Multimedia Marketing/Marketing.iso/market/chapter3.2p

Text File | 1996-08-22 | 13KB | 285 lines

SECTION 3.2  Economic Insights

INSTRUCTIONS Try to imagine the ways in which the economics discipline might
explain consumer behavior. Then pursue this section for more insights.

EXAMPLE

Some consumers are very careful shoppers. They decide exactly
what they want to purchase through careful deliberation. Then
they make a careful search to find the product or service that
will fulfill their needs. They may read advertisements, talk
to sales representatives, solicit the advice of friends, read
"Consumer Reports", and visit retail stores to examine various
potential purchases. Their objective is to get the best quality
product at the lowest price. These consumers are pursuing a
purchasing strategy that economists believe to be descriptive
of how people buy.

DETAILS

In discussing marketing, we are dealing with one aspect of
"microeconomics"--the study of the individual units that make
up the economy (as against macroeconomics, which is a systematic
investigation of the overall economic system and governmental
policy related to it).

The classical microeconomic theory provides a useful starting
point for the student of consumer behavior. Assuming that the
individual is a rational being, fully aware of his or her desires
and needs and able to determine the best way to satisfy them,
the classical economist believes that the consumer will acquire
the items having the most utility (ability to provide satisfaction)
relative to their costs and the consumer's financial position.
The theory presents a picture of the efficient and rational
problem solver who attempts to get the most for his money--to
maximize utility.

A truck maintenance firm provides a valuable service to owners
of truck fleets (such as soft drink bottlers, dairies, and bakeries).
The company operates several trucks which travel to the places where
the client trucks are parked, after working-hours or on weekends.
The maintenance crew checks the oil, gaskets, grease, and other
elements that may need maintenance. If work is needed, the crew
proceeds.

Basically, the clients of this firm behave as classical microeconomic
theory predicts they will by seeking out low-cost, convenient,
and effective maintenance for their trucks. Most of them have even
made rather careful evaluations of the ability of this firm to
provide the utilities, in comparison to alternatives such as self-
maintenance and service station maintenance.

PROBLEM 1

A buyer of industrial supplies behaves according to classical
microeconomic theory. This means that the buyer:

A. Has a large number of objectives and goals.
B. Desires to make a purchase that will not consume excess amounts
   of time.
C. Is fully aware of his or her needs and desires.
D. Is an experienced buyer.

WORKED

A buyer of industrial supplies behaves according to classical
microeconomic theory. This means that the buyer is fully aware of
his or her needs and desires. The microeconomic theory assumes that
consumers act rationally. In order to do this they must have goals.
But it is not possible to develop goals without detailed knowledge
of personal needs and desires. These must be well-developed before
buyers can determine which products have the most utility, because
some items have utility to one person but not to another, as the
two may have differing needs and desires.

ANSWER  C

INSTRUCTIONS Try to imagine the ways in which the economics discipline might
explain consumer behavior. Then pursue this section for more insights.

EXAMPLE

Some consumers are very careful shoppers. They decide exactly
what they want to purchase through careful deliberation. Then
they make a careful search to find the product or service that
will fulfill their needs. They may read advertisements, talk
to sales representatives, solicit the advice of friends, read
"Consumer Reports", and visit retail stores to examine various
potential purchases. Their objective is to get the best quality
product at the lowest price. These consumers are pursuing a
purchasing strategy that economists believe to be descriptive
of how people buy.

DETAILS

Economists have called this model the "marginal utility" model. It
is also sometimes called the "economic man" model, since it predicts
that consumers will respond only to economic stimuli.

The model uses three factors to explain decision making: consumers'
perceived utility of each item, the price of each item, and
consumers' budget levels.

One of the variables included in the model is "marginal utility".
This is the satisfaction that the consumer receives by consuming
one more unit of the product or service. Economists assume that
marginal utility declines as consumption increases. A consumer
might receive considerable satisfaction from eating an ice cream
cone (very high marginal utility). The second cone might taste
very good, but would not bring in as much satisfaction as the first,
because the consumer is less hungry (marginal utility is declining).
A third ice cream cone probably would produce even less utility. If
the consumer is satiated, it might even bring in negative marginal
utility--oversatiation.

More specifically, the model states that individuals buy items to
maximize the benefits they receive from a given budget level. That
is, the model asserts that people allocate their incomes so that
the benefits derived from ( marginal utility/ price) for all items
is equal. If any good or service offered less utility relative
to price, consumers would increase the total satisfaction from a
given budget by purchasing less of that item and more of some other.

PROBLEM 2

A husband and wife behave according to the classical microeconomic
theory when they buy groceries. They allocate their incomes so that:

A. Marginal utility is maximized.
B. Marginal utility/ price for all items is equal.
C. Marginal utility drops to zero.
D. Marginal utility is increasing at a declining rate.

WORKED

A husband and wife behave according to the classical microeconomic
theory when they buy groceries. They allocate their incomes so
that marginal utility/ price for all items is equal. In this way,
they will be spending their incomes in such a manner that total
utility is maximized, given the level of income that they receive.
If the price of an item rises but marginal utility stays the same,
they will consume less of that item and more of other items. In
this way they will maximize their satisfaction.

