Preferences of the Consumer

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Consumer Preference Theory

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Consumer preference is a significant part of microeconomics. Customer preferences include the concepts of the budget line, utility, indifference map, and indifference curve which are very closely associated with customer satisfaction. In this article, we will have a precise discussion of the various concepts of the consumer preference theory. Common yet important terminologies will also be included in this. The article will further include an analysis of the consumer behavioural patterns and a study on customer taste and preference.

Consumer Preferences Economics

Understanding the behavioural patterns of consumers means understanding the factors guiding the consumer preference in marketing. The central idea goes around with the concept of utility which is defined by the serving range of a commodity in fulfilling the human needs. It refers to the satisfaction derived by a consumer from the using of a particular product or service.

There are two types of utility:

  • Cardinal Utility Approach: This is also called Marginal Utility Analysis. This theory defines utility as something measurable in numerical terms. The Cardinal Utility Theory states that utility has to be measured in the unit called ‘utils’. Goods providing higher satisfaction to the customers will get assigned with higher utils than the ones that provide less amount of satisfaction to the customers.

  • Ordinal Utility Approach: This is also called Indifference Curve Analysis. This theory states that utility derived from the consumption of a commodity cannot be measured in numerical terms. Various utility levels are described with the help of ‘ranks’ in this case. Goods providing higher satisfaction to the customers will get assigned with higher ranks than the ones that provide less amount of satisfaction to the customers.

Important Terminologies Associated with Consumer Preference Theory

  • Marginal Utility: The additional satisfaction derived from the consumption of an additional unit of a good or service is called marginal utility. It is defined as the change brought in the total utility by the consumption of one more unit of a particular commodity.

  • Total Utility: The total amount of psychological satisfaction derived from the consumption of a said amount of a particular commodity is called total utility. Hence, total utility is the total of all the marginal utilities derived from the consumption of every successive unit of a particular commodity.

Law of Diminishing Marginal Utility

Understanding consumer preference meaning has a deeper relationship with the understanding of the Law of Diminishing Marginal Utility. It says that with more and more consumption of a particular commodity, the satisfaction of the consumers gets less and less. With the consumption of successive units of a particular commodity, its marginal utility keeps decreasing. This means that the commodity’s total utility increases but at a decreasing rate.

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Indifference Curve 

Bundles of a product making a customer more satisfies are preferred more than other bundles. However, in cases when some bundles provide equal satisfaction to a customer, indifference grows within the customer for the bundles. This makes the consumer fail in preferring one commodity over another. The indifference curve is a graphical diagram representing the bundles that tend to cause indifference in a customer. It is to be remembered that an indifference curve is in all case sloping downwards and is convex to its origin. The higher satisfaction level is denoted by a higher indifference curve.

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Did You Know?

  • Indifference map is a collection of several indifference curves.

  • Two indifference curves can never intersect each other.

  • Both ‘Marginal Utility’, as well as ‘Total Utility,’ are measured in utils.

  • For utility measurement, the Cardinal Utility Theory is a quantitative method while the Ordinal Utility Theory is a qualitative method.

FAQ (Frequently Asked Questions)

1. What are the Types of Consumer Preferences?

Ans: The following are the types of consumer preferences:

  • Convenience: Preference comes with availing things that can be obtained easily.

  • Effort: Satisfaction resulting from the effort.

  • User Interfaces: Preference can either be for the simplest of the interfaces or even for the ones coming with more and more features.

  • Communication and Information: Communication style as well as information density provoke preferences.

  • Risk: Preference triggered by risk tolerance.

  • Stability Vs. variety: There are preferences for staying intact with the old choices. There are also preferences for changing the styles accordingly.

  • Values: values trigger preferences. For example Environmental friendly values, religious values, etc.

  • Sensory: Preferences on look, colour, smell, sound and taste.

  • Time: Frequency of attending to a customer triggers preferences.

  • Customer Service: Customer service can either be friendly or professional according to the customer’s preferences.

2. What are Some of the Major Factors Changing Customer Preferences?

Ans: The assumption of consumer preference theory comes hand in hand with an analysis of the factors that affect the preferences of prospective customers. The factors are stated below:

  • Advertising: Advertising is a direct tool provoking the change in preferences if the consumers.

  • Cost: Consumers generally prefer goods with falling prices and change their preferences in case there is an increase in the prices.

  • Available Alternatives: More the availability of substitutes greater the sensitivity of the customers to change preferences.

  • Social Institutions: This includes parents, schools, friends, television programmes, religions, etc that provoke preference changes in consumers.

  • Consumer Income: The change in consumer income has a direct impact on the change in preferences.

So, that summarises the customer preference meaning.