Instructions:s

This is part of the University Assessments Examination for the award of Masters of Business
Administration (MBA).
 Submission date is Sunday; 5th January, 2025.
 The course work should have a beautiful cover page
 The particulars of the student should appear on the cover page
 List of reference materials should appear in the last page of you work
 The work be produced in Times News Roman-font 12, spacing 1.5
 Any work duplicated from another person or group of persons will not be marked.
 Any work submitted after the dead line will not be marked and there will be NO
morecourse work given after this
Question one
Critically discuss theories that explain how consumers’ satisfaction is achieved in a free
enterprise economy. By use of tables, graphs or any other illustrations, show how a consumer
can achieve his equilibrium in the consumption of two goods/ services. Make the necessary
assumptions to support your argument.

Question two
Demand forecasting is not simply guessing the future sales of a firm’s product, but is estimating
the sales scientifically and objectively.

(a). In view of the above, explain in details the various statistical methods used by firms to
forecast demand/sales of their products.
(b). An International Cooking Oil Company wishes to extend its production and sales of cooki ng
oil in Uganda, to do that the Company conducted a market survey based on the sales and
production data of some previous years as below:

Year Sales volume (in ‘000 Dollars).

2019 90,000
2020 110,000
2021 120,000
2022 110,000
2023 140,000
For easy penetration into the market, the Company is contemplating to form an alliance with
Mukwano Group of Companies where sales volume is expected to double after every two years
of their joint production engagement.
Required;
Make a projection of the combine sales of the two companies between 2024 to 2029. Show the
working formula when using least square method/equation, show the working how you arrived
at the answer for each year sales between 2024 t0 2029, for international cooking oil company
sales, mukwano group of companies sales and combined sales

THE END
Question one

Consumer theory is a branch of microeconomics that describes how consumers make decisions
to allocate their limited resources (income, time) among various goods and services to maximize
their satisfaction or utility. It analyzes consumer behavior, focusing on factors influencing
purchasing decisions, such as prices, income, preferences, and expectations. Several key theories
contribute to our understanding of consumer behavior:

Theory of Consumer Sovereignty

This theory posits that consumer preferences drive production and market decisions. Positive
aspects include its simplicity and intuitive appeal; businesses respond to consumer demand,
leading to a wider variety of goods and services. However, it overlooks market imperfections
like monopolies, information asymmetry, and manipulative advertising, which can distort
consumer choices and lead to dissatisfaction. A way forward involves promoting transparency,
consumer education, and competition to mitigate these imperfections.

Theory of Supply and Demand

This theory explains how prices are determined by the interaction of supply and demand. A
positive aspect is its ability to explain price fluctuations and resource allocation. However, it
doesn't fully capture consumer satisfaction, as it focuses on price equilibrium rather than the
overall satisfaction derived from consumption. Furthermore, it ignores factors like consumer
psychology and emotional purchasing. A way forward involves incorporating psychological and
sociological factors into economic models to better understand consumer behavior and
satisfaction.
Theory of Perfect Competition
This theory assumes many buyers and sellers, homogeneous products, and perfect information.
While it provides a benchmark for efficient resource allocation, it rarely exists in reality. Positive
aspects include its theoretical efficiency and allocative optimality. However, its unrealistic
assumptions limit its practical application in explaining consumer satisfaction in real-world
markets, where monopolies and imperfect information are prevalent. A way forward involves
analyzing real-world markets with imperfect competition to understand how consumer
satisfaction is achieved under more realistic conditions.

Theory of Marginal Utility

This theory suggests that consumers maximize satisfaction by consuming goods until the
marginal utility (satisfaction from consuming one more unit) equals the price. A positive aspect
is its focus on individual consumer choice and satisfaction. However, it assumes rational
behavior and ignores factors like habit, social influence, and emotional responses. A way
forward involves incorporating behavioral economics to account for irrational decision-making
and psychological biases.

Theory of Equity
This theory emphasizes fair distribution of resources and opportunities. Positive aspects include
its focus on social justice and consumer well-being. However, it doesn't directly explain how
consumer satisfaction is achieved in a market economy, as it focuses on fairness rather than
individual preferences. A way forward involves integrating equity considerations into market
mechanisms to ensure fair access to goods and services.

