Economic Approach to Consumer Behaviour - Essay Example

Consumer behaviour means how the consumer behaves. However, it has different meanings in marketing and economics.

In marketing, consumer behaviour is defined as the study of the buying units and the exchange processes involved in acquiring, consuming and disposing of goods, services, experiences and ideas (Mowen & Minor). Consumers go through a series of decision-making steps once the need is identified.

The economic approach to consumer behaviour delves into consumer demand analysis. The Theory of consumer demand is the analysis of demand about consumer behaviour and rationale when changes occur in variable factors such as price, income and substitute goods. Choice and revealed preference are two important factors affecting consumer demand.

The economic aspect looks at the decision-making of households. It is more concerned with demand and supply and the effect of changing prices on the former two. The marketing approach looks at not just the impact of price but also of promotions, advertising, distribution, branding etc.

Economic concepts hold the condition of citrus paribus (all else held constant). They assume that the consumer is rational and will not make unpractical decisions. The marketing aspect includes the effect of emotions, feelings, point of purchase advertising material etc. They assume that the consumer can be affected by something as small as the music being played in a shop. They assume that consumers can even make irrational decisions according to the concept of impulse buying.

Economics is all about making choices. People make choices because they can't have everything they want. Whenever a choice is made, something is given up. The opportunity cost of that choice is the value of the best alternative given up. People whose wants are satisfied by using goods and services are called consumers. To make efficient decisions - decisions that provide the greatest possible return from the resources available, people and society must weigh the benefits and costs of using their resources to do more of some things and less of others.

The Economic approach goes into the demand and supply details. It looks at household buying power and savings. It also looks at spousal control in household buying decisions. The decision-making framework (under uncertainty) is characterized as:
- Choosing one act from a given set of possible acts,
- Given a set of potential states one and only one of which will occur.

Consumer economics is also included in this area of economics. It is a broad field, principally concerned with microeconomic analysis behaviour in units of consumers, families, or individuals (in contrast to traditional economics, which is primarily government or business units). It sometimes also encompasses family financial planning and policy analysis. It is also commonly called "home economics".