ANSWER  B

INSTRUCTIONS Try to imagine the ways in which the economics discipline might
explain consumer behavior. Then pursue this section for more insights.

EXAMPLE

Some consumers are very careful shoppers. They decide exactly
what they want to purchase through careful deliberation. Then
they make a careful search to find the product or service that
will fulfill their needs. They may read advertisements, talk
to sales representatives, solicit the advice of friends, read
"Consumer Reports", and visit retail stores to examine various
potential purchases. Their objective is to get the best quality
product at the lowest price. These consumers are pursuing a
purchasing strategy that economists believe to be descriptive
of how people buy.

DETAILS

There are several limitations to the classical microeconomic
model. One limitation is a psychological one. In reality consumers
are not fully aware of the nature and importance of all of their
needs and desires since many of these lie in the subconscious.
This means that the individual is not aware of their existence.
This makes objective calculations of satisfactions difficult.

Another weakness is the assumption that consumers have complete
knowledge of the various ways to satisfy their needs and desires.
Automobile purchasers, for instance, probably are unable or unwilling
to gather complete information on the various models available,
their performance and styling, and the total costs of each. It
would be nearly impossible for grocery shoppers  to attain complete
knowledge about the various alternatives available ands the utilities
and costs of each one.

The theory does not take into account some very important influences
on behavior in addition to the subconscious needs and desires,
such as: the influences of other individuals and groups (such as
family and friends), an individual's emotions, and the effect of
product purchase and use upon future purchasing. An illustration
of the influence of emotions and friends, for instance, is the
hardware store owner who signed a contract with a wholesaler
because the owner of the wholesale outlet was a cousin and the
hardware store owner believes in helping out "the little guy".

PROBLEM 3

A food processing buyer behaves according to the classic microeconomic
model. This means that she:

A. Is influenced by subconscious needs and desires.
B. Is influenced by her family and friends.
C. Sometimes makes purchases based upon her emotions at the time.
D. Makes an effort to learn about the quality of the items she buys.

WORKED

A food processing buyer behaves according to the classic microeconomic
model. This means that she makes an effort to learn about the quality
of the items that she buys. Only in this way can she make a
determination of the marginal utility of each product, compare this
to its price, and then choose among alternative products. The buyer
would not be behaving according to the microeconomic model if she
is influenced by subconscious needs and desires, family and friends,
or emotions. All of these are assumed away by this model.

ANSWER  D

INSTRUCTIONS Try to imagine the ways in which the economics discipline might
explain consumer behavior. Then pursue this section for more insights.

EXAMPLE

Some consumers are very careful shoppers. They decide exactly
what they want to purchase through careful deliberation. Then
they make a careful search to find the product or service that
will fulfill their needs. They may read advertisements, talk
to sales representatives, solicit the advice of friends, read
"Consumer Reports", and visit retail stores to examine various
potential purchases. Their objective is to get the best quality
product at the lowest price. These consumers are pursuing a
purchasing strategy that economists believe to be descriptive
of how people buy.

DETAILS

The classic microeconomic model focuses more upon how consumers
should act than on how they really do act and has been the basis
for many criticisms aimed at marketing activity. Critics have
scolded marketers about the use of emotional appeals in advertising,
about annual changes in product styling, and variety in product
offerings. These criticisms lose much of their validity when it is
recognized that they are based upon what some economists believe
should be, rather than upon what is.

Unfortunately, some legislators and public officials use the classical
microeconomic theory in developing and interpreting regulations of
marketing activity. They believe (often incorrectly) that the solution
for the ills of society is to provide more and more information to
consumers. Once the regulations are in effect, they are amazed to
find that the bulk of the consumer population does not use much of
the information so hardily fought for.

These problems do not mean that the classical microeconomic model
is useless. It does stress the fact that people pursue their own
self-interest, which is one insight that is important in understanding
consumer behavior. And, most consumers do have goals, even if they
are not perfectly understood, even by the consumer. Most consumers
do try to gain at least some information about price and utility,
even though they do not make precise calculations of marginal utility
and price for all items under consideration. In other words, this
model provides us with a starting point for understanding consumer
behavior. But it is only a beginning. Other models are needed to
supplement this one.

PROBLEM 4

A hardware dealer believes that the classical microeconomic model
accurately predicts consumer behavior. One reason that it may not,
however, is that it assumes that:

A. Consumers pursue their own self interest.
B. Consumers have goals.
C. Consumers gain some information about price and utility.
D. Consumers can calculate marginal utility.

WORKED

A hardware dealer believes that the classical microeconimical model
accurately predicts consumer behavior. One reason that it may not,
however, is that it assumes that consumers can calculate marginal
utility. It is doubtful that consumers will be able to make precise
calculations of this variable. Their calculations will vary depending
upon a number of factors, such as their emotions, their physical states
(such as when they are hungry or full, on the one hand, or fresh
or tired, on the other), the time of day, and numerous other variables.

ANSWER  D