How Economists Have Recognised Psychological, Social and Corporate Influences on Consumer Choice - Research Paper Example

How economists have recognised the psychological, social and corporate influences on consumer choice How economists have recognised the psychological, social and corporate influences on consumer choice Introduction When one thinks of economics, they often refer to the more quantitative aspects of financial analysis which indicates certain consumer spending trends or other economic data presented in chart format. However, there is an aspect of economics which is directly tied with the consumer and their psychologically-driven buying behaviours as well as their complicated social demands related to peer interaction or the relation of a specific product with their unique, segmented lifestyle habits. These are aspects which today’s business use in their marketing strategies, which illustrate how economics and marketing are closely related. Consumer attitudes and beliefs can dramatically impact the economics of supply and demand, which creates a concern for businesses and economists alike. This paper discusses the psychological and social influences on consumer choice, touching on the corporate influence in these decisions as well to illustrate how these factors influence consumer choice. Psychological, social and corporate influences In economics, the price elasticity of consumers is often considered, which is the “percentage change in the quantity demanded of a product divided by the percentage change in the price of that product” (Boyes and Melvin, 2005, p.475). Essentially, price elasticity is the willingness of a consumer to purchase a particular product or service at the given price. Dramatic or even noticeable price changes can lead to the demand decreasing on these consumer products and services. Price elasticity is not only about statistics, it also deals with less-obvious aspects of personality in which pricing becomes a psychological concern as well. Companies which compete in technology sectors, as one example, often use pricing strategies designed to outperform competition on similar-built products and models. Once a business has lowered pricing because demand has dropped, “it can never raise the price again without negative publicity” (Holweg, 2004, p.46). In this case, the media plays an influence on how consumers spend because the retail organisation has attempted to increase a price, thus aspects of human behaviour come into play such as resistance to change or lack of trust in the organisation’s selling principles. From the viewpoint of the economist, pricing has created a conglomerate of situations which alter consumer sentiment, thus they are not buying the product. Initially, price reductions were considered to drive higher profitability and local consumerism, but the after-effect of these efforts impacted psychological needs in the buyer. Therefore, an economist can simply review price elasticity or historical spending patterns when determining an appropriate price policy for products. If consumerism in a region declines because of poor retailer reputation, all stakeholders in society are affected when business and city revenues decrease. From the economist’s perspective, trends in behaviour and social beliefs continue to vary which make the process of marketing difficult. In the technology industry, as one example, portability of electronic devices is very high on the social hierarchy and appeals to needs for convenience and easy access to media (Bainbridge, 2009). Therefore, an intelligent retail organisation is going to attempt to stock more portability-minded electronic devices to ensure higher profitability. This is a competitive tool used by the retailer to offer the buyer more selection and variety of portable devices to appeal to their psychological and social needs. Rather than being transfixed on pricing policies, the economist realises that consumers will likely make purchases of products at higher prices due to the portable nature of the devices. In this situation, price elasticity is not so much of an issue because the consumer values having more variety of portable electronics available. A less proactive retail organisation might not recognise trends in consumer buying behaviour in this manner and provide inferior stock levels, thus impacting the company’s long-term financial future and, potentially, the jobs of subordinate workers on the sales floor. These could have long-term ramifications on a society’s economic stability. One economics publication cites, “quality is remembered long after the price is forgotten” (The Economist, 2009, p.76). In a service-oriented environment, such as a health spa, consumers will likely pay a higher price if the quality of service delivery tops that of competition in this marketplace. The business may adopt a more aesthetic décor to appeal to the upscale consumer or offer extended beauty sessions to give a more relaxing spa experience. In this situation, if the service is superior, pricing becomes less of an issue and the business must consider the psychological needs of the client in relation to the provision of quality service. Failure to do so will likely lead to sales declines, having negative economic outcomes on local society. Economists must be aware of these behavioural trends and needs-oriented marketing because they are such high contributors to the consumers’ buying patterns. If the aforementioned, hypothetical health spa were to fail to appeal to consumers’ needs for relaxation and quality of service, local malls and/or hotel revenues could significantly decline if patrons are not satisfied with the quality of the service. This depletes overall business profitability in the region, leading to lost jobs in that service-oriented market, thus declining city revenues earned through commercial success. Somewhat related to price is the notion of incentives marketing which offers discounts and coupon-generated deals on items as simple as fast food to more complicated retail environments. With today’s recession still lingering in many parts of the world, “incentives deals are prompting consumers to change their buying behaviours” (Glazer, 2009, p.22). It seems that there is a trend where consumers are drawn toward value-based marketing which offers the perception of high quality at an affordable price. These trends can be observed by virtually any community stakeholder with the rising launch of one-pound-only model stores. This is very much a sociological and psychological consideration for the economist and the marketing organisation as consumers will change their behaviours based not only on lower prices, but deals which outperform competition, such as the buy-one-get-one-free coupon incentive. The fact that pound-only stores have found success illustrates a social trend where value is considered to be a fundamental part of the social norm. This would be a major consideration for economists, especially if they were predicting or attempting to manipulate revenue creation in a region, as consumers are lured by incentives and will defect to competition if the value is superior. Companies such as Birds-Eye is also jumping on the social trend toward one-pound-only business models