Assignment #1 a

Consumer behavior and cardinal approach

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Submitted to a

Moniba Sana a

By
Syeda Umme Rubab
(20011561-090)
Course Code (ECO101)
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Department of Environmental Sciences

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University of Gujrat a a

(Session 2020-2024)
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Consumer behavior: a

Consumer behavior can be defined as those acts of individuals (consumers) directly involved in
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obtaining, using, and disposing of economic goods and services, including the decision processes
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that precede and determine these acts. Understanding how consumers make purchase decisions can
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help marketing managers in several ways.

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One thing that we have in common is that we are all consumers. In fact, everybody in this world is a
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consumer. Every day of our life we are buying and consuming a different variety of goods and
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services. However, we all have different tastes, likes and dislikes and adopt different behaviour
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patterns while making purchase decisions.

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Mr. ‘X’ may prefer to use Colgate toothpaste, Denim toilet soap and Halo shampoo while Mrs. ‘X’,
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the spouse may prefer to use Pepsodent toothpaste, Lux soap and Sun silk shampoo. Similarly,
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different types of people may have a different set of preferences in food, clothing, books,
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magazines, recreational activities, forms of savings and the stores from where one prefer to shop,
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which may be different not only from that of our family members but also from our friends,
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neighbours and colleagues.

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Each consumer is unique and this uniqueness is reflected in the consumption behaviour, pattern and
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process of purchase. The study of consumer behaviour provides us with reasons why consumers
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differ from one another in buying and using products and services.
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‘What’ products and services do we buy, ‘why’ do we buy, “how often’ do we buy, from ‘where’ do
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we buy, ‘how’ we buy, etc., are the issues which are dealt within the discipline of consumer
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behaviour.
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Examples:
 Example, if a manager knows through research that gas mileage is the most important a a a a a a a a a a a a a

attribute for a certain target market, the manufacturer can design the product to meet this
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criterion.
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 For example, an automobile manufacturer can advertise a car’s maintenance-free features

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and sporty European style while downplaying gas mileage.

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Types:
The term consumer is often used to describe two different kinds of consuming entities:
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1. Personal Consumer:
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Personal consumers are those set of consumers who buys goods/ services for their own consumption
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or for their own use, household products or as a gift for near and dear ones. In each of this type if you
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notice product is bought for final use. Examples of such products are hair oil, shampoo, and all other
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FMCG products.
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2. Organizational Consumer:
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Organizational consumer are the second type of consumers. Players from all the sectors are a a a a a a a a a a a a a

organizational consumer for example in primary sector a poultry firm owner has to buy seeds in
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bulk to feed chickens, in secondary sector a furniture making manufacturing unit has to buy woods
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in bulk or heavy machinery to make the final set of furniture’s, in service sector airline industry
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heavily depend on petroleum industry.

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It is the way a person acts or conducts herself, or himself in certain situations and environments.
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Consumers are the key players in any marketing activity. All marketing plans and strategies are
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formulated keeping the consumer in mind. It is done for the consumer so that the consumer can get
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maximum benefit or value for the products or services purchased by him/her. The consumer is the
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king. Therefore to keep the consumer happy and to satisfy the ever changing needs of the consumer
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the marketer must understand how the consumer behaves.

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Example:
If a person wants to buy a car he or she will search for various models, evaluate all the choices and
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then decide to buy a car. The consumer will then use the car and at some point of time decide to
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dispose it. In every situation the consumer will display a particular behavior.
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aaaa Understanding this behavior is the key to successful marketing. a a a a a a a a

Cardinal Utility approach: a a

The Cardinal Utility approach is propounded by neo-classical economists, who believe that utility
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is measurable, and the customer can express his satisfaction in cardinal or quantitative numbers,
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such as 1,2,3, and so on.

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The neo-classical economist developed the theory of consumption based on the assumption that
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utility is measurable and can be expressed cardinally. And to do so, they have introduced a
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hypothetical unit called as “Utils” meaning the units of utility. Here, one Util is equivalent to one
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rupee and the utility of money remains constant.

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Over the passage of time, it was realized that the absolute measure of utility is not possible, i.e. it
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was difficult to measure the feeling of satisfaction cardinally (in numbers). Also, it was difficult to
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quantify the factors that cause a change in the moods of the consumer, their tastes and preferences
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and their likes and dislikes. Therefore, the utility is not measurable in quantitative terms. But
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however, it is being used as the starting point in the consumer behavior analysis.
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The consumption theory is based on the notion that consumer aims at maximizing his utility, and
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thus, all his actions and doings are directed towards the utility maximization. The consumption
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theory seeks to find out the answers to the following questions:

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 How does a consumer decide on the optimum quantity of a commodity that he/she wishes to
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consume?
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 How consumers allocate their disposable incomes between several commodities of

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consumption, such that utility is maximized?

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a The cardinal utility approach used in analyzing the consumer behavior depends on the following
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a assumptions to find answers to the above-stated questions: a a a a a a a

1.Rationality: a

a It is assumed that the consumers are rational, and they satisfy their wants in the order of their
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a preference. This means they will purchase those commodities first which yields the highest utility
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a and then the second highest and so on.

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2.Limited Resources (Money): a a a

a The consumer has limited money to spend on the purchase of goods and services and thus this
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a makes the consumer buy those commodities first which is a necessity.

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3.Maximize Satisfaction: a a

Every consumer aims at maximizing his/her satisfaction for the amount of money he/she spends on
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the goods and services.

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4.Utility is cardinally Measurable: a a a a

It is assumed that the utility is measurable, and the utility derived from one unit of the commodity is
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equal to the amount of money, which a consumer is ready to pay for it, i.e. 1 Util = 1 unit of money.
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5.Diminishing Marginal Utility: a a a

This means, with the increased consumption of a commodity, the utility derived from each
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successive unit goes on diminishing. This law holds true for the theory of consumer behavior.
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6.Marginal Utility of Money is Constant: a a a a a

It is assumed that the marginal utility of money remains constant irrespective of the level of a
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consumer’s income.
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7.Utility is Additive: a a a

The cardinalists believe that not only the utility is measurable but also the utility derived from the
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consumption of different commodities are added up to realize the total utility.

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aaaaaaaThus, the cardinal utility approach is used as a basis for explaining the consumer behavior where
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a every individual aims at maximizing his/her utility or satisfaction for the amount of money he
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a spends on the consumption of goods and services. a a a a a a a aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa aaaaaaaaaaaaaaaaaaaaaaaaa

Criticism of cardinal approach: a a a

 Satisfaction derived from various commodities cannot be measured objectively a a a a a a a a a

 Money used for measurement is not correct as it is not constant and the value of money
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keeps fluctuating
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 It is psychological concept, therefore the very law is questionable

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  The cardinal approach considers the effect of price changes on the demand curve. This
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assumption is unrealistic as the price effect may include income and substitution effect.
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References:
 https://www.economicsdiscussion.net/consumer-behaviour-2/meaning-
of-consumer-behaviour/32087
 https://businessjargons.com/cardinal-utility.html

THANKS AND BE BLESSED

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