Contract Theory
This theory analyzes agreements between consumers and producers. Positive aspects include its
focus on consumer protection and enforcement of contracts. However, it may not fully capture
the nuances of consumer satisfaction beyond contractual obligations. A way forward involves
strengthening consumer protection laws and improving dispute resolution mechanisms.

Game Theory
This theory analyzes strategic interactions between consumers and producers. Positive aspects
include its ability to model complex market dynamics. However, it can be complex and difficult
to apply in practice. A way forward involves developing simpler models that capture the
essential aspects of consumer-producer interactions.

Concluding Remarks
each theory offers valuable insights into consumer satisfaction, but none fully captures its
complexity. A comprehensive understanding requires integrating insights from multiple theories
and incorporating behavioral, psychological, and sociological factors. Future research should
focus on developing more realistic models that account for market imperfections, consumer
psychology, and social equity.
Consumers Equilibrium
A consumer is in equilibrium when he derives maximum satisfaction from the goods or services
and is in no position to rearrange his purchase

Assumptions

 There is a defined indifference map showing the consumer’s scale of preferences across
different combinations of two goods X and Y.

 The consumer has a fixed money income and wants to spend it completely on the goods X
and Y.

 The prices of the goods X and Y are fixed for the consumer.

 The goods are homogenous and divisible.

 The consumer acts rationally and maximizes his satisfaction.

Consumers Equilibrium

In order to display the combination of two goods X and Y, that the consumer buys to be in
equilibrium, let’s bring the consumer indifference curves and budget line together.

Here ,

 Indifference Map – shows the consumer’s preference scale between various combinations of
two goods

 Budget Line – depicts various combinations that the consumer can afford to buy with his/her
money income and prices of both the goods./services.
In the figure below, there is a depiction of an indifference map with 5 indifference curves – IC1, IC2,
IC3, IC4, and IC5 along with the budget line PL for good X and good Y.
From the figure above, the combinations R, S, Q, T, and H cost the same to the consumer. In order
to maximize his level of satisfaction, the consumer will try to reach the highest indifference curve.
Since we have assumed a budget constraint, he will be forced to remain on the budget line.

Combination R

When combination R. From Fig. 1, here R lies on a lower indifference curve – IC1.the consumer
can easily afford the combinations S, Q, or T which lie on the higher ICs. Even if he chooses the
combination H, the argument is similar since H lies on the curve IC1 too.

Next, the combination S lying on the curve IC2. Here again, the consumer can reach a higher level
of satisfaction within his budget by choosing the combination Q lying on IC3 – higher indifference
curve level. The argument is similar for the combination T since T lies on the curve IC2 too.

Therefore, when using the combination Q.

This is the best choice since Q lies on his budget line and pts puts him on the highest possible
indifference curve, IC3. While there are higher curves, IC4 and IC5, they are beyond his budget.
Therefore, he reaches the equilibrium at point Q on curve IC3.

Notice that at this point, the budget line PL is tangential to the indifference curve IC3. Also, in this
position, the consumer buys OM quantity of X and ON quantity of Y.

Since point Q is the tangent point, the slopes of line PL and curve IC3 are equal at this point.
Further, the slope of the indifference curve shows a marginal rate of substitution of X for Y
(MRSxy) equal to MUxMUy. Also, the slope of the price line (PL) indicates the ratio between the
prices of X and Y and is equal to PxPy.
Hence, at the equilibrium point Q,

MRSxy = MUxMUy = PxPy

Therefore, consumers’ equilibrium is achieved when the price line is tangential to the indifference
curve. Or, when the marginal rate of substitution of the goods X and Y is equal to the ratio between
the prices of the two goods

The indifference curve should be convex to the point of origin at the consumer equilibrium point.

At the point of consumers’ equilibrium, the marginal rate of substitution of the goods must be
falling for consumers’ equilibrium to be steady. It means that the indifference curve must be convex
to the origin at the equilibrium point. If the indifference curve is concave to the origin at this point,
the marginal utility is still increasing.

Question two

The projected combined sales of the two companies from 2024 to 2029 are shown in the table
above. Note that these projections are based on several assumptions, including a constant CAGR
for the International Cooking Oil Company and a consistent doubling of Mukwano's sales every
two years. These assumptions may not hold true in reality.

