Miniard, P. and Engel, J. (2006) “Consumer behavior”, Mason: Thompson Kahle L.R. and Close, A. (2006) “Consumer Behaviour Knowledge for Effective Sports and Event Marketing”, Taylor & Francis, New York, USA Tyagi, C. and Kumar, A. (2004) “Consumer Behaviour”, Atlantic Publishers, US
Category: Consumer Behaviour
The Economic Model, one of the oldest models of Consumer Behaviour tries to explains what a person is likely to buy and in what quantity. This model takes into consideration the behaviour of an economic man, who would give foremost importance to the monetary or financial considerations while making a decision. The ultimate objective of an individual, as per this model, is the maximization of satisfaction by investing the minimum money resources for the satisfaction of needs and wants.
Consumer theory is the study of how people decide to spend their money based on their individual preferences and budget constraints. A branch of microeconomics, consumer theory shows how individuals make choices, subject to how much income they have available to spend and the prices of goods and services. Understanding how consumers operate makes it easier for vendors to predict which of their products will sell more and enables economists to get a better grasp of the shape of the overall economy
Individuals have the freedom to choose between different bundles of goods and services. Consumer theory seeks to predict their purchasing patterns by making the following three basic assumptions about human behavior:
Working through examples and/or cases, consumer theory usually requires the following inputs:
Building a better understanding of individuals' tastes and incomes is important because it has a big bearing on the demand curve, the relationship between the price of a good or service and the quantity demanded for a given period of time, and the shape of the overall economy. Consumer spending drives a significantly large chunk of gross domestic product (GDP) in the U.S. and other nations. If people cut down on purchases, demand for goods and services will fall, squeezing company profits, the labor market, investment, and many other things that make the economy tick.
Consumer choice theory is taken very seriously, influencing everything from government policy to corporate advertising. Let’s look at an example. Kyle is a consumer with a budget of $200, who must choose how to allocate his funds between pizza and video games (the bundle of goods). If a pizza costs $10 and a video game cost $50, Kyle could buy 20 pizzas, or four video games, or five pizzas and three video games. Alternatively, he could keep all $200 in his pocket. How can an outsider predict how Kyle is most likely to spend his money? Consumer theory can help give an answer to this question. Challenges to developing a practical formula for this situation are numerous. For instance, as behavioral economics points out, people are not always rational and are occasionally indifferent to the choices available. Some decisions are particularly difficult to make because consumers are not familiar with the products. There could also be an emotional component involved in the decision-making process that isn't able to be captured in an economic function. The many assumptions that consumer theory makes means it has come under heavy criticism. While its observations may be valid in a perfect world, in reality there are numerous variables that can expose the process of simplifying spending habits as flawed. Going back to the example of Kyle, figuring out how he will spend his $200 is not as clear-cut as it might at first seem. Economics assumes he understands his preferences for pizza and video games and can decide how much of each he wants to purchase. It also presumes there are enough video games and pizzas available for Kyle to choose the quantity of each he desires. |