1. opportunities and consumer preferences. Consumer opportunities represent

1.    Abstract

In today’s
global economy, literally millions of goods are offered for consumer to buy.
Thus, consumer have so many options to choose, from mass-produced toilet paper
to gold-plated chocolate. Because of this, companies are competing to grab
their attention by regularly campaign their advertisement to carefully set
their price and affecting the purchasing power of a consumer. The paper studies
the consumer behavior in choosing between products they wanted to buy. Understanding,
analyzing and keeping track of consumer behavior is very critical for companies
to retain their position in the marketplace because they can gain so much, and
in the end creates a kind of loyalty towards them. Also, how their preferences
changes when they know forthcoming innovations of a product. All this will be further
explained later on in this paper.

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Consumer behavior is becoming an important thing to
consider by companies. Consumer is setting their expectation so high that the
companies are having a hard time to know exactly what they want. This is not as
simple as they think. Human beings use complicated thought processes to make
decisions, and the human brain is capable of processing vast quantities of
information. At this very moment, our heart is pumping blood throughout our
body, our lungs are providing oxygen and expelling carbon dioxide, and our eyes
are scanning the environment while our brain processes what kind of information
are there. Despite all these complexities of human thought, managers in
companies need a model to explains how individuals behave in the marketplace.
Of course, we cannot expect that a model will fit all their behavior. Work
would be easier for managers of firms if the behavior of individuals were not
so complicated (Theory of Individual Behavior, 2013). If managers achieve
an understanding of individual behavior, they can help their firm thrives in
the market they are in. This model of behavior will necessarily be an
abstraction of the way individuals really make decision.


Theoretical Background


In characterizing consumer behavior, there are two important
but distinct factors to consider: consumer opportunities and consumer
preferences. Consumer opportunities represent the possible goods and services
consumers can afford to consume. Consumer preferences determine which of these
goods will be consumed (Theory of Individual Behavior,
There is also budget constraints. These constraints restrict consumer behavior
by forcing the consumer to select a bundle of goods that is affordable.


      Because there are so many
products out there, we will assume there only two goods exist in the economy so
that we focus on the essential aspect of on individual behavior. This
assumption 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 is
able to order his or her preferences for alternative combinations of goods from
best to worst. Let > means the ordering and write A > B whenever consumer
prefers A to bundle B. If the consumer views the two bundles as equally
satisfying, we will say she or he is indifferent between bundles A and B and
use A ~ B. Now, after knowing the basics, I will explain further the typical consumer
preferences. There are four of them, they are (Theory of Individual Behavior, 2013):



In completeness, consumer is capable of expressing a
preference 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), B
over A (B > A), or doesn’t care which bundle he or she will get (A ~ B).


More is Better

As the name speaks, it means bundles that gave at
least 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 more
of 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 a
consumer is willing to give up of one good in exchange of another good and
remain equally satisfied (Study, n.d.). The substitution
does not indicate a preference in goods, only that the consumer is willing to
give up units of one good for additional units of another good. For example, as
a consumer obtains more of good X, the amount of good Y he or she is willing to
give up to obtain another unit of good X is decreases.



For 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 choice
Joshua had. He prefers Pizza Hut over Domino’s and Domino’s over Papa Ron’s. We
can conclude that Pizza Hut is better than Papa Ron’s (because of the


Case Study


Country of origin (COO)
of a product affects its evaluation by consumers. Other than COO, the factors
influencing product evaluation are the brand and the degree to which a consumer
is familiar with the product, the degree of sophistication of product, the availability
for imported versus home made products, the price, the economic status of the product
and many more. The case study I will explain is consumer preferences for
forthcoming innovations back in the 90’s, which is high definition television (Sultan, 1999) . I chose HDTV as an
example of a consumer durable that is a forthcoming technological innovation
for home use. HDTV promises a wider screen, higher resolution pictures, and
superior sound. The Federal Communications Commission (FCC) in the USA settled
the issue of broadcast standards in 1995 by adopting the standards proposed by
an alliance of competing groups of firms. In April 1997 the FCC gave broadcasters
free licenses to provide high-definition digital television to begin reaching
viewers in the top ten markets in the USA within 18 months. Companies
interested in marketing television sets with this new technology are facing the
problem of deciding what marketing research needs to be conducted at this stage
to assess consumer preference for HDTV. In addition, some manufacturers would
like to introduce intermediate technologies that would have the wider shape but
not the high resolution. Another option for an intermediate technology is to
introduce higher quality pictures but with the same relatively square shape. For
HDTV manufacturers, an important question is whether the wide screen shape, in
itself, will be perceived as an innovation that consumers prefer to buy while
waiting for HDTV, or is it the picture quality that really matters more?
Another related question is how the time of availability of these various
technologies impact consumer preferences for the various options?


Discussion and Conclusion

The relation here
between theory and discussion is that when there is innovation, consumer
preferences will change, even if they are having a kind of mindset or loyalty
towards a product. Here, consumer is expecting what kind of breakthrough a HDTV
will make. Over time, preferences for various technologies are such that the
rate of decline in preference for existing technologies is greater than that
for intermediate ones, which in turn is greater than that for future technologies.
This means that consumers overlook existing technologies the most and future
technologies the least. Improvements in technologies are devalued by consumers
at a slower rate than existing technologies. For HDTV, consumers are willing to
pay more to receive this future technology earlier (say at the current point in
time), then they would for existing and intermediate technologies. In addition,
over time, consumers would devalue HDTV less than they would other TV
technologies, 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. The
four typical of consumer preferences are also have a part in consumer
considerations to try the new innovation, which is HDTV. By usually buying
interim (current) television, consumer must think thoroughly whether they want to
substitute the interim television to try the new HDTV.