CONSUMER DECISION MAKING

Clapiei :
LAW Cl uLMAnu
O Mosi impoiiani law of economic ileoiy
O Oilei ilings being equal
O If ile piice of a commodiiy falls, qiy. demanded will iise
O If ile piice of a commodiiy iises, iis quaniiiy demanded
will decline
O Inveise ielaiionslip beiween piice and quaniiiy
O Consiancy of oilei faciois is an impoiiani assumpiion
of law of demand
lAC1C8S lnlLuLnClnC uLMAnu
O Pvicc oI thc commodity- Ceteris poribus- oilei ilings being equal,
ile demand of a commodiiy is nversely reloeJ io is piice. A iise in
piice of a commodiiy biings aboui a fall in iis puiclase and vice veisa
O Pvicc oI Rc!atcd Commoditics
O Comp!cmcntavy goods ea and Sugai, auiomobile and peiiol, piiniei and inl)
O Compcting goods ov Substitutcs ea and Coffee)
O cvc! oI Incomc oI Houscho!ds - Impact on
O Ncccssavics
O ComIovts & uxuvics
O InIcviov commoditics
O Tastcs oI Houscho!ds
O Sizc oI Popu!ation
O Composition oI Popu!ation
O Distvibution oI Incomc
O Socio!ogica! Factovs
O Wcathcv Conditions
Demand Manager|a| Imp||cat|ons
O le mailei foi a fiim's pioduci cannoi be analysed wiiloui iefeience
io ile demand condiiions
O Foi a fiim oi an indusiiy consisiing of seveial fiims, ile exieni of
demand deieimines ile size of mailei
O Successful business fiims, ileiefoie, spend consideiable iime, eneigy
and effoii in analysing ile demand foi ileii pioducis
O Wiiloui a cleai undeisianding of consumei belavioui and a cleai
lnowledge of ile mailei demand condiiions, ile fiim is landicapped
in iis aiiempi iowaids pifoii planning oi any oilei business siiaiegy
planning
O Esiimaiing pieseni demand and foiecasiing fuiuie demand consiiiuies
ile fiisi siep iowaids measuiing and deieimining ile flow of sales
ievenue and piofiis wlicl geneiaie inieinal iesouices io finance
business.
O le siabiliiy and giowil of business is linled io size and siiuciuie of
demand
Demand Manager|a| Imp||cat|ons
O Economisis iieai Demand and Consumpiion sepaiaiely.
O Business uses ilese iwo ieims inieiclangeably
O Demand and Consumpiion aie oiganically ielaied.
O Consumpiion is an economic aciiviiy wleieby ile use value of iiem
consumed exlausis.
O A louselold consumei demands ile iiems of goods foi final
consumpiion,
O an inieimediaie consumei lile a facioiy ownei demand iiem of seivices
fiom faciois of pioduciion lile land, iaw maieiials and laboui, ilese
aie iequiied iowaids piocessing inpuis inio fiscal ouipui.
O Ii is obseived ilai all consumeis lave limiied budgei and ileiefoie,
wlile demanding iiems iley aie caieful io gei ile besi ieiuin on ileii
iesouices speni - and ilai's iaiionaliiy
O A combinaiion of iaiionaliiy and opiimaliiy is ieflecied in consumei
belavioui
Demand Manager|a| Imp||cat|ons
O Consumei's Belavioui can be beiiei undeisiood
wiil iefeience io diffeieni iypes of business:
O Indusiiial Vs. Mailei Demand
O Mailei Segmeni Vs. oial mailei demand
O Company Vs. Indusiiy demand
O Domesiic Vs. Naiional demand
O Diieci Vs. Deiived demand
O Auionomous Vs. Induced demand
O New Vs. Replacemeni demand
O Sloii iun Vs. Long iun demand
O Houselold Vs. Coipoiaie Vs. Goveinmeni Demand
DLMAND LLAS1ICI1ILS LLSSCNS ICk A MANAGLk
O Elasiiciiy of Demand is a measuiemeni of ile exieni of
clange in demand foi a given clange in piice.
O lis can be measuied againsi many vaiiables oilei ilan
piice - lile piice of oilei ielaied goods, income eic.
O Lei's lave a quicl iecap:
O Pvicc E!asticity oI Dcmand: Measuies ile iesponsiveness
of quaniiiy demanded of a pioduci io clanges in iis 'own
piice'.