(a) Firms use various statistical methods to forecast demand/sales. These include:

Time Series Analysis: This involves analyzing historical sales data to identify trends,
seasonality, and cyclical patterns. Methods include moving averages, exponential smoothing, and
ARIMA models.

Regression Analysis: This examines the relationship between sales and other variables (e.g.,
price, advertising, economic indicators). Simple linear regression, multiple regression, and other
advanced techniques can be used.

Causal Models: These models incorporate factors believed to influence demand, such as
consumer preferences, competitor actions, and technological advancements. Econometric
modeling is often employed.

Market Research: Surveys, focus groups, and experimental studies provide insights into
consumer behavior and preferences, informing sales forecasts.

Delphi Method: This expert judgment technique involves gathering opinions from multiple
experts to reach a consensus forecast.
(b)

Calculate the average sales growth rate for the International Cooking Oil Company. We'll use the
compound annual growth rate (CAGR). This requires a financial calculator or spreadsheet
software.

The CAGR calculation is complex and requires iterative methods or software. Using a financial
calculator or spreadsheet software, the CAGR is approximately 8.2%.

Project the International Cooking Oil Company's sales for 2024-2029 using the CAGR. This
involves multiplying the previous year's sales by (1 + CAGR)

Project Mukwano Group's sales. Sales are expected to double every two years. We'll assume
Mukwano's 2023 sales are equal to the International Cooking Oil Company's 2023 sales
($140,000,000)

Project combined sales. Add the projected sales of both companies for each year.

Year International cooking Mukwano group Combined

Co.sales (000, Dollars) sales(‘000) sales (‘000
Dollars)

2024 151,480 280,000 431,480

2025 164,000 280,000 444,000

2026 177,600 560,000 737,600

2027 192,300 560,000 752,300

2028 208,100 1,120,000 1,328,100

2029 225,100 1,120,000 1,345,100

The adaptation level theory

In the assessment of satisfaction, the combined impact of expectation and perception of
discrepancy can be significant, especially when the consumer needs and wants are examined in
relation to the formation of a reference identity, which is then used for comparative evaluation
(Vedadi et al., 2013; Oliver, 1980). Outcomes that go below expectations are typically evaluated
as being below their benchmark. Nevertheless, in cases where the result surpasses
expectations (positive disconfirmation), it is assessed as superior to the standard point of
reference (Oliver, 1980). Quinsey (1970) defines the adaptation level as the point at which
perception becomes neutral or indifferent. This occurs because the perceived magnitude of a
stimulus decreases as it gets closer to the Adaptation Level. Stimuli above the Adaptation Level
elicit different judgments or responses compared to stimuli below the Adaptation Level, which
produce opposite results. When people encounter new stimuli, their judgments of these stimuli
will typically influence their previous experiences with similar objects. The perceived difference
between the new and previous stimulus will determine how satisfied individuals are with the new
stimulus (Pillai, 2021; Siu et al., 2016; Yeh et al., 2017).

These have an interplay with three factors: the perception of the stimulus, context, and
psychological and physiological qualities of a particular structure. Once established, the
“adaptation level” will persist in an individual’s initial position to guide their subsequent
evaluations, regardless of whether they are focused on any aspects (Siu et al., 2016; Yeh et al.,
2017). The end assessment of an individual’s judgment will only be altered by significant
impacts on the adaption level (Vedadi et al., 2013; Khalifa & Shen, 2005). In assessing
satisfaction, one might use a person’s expectations regarding the performance of a product as
their adaption level (Khalifa & Shen, 2005). These factors include the individual’s experience
with the product and other identifying elements, promotional attributes of the sales assistant,
and qualities such as persuasive power and perceptual distortion. The adaption stage can also
affect the customer’s repurchase choice, which determines how much the product exceeds,
meets, or falls short in any expectations (Vedadi et al., 2013; Pillai, 2021). The Adaptation Level
Theory offers valuable insights into how individuals perceive stimuli and assess satisfaction,
taking into account both their expectations and contextual factors.

Adaptation Level Theory offers valuable insights into the dynamic nature of customer
satisfaction and the importance of relative comparisons and expectation management.
However, several unresolved issues, including the subjectivity of adaptation levels,
measurement challenges, cultural differences, and the role of emotions and technology,
necessitate further research and refinement of the theory to enhance its applicability in the
modern business landscape. Addressing these issues can help businesses better understand
and predict customer satisfaction in an ever-evolving market.

