Theories of Consumer Behavior in the Field of Microeconomic - Research Paper Example

Introduction: Theories of consumer behavior constitute a wide area in the field of Microeconomic. Microeconomics discusses behavior of individual agent of an economy, like an individual, a family, a firm etc. Consumers Behavior which is considered to be a major part of Microeconomics discusses how a rational consumer behaves under different circumstances. While discussing a consumer’s behavioral pattern at some particular time under a particular situation theories of consumer behavior take into account elements from a wide range of areas including psychology of a rational consumer, sociological perspectives, anthropology and finally economics. Theories of consumer behavior actually aim at providing rigorous understanding of the decision making process of a ration buyer in a market economy. It also tries to find out impacts on a consumer’s choice of certain things of several actors like family environment, preference pattern of friends, and behavioral pattern of the socio-cultural group he/she belongs to. In the studies on consumer behavior, examination of a consumer’s behavior is mainly based on his/her buying behavior where a consumer is assumed to play the roles of the user of a commodity, the payer of price of the commodity as well as the buyer of the commodity. Among a wide range of consumer behavior models, black box model proposed by Kotler is one of the most important and interesting ones. In the present paper major focus will be placed on this interesting model of consumer purchasing behavior. In the present paper an attempt has been made to find out to what extent real life experiences come closer to what has been predicted by the theories of consumer behaviors. The major reason of considering the black box model is that recently I went through an interesting consumption experience regarding wine testing which can be related to this model of consumer behavior. For understanding my preference structure it is very essential to have appropriate understating of consumer behavior theories. Hence, in the very next section the present paper will analyze the theory of consumer behavior as it is found in the existing literature along with discussing some empirical findings. Since my own experience is related to wine testing, empirical findings on wine testing behavior of individual will be discussed. After providing a rigorous review of literature on the topic of consumer purchasing behavior and it applicability in describing wine testing behavior of consumers in real life, the present paper will provide an elaborate discussion of my own experience in one restaurant where I observed wine testing behavior of a my in two consecutive Sundays during a trip. Once my own experience is discussed, the next section will compare my own experience with what have already been stated in the literatures. The major aim in this section is to examine whether my real life experiences support theoretical explanations and empirical findings on the incidence of wine testing. Finally, on the basis of the findings in the previous sections, concluding part of the paper will provide a summary of what have been found out by the entire study which is based on our own experience as well as on the findings obtained by other studies. On the basis of the summarized results regarding consumer behavior on wine consumption obtained through the studies the concluding section will also try to provide a marketing strategy for wine producing firms. Review of literature The present study is concerned about the discussion of behavior of consumer regarding wine consumption using revealed preference approach. Before analyzing the findings relating to consumption behavior, it would be better to build sufficient understanding regarding the theoretical models of consumer behavior. Consumer’s decision making regarding any purchase is dependent on a number of psychological, social, economical factors. Some of these factors are internal to the consumers while some factors are external. Among the internal factors that influence a consumer’s decision include options that are available to the him/her, perception regarding the product, attitude and personality of the individual, his/her life style, existing knowledge regarding alternatives product varieties, the individual’s hobby and interests, past consumption experiences, income and finally personal motivation. There also exists a number of external factors which influences a consumer’s purchasing decision. These external factors can not be controlled by the consumer. These factors include availability of suitable products, family and friends recommendations regarding certain product variety, culture, marketing activities, social status etc. It is, however, not that all these factors produce same kind of influences on consumer’s decision making process. While some of these factors play important roles in the decision making process of a consumer, some other factors do not seem to produce that much influence. (Swarbrooke and Horner, pp 74) One of the well-known models of consumer behavior has been proposed by Kotler. But before, discussing Kotler model, it is necessary to look at the basic aspects of consumer behavior. The basic ideas of consumer purchasing behavior regarding any product can be summarized as follows: 1. Consumers act with certain purpose. In each occasion consumers behaviors are directed by particular aims. Even in those cases, where consumers are found to behave irrationally by a marketer of a product, those acts are actually quite reasonable to the consumers. 