by offering £1 products to promote value deals (Golding, 2009). In times where prosperity occurs within a culture, it is likely that value-consciousness is not a global phenomenon but is part of a niche market of coupon clippers and other discounting behaviours. During difficult economic conditions, however, this becomes a part of the social norm and can be impacted by consumer-to-consumer post-purchase evaluations of the product for quality and price. These social interventions can drive business success and also predict economic stability at the same time, making value and incentives significantly important for economists. Consumers, today, are also leaning toward a negotiation strategy when pursuing potential retail purchases, with a recent survey indicating that 56 percent of consumers had recently tried to negotiate on retail pricing (Gregory, 2009). In most retail environments, prices are fixed and set by corporate headquarters or other authorised senior-level business officials. Thus, it is uncommon during times of economic prosperity for consumers to attempt bargaining in order to drive down pricing. This trend is both psychological and social and maintains very strong ramifications for a company’s public image, which can all impact sales volumes and consumer sentiment. An economist who is aware of this new social trend toward retail price bargaining might offer advice to the business to attempt to incorporate a bargaining mentality somewhere into its product or pricing policy to give consumers the perception that they have successfully negotiated a pricing transaction with the retailer. Changing the business model and pricing model to better relate to the consumers is one fundamental way that economists have recognised the impact of social and psychological influences on consumer choice and decision-making. “No brand is safe from the erosion of confidence that has swept society” (Clark, 2009, p.24). There appears to be public image issues for some product brands in different marketplaces and industries dealing with how consumers perceive the company, its advertising practices and the method by which the business promotes its products quality and relevance to consumer lifestyle. “Brands that fail to earn or maintain that trust will inevitably find themselves out of favour” (Clark, 2009, p.25). All of these marketing-based commentaries show that individual companies are concerned about the image their business or product is projecting to the buying audience and are taking steps to alter their promotional materials to meet these trends. This reflects the ability of an external party, this being the consumer, being able to radically change a retailer’s business model to fit their psychological needs in relation to their emotional connection with a product or the company which manufactures it. If these are significant contributors to changing buyer behaviour or brand defection, economists have to recognise new methodologies for developing better public relations in order to secure ongoing consumerism in a region. Finally, investment in new equipment and software, for the business environment, retracted at an annual rate of 26 percent at the end of 2008 (Lahart, 2009). Many businesses which manufacture these products rely on the retail organization or other intermediary to deliver these products, who in turn are dependent on consumer spending to drive profitability. This indicates that sales are declining in many industries, thus new expansion projects or development of new businesses are declining in terms of investment in new assets. This has a significant impact on an entire economic system which is again created by changing consumer sentiment. Abraham Maslow, a 20th Century psychologist, indicated that individuals are strongly driven by their needs for security and belonging (Weiten and Lloyd, 2005). If several retailers, which drive business success in a region, are not aware of what lifestyle demands are present in their buyers, they will likely be unable to generate much consumer interest in spending. Poor research capabilities or research focus could leave many businesses struggling to improve their market share and competitive positions in their marketplaces. Therefore, economists are incorporating the human behavioural factor into their predictive models when deciding issues of business staffing volumes, inventory purchases, or even payments to supply creditors. All of these internal and external issues and new concerns are driven by whether the consumer maintains a positive sentiment on brand promotion and retailer reputation. Conclusion Price is absolutely a factor which economists recognise when performing an economic analysis, however they seem to understand that there are less-distinct aspects of human behaviour which drive sentiment about a particular product or service. If colleague interventions in the social environment, as well, can jeopardise the health of a regional economy, then businesses should be focusing their energies on more concentrated marketing. The health of local retail organizations and manufacturers is of considerable concern and most of this, in developed nations, rides on success in consumer spending. It should be addressed by economists that trends in social or psychological needs can dramatically change patterns of demand and even impact price elasticity levels if the consumer is able to link pricing with emotion. It does not appear that economists believe that pricing can be a fix-all solution when sales are declining, thus they are recognising how best to respond to human needs and their buying behaviours in various commercial environments. Consumers are focused, in this current economic environment, toward value-consciousness which could require economists to become more actively involved in the marketing and promotional processes. Competitive actions in this environment are also considerable concerns, as pointed out by the research in this paper, as being able to reach the consumer at the lifestyle level can determine brand or even store defection increases. Whenever an economic system requires sales from consumers to drive economic health, their psychological and sociological needs must be incorporated into all economic analysis. References Bainbridge, Jane. 2009. Function over form. Marketing, London. 23 Sep, pp.28-30. Clark, Nicola. 2009. The trust crisis. Marketing, London. 5 Aug, pp.24-26. Glazer, Fern. 2009. NPD: customers hungry for freebies, Internet coupons. Nation’s Restaurant News, New York. 43(34), p.22. Viewed 4 Oct 2009 from www.proquest.com. Golding, Amy. 2009. Retailers pile on pounds to beat the discounters. Marketing, London. 19 Aug, p.2. Gregory, Sean. 2009. Let’s make a deal. Time Magazine. 174(5), p.55. Holweg, Matthias. 2004. The Second Century: Reconnecting Customer and Value Chain Through Build-to-order: Moving Beyond Mass and Lean Production in the Auto Industry. Cambridge: MIT Press. Lahart, Justin. 2009. Global Businesses are Poised to Lead Way out of Recession – Signs of an Upturn Emerge as Investment Cuts Slow and Inventories Decline. Wall Street Journal, New York, NY. 1 Aug, p.A5. The Economist. 2009. Business fashion victims; consumer goods in Japan. London. 392(8649), p.76. Read More