What Is Consumer Behaviour Theory?

Consumer behaviour theory is the study of how people make decisions when they purchase, helping
businesses and marketers capitalise on these behaviours by predicting how and when a consumer will
make a purchase. It helps to identify what influences these decisions, as well as highlight strategies to
proactively manipulate behaviour.

Top factors that influence consumer behaviour

Customer behaviour is shaped by a few key factors.

1. Psychological

Psychological factors include a person’s attitude, perceptions about a situation, their ability to understand
information, what motivates them, their personality and beliefs.

For example, a person who is actively reducing their plastic consumption will buy differently to someone
who doesn’t believe in climate change.

2. Personal

Personal characteristics include age, gender, financial situation, occupation, background, culture and
location.

An older person will probably shop in a different way to a younger person, for example with a preference
for bricks-and-mortar stores rather than online shopping.

3. Social

Social influences can include a person’s friends, family, community, work or school community, or groups
they associate with such as a local church or hobby group. It can also include social class, living
conditions and education.

A shopper who is at a school where a certain style of trainers is in fashion might search out similar shoes
to fit in with their peers.

Why Consumer Behaviour Theory is Important

Consumer behavior theory allows businesses to understand more about their target audience and so
be able to craft products, services and company culture to influence buying habits.

Consumer behavior allows a business to understand:

 What consumers think about your brand versus your competitors

 How they choose between different alternatives
 Their behaviour while shopping
 How the environment around them influences their behaviour
 What marketing messages or pricing strategies they best respond to
 Their preferred methods of paying
 What products or services they are searching for to fill a need

Ultimately, by paying attention to your customers’ buying patterns you can launch products and services
that they’ll have a higher inclination to buy. Or make changes to store environments or online shopping
processes to make it seamless – therefore increasing your revenues.

For example, if you have a large physical store and you notice that shoppers pick up products to buy, look
around for a while, seem to get frustrated and then put them down and walk out without buying, it might
be because you need better ‘Pay Here’ signage directing them to the nearest till.

The Different Types of Buyer Behavior

t’s important to understand that everyone is different and makes different buying decisions. However,
these can generally be categorised into these four types:

1. Routine response

Brand recognition and repetition plays a large part in this type of buying behaviour. People will purchase a
brand they recognise, have tried before, or like the best. For example, when choosing a loaf of sliced
bread, you’ll probably have a favourite that you reach for most often.

This type of buying doesn’t require much thought.

2. Limited decision-making

Often mid-level, occasional buying decisions fall into this category. They require some research and little
amount of thought before making a choice.
For example, you might be going out to the cinema and want to eat dinner beforehand so look at the
restaurants nearby. You pick one that’s within your budget, that offers the food you like, that’s within a
short walking distance and that has a table for the time you’d like.

3. Extensive decision-making

Buying decisions that involve a big financial investment or personal impact fall into this category. Most
buyers will spend an extensive amount of time researching before making a decision.

Buying a house is one example. Many in the market for a new home will research thoroughly, view
numerous properties, weigh up different options, visit local areas, check the nearby schools and facilities
etc. before a purchase is made.

4. Impulse buying

An impulse buy has no prior planning. It is a purchase made on a whim and with little thought. It’s often
irrational and in the moment.

For example, if you’re waiting in a line to buy your lunch and see a magazine within easy reach with an
eye-catching front cover, then you might pick it up and buy it with no in-depth consideration.

These ‘types’ will change depending on the situation and person. For example, a consumer who has just
started a low-fat diet might take longer choosing a food item by checking the ingredients online and
looking at reviews than someone who isn’t. An affluent person might impulse-buy a car, whereas another
might spend an extensive amount of time researching different options and going for test drives.

And many will spend months researching where they want to spend their two-week holiday, whereas
others decide on a whim where to go and book a holiday at the last minute. And some situations will force
a consumer who is usually an extensive decision maker into making an impulse buy – for example if their
laptop breaks down and they need to buy another quickly without doing their usual due diligence because
they can’t operate without one.

This is why buyer behaviour is described as being both predictable and irrational.

The Different Types of Buyer

ver the years, psychologists, sociologists and researchers have come up with different models and
theories about different kinds of buyers.
One research theory proposes eight characteristic buyers:

 Perfectionist: the customer looks for the best quality of product.