2. In a market economy consumers actually have free choices. Consumers can not be physically forced, or they are not obliged to buy certain product. In most of the cases, consumers have several products from which they need to choose. 3. Although consumers are free to choose among the alternative choices given to them, their buying decision can be affected by the marketers. By undertaking effective marketing strategy marketer can control consumers’ behavior. And, 4. Due to lack of proper knowledge, in some occasions, consumers may act against their characteristics. Marketers should adopt those strategies which would educate consumers properly and help them taking proper decision regarding their purchases. (Knowels, pp 49) Considering all these ideas regarding consumer behavior, Kotler has proposed his black box model of consumer behavior. The following figure presents this model: Marketing Stimuli Responses other stimuli Buyer’s black box Buyer’s Product Economic Buyer characteristics Product choice Price Technological & Brand choice Place Political Buyer decision Dealer choice Promotion Cultural process Purchase timing Purchase amount The first column of the figure above presents the factors that act as marketing stimuli. The four factors are traditionally known as the four P’s. The second column of the figure shows other stimulating factors that influence a consumer’s purchasing decision. The other stimulating factors that include economic, technological, political and cultural stimulus are very often recognized as general environment that surrounds a particular consumer. All these stimulating factors, marketing as well as others, go into the ‘black box’ of the consumer and get converted into the responses of the buyer. Hence, it can be found from the model that a lot of factors plays significant role in shaping up a buyer’s decision regarding any purchase. Every decision of a buyer is dependent on a range of stimulating factors. By changing these factors, buyers decisions can be changed. However, one major aspect that the theoretical models regarding consumer behavior do not discuss elaborately is the extent by which each of these factors affects consumer’s decision. In case of wine testing too, a buyer behaves exactly in the same way as he behaves in case of other purchases. However which factor would produce how much effect will depend on the nature of the consumer, circumstances as well most importantly on price. (Knowels, pp 49-50) Now the literatures that have examined the consumption behavior, particularly, wine consumption behavior of consumer, can be examined. A number of existing studies have tried to find out whether consumer’s decision making process regarding wine purchase is directed in the same way as has been predicted in the theories. For example, in a study, revealed preference analysis has been applied to examine the degrees by which different attributes of red wine shape up consumer purchasing behavior (Keown and Cassey, pp 17). The paper has applied statistical logit model with the data collected through experimentations of static choices of a group of wine consumers (Keown and Cassey, pp 18). The purpose of the study was to determine the impacts that different attributes of wine had produced on the consumers’ decision making process regarding wine purchase. The major aim of this research was to out find out optimum marketing strategies of the wine seller. The author has introduced an interesting method of loyalty measure and polarization to produce results on the basis of the data on wine purchase. The study has found that consumers had shown a greater loyalty towards two particular attributes - price and variety of wine available in the Markey. The study did not find out any kind of strong loyalty of consumer of wine towards attributed like origin and brand. Not only that the study has also found out that the wine market segmentation had took place mainly on the basis of prices. (Keown and Cassey, pp 17-20) There have been lots of other studies which have tried to examine wine consumption behavior of people living in different countries using revealed preference analysis (Nadhe and Miguel, pp 1-18; Jarvis et al, pp 135-37; Manning et al, pp 123; Dewald, pp 55; Dodds et al, pp 307). Empirical studies have found that apart from price, socio-cultural influences, origin, brand, and variety etc. of a product significantly influence consumer’s purchasing decision (Bonnet and Simioni, pp 441; Elliott and Cameron, pp. 49 . It is very often presumed that origin of wine, wine brand are two very important that may play significant role in the decision making of the consumers. But while it comes to make a comparison between the impact of origin of wine and price of wine on the decision making process of consumers regarding wine purchases, most of the studies have found that price produces much larger impact on consumers wine purchasing behavior when a wide number of choices are given before the consumer at the time of purchase. Very often consumers are found to state that they have preference for one particular origin of wine over the others (Atkin and Sutanonpaiboon, pp 1 ; Duhan, pp 44) But in reality it is often found through the data of their revealed preferences regarding wine purchase that demand for wine is highly price responsive, although in a negative way, irrespective of their origin. (Nadhe and Miguel, pp 16-17; Manning et al, pp 123; Jarvis et al, pp 137) In Spain or in Hong kong or in some other countries, studies have found out that as far as stated preferences as well as revealed preferences under no price change are concerned as, it has been found out by empirical experimentations that consumers actually have shown their preferences for some particular origins of wine over others. For example, Spanish wine consumers have a strong preference for wines that come from Somontano region over the wines that come from other regions like Rioja, Carinena etc. But when it comes to estimating consumers’ price responsiveness in case of wine purchase, a strong negative relation has been found. Not only that as far as relationship between price and utility of the consumers of wine are concerned, in one particular studies it has been found that price-utility curve represents a concave shape which implies that up to a certain level of price with increase in price of wine utility derived from wine consumption rises, but after that level consumer utility from wine consumption starts to fall along with increase in prices. However, in some other studies (Locksin et al, pp 177) which employed revealed preference data, utility of consumers has been found to be continuously decreasing with increase in price. A wide range of studies have documented a negative sign for the coefficient of price while estimating the regression equation for assessing consumer’s behavior using revealed preference data where price has been considered to be an determinant among other factor influencing consumer choice and preference structure. (Bonnet and Simioni, 442; Swait and Andrews, 459) Own Experience regarding wine consumption In last month I went to Florida on a two week long trip. I visited a number of beaches there. While visiting the beaches situated on the Florida coastline, I visited several restaurants to test local cuisines. I fell in love with one particular restaurant situated near the St. Pete Beach, although it was not one of the famous or big restaurants out there. I actually visited the place for two consecutive Sundays during my trip. It had a very nice bar having wines of two different origins- one from the famous Napa Valley and the other one from some local area. During my both visits to that restaurant I went with one of my friends who have a passion for testing wines of different varieties. So, while we went for dinner in our first trip to the restaurant, he could not resist himself from wine testing. Given the money left after our meal he tested both types of wine. As the name “Napa Valley” stands for a good quality, my friend also had a stated preference for the wines that come from Napa Valley over any other wines. With the given amount of money left after our meal and the given prices for the two types of wine, he had taken 6 pegs of the wine of Napa valley, while only 3 pegs for the local variety. In the next Sunday during my second visit to that same restaurant again went with that friend of mine. We had liked the dish we had ordered during our first visit so much that we again ordered the same food so same amount of money got expended for our meal during the second visit as prices also did not change within one week. But surprising thing happened for the prices of wine. During the period in between our two visits to the restaurant, price of the wine from Napa valley in local restaurants of Florida experienced a hike due to short supply while prices of local wine reduced for some reason, may be as a part of marketing strategy of the local wine producers. Although my friend was left with same amount of money as before after our meal, he actually consumed 3 pegs of wine from Napa Valley and 5 pegs of local wine. Analysis and discussion In case of my friend’s wine purchase, some factors seems to have behaved exactly in the same way as predicted by the theories, but some factors have failed to play appropriate role. For example, Napa Valley wines are widely promoted in the market through the marketing strategies applied by the producers