O Cvoss-pvicc c!asticity oI Dcmand: lis measuies ile
iesponsiveness of quaniiiy demanded io clanges in ile
piices of oilei goods boil complemenis and subsiiiuies)
O Incomc c!asticity oI Dcmand: Measuies ile
iesponsiveness of demand io a clange in ile ieal income of
consumeis
DLMAND LLAS1ICI1ILS LLSSCNS ICk A MANAGLk
O le ieims "elasiic" and "inelasiic" aie iefeiied io desciibe diffeieni
degiees of elasiiciiy
O Pioducis wiil a piice elasiiciiy of demand of less ilan i aie said io lave a
ielaiively inelasiic demand wiil iespeci io piice - iley aie said io be pvicc
inc!astic
O Pioducis wiil a piice elasiiciiy of demand gieaiei ilan i aie said io lave
ielaiively elasiic demand - iley aie said io be pvicc c!astic
O Pioducis wiil a piice elasiiciiy of demand equal io i aie said io lave a unii
elasiiciiy of demand
DLMAND LLAS1ICI1ILS LLSSCNS ICk A MANAGLk
O Elasiiciiy of Demand is a measuiemeni of ile exieni of
clange in demand foi a given clange in piice.
O lis can be measuied againsi many vaiiables oilei ilan
piice - lile piice of oilei ielaied goods, income eic.
O Lei's lave a quicl iecap:
O Pvicc E!asticity oI Dcmand: Measuies ile iesponsiveness
of quaniiiy demanded of a pioduci io clanges in iis 'own
piice'.
O Cvoss-pvicc c!asticity oI Dcmand: lis measuies ile
iesponsiveness of quaniiiy demanded io clanges in ile
piices of oilei goods boil complemenis and subsiiiuies)
O Incomc c!asticity oI Dcmand: Measuies ile
iesponsiveness of demand io a clange in ile ieal income of
consumeis
O Fiims wlicl wani io expand ouipui io conceniiaie on selling pioducis
wiil ligl income elasiiciiies wlen living siandaids aie iising.
O Wiil gieaiei puiclsing powei, people will iend io buy
dispiopoiiionaiely moie luxuiy iype goods
O Fiims pioducing goods wiil low income elasiiciiies will iend io face a
moie siable mailei foi ileii pioducis and will be less affecied in iimes
of economic downiuin.
O Adveiiisemeni expendiiuie piomoies sales, because ii cieaies new
demand. lis iesponsiveness of sales io adveiiisemeni is iefeiied as
piomoiional elasiiciiy.
DLMAND LLAS1ICI1ILS LLSSCNS ICk A
MANAGLk
DLMAND LLAS1ICI1ILS LLSSCNS ICk A MANAGLk
O leie is a diieci ielaiionslip beiween piice elasiiciiy and sales ievenue.
O With a pvicc inc!astic dcmand:
O An inciease in piice causes a ieduciion in quaniiiy demanded, bui ioial
ievenue incieases
O A fall in piice causes an inciease in quaniiiy demanded, bui ioial ievenue
eained declines
O With a pvicc c!astic dcmand:
O An inciease in piice causes sucl a laige fall in sales ilai ioial ievenue falls,
O A ieduciion in piice causes sucl a laige inciease in ile quaniiiy demanded
ilai ile ioial ievenue iises
O Managemeni migli iaise ile piice of a pioduci io iaise ievenues, bui
ile iesuliing collapse of demand may aciually cause ioial ievenue io
coniiaci.
O Piecise iesponsiveness of demand io a piice clange deieimines ile
effeci of a piice clange on ievenue ieceived
Demand Lst|mat|on Iorecast|ng
O Siiaiegic sales managemeni seiiously consideis demand
esiimaiion, foiecasiing and inieipieiaiion
O Demand foiecasiing deals wiil ile following iwo issues:
O Estimating dcmand vc!ationship: Deiiving ile besi specificaiion
of ile demand funciion wlicl esiablisles ielaiionslip beiween ile
quaniiiy of ile pioduci demanded by consumeis and ile faciois
ilai influence ilis demand. Eg. Adveiiisemeni exp vs. inciease in
sales.
O Fovccasting dcmand: lis can be boil foi sloii-ieim and long-
ieim decision. Exiiapolaiion oi piojeciion of fuiuie belavioui on
ile basis of pasi belavioui.
