Consumer Preferences Definition
Consumer Preferences are a set of properties or elements that define the buying behavior of consumers in a given market. As they affect market demand, companies evaluate and understand consumers’ mindsets and ascertain the forces that compel them to buy specific products. They use this information to produce the right products or services, making them available to consumers at the right time to maximize sales and profits.
Consumers have a unique perspective when they look for specific products and services. For some, the motivation for buying a product can be a dire need. For others, it can be the satisfaction of having bought a product. Quality, happiness, and utility are some other reasons for the purchase decisions consumers make based on their personal preferences. When consumers in large numbers share the same preferences, they form a target market. It is also called consumer choices.
Table of contents
- Consumer preferences are the subjective determinants of a consumer’s buying behavior. They include personal tastes, likes and dislikes, and predispositions of individual consumers.
- They define the demand in a given market, and by extension, they also govern what suppliers will produce to meet this demand in the market.
- Paul Anthony Samuelson, an American economist, introduced this concept through the Theory of Revealed Preference in 1938.
- It is mainly of four types: Conditional, Unconditional, Qualitative, and Quantitative.
- The theory of consumer preferences in economics has three main assumptions: Completeness, Transitivity, and Non-satiation.
- Sellers and companies study it to understand consumer mindset and buying behavior. It is also referred to as consumer choices.
Consumer Preferences Explained
Consumer preferences is the study of varying consumer choices that govern buying decisions in a market. They are the factors that influence the choices that consumers make when buying products and services. Consumers are driven by a desire to maximize their satisfaction with every purchase.
Paul Anthony Samuelson introduced the Theory of Revealed Preference in 1938. It states that consumer preferences can be revealed by the choices they make in different scenarios and conditions. For example, if a consumer chooses to buy a certain product over another, it can be concluded that the consumer prefers the first product.
When consumers in a market consider buying a product, they take several factors into account, such as price, demand, brand, quality, physical attributes, features, inflation, personal income, durability, happiness quotient, additional services, etc., based on which they make their final buying decision. The broad categories that affect consumer choices can be categorized into personal, psychological, social, cultural, and environmental factors, among others.
Consumer preference in microeconomics is the study of rational consumer behavior. It is important to note that this theory operates under certain assumptions, and it describes why people buy what they buy.
From a business perspective, companies evaluate and forecast the changing needs and perceptions of people to ensure they offer better quality products and services to make maximum sales and generate profits. A company that wishes to stay relevant and competitive in the market must acknowledge and meet the changing consumer preferences of its target audience or potential customers.
Companies modify and strengthen their marketing strategies and selling processes from time to time to attract customers and influence their purchase decisions. Studying consumer choices is a constant activity because preferences not only change with time but also with place, technology, demographics, market dynamics, and current trends, with a certain degree of uncertainty attached to such behavioral predictions.
Let us look at the factors that dominate a consumer’s mind.
- Price is acknowledged as one of the key factors impacting consumer preferences. Typically, every customer’s choice is more or less affected by a product’s price. In general, people are looking to get a good deal.
- Satisfaction and fulfillment are basic preferences among consumers, as observed by marketers. If a product solves a problem, consumers will likely prefer it.
- Variety coupled with stability is a major factor that impacts consumer preferences. Most people tend to look for the same product in different forms before making a choice.
- Additional features, qualities, and new functionality of a product influence consumer preferences in a market.
- Brand reputation is another driving factor. Many people are willing to buy a product even when there is a cheap alternative available because of the brand and prestige associated with a product. It is a psychological factor.
- Demand and supply are significant determinants of consumer preferences. The less a product is available, the more people are willing to buy it. At the same time, the unavailability of a product may lead to a change in consumer choices.
- Most businesses understand a critical factor, which is time. Many people lose interest in a product or service if they feel purchasing it is too time-consuming, or there is a gratification delay. Time can change people’s preferences in no time. This is particularly true of e-commerce websites and online shopping.
- Detailed product information steers buying decisions. Consumers prefer products that offer comprehensive information about how it was manufactured, how it should be used, what impact it will have on the environment, etc. This applies especially to people who wish to buy environmentally friendly products and want to abide by certain values or product selection criteria.
