consumer behavior and utility maximization

CONSUMER BEHAVIOR AND
UTILITY MAXIMIZATION

Objectives :
1. Determine the Consumer Behavior and the Concept of Utility
Maximization
2. Analyze their own purchase patterns to become more critical
consumers and integrate the Utility Maximization in everyday lives
and ;
3. Explain the importance of Consumer Behavior and Utility
Maximization.

Consumer is the central point and all the marketing activities revolve
around him, manufacturer produces what the consumer wants. As
the consumer behavior differs from the person to producer most
understand it.

What is Costumer?
Buys the product from businesses. They are the one who purchase
the product either for resell or they purchased the product for others.

What is Consumer?
• Uses the business product. They are the one who consume the
produced goods and services produced by the manufacturer.

CONSUMER BEHAVIOUR
Study knowing how individual costumers, group or organizations
select, buy, use, and dispose ideas, goods and services to satisfy their
needs and wants.

TYPES OF CONSUMER BEHAVIOUR
There are four main types of consumer behavior:

1. Complex buying behavior
• This type of behavior is encountered when consumers are buying an
expensive, infrequently bought product. They are highly involved in
the purchase process and consumers’ research before committing to
a high-value investment.
2. Dissonance-reducing buying behavior
• The consumer is highly involved in the purchase process but has
difficulties determining the differences between brands. ‘Dissonance’
can occur when the consumer worries that they will regret their
choice.

3. Habitual buying behavior
• Habitual purchases are characterized by the fact that the consumer
has very little involvement in the product or brand category.
4.Variety seeking behavior
• In this situation, a consumer purchases a different product not
because they weren’t satisfied with the previous one, but
because they seek variety.

DEFINITION BY AUTHOR’S
“Consumer Behavior is the actions and decision process of
people who purchase goods and services for person’s
consumption.”
-Engel, Blackwell and Mansard
“Consumer Behavior is the decision process and physical
activity, which individuals engage in when evaluating, acquiring,
using or disposing of goods and services.
-Louden and Bitta

Factors affecting consumer behavior
A. Cultural factors
A buying decision is affected by culture. These are the two
important things that influences the consumer buying behavior:
1. Culture - Set of values and ideologies of a particular groups of
individuals or community. It is the culture of an individual which
decides the way he/she behaves. In simple words culture is nothing
but the values of an individual. What an individual learns from his
parents and relatives as a child, becomes his culture.
2. Subcultures - such as religion, age, geographical location, gender
and status. Consumers within subcultures will have a perceived sense
of identity and follow an expected set of behaviors.

B. Social factors
 Plays an essential role in influencing the buying decision of
consumers it includes reference groups, family, roles and
status.
1. Reference groups – every individual has some people around who
influence him/her in any way. It comprises of people that individual
compare themselves with. Every individuals know some people in
our society who become their ideal in due course of time. Co-
workers, Family members, relatives, neighbors, friends seniors at
workplace often from reference groups.
2. Family – A consumers family has a major impact on attitude and
behavior. Many consumer decisions are made by family members
on behalf of the family, so understanding the family consumer
decision making dynamics around your product is essential.
3. Roles and status – A role consist of activities, a person expected to
perform. Each role carries a status. People choose product that
reflect and communicate their role and actual or desired status in
society.

C. Personal Factors
A buyers decision are also influence by personal
characteristics.
1. Life cycle – People buy different goods and services over a
lifetime. The life-cycle of the person begins with child birth,
teenage, adulthood, middle-age, old age and then ends with
death. Under each stages, people’s buying behavior is
different.
2. Occupation – it also influence consumption patterns. The
occupation of a person decides his ability to purchase a goods
or services.

D. Psychological factors
It’s also affects consumer buying decision
1. Perception – what an individual thinks about a particular
product or services in his/her perception towards the same. In
marketing, perception is more important than the reality as it is
perception that will affect consumers actual behavior.
2. Learning – describe changes in an individual’s behavior arising
from experience. Learning is the process of acquiring knowledge
about products, their benefits and methods of usage and also
disposal of product after use.

