1. AbstractIn today’sglobal economy, literally millions of goods are offered for consumer to buy.Thus, consumer have so many options to choose, from mass-produced toilet paperto gold-plated chocolate. Because of this, companies are competing to grabtheir attention by regularly campaign their advertisement to carefully settheir price and affecting the purchasing power of a consumer. The paper studiesthe consumer behavior in choosing between products they wanted to buy. Understanding,analyzing and keeping track of consumer behavior is very critical for companiesto retain their position in the marketplace because they can gain so much, andin the end creates a kind of loyalty towards them.
Also, how their preferenceschanges when they know forthcoming innovations of a product. All this will be furtherexplained later on in this paper.2. Background Consumer behavior is becoming an important thing toconsider by companies.
Consumer is setting their expectation so high that thecompanies are having a hard time to know exactly what they want. This is not assimple as they think. Human beings use complicated thought processes to makedecisions, and the human brain is capable of processing vast quantities ofinformation. At this very moment, our heart is pumping blood throughout ourbody, our lungs are providing oxygen and expelling carbon dioxide, and our eyesare scanning the environment while our brain processes what kind of informationare there. Despite all these complexities of human thought, managers incompanies need a model to explains how individuals behave in the marketplace.Of course, we cannot expect that a model will fit all their behavior. Workwould be easier for managers of firms if the behavior of individuals were notso complicated (Theory of Individual Behavior, 2013). If managers achievean understanding of individual behavior, they can help their firm thrives inthe market they are in.
This model of behavior will necessarily be anabstraction of the way individuals really make decision. 3. Theoretical Background In characterizing consumer behavior, there are two importantbut distinct factors to consider: consumer opportunities and consumerpreferences. Consumer opportunities represent the possible goods and servicesconsumers can afford to consume. Consumer preferences determine which of thesegoods will be consumed (Theory of Individual Behavior, 2013).There is also budget constraints. These constraints restrict consumer behaviorby forcing the consumer to select a bundle of goods that is affordable. Because there are so manyproducts out there, we will assume there only two goods exist in the economy sothat we focus on the essential aspect of on individual behavior.
Thisassumption is only to simplify the analysis. We will let X represent the quantity of one good and Y the quantity of the other good. Let’s assume that a consumer isable to order his or her preferences for alternative combinations of goods frombest to worst. Let > means the ordering and write A > B whenever consumerprefers A to bundle B. If the consumer views the two bundles as equallysatisfying, we will say she or he is indifferent between bundles A and B anduse A ~ B.
Now, after knowing the basics, I will explain further the typical consumerpreferences. There are four of them, they are (Theory of Individual Behavior, 2013): · CompletenessIn completeness, consumer is capable of expressing apreference or indifference among all bundles. For example, there are 2 bundles(A and B) is the option. Consumer then either prefer A over B (A > B), Bover A (B > A), or doesn’t care which bundle he or she will get (A ~ B). · More is BetterAs the name speaks, it means bundles that gave atleast much of every good and more of some good are preferred to other bundles.
For example, bundle A has at least as much of every good as bundle B and moreof some good, then bundle A is preferred to bundle B. · Diminishing Marginal Rate of Substitution (MRS)Marginal rate of substitution is the number of units aconsumer is willing to give up of one good in exchange of another good andremain equally satisfied (Study, n.d.).
The substitutiondoes not indicate a preference in goods, only that the consumer is willing togive up units of one good for additional units of another good. For example, asa consumer obtains more of good X, the amount of good Y he or she is willing togive up to obtain another unit of good X is decreases. · TransitivityFor any three bundles, A, B, and C, if A > B and B> C, then A > C. Similarly, if A ~ B and B ~ C, then A ~ C.
For example,three pizza maker (Papa Ron’s, Pizza Hut, and Domino’s) is the only choiceJoshua had. He prefers Pizza Hut over Domino’s and Domino’s over Papa Ron’s. Wecan conclude that Pizza Hut is better than Papa Ron’s (because of thetransitivity). 4. Case Study Country of origin (COO)of a product affects its evaluation by consumers. Other than COO, the factorsinfluencing product evaluation are the brand and the degree to which a consumeris familiar with the product, the degree of sophistication of product, the availabilityfor imported versus home made products, the price, the economic status of the productand many more. The case study I will explain is consumer preferences forforthcoming innovations back in the 90’s, which is high definition television (Sultan, 1999) . I chose HDTV as anexample of a consumer durable that is a forthcoming technological innovationfor home use.
HDTV promises a wider screen, higher resolution pictures, andsuperior sound. The Federal Communications Commission (FCC) in the USA settledthe issue of broadcast standards in 1995 by adopting the standards proposed byan alliance of competing groups of firms. In April 1997 the FCC gave broadcastersfree licenses to provide high-definition digital television to begin reachingviewers in the top ten markets in the USA within 18 months. Companiesinterested in marketing television sets with this new technology are facing theproblem of deciding what marketing research needs to be conducted at this stageto assess consumer preference for HDTV.
In addition, some manufacturers wouldlike to introduce intermediate technologies that would have the wider shape butnot the high resolution. Another option for an intermediate technology is tointroduce higher quality pictures but with the same relatively square shape. ForHDTV manufacturers, an important question is whether the wide screen shape, initself, will be perceived as an innovation that consumers prefer to buy whilewaiting for HDTV, or is it the picture quality that really matters more?Another related question is how the time of availability of these varioustechnologies impact consumer preferences for the various options? 5.
Discussion and ConclusionThe relation herebetween theory and discussion is that when there is innovation, consumerpreferences will change, even if they are having a kind of mindset or loyaltytowards a product. Here, consumer is expecting what kind of breakthrough a HDTVwill make. Over time, preferences for various technologies are such that therate of decline in preference for existing technologies is greater than thatfor intermediate ones, which in turn is greater than that for future technologies.This means that consumers overlook existing technologies the most and futuretechnologies the least. Improvements in technologies are devalued by consumersat a slower rate than existing technologies.
For HDTV, consumers are willing topay more to receive this future technology earlier (say at the current point intime), then they would for existing and intermediate technologies. In addition,over time, consumers would devalue HDTV less than they would other TVtechnologies, if all technologies could be made available now. The conclusion is that,in the case of technology innovations, consumer preferences changes over time,but not necessarily in a short time. There are also factors that limit their “wants”,which are the availability of the products itself and budget constraints. Thefour typical of consumer preferences are also have a part in consumerconsiderations to try the new innovation, which is HDTV. By usually buyinginterim (current) television, consumer must think thoroughly whether they want tosubstitute the interim television to try the new HDTV.