International Consumption - Consumers’ perspective ‘Internation Agrifood Economics’ MIBE Magdalena Rowicka M.A.
International Consumption - Consumers’ perspective
‘Internation Agrifood Economics’ MIBE
Magdalena Rowicka M.A.
What, Where, How? 2
Classes: Tuesdays 14:00 – 16:00
Advances in consumer studies with an application to food market – 08 November 15 November 22 November (13:00-14:00)
E-mail: [email protected]
International Consumption – consumers’ perspective
Receiving Hours: Tuesday (13:00-14:00) – PhD Room
Outline 3
1
Introduction to
the comparative
perspectives
Exemplification of specific subfields of consumption with
the reference to neoclassical economics and economic
psychology built upon the following topics: a) Consumer,
b)Decision process, c) Goods and products, d) The market,
e) Post purchase dynamics
2
Neoclassical
economics –
theories of
consumption
The overview of the two main approaches: Cardinal and
Ordinal with respect to: the utility theory, the demand &
supply theories, income elasticity, the Theory of Consumer
Choice, etc
3
Beahvioural
economics /
economic
psychology:
1. Internal processes such as perception, learning,
attitudes etc
2. External processes such as group influence, culture,
opinion leaders etc
3. Decisive processes
Outline 4
4 Segmentation &
branding
Types and levels of segmentation, exemplification.
Introduction to the concept of branding.
5 Globalisation Globalisation (with focus on the third wave)and local
responses (Fair Trade, Bio, Organic, country labelling)
6 Food security Food security in terms of over nutrition and economic and
social reasons for & consequences of obesity.
7 Consumption
patterns
Comparison between developed and developing countries.
Global and regional food consumption patterns (data set)
Consumers’ perspective 5
• Perception • Affect • Cognition • Belief • Social Influence
Neoclassical Economics Behavioural Economics
Cardinalist Approach
The Ordinalist Approach
Black Box Model
Information search & evaluation Purchase decision & Postpurchase evaluation Internal & External influences Utility ~ satisfaction
Rationality
Consumers’ perspective 6
The market
Consumer Goods
and products
Decision process
Post purchase dynamics
Neoclassical Economics Behavioural Economics
Heuristics; Group influence; Loyalty; Segmentation, Branding; Bounded Rationality, Post purchase satisfaction
The Market 7
Diffusion of a specific
good in the population All consumers buy the good
Most consumer do not buy
SEGMENTATION
Who reacts to
changes in prices
Changes in prices modify the
behaviour of all consumers
Most consumers continue to behave as
before, only some change so to produce
the entire market effect. HEURISTICS
Neoclassical Economics Behavioural Economics
Market demand
Market demand is the sum of individual
demand of totally independent
consumers
Market demand is the sum of
individual demand but consumers may
interact (e.g. imitate others'choices)
and communicate
Heterogeneneity
of consumers Consumer differ because of income
Consumer differ because of
income, skills, decision-making
routines, etc. SEGMENTATION
The Consumer(1) 8
Advertisement No. constant testes not changeable Present
Opinions of others None The role of leader, OPINION
LEADERS, GROUP INFLUENCE
Neoclassical Economics Behavioural Economics
Information
The consumer has full information about all
existing products, their use and their effects on
his welfare (UTILITY)
Limited information plus
(HEURISTICS, BIASES)
Degree of
difficulty
None. The choice is always done easily with all
the pros and cons evaluated (utility)
Different degree of difficulty
depending on the situation
The Consumer (2) 9
The role of
experience
None. The consumer ex-ante knows
everything and actual consumption
does not change his evaluation of the
utility
The first-time purchase is characterised by
expectations; repurchase is, at least in part,
based on the experience .LOYALTY
The place
where choice
is made
Non explicit; it's a virtual decision in
the consumer's mind
In shops, supermarkets, and other Point of
Sales; through Internet or other non-store
distribution channels. The available
commercial offer does influence final
choice
Neoclassical Economics Behavioural Economics
Importance of the
information flows
from the producer
None. The role of the BRANDING, LABEL.
The Consumer (3) 10
Neoclassical Economics Behavioural Economics
The shopping
experience
Irrelevant. The utility depends
on the good, not on the time
spent on shopping.
Some people enjoy doing shopping, show their
knowledge and skills in choosing .Other feel that
shopping is boring and try to spend as little time as
possible on it. Still others have different attitudes
to the issue. This adds to the number of reasons
why people are heterogeneous.