Demand Lst|mat|on Iorecast|ng
O Demand Esiimaiion involves:
O Co!!cction InIovmation: Consumei Suiveys and Mailei
Expeiimenis aie consideied undei ilis. Hisioiical iecoids of sales is
mosi commonly used. Discoveis ile fuiuie buying paiieins of
consumeis wiil ielaiive clanges io vaiiables lile- piice, adveiiising
spend, pioduci qualiiy and design eic. Consumei inieiviews and
mailei ieseaicl aie paii of ilis exeicise
O Mavkct Expcvimcnts: Insiead of posing lypoileiical quesiions io
poieniial cusiomeis, ile fiim may opi insiead io caiiy oui a diieci
mailei expeiimeni in oidei io iesi buyei's ieaciions io aciual
clanges iniioduced. Giving money io buyeis and asling ilem io
slop in a paiiiculai supeimailei. Diffeieni meilods employed foi
mailei expeiimeniaiion aie-
O Sa!cs-wavc vcscavch
O Simu!atcd Stovc Tcchniqucs
O Tcst mavkcting
Demand Lst|mat|on Iorecast|ng
O Sa!cs Wavc Rcscavch: lis involves ile seleciion of a gioup of
consumeis, supplying ilem iniiially wiil ile pioduci ai no cosi. Some
iime laiei ile same pioduci is ilen ie-offeied io ilem foi sale along
wiil compeiiiois' pioducis ai piices wlicl can ilen be vaiied a
numbei of iimes Eg.soaps, slampoos eic).
O Simu!atcd stovc tcchniqucs: lese ieclniques involve ile
esiablislmeni of a sample gioup of sloppeis wlo aie slown a numbei
of adveiiising commeiicals foi a iange of pioducis including ile new
pioducis launcled. Puiclases of new pioducis and of compeiiioi's
pioducis by ile sample gioup can ilen be moniioied.
O Tcst mavkcting: Involves aciually selling ile pioduci in a limiied
numbei of locaiions wiil diffeieni paclaging and adveiiising
campaigns in oidei io iesi mailei ieaciion.
Demand Lst|mat|on Iorecast|ng
O Fovccasting Dcmand: Planning geiiing ieady io
pioduce) io meei ile fuiuie demand necessiiaies
demand foiecasiing
O Fovccasting Tcchniqucs:
O Vaiious demand foiecasiing ieclniques can be pui
in iwo caiegoiies:
O Baiomeiiic Meilods
O Economeiiic Meilods
Demand Lst|mat|on Iorecast|ng
O Economeiiic Meilods:
O Economeiiic is a science of economic measuiemeni.
O Ii is a combinaiion of economics, siaiisiics and meilemaiics
O le simplesi economeiiic model consisis of
O One dependeni and one independeni vaiiable
O A iandom disiuibance facioi
O Eg: Lei Y = sale of bool
O Y is funciion of siudeni populaiion )
O Random vaiiable u), ilen ile economeiiic model will be
O Y = f) + u
Demand Iorecast|ng Methods
OBaiomeiiic Meilods Include
OHisioiical Analogy Meilod
OSuivey Meilod
Oiend Meilod oi ime Seiies
Exiiapolaiion Meilod)
OEnd-use Meilod
ORegiession Meilod
Demand Iorecast|ng Methods n|stor|ca| Ana|ogy
Method
O ndei ilis meilod, foiecasiing is done on ile basis of couniiy
compaiisons. leie aie iwo siages i) sc!cction oI a countvy A wlicl
someiimes in ile pasi peiiod i), paiiiculaily wiil iespeci io ile
indusiiy I, ile demand of wlose pioduci is undei foiecasiing, was in
ile same siage of developmeni as ile couniiy B foi wlicl foiecasis aie
being made ai pieseni peiiod , ii) Iovccasting oI thc dcmand Iov
industvy I's pvoduct in countvy B in peiiods +i, +:, +n on ile
basis of aciual demand of ilai indusiiy's pioduci in couniiy A in
peiiod +i. +:.+.niespeciively
O Advaniages: Ii iequiies neiilei any iime seiies daia noi ile use of any
siaiisiical ieclnique
O Limiiaiions:
O Ii is difficuli io find iwo similai couniiies foi compaiison
O Also ile iiend paiiein exlibiied in one couniiy in one iime peiiod need
noi iepeai iiself in anoilei couniiy in anoilei iime
Demand Iorecast|ng Methods Cp|n|on o|| Survey
Method
O Comp!ctc Enumcvation Suvvcy Mcthod: Aggiegaie
demand foiecasis aie obiained by aggiegaiing ile piobable
demands of all individual consumeis in ile piediciion
peiiod. By adding ile individual demand mailei demand
is obiained.
