ECON DB3 - Essay Example

Celebrity endorsements are an integral part of global marketing strategies in the present age. The popularity of celebrity endorsement for the purpose of promoting brands is primarily due to the capacity of the strategy to influence the customer. In what follows, the case of George Foreman endorsing a particular brand of grills shall be used to highlight how a celebrity endorsement can affect the demand for a product primarily through influencing the tastes and preferences aspect of the demand function, how the budget, income and substitution effects fit into the scheme and finally what such effects imply about the rationality of the individual consumer.

Foreman’s endorsing of the Grill products essentially was intended to increase the demand for these grills. The central idea was that the endorsement would lead to a consumer feeling the particular grill endorsed by Foreman was differentiated from rival products. Since George Foreman is a personality who is widely respected and loved, it is likely that his association with the product would directly or indirectly create a feeling of trust in the quality of the product. The direct effect would be on people who believed what was being said about the product.

For people who may not be as susceptible, but have respect for Foreman, may be indirectly influenced because of the association despite not actively realizing the fact. The primary factors that influence a consumer’s demand for a product are a) the price of the product, b) price of related products, c) the consumer’s own income and finally, d) the consumer’s tastes and preferences. Assuming the endorsement does not come at the cost of higher prices for the product, only the tastes and preferences aspect of these factors are targeted.

If a consumer’s preference for the particular type of grill can be enhanced, then for each existing price, the consumer would be willing to purchase higher units of the product. This amounts to an increase in the quantity demanded at each price. Thus, the demand curve shifts out. This implies the market demand for the product will also increase and thus result in higher sales of the product. However, it is critical to note that the endorsement does not change the consumer’s income, and so there is no change in the budget constraint.

However, since the preference for the good has increased, it seems to be better value for money compared to substitutes. Therefore, even if the price of the endorsed grill is slightly increased, the consumer may well feel it to be a better value for money and still decide to purchase the product. In this case, the income effect will dominate the substitution effect. In essence, the endorsement can potentially make the rival goods become “inferior” alternatives to the endorsed grill. To evaluate the rationality of such choices, it should be noted that rationality simply implies that the consumer tries to maximize his/her utility given the budget constraint.

And it is precisely this utility that has changed because of the endorsement. The customer now gets higher utility from purchasing the grill than he/she used to earlier. Therefore, even if there have been no quality improvements to the product and the consumer is seen buying the good at a price he did not earlier, this does not violate the requirement of rationality since the consumer’s preferences have altered because of the endorsement and thus, he now derives greater utility from the same product.

In that case it cannot be deemed irrational to purchase the grill even if its relative price has not changed, or even if the customer’s budget has not improved just because of the updated preferences.