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: magdalena.rowicka@unipv.it

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

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International Marketing Task

Thank you

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