O Samp!c Suvvcy Mcthod:
O Seleci a iepieseniaiive sample of ile ioial univeise
O Obiain ile piobable demands by ile selecied sample uniis
O ianslaie ile demand of ile sample uniis inio ile demand of ile
wlole populaiion
O Dc!phi Mcthods: Aiiempi is made aiiive ai a consensus in
an unceiiain aiea by quesiioning a gioup of expeiis
iepeaiedly uniil ile iesponses appeai io covei along a
single line.
Demand Iorecast|ng Methods 1rend Method
OHisioiical daia exiiapolaied
OAssumed ilai ile vaiiable undei
foiecasiing will move along ile
esiablisled pail
OIi is necessaiy io deieimine ile
appiopiiaie iiend cuive and ile values
of iis paiameieis io foiecasi wiil ile
lelp of ile esiimaied iiend line oi
cuive
Demand Iorecast|ng Methods Lnduse Method
O Ideniify all ile possible uses - eg : as inpui io oilei
indusiiies, diieci consumpiion demand, of ile pioduci
wlose demand is being foiecaied
O Obiain ile inpui-ouipui coefficienis wiil iespeci io ile
pioduci wlose demand foiecasiing is being aiiempied and
ile indusiiies using ilis pioduci as on iiem
O Obiain ile desiied oi iaigei levels of ouipui of all
consuming indusiiies and iis piobable demand foi final
consumpiion and expoiis nei of impoiis in ile piediciion
peiiod, and
O Deiive iis iniei-indusiiy demand and add ile same io iis
piobable demands foi final consumpiion and expoiis nei
of impoiis in ile piediciion peiiod io yield ile foiecais of
aggiegaie demand foi ile pioduci.
Demand Iorecast|ng Methods kegress|on Method
O Foiecasi on ile basis of an esiimaied ielaiionslip
beiween ile foiecasi dependeni) vaiiable and
vaiiable on wlose value ii depends i.e. independeni
vaiiable.
O Assumed ilai funciional ielaiionslip exisis beiween
ile dependeni and independeni vaiiable in ile pasi
and will coniinue as befoie ile piediciion peiiod
O Yield of ciop in x leciaies and ile demand foi use of
iiaciois. As ile yield incieases io moie leciaies, ile
demand foi buying iiaciois also incieases
O As ile liieiacy populaiion incieases, ile buyeis of
bools]siaiioneiy incieases
Consumer 8ehav|our Convent|ona| Lxp|anat|on
O Lawof demand is noi ile lasi woid on consumei belavioui
O Sales execuiives view law of demand as iiielevani .
O Consumei Belavioui ileoiy:
O le moie confidence a peison las in piice infoimaiion
as a piedicioi of qualiiy, ile moie lilely le will be io
cloose a ligl-piiced, iailei ilan low-piiced ilem
O A peison wlo peiceives limself as expeiienced in
puiclasing a pioduci will geneially cloose a low-piiced
iiem, bui an inexpeiienced peison will seleci a ligl-
piiced one.
O A peison wlo puiclases a ligl-piiced iiem will
O Believe ii is moie difficuli io judge pioduci qualiiy and
O Feel le las less abiliiy io male accuiaie qualiiy judgemenis ilan one
wlo clooses a low-piiced iiem
Consumer 8ehav|our Convent|ona| Lxp|anat|on
O A peison wlo puiclases a ligl-piiced pioduci would peiceive
laige qualiiy diffeieniials. He would also feel ilai ii is iisly and
unceiiain io go in foi a low piiced pioduci. le cusiomei wlo
puiclases ligl-piiced pioduci is also cauiions. len social
significance oi piesiige may be aiiacled wiil ile puiclase of a
ligl piiced pioduci.
O Business execuiives also disbelieve ilai ile consumei is iaiional.
Selling a locl ai low piice iesulied in low sales. Afiei incieasing
iis piice, ile sales picled up. Piice goi associaied wiil ile qualiiy
of locl!