- The purchase experience and customer service are other significant factors. People prefer certain products or services because of the ambiance, experience, or customer service they receive when they buy the product or service. This is frequently observed in the food and hospitality industry.
Let us discuss the types of consumer preferences below:
- Qualitative: It focuses on the features and characteristics of a product or service, such as design, brand reputation, durability, and usability, defining the core qualities of the product.
- Quantitative: Such preferences are based on the tangible and quantifiable attributes of a product. For example, the size, shape, and quantity of a product are considered important.
- Conditional: It refers to preferences that change based on certain conditions. If the conditions a consumer has defined are not met, they would mostly opt for an alternative. For example, a consumer buying cleaning supplies may set a condition that they would buy a particular company’s products only if it offered a discount or sold a bundle (a set of related items sold together).
- Unconditional: This refers to preferences that do not depend on any parameter or condition. It means a consumer will be willing to spend money on such products, irrespective of their price, size, shape, color, timely availability, features, functions, etc.
Companies prefer consumer behavior driven by unconditional preferences, which means consumers will not replace their products with any other product. For example, if a consumer wants to buy a luxury car of a particular make and model, they will wait for the car until it becomes available and will not hesitate to pay any price that the seller demands.
Here are two examples of consumer preferences to take the discussion forward.
Suppose a family of four living in a county in the US decides to shift to a metropolitan city for work and financial stability. They are used to buying groceries, food, and other necessities in bulk and prefer spending more on the things they like.
After they moved to an apartment in a big city, the family’s income levels changed. All the members began contributing to household expenses. However, due to the rising inflation, their daily expenses in the city skyrocketed, for which the family was not fully prepared. Hence, they decided to cut down on certain purchases, such as the bulk buying of groceries. They also shifted to cheaper alternatives to control their household expenditure.
This shift in buying behavior and mindset shows how circumstances, income, prices, and inflation affect consumer preferences over time.
A 2023 GetYourGuide survey revealed that Americans prefer experiential gifts over other forms of gift. The sample population comprised 1,000 Americans in the age group of 16 to 56.
It says that consumers wish to experience events and places. Hence, their preferences are heavily influenced by experiential gifts that allow them to travel and experience events or places.
Around 92% of those surveyed said they would like to receive gifts that allow them to travel, explore, and enjoy specific experiences. In the previous year’s survey, only 77% of the respondents had listed experiential gifts as a preferred gift.
The survey also highlighted a few other statistics, such as:
- 40% of the people surveyed would like to go to concerts or shows
- 27% and 30% of the people surveyed would like museum visits and outdoor activities, respectively
This reflects the strength of consumer choices in steering buying decisions.
The assumptions of consumer preferences in economics are:
#1 – Completeness
It states that a consumer is always capable of ranking and ordering all the products and services available to them and can effectively compare two similar products and identify the differences. In simple words, the theory assumes that consumers can always opt for one product over another.
#2 – Transitivity
This assumption is highly relevant to consumers’ rational decision-making process. It states that consumer preferences are always shifting. If there are three products, P1, P2, and P3, and a consumer chooses P1 (the first product) over P2 (the second product), they are most likely to prefer P1 (the first product) over P3 (the third product), too.
#3 – Non-satiation
The third assumption describes the behavior of consumers where they constantly chase after more, making it a priority. Consumers tend to think the more they get, the better it is. Therefore, non-satiation states that if a consumer has to choose between two products, they will always opt for the one that is more and not less than the other product.
Frequently Asked Questions (FAQs)
It is only an assumption that consumer preferences remain stable over time. However, when new and improved alternative products and services enter the market, consumer choices typically change. Also, many other direct and indirect factors affect or influence consumer choices.
Demand for certain products or services is steered by consumer preferences. As their tastes and needs change, the demand for a product changes in a given market. If consumers do not prefer a specific commodity, its demand in the relevant market will decline. It is important to note that market demand for the same product or service may fluctuate or vary as demographics or economic conditions change.
Income is directly related to consumer preferences. An individual with a low income may look for cheaper alternatives in the market and focus only on fulfilling the need. When income levels rise, people are more likely to demand more goods and services with improved and unique aspects and are willing to pay more for them.
This article has been a guide to Consumer Preferences and its definition. Here, we explain the concept along with its examples, assumptions, types, and factors. You may also find some useful articles here –