compared. Hence, my friend’s first choice was Napa Valley. But he did not expended all his money on Napa Valley wines, because, local Floridian wines also have a good image in the market. Hence, my friend held a good perception for local wines too along with Napa Valley wines. The place also played a major role in provoking my friend to drink wine. We went to have our dinner in a restaurant which had fabulous bar and most of the people who were dining there were also visiting the bar. So the place and the prevailing environment provoked him to have a few pegs of wine. Had we been in some other restaurants that do not a bar, my friend might not have expended his money on wine. As far as socio-economic and cultural factors are concerned, they also played some important roles in my friend’s decision making process. Florida’s socio-cultural environment is basically very free and least conservative in nature. The main motto of the people, particularly the tourists out there is to enjoy their life to the fullest by all sorts of recreation. This kind of environment might also provoke him to consume so many pegs of wine during dinner. However, his family culture did not produce much impact on his behavior, or it can otherwise be said that family influences got overshadowed by other factors. No one in my friend’s family is alcoholic, not even any of them are social drinker. If his family culture had been quite effective, then it could have resisted him from drinking. As far as price responsiveness of wine consumption is concerned, a negative relation between the demand for and price of wine has been found. As prices of Napa Valley wine had increased at the second visit, my friend consumed lesser pegs of NapaValley wine while opposite was the case for the local wine. Hence, although my friend’s stated preference for Napa Valley wine is quite strong, in practice his revealed his loyalty towards the price attribute of wine more than the origin attribute. This kind of behavior completely matches with what have been found in empirical studies. From this finding it can be said that price is the most important factor that play the crucial role in decision making process of a buyer. Although Napa Valley wine is largely promoted, although the place was same in the second visit also, although the socio-cultural and economic factors were similar as before, increase in price of Napa Valley wine produce negative effect on the consumption. So, among different alternatives options given, the option that consumer would actually choose largely depends on price among other factors. Conclusion Reviewing the findings from the selected literatures and my own experience regarding the purchasing behavior of wine testing, it can be concluded that in reality consumers are more responsive to price of wine rather than their origin, brand etc that reflect quality, although quality of wine is most of the time perceived as the major determinant for shaping up consumption decision regarding one particular type of wine. So consumers can be attracted in larger extent towards one particular type of wine by price reduction rather than by enhancing other attributes. So a proper marketing strategy for a restaurant to attract its visitors towards its bar is to provide relatively cheaper wines by larger extent than some highly expensive wines. This strategy will enhance wine sells in the restaurants. (Chaney, pp 38) Works Cited 1. Knowels, Tim Dimitrios Diamantis, Joudallah Bey El-Mourhabi. The globalization of tourism and hospitality: a strategic perspective. Cengage Learning EMEA, 2004 2. Swarbrooke, John and Susan Horner. Consumer behaviour in tourism. Butterworth-Heinemann, 1999. pp 74-76 3. Atkin, Tom and Janejira Sutanonpaiboon. IMPORTANCE OF REGION IN MARKETING WINE TO US CONSUMERS. Retrieved on 18th May, 2009 from http://www.decisionsciences.org/Proceedings/DSI2008/docs/18-7453.pdf 4. Chaney, Isabella Mary. "Promoting wine by country", International Journal of Wine Marketing, Vol. 14 No.1, pp.34-40. 2002 5. Keown, Caroline and Mura Cassey. Purchaing behaviour in the Northern Ireland Wine Market. British Food Journal. Vol. 97, No. 1, pp 17-20. 1995. 6. Nadhem, Mtimet and Albisu Luis Miguel Spanish wine consumer behaviour: A stated and revealed preferences analysis. Retrieved on 18th May, 2009 from ageconsearch.umn.edu/bitstream/9431/1/sp07na04.pdf 7. Bonnet, Celine and Michel Simioni. Assessing consumer response to Protected Designation of Origin Labelling: a mixed multinomial logit approach. European Review of Agricultural Economics, 28(4), 433-449. 2001. 8. Lockshin, Larry L., Wade W. Jarvis, Francois D´Hauteville , Jean-Philippe Perrouty. 2006. Using simulations from discrete choice experiments to measure consumer sensitivity to brand, region, price, and awards in wine choice. Food Quality and Preference, 17(3-4), 166-178. 9. Jarvis, Wade. 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Andrews. Enriching scanner panel models with choice experiments. Marketing Science, 22(4), 442-460. 2003. Read More