 Brand-aware: the customer prefers brands and designer labels.
 Hedonist: the customer treats shopping as a form of enjoyment.
 Price-aware: the customer seeks low prices, sales, or discounts.
 Fashion-aware: the customer likes to be up-to-date and seeks variety.
 Impulsive: the customer is level to unplanned purchases.
 Confused: the customer experiences too much information or choice.
 Habitual: the customer is loyal to brands and follows a routine.

Another model looks at adoption rates of new products, grouping customers into five kinds of consumers
based on how they respond to new products and the time it takes for uptake.

 Innovators 2.5%
 Early Adopters 13.5%
 Early Majority 34%
 Late Majority 34%
 Laggards 16%

Innovators (2.5%) – Innovators are the first individuals to adopt an innovation. Innovators are willing to
take risks, youngest in age, have the highest social class, have great financial lucidity, very social and
have closest contact to scientific sources and interaction with other innovators.

Early Adopters (13.5%) – This is the second fastest category of individuals who adopt an innovation.
These individuals have the highest degree of opinion leadership among the other adopter
categories. Early adopters are typically younger in age, have a higher social status, have more financial
lucidity, advanced education, and are more socially forward than late adopters. More discrete in adoption
choices than innovators.

Early Majority (34%) – Individuals in this category adopt an innovation after a varying degree of time.
This time of adoption is significantly longer than the innovators and early adopters. Early Majority tend to
be slower in the adoption process, have above average social status, contact with early adopters, and
seldom hold positions of opinion leadership in a system
Late Majority (34%) – Individuals in this category will adopt an innovation after the average member of
the society. These individuals approach an innovation with a high degree of skepticism and after the
majority of society has adopted the innovation. Late Majority are typically skeptical about an innovation,
have below average social status, very little financial lucidity, in contact with others in late majority and
early majority, very little opinion leadership.
Laggards (16%) – Individuals in this category are the last to adopt an innovation. Unlike some of the
previous categories, individuals in this category show little to no opinion leadership. These individuals
typically have an aversion to change-agents and tend to be advanced in age. Laggards typically tend to
be focused on “traditions”, likely to have lowest social status, lowest financial fluidity, be oldest of all other
adopters, in contact with only family and close friends, very little to no opinion
Introduction to Cardinal Utility and Ordinal Utility

Utility is a physiological fact that implies the wanting the satisfying power of a good or service. It differs
from person to person, as it relies on a person's mental attitude. The measurability of utility is always a
controversial subject. The two primary theories for utility are Ordinal Utility and Cardinal Utility. Many
traditional economists proposed a view that utility is measured quantitatively like length, height, weight,
temperature, etc. This concept is termed a Cardinal Utility. On the other hand, Ordinal Utility expresses
the utility of a commodity in terms of more than or less than. Read the article below to understand the
difference between Cardinal Utility and Ordinal Utility.

What is an Ordinal Utility?

Ordinal Utility states that the satisfaction a consumer gets after consuming a good or service cannot be
scaled in numbers, whereas, these things can be arranged in the order of preference. Two English
economists, John Hicks and R.J. Allen 1930 argued that the consumer behavior theory should be
introduced based on Ordinal Utility. According to the ordinal approach, utility is a psychological
phenomenon like happiness, satisfaction, and welfare. The ordinal theory is highly subjective and differs
across individuals. Therefore, it cannot be measured in quantifiable terms.

The function that represents utility of a product according to its preference, but does not provide any
numerical figure, is known as an Ordinal Utility. In simpler words, this theory affirms that it is relevant to
ask which item is better as compared to others instead of how good is that product. For example, a BMW
car is favored more than a Toyota car, but it cannot be determined by what percentage.

Apart from showing a mathematical function, a consumer’s preference can be demonstrated graphically
through indifference curves. It becomes easy when there are two types of commodities x and y. Each
indifference curve provides coordinates (x,y) when (x1, y1) and (x2, y2) lie on the same curve line and
(x1, y1) ~ (x2, y2).

This is an example of an indifference curve map where the preference of goods are shown but not their
quantity. Each of the curves represents a combination of two services or goods. The consumers are
equally satisfied with the goods and services. The more distant a curve is from the origin, the higher its
utility level.