The contrast theory

The theory serves as the foundation for establishing precise assertions regarding the
connection between effort, expectation, and evaluation (Dahl & Dunn, 2012; Yeh et al., 2017).
According to Cardozo (1965), contrast theory suggests that when a customer receives a goods
that is of lower value than expected, they would carefully examine the discrepancies between
the obtained goods and their expectations. The evaluation may also result in potential consumer
amplification of the discrepancy (Yeh et al., 2017). In this context, emphasis on individuals’
ability to differentiate favorable or unfavorable products will have an impact on their original
expectations. This can lead to a shift in their evaluation away from their expectations if their
expectations are not aligned with the effort.

Consumer or customer effort refers to the somatic, cognitive ability, or monetary resources that
are required to acquire a specific product (Vedadi et al., 2013; Pillai, 2021) and in line with that,
empirically revealed disparity while comparing ballpoint pens with catalogs featuring products of
varying quality (poor or high). The respondents were presented with catalogs in order to
establish both low and high expectations regarding a pen. Subsequently, the participants were
assessed based on the caliber of a pen that differed from the pen depicted in the catalog. The
endeavor was also influenced by an enhanced shopping experience (Cardozo, 1965). In
addition, study findings corroborate the notion that individuals who invest minimal effort in
obtaining a product that falls short of their expectations tend to evaluate the product less
favorably compared to those who anticipated and received the same goods. Furthermore, in the
treatment group, individuals who received a lower quantity than anticipated assessed the
product less favorably in comparison to those who received the predicted amount. The findings
of this research study align with the contrast theory, which suggests that individuals who had
their expectations negatively disconfirmed rated a reward as less favorable compared to those
whose expectations and outcomes were congruent (Vedadi et al., 2013; Pillai, 2021).

According to contrast theory, when the actual performance of a product or service does not fulfill
a customer’s expectations and criteria, the customer will exaggerate the difference between
what they expected and what they received (Danijela et al., 2015). As a result, customers may
overstate the difference when the actual performance of the product or service falls short of their
expectations, which is known as negative disconfirmation. Moreover, when customers
encounter negative disconfirmation, they interpret the performance as falling short of their
expectations. However, there is a potential for exaggerating the disparity, leading to a
perception that it is even more severe than it actually is (Danijela et al., 2015). The contrast
theory illuminates how customers evaluate products by taking into account the interplay
between effort, expectations, and actual performance. Furthermore, it recognizes the potential
for exaggerating discrepancies in their assessments.

Contrast Theory provides valuable perspectives into consumers’ strong reactions when their
expectations are unmet, emphasizing the importance of expectation management and accurate
marketing. However, several unresolved issues, such as the degree of expectation deviation,
individual and cultural differences, long-term effects, and the role of moderating variables,
require further exploration. Addressing these issues can enhance the applicability of contrast
theory in understanding and managing customer satisfaction in a dynamic market environment.

The assimilation contrast theory

Assimilation can be defined as the overall thoughts of activity integrating new into the existing
pool of attitudes to prevent conflicting beliefs. Sherif and Hovland (1961) introduced this concept
in their Social Judgment theory, stating that a person forms evaluation and may alter their
attitudes when they compare new stimuli to their existing internal range. When the responses
deviate from the internal range, a grid line of rejection occurs. Affirmation will happen when
responses resemble the person’s inner quality. Apart from that, indifference arises when the
responses are dissimilar or when a distinct difference is recognized (Sherif & Hovland, 1961).

According to Lanktan and McKnight (2012), the assimilation contrast hypothesis suggests that
assimilation occurs when the comparison falls within a specific range of acceptance. This
implies that the individual will perceive the new stimulus as more closely aligned with their
existing ideas than the actual reality. Consequently, this will result in the assimilation of the new
information into the individual’s preexisting views. If the differentiation falls within the grid line of
rejection, the opposite is bound to occur. In this case, there will be a contrast, and the individual
will see the new stimuli as being more distinct from their own ideas. As a result, rejection will
occur (Lanktan & McKnight, 2012).

