"Once Upon A Time.....In A Store Near You!

         

                 Pretty bored in lockdown? TedTheEcon🧸 has come up with a pretty interesting topic to ponder upon. Do you all ever wonder how we make purchasing decisions? Why do we prefer one brand over another? In our day-to-day life, we subconsciously make a lot of economic decisions regarding our choices but how is it relevant anyway? It’s just our preferences of particular goods and services; why there exists a hubbub regarding Consumer Preferences? Well, consumer preferences are not as simple as they seem. They are the ‘heart and soul’ of the entire market economy and on a greater scale influences economic growth of the nation.

If so, then what are these consumer preferences and how are they formed??

Consumers making a choice

      

        Consumer preferences are the subjective tastes of individual consumers which vary from consumer to consumer, which is measured by the satisfaction derived by the consumers through its consumption, which is termed as "utility" in economics. 
        The Consumer Choice Theory assumes all individuals to be ‘rational’ and make perfect choices which will maximise their utility. But do consumers always make rational choices? How are these preferences formed? 
        In the real economic scenario, there exists an information asymmetry in the market which prevents consumers from making perfectly rational choices. People are often ‘nudged’ into forming their preference towards a particular commodity. The preferences of the individual consumers stems from their past experiences, personal convictions, culture and society, peer influence and other such socio-psychological factors. 

But what is utility and how does utility affect preferences? Suppose that TedTheEcon🧸 goes to Belgian Waffles and is amazed by the variety of flavours, cool cool cool cool cool cool cool xD. But now which one should he buy? Under the ‘cardinal utility approach’ TedTheEcon🧸 will assign numerical values, called as 'utils', to each flavour and then he may choose the one with higher ‘utils’. The utils assigned to any product differs from consumer to consumer and is highly subjective. Yet in another approach , namely ordinal approach, the preferences are ranked by the consumer based upon his rationale and the product with greater preference, also subject to monetary constraints, is purchased. Preferences do not always turn into purchases as they are constrained by income, availability and need.

These preferences are measured by preference tests, hedonic ranking, difference tests etc. but yet again they are not completely accurate as it is highly subjective in nature. Each individual possesses a different rationale towards any commodity and it hinders accurate determination of consumer preferences.

Why are consumer preferences an important aspect of the market economy?

  “Don't find customers for your products, find products for your customers” - Seth Godin           

                    Preferences are the reflection of individual wants in the market and TedTheEcon feels that these consumer preferences are the gold for the market. The consumer preferences are given utmost priority by the industrialists to maximise their sales. Once they obtain a good share of the market, they can focus on customer retention and further aggravate their profits. As Roy H Williams rightly remarked, “The first step in exceeding your customer’s expectations is to know  those expectations”

                        The market research on these preferences guide the firms in their pricing strategy for their products. Consumer preferences also paves a way for innovation as firms tend to produce a variety of products based on their assessment of consumer preferences. The company who is aware of what his customer wants will never go out of the market. As Jeff Bezos remarked, “Focusing on the customer makes a company more resilient."

TedTheEcon’s two cents- Consumer preferences are the crux of the market economy which ultimately influences the GDP of the economy. Consumers deem themselves as rational beings but often they are ‘nudged’ into taking particular economic decisions. In general, consumer preferences are highly influenced by advertisement  and so the brand with better advertisement wins them all as consumers are unaware of other options due to information asymmetry. Next you set out to buy something, ask yourself if you really want it??