Importance of study of consumer behavior
In olden days, the importance of consumer behavior was not realized
because it was seller’s market but modern market is customer
oriented.
 During old days it was very easy to the marketer to sell their goods
and services to the market because due to less competitors present
in to the market.
Customers force to avail the product and the price offered by the
manufacturer due to no close substitute or no competitors.
It was very hard for them to make the selection or choice. But today’s
market has full of competitors, if any of the marketer trying to use
their monopoly the customer will shift to the closest substitute or
even to their competitors.
It is very important for the marketers to understand the needs, taste,
wants and mostly the behavior of the consumers.

UTILITY
Utility is the satisfaction, value, or benefit gained from the
consumption of a good or service
 Utility benefit a person gets from consuming a good or service.
For example, utility is the satisfaction a person gains from
eating a piece of chocolate cake. It's important to understand
that the concept of utility is a relative concept. Different people
gain different levels of satisfaction from eating chocolate cake,
depending on their preferences.

UTILITY MAXIMIZATION
Utility maximization means making economic decisions that
guarantee the highest level of consumer satisfaction (benefit).
Consumers maximize utility by determining the combination of
goods and services that guarantee maximum benefit.
An example is when a consumer decides to purchase more of
"Product A" and less of "Product B" because this combination
guarantees more benefit (utility) per dollar.

MARGINAL UTILITY
Marginal utility is the additional satisfaction gained when an
additional unit of a good or service is consumed. Marginal utility
is also known as marginal benefit, and it can also reference the
highest amount a consumer is willing to pay for one more unit
of a good or service.

MARGINAL COST
The marginal cost is the change in total production cost that
comes from making or producing one additional unit .
Marginal cost is the increase or decrease in the total cost a
business will incur by producing one more unit of a product or
serving one more customer.

INCOME /BUDGET CONSTRAINTS
Consumers have always had limited income which restricts how
much they can consume. They can’t just keep buying products.
They must consider their budget and what they can afford. That
limit the quantity of goods and services that they can buy.
But people have limitless wants and needs. So we are constantly
experiencing budget constraints.
When faced with budget constraints consumers must carefully
choose how spend their limited income when buying two or
more different goods in order to maximize their utility.

Remember that Utility Maximization is not only about consumers
spending or purchasing goods and services that provide them
greatest satisfaction but it is also about achieving the highest
utility while spending less.

Utility Maximization Rules
There are few simple rules to follow when finding the utility maximizing
combination of goods and services for consumer.
All income will be spent without exceeding budget.
Only two goods will be purchased.
The good with the greater marginal utility will be purchased next.

The consumer will always choose the good that provides a
greater marginal utility. Obviously, if the next of one good
provide more utility, then the next unit of another good, a
consumer will choose the good that satisfy more needs and
wants first. If we follow these rules, we should have no trouble
finding the bundle of goods that maximize a consumer’s utility.
Consumer Maximize their utility by determining the
combination of goods and services that guarantee maximum
benefit.

GENERALIZATION
It is important for us individuals and as consumers to learn how
to maximize our utility because it allows us to satisfy our need
within budget limitations.

Quiz:
Identify what is being asked on the following question. Write your
answer on the space provided.
_________ 1. Study how individual costumers, group or organizations
select, buy, use, and dispose ideas, goods and services to satisfy their
needs and wants.
_________ 2. Utility benefit a person gets from consuming a good or
service.
_________ 3. It means making an economic decisions that guarantee
the highest level of consumer satisfaction.
_________ 4. It refers to the additional satisfaction that the consumer
achieves from utilizing one additional item.
__________ 5. The central point and all the marketing activities revolve
around him, manufacturer produces what the consumer wants.

ASSIGNMENT:
Essay. Answer BRIEFLY AND CONCISELY in two paragraph.
1. Discuss your understanding about Consumer behavior and Utility
maximization.
2. Why is it Important to study consumer behavior and the concept of
utility maximization? And as a consumer, how are you going to maximize
your utility when facing budget constraints. Cite an example.
FEATURES POINTS
Makes a strong support/evaluation of statement, depth, logically organized
and well-constructed thoughts and responsive to what asked.
5
Good support/evaluation of the statement. Clear but could have been
powerful, was not able to hit his exact thoughts
3
Unrelated answer but there was an effort 2
No answer. 0

Prepared By:
Group 3
oMae Zairel Galvan
oJohn Eduard Delos Santos
oJoshua San Felipe
oDonna Marie Onquit
oJuliana Aubrey Saculo

consumer behavior and utility maximization

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consumer behavior and utility maximization