Theory of Consumer Behaviour

Consumer behaviour is referred to as the study which analyses how consumers make decisions when obtaining various goods and services. It also studies various factors that influence consumers’ decisions. Therefore, understanding the behaviour of consumers is crucial to analysing the potential of consumers towards a new product or service.

Important terms related to consumer behaviour

Utility 

• The utility of a product is its need-fulfilling limit. A purchaser, as a rule, chooses his interest in an item based on the utility (or fulfilment) that he gets from it

• The greater the need for a product or the more intense the desire to possess it, the greater the utility derived from the ware

• The utility is emotional. Different people can get various degrees of utility from a similar product

• Total Utility: Total satisfaction is derived from consuming a given amount of some commodity.

Marginal Utility

• It can be defined as the added satisfaction a consumer gets from getting one or more units of goods and services

• The total utility can be derived from the marginal utility. Total utility is the sum of marginal utility and the number of commodities consumed

• The negligible utility decreases with expansion in the utilization of the product. This happens because, having got some measure of the product, the longing of the shopper to have even a greater amount of it becomes more vulnerable.

The Law of Diminishing Marginal Utility

• It expresses that negligible utility from devouring each extra unit of a product decays as its utilization increments, while keeping utilization of different items consistent

• Marginal utility (MU) becomes zero at a level when total utility (TU) remains constant. In the model, TU doesn’t change at the fifth unit of utilization, and subsequently MU5 = 0. From that point, TU begins falling and MU becomes negative.                         

Indifference Curve

• An indifference curve is a graph, which shows a combination of two goods that give the consumer equal satisfaction and utility
• A good example of an indifference curve would be if a consumer possesses books and needs chocolates, the consumer exchanges 5 units of books for 5 units of chocolates i.e by reducing a certain product X, the user is compensated by gaining product Y keeping the satisfaction level of the consumer same
• A quantitative measure of utility is difficult.  At the most, it can be ranked in terms of having more or less utility in various alternative combinations of goods consumed
• The indifference curve joins all points representing the different bundles of goods, in which the consumer is indifferent, that is the total Utility derived from each combination is the same
• The indifference curve slopes downward
• A higher lack of interest bend gives a more prominent degree of utility
• Two indifference curves never intersect each other.                                

Marginal Rate of Substitution

• It is defined as the rate at which a consumer is ready to exchange one good for another at the same level of utility

• It is used in the analysis of the indifference curve

Demand

The amount of an item that a customer will purchase and can bear, given the cost of products and the shopper’s preferences and inclinations, is called “interest for the ware”.

Whenever one or more of these variables changes, the quantity of the good chosen by the consumer is likely to change as well. 

Conclusion

Consumer behaviour is affected by a lot of factors. It depicts how a consumer spends their capital on a certain product. Every action related to customer preferences and consumer spending power reveals a lot about how people choose a product based on its value or quality