Consumer Behavior Theory

In business today, the most important thing to consider and have a good understanding of, is the way consumers behave. This is due to the fact that they are the source of revenue to any company, organization or business. This knowledge is crucial as it lets one know what to expect in the market place and what affects consumers and how to deal with it. Here, the behavior of consumers will be discussed as well as how it affects the revenue that a business or company gets.
Rational behavior:
The first thing for one to consider is the rational behavior of the consumer. Having this in mind one should know that all consumers want to get the best value for their money. Therefore customer satisfaction is key in any business. Moreover, the consumer ensures that they reason as they spend their money, or rather that is the assumption made. Therefore, a consumer will not buy too much of the same thing at the expense of another need. Another assumption made is that the consumer will not buy something that they can do without, that is luxuries(luxury car), at the expense of the things that they actually need(food and shelter) (Blythe, 2008). 
Preferences:
Another thing to note is that different consumers have different preferences. This means that they tend to be affiliated or used to using specific products rather than others. Each person tends to buy goods more from a certain company or brand due to preference. As a business person, one should know what exactly most consumers prefer in order to ensure that they produce something in line with that. For example, many people may like a certain product due to the taste, packaging, others due to scent and so on. There are however times when a customer may buy something that they do not prefer due to other unavoidable circumstances. Different people however have very different likes, dislikes and preferences.
Budget Constraint:
The other thing that affects consumer behavior is the price of goods and services. Majority of the people in the society are of the middle class. Consequently, these people cannot afford to buy very many luxurious things. Moreover, they have a lot of commitments to meet with the little money that they have. As a result, there are a lot of things that they may desire to have but cannot have since they cannot afford them. This is one of the major things that affects business throughout the world today. Therefore, these people have a limited amount of money that they budget for and cannot go beyond that budget (Hoyer & MacInnis, 2008). 
Prices:
The pricing of goods varies greatly. There are certain goods that have very high demand. Consequently, the goods or service providers increase the prices of these goods taking advantage of their scarcity. Goods are scarce because of the demand for them. This greatly disadvantages most people since they have a limited amount of money. As a result, people end up not buying many of these things due to their high price tags. These consumers are thus forced to Each consumers purchase is a part of the total demand in a market.
Having all the above factors in minds, it is apparent that the revenue of a company, organization or business is greatly determined by consumer behavior. As observed, the major contributing factor is the demand the product has in the market. Demand is categorized in three major categories. These greatly affect the amount of revenue that the business gets. These are elastic, inelastic and unit demand. The prices of goods in inelastic demand do not change much regardless of demand. This is due to the fact that these goods are somewhat “safe”. This is to say that people need these goods and thus have to buy them all the year round. This case is mainly seen in goods, commodities and services that are almost mandatory. A good example of such a good is fuel or gas. If the price of this commodity increases, the people will still buy it. This is because it is a mandatory commodity. There are a number of people who will however, opt to stop using their cars as a result. This however is the smaller number compared to those who will continue. Moreover, even though people stop using their cars, fare prices will have gone up meaning that they will not escape the effect. Such an occurrence however would not bring the transport system to its knees. One can therefore conclude that this type of demand hardly affects consumer behavior (Lindquist & Sirgy, 2003). 
Unit demand is the second category in which demand is placed. Here, the change in prices affects consumer behavior a great deal. In fact an increase in price of a commodity leads to an incredible decrease in the number of buyers of the commodity in question. In this case, goods and service providers must ensure that their goods and services are affordable to the buyers otherwise they will not be purchased by the greater majority of them. The goods and services that fall under this category include snacks, and laundry services among others. If the laundry service providers for instance decide to increase their prices significantly, majority of their clients would opt to do their own laundry from home. If on the other hand they decided to lower their prices, more people would bring their clothes for laundry. Similarly, if the prices for snacks such as potato crisps would go up, fewer people would buy them.
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The opposite is also true.
The final type of demand that affects consumer behavior is t he elastic demand. The goods and services that fall under this category are the luxuries. In this case, a slight change in prices affects the consumer behavior greatly. This also affects the revenue earned by the company. In other words, the change in demand is more than the change in price. This can either be positive or negative. The problem with this kind of demand is the fact that it is unpredictable. For example, members of the middle class can only buy luxuries once in a while after they have met all their other needs. Moreover, luxuries often have stiff competition. This is because the person buying often has to chose one thing out of many since it is a onetime thing. On the other hand, since even the lower and middle class would want luxuries, the decrease in price can cause customers to turn up in masses in order to take advantage of the opportunity provided. In such scenarios, the company benefits greatly. These however, tend to bring very inconsistent amounts of revenue. Elastic demand therefore, can be defined as a type of demand in which the demand is inversely proportional to the price (Roth, 1998). 
There are several things that determine the elasticity if a product. First of all the structure of the market affects the behavior of consumers. Market structure refers to the amount of competition that a certain good faces. As stated earlier, human beings are rational, or rather it is assumed that they are. Therefore, a person will have to compare the goods and services provided by one dealer with those of another. After their analysis, they have to conclude which goods and services are better based on their quality, nature and price. At this point, most people will go for the goods that are cheaper. For example if people want to buy detergents, since there are very many dealers and providers of the same, their decision is often based on the prices set for each brand (Wright, 2006).
It is irrational for one to pick something of the same type that costs more while they can buy something of the same quality and purpose for a cheaper price. Preference however saves dealers since a person may have a preference for a certain commodity even though it is more expensive. Another thing that affects this type of demand is the availability of substitutes for the product. A good example for this is the issue of breakfast cereals. If the price of this commodity goes up, people may opt to stop having cereals for breakfast and substitute it with something else. As a result, the producing company will end up losing greatly. This theory is extremely important in the market today.

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