Relationship
between choice
and execution of
choice
No difference: all choices are
executed
Actual purchase can be postponed, modified or
cancelled because of external pressure and
conditions
Goods 11
Neoclassical Economics Behavioural Economics
Chosen set
of goods
The chosen bundle of goods maximises
utility and exhausts the budget (it is on
the budget line)
The chosen good is the "first solution
matching certain sufficiency criteria" or is
selected across simple comparisons
Range of
purchased goods
All good (X, Y,..) are bought by
the consumer
A specific consumer buys only a small
selection of all existing goods.
SEGMENTATION
Decisions(1) 12
Neoclassical Economics Behavioural Economics
Consumer
rationality
Full rationality based on consumer's
huge mathematical skills
Bounded rationality based on simple
decision-making rules with almost no
mathematics
Budget The consumer has a money budget
limit which is systematically exhausted
The consumer keeps always a reserve of
lack resources to cope with further
expenditures
Weight of
Attributes
Automatic and implicit: all features of the
good can be measured, balanced, and
summarised in a unique value (utility)
Explicit; the consumer can have minimum
/ maximum thresholds of acceptability
for each requirement. Different
algorithms available for using the
information about how the good fits the
requirements
Decisions (2) 13
Neoclassical Economics Behavioural Economics
Non-monetary
constraints Absent
Time is a non-monetary, non-purchasable
constraint in many choice; in grocery purchases,
at physical commercial premises the weight of
the purchased basket can be a constraint (lower
for consumer coming back home by foot and
higher for car users)
definition on
substitution
between the
goods to be
chosenc
Two goods are substitutes when a fall in
consumed quantity in one can be
perfectly compensated by an additional
quantity of the second (so that
consumer's utility is constant)
Two goods are substitutes when they
fulfil the same need(s). BRANDING,
SEGMENENTATION
Post-purchase 14
Neoclassical Economics Behavioural Economics
Satisfaction
from
purchased
good
Always equal to expectations, by design. POST PURCHASE SATISFACTION
Social
communication None.
The consumer talks about her/his
purchases to friends and other people,
especially if the good turn out to be
extraordinarily positive or negative.
Network effects, with news spreading.
Heuristics 15
INFORMAL FALLACY
GAMBLER’S FALLACY (MONTE CARLO)
belief that if deviations from expected behaviour are observed in repeated independent trials of some random
process, future deviations in the opposite direction are then more likely.
LAW OF LARGE NUMBERS
REGRESSION TOWARDS THE MEAN
LAW OF AVERAGES
Mental shortcuts- used to speed up the process of finding a satisfactory solution, where an exhaustive search is impractical.
an educated guess, an intuitive judgment, common sense
… makes the world go round
Money 17
Funtction of money: • a medium of exchange • a unit of account • a store of value • an object of speculation
Money is fungible Economic assumption
• Money is exchangable, • the source does not matter, • the purpuse of spenditure does not matter
Viviana Zalizer (Prinston) • juvenile criminals •prostites
Unexpected Money 18
Choose between two alternative games: 1. Play in a game where you will win $15 for sure 2. Play in a game where with 50% chaces you can win $19.5 or $10.5
80%
40%
0%
25%
50%
75%
100%
game 1 game 2
Two different groups, that is why it does not sum to 100%
Mental accounting 19
A concept first named by Richard Thaler (1980), mental accounting attempts to describe the process whereby people code, categorize and evaluate economic outcomes.
people mentally frame assets as belonging to either current income,
current wealth or future income and this has implications for their behaviour
For children For retirement
In mental accounting theory, framing means that the way a person subjectively frames a
transaction in their mind will determine the utility they receive or expect.
What will you resign from… when you’ll retire?
Drugs
Food
Flat
Helping kids
Car
Holidays
Pleasures
20 Money Illusion
Case Study: Anna and Kate are both university graduates, just started their first jobs, with $30000 a year. Case 1: After 1 year with 0 inflation, Anna got a rise of 2% ($600) Case 2: After 1 year of 4% inflation, Kate got a rise of 5% ($1500) Question 1: Which of them has a better economical status? Question 2: Which of tem of more happy?
0%
25%
50%
75%
100%
Status Happines
Kate
Anna
1. People tend to think in nominal, rather than real, terms - the numerical value (nominal value) of money is mistaken for its purchasing power (real value)
2. The change (rise/fall) in nominal value will be perceived differently than the change in real value.
Money Illusion 21
Video & Case Study 22
Case Study on Starbucks Case Study on McDonal’s
Controllable
• Firm characteristics
• Price
• Product
• Promotion
• Channels of distribution
• Research
Domestic uncontrollable
• Competitive structure
• Economic climate
• Political / legal forces
Foreign uncontrollable
• Competitive structure
• Economic forces
• Political / legal forces
• Cultural forces
• Level of technology
• Structure of distribution
• Geography and infrustructure
International Marketing , p11
23
International Marketing Task
Thank you
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