In this second and final part of this two-part series created for Caribbean360 about the relationship between economics and marketing, Antilles Economics considers another area of microeconomics: Consumer Preferences and Choices.
By Stacia Howard
BRIDGETOWN, Barbados, Thursday November 23, 2017 – Consumers have choices. These choices are influenced not just by what is available in the market, but also by their preferences. And their preferences are constantly changing as their circumstances and market conditions change. A few basic principles help us understand why and how consumers make choices, and how marketers seek to influence the choices that consumers make by directly addressing these principles.
Marketers understand that consumers do not have infinite income (Principle 1: Consumers have limited income, which requires them to make choices), and therefore when a consumer purchases Product A in most cases they will not purchase Product B that does the exact same thing (Principle 2: One good can usually be substituted for another that fulfils the same need).
To convince the consumer to purchase one product over another, marketers provide consumers with information about the benefits of their product (Principle 3: Consumers make decisions by weighing the pros and cons of alternative options).
Consumers, however, know that they do not have all of the information they need, so they use their own knowledge and past experience to help them decide (Principle 4: Consumers make their decisions without complete information, though knowledge and past experience help).
Sophisticated marketers will try to leverage this knowledge and experience to further persuade consumers, not simply relying on product features. To ensure that the consumer keeps purchasing their product, the marketer drives product innovation and evolution or else the product will eventually lose value in the eyes of the consumer (Principle 5: As the consumption of a good increases, the benefit received from consuming one more unit will eventually decline).
These five principles underpin the economic fundamentals of consumer choice. We can delve deeper, by investigating the many complex factors that determine consumer preferences, consumer attitudes towards time and risk and their response to advertising, but you get the point. Five economic principles basically explain the day-to-day duties of today’s marketer.
Stacia Howard is co-founder and Managing Director of Antilles Economics, a research and management consulting firm supporting insight-driven strategy through the provision of Market Intelligence, Economics Consulting and Strategy Development Support.