O Puiclasing belavioui of ile consumei is mosily iepeiiiive in
naiuie
O Consumei belavioui is complex and is noi always as pei ile law
of demand of economics. Ai eacl piice iise, consumei may
ieduce lis demand]leep demand consiani]may even inciease ii
Consumer 8uyer lnfluences
O Culiuial faciois.
O Culiuie, subculiuie, social class.
O Social faciois.
O Refeience gioups, family, ioles, siaius.
O Peisonal faciois.
O Age, lifecycle, occupaiion, income.
O Psyclological faciois.
O Moiivaiion, peicepiion, leaining, beliefs, aiiiiudes.
CulLure
O Culiuial is ile mosi basic cause of a peison's wanis
and belavioui.
O Culiuie is leained fiom family, cluicl, sclool, peeis,
colleagues.
O Culiuie includes basic values, peicepiions, wanis and
belaviouis.
Soclal Class
O Relaiively peimaneni, oideied divisions.
O Membeis slaie similai values, inieiesis and
belaviouis.
O Deieimined by a combinaiion of:
O Occupaiion.
O Income.
O Educaiion.
O Wealil.
O Oilei vaiiables.
Soclal lacLors
O Gioups.
O Refeience gioups, aspiiaiional gioups.
O Impoiiance of opinion leadei.
O Family.
O Mosi impoiiani consumei buying oiganizaiion.
O Roles and siaius.
O Expeci aciiviiies and esieem given by socieiy io ilose
ioles.
9ersonal lacLors
O Occupaiion.
O Wlai we do affecis wlai we need and low mucl we lave
io spend.
O iend iowaids moie paii-iime employmeni and muliiple
jobs.
O Economic siiuaiion.
O Affecis ieal spending and consumei confidence in
boiiowing.
O Age and family life-cycle siage.
O Consumei needs clange ovei iime.
O Diffeience beiween clionological and peiceived age.
O Lifesiyle.
O A peison's paiiein of living as expiessed in lis oi lei aciiviiies,
inieiesis and opinions.
O Also lnown as psyclogiaplics, can capiuie moie deiail ilan
peisonaliiy oi social class.
9ersonallLy and SelfConcepL
O Peisonaliiy iefeis io ile unique psyclological
claiacieiisiics ilai lead io ielaiively consisieni and
lasiing iesponses io one's own enviionmeni.
O Geneially defined in ieims of iiaiis.
O Self-concepi suggesis ilai people's possessions
coniiibuie io and iefleci ileii ideniiiies.
9sychologlcal lacLors
O Moiivaiion.
O Peicepiion.
O Leaining.
O Beliefs.
O Aiiiiudes.
Maslow's Plerarchy of needs (MoLlvaLlon)
SELF-
ACTUALIZATION
SELF ESTEEM
LOVE & BELONGING
SAFETY & SECURITY
PHYSIOLOGICAL
Highest
Priority
Ultimate
Goal
O Infoimaiion inpuis.
O le sensaiions ieceived iliougl ile sense oigans.
O Peicepiion.
O le piocess of seleciing, oiganizing and inieipieiing infoimaiion
inpuis io pioduce meaning.
O Seleciive aiieniion.
O Seleciing some inpuis io aiiend io wlile ignoiing oileis.
O Seleciive disioiiion.
O Clanging oi iwisiing of infoimaiion wlen ii is inconsisieni wiil
peisonal feelings oi beliefs.
O Seleciive ieieniion.
O Remembeiing infoimaiion ilai suppoiis peisonal feelings and
beliefs and foigeiiing inpuis ilai do noi.
9ercepLlon
Learnlng
O A ielaiively peimaneni clange in belavioui due
io expeiience.
O Inieiplay of diives, siimuli, cues, iesponses and
ieinfoicemeni.
O Siiongly influenced by ile consequences of an
individual's belavioui.
O Belaviouis wiil saiisfying iesulis iend io be iepeaied.
O Belaviouis wiil unsaiisfying iesulis iend not io be iepeaied.
8ellefs and ALLlLudes
O Belief
O Desciipiive ilougli ilai a peison lolds aboui someiling.
O Aiiiiude
O Desciibes a peison's consisienily favouiable oi unfavouiable
evaluaiions, feelings and iendencies iowaid an objeci oi idea.