The utility according to this approach can be measured in relative terms such as less than and greater
than. This approach states that consumer behavior can be explained in terms of preferences or rankings.
For example, a consumer may prefer soft drinks over hard drinks. In such a case, the soft drink would
have 1st rank, while 2nd rank would be given to hard drinks

Therefore, as per the Ordinal Utility approach, a consumer observes different pairs of two commodities
which would provide him/her the same level of satisfaction. Among these pairs, he/she may prefer one
commodity over the other based on how he/she ranks them in order of utility. This implies that utility can
be ranked qualitatively rather than quantitatively.
Do you know: In 1934 John Hicks and Roy Allen produced the first paper which declared Ordinal Utility.

What is Cardinal Utility?

According to classical economists, utility is a quantitative concept that can be measured in terms of a
number. Hence they introduced the concept of measuring utility using a cardinal approach. According to
this concept, the utility can be expressed similarly to how weight and height are expressed. However, the
economists lacked a precise unit for utility. Hence, they derived a psychological unit termed as ‘Util’. Util is
not regarded as a standard unit because it varies from person to person, place to place, and time to time.
For example, if a person assigns 30 utils to a pizza and 20 utils to a chowmein, we can understand that
the pizza has double the capacity to satisfy what humans want.

As until is not a standard unit for measuring utility, many economists, including Alfred Marshall suggested
measurement of utility in terms of money that consumers are willing to pay for a commodity. If each rupee
is equal to 1 util, a pizza worth Rs 30 has 30 utils and a chow min worth Rs 20 has 20 utils. Hence, the
consumer who consumes burgers will yield utility of 30 utils and those who consume chow min will yield
utility of 20 utils.
The supply and demand of a product decide its price. Moreover, a person’s desire for a product depends
on these three factors:
Price of the item
Income of a person
The cost of other related items
Application of Cardinal Utility
Following are the different applications of Cardinal Utility:
Welfare Economics: Under this structure, the production of goods and providing services are judged by
the personal wealth of an individual. This means that it presents a way to comprehend the “greatest good
to the greatest number of persons”. For example, by this act, a person’s utility decreases by 75 utils and
increases two other persons each by 50 utils. However, the overall increase is 25 utils which is a positive
offering.

Marginalism: In cardinal theory, a product’s marginal utility sign is alike for all the mathematical
forms, but its magnitude is not the same. This applies to the second derivative of a differentiable utility as
well.
Expected Utility Theory: This framework works for settlements that are to be made under risks.
Suppose there are a few lottery tickets that will provide outcomes. Here, it is possible to plot preferences

in real numbers so that numerical representation can be done.

Intertemporal Utility: In various representations of utility, where people deduct the upcoming
values of utility, cardinality comes into play. With the use of this, it is feasible to generate proper utility

functions.

Differentiate between Cardinal and Ordinal Utility in Tabular Form

Basis of Cardinal Utility Ordinal Utility

Comparison

Meaning Cardinal Utility is the utility Ordinal Utility is the utility

where the satisfaction derived where the satisfaction derived
by consuming a product can by consuming a product
be expressed numerically. cannot be expressed
numerically.

Approach Quantitative Qualitative

Evaluation Utils Ranks

Examination Marginal Utility Analysis Indifference Curve Analysis

Promoted By Traditional and Neo Classical Modern Economist

Economist

Realistic Less More

Key Difference between Cardinal Utility and Ordinal Utility:

Cardinal Utility is a utility that determines the satisfaction of a commodity used by an individual and can
be supported with a numeric value. On the other hand, Ordinal Utility defines that satisfaction of user
goods can be ranked in order of preference but cannot be evaluated numerically.
The measuring term for cardinal and Ordinal Utility is utils and ranks respectively. Utils is the unit of utility
and ranks determine the preference of a product compared to other products in the market.
Ordinal Utility measures the utility of goods subjectively, but Cardinal Utility evaluates objectively.
Cardinal Utility is not much realistic as compared to the Ordinal Utility as quantitative evaluation of utility is
not practicable. Ordinal Utility depends on qualitative measurement, which makes it more realistic.
Another difference between ordinal and Cardinal Utility is that the former one is based on indifference
curve analysis, and the latter is based on marginal utility evaluation.
Alfred Marshall and his admirers presented the Cardinal Utility approach, and Hicks and Allen pioneered
the Ordinal Utility idea.
Another point that can be considered as a difference between cardinal and Ordinal Utility is that ordinal
evaluation is sure to give outcomes. The Ordinal Utility is preferred more because it provides more robust
results. Conversely, the concept of Cardinal Utility is obsolete, but still, it is used for contexts like
discounted utilities, making settlements under risk and utilitarian welfare calculations.