Assimilation occurs when an idea aligns with a person’s existing attitude, causing them to distort
the information to make it more similar to their current beliefs. On the other hand, contrast arises
when a thought differs significantly from one’s own, leading to a distorted perception of a more
significant gap. However, if a message closely aligns with a person’s beliefs or opinions, it is
considered to have a significant impact (Peyton et al., 2003; Kokthi & Kelemen-Erdős, 2018).

Numerous studies have demonstrated that end users’ impressions of a product’s attributes tend
to align with their expectations, supporting the assimilation effect. This validates the existence of
specific ranges or boundaries within which consumers either accept or reject their perception of
a product (Anderson, 1973). When the consumer’s expectations and actual product
performance differ, they tend to associate the product with their expectations rather than
performance. However, if the difference is significant and falls within the zone of rejection, the
contrast effect occurs. In such cases, end users typically scrutinize the details of the disparity
between the product and their expectations (Danijela et al., 2015; Peyton et al., 2003).

In a similar vein, Kokthi and Kelemen-Erdős (2018) conducted research to explore the impact of
branding on customer decision-making, specifically focusing on two well-known brands: Brand A
and Brand B. They employed the assimilation-contrast method to analyze how brand
information influences consumer perceptions. During three specific scenarios, study participants
expressed their preferences for Brand A and Brand B products. Interestingly, in a blind taste
test, customers couldn’t discern a significant difference between the two products. However, in
a label test, Brand B outperformed Brand A, indicating a stronger preference for the Brand B.
This study suggests that brand information, often through labels, can either confirm or challenge
buyers’ expectations. Notably, when customers received complete information, including brand
labels, Brand A received higher preference ratings, highlighting the influence of brand
information on consumer preferences. The Assimilation-Contrast Theory sheds light on the
relationship between brand information and consumer perceptions, while the disconfirmation
paradigm also plays a role in shaping these decisions. The theory provides insights into how
brand information impacts consumer decisions. The theory has a contrasting effect on the
alignment of expectations and perceptions, the role of cognitive dissonance, and the impact of
marketing on managing customer expectations, which leads to the issues of complexity of
defining the latitude of acceptance, the challenges in measuring expectations and perceptions,
the level of consumer experiences, and the interplay with other consumer behavior theories.
Additionally, the theory’s limits on emotional factors, the influence of social and digital media,
and cross-cultural validity for customer satisfaction.

The cognitive dissonance theory

The cognitive dissonance theory suggests that when there is a difference between a
consumer’s expectations and the actual performance of a product, the consumer will adjust their
perception of the product to align with their expectations. This adjustment can involve lowering
their expectations or assimilating their perception to a more general or less conflicting level
(Hamza & Zakkariya, 2012; Hasan & Nasreen, 2012). Additionally, Anderson (1973) supports
this claim using Festinger’s theory of cognitive dissonance. Cognitive dissonance refers to the
emotional pain experienced when a product’s outcome contradicts a consumer’s existing beliefs
or expectations. This can be similarly interpreted as the psychological discomfort experienced
when the consumer has a different conception regarding a belief or point of view, leading to a
desire for consistency or harmony (Kotler & Keller, 2009; Bose & Sarker, 2012).

Further to the above, cognitive dissonance theory posits that individuals possess both cognitive
and emotional aspects, and it refers to a psychological phenomenon that occurs when there is a
mismatch between an individual’s beliefs and the resulting outcomes, which challenges their
beliefs (Solomon, 2020). According to the hypothesis, when a person’s thoughts or beliefs are
conflicting, they will attempt to minimize the conflict, specifically by reducing the feeling of
discomfort after buying a specific product (Costanzo, 2012). The presence of these conflicting
features stimulates cognitive dissonance, prompting individuals to seek a state of harmony and
alleviate psychological tension (Solomon, 2020; Pillai, 2021).

There are three situations that might lead to cognitive dissonance: First, encountering a logical
inconsistency. Second, when a person’s prior behavior, attitudes, beliefs, and their current
surroundings do not align. Third, when a person’s positive belief is proven wrong (Solomon,
2020; Pillai, 2021). Cognitive dissonance theory explains how individuals reconcile conflicting
beliefs and perceptions, impacting their satisfaction and decision-making processes.

Cognitive Dissonance Theory explains that individuals experience psychological discomfort

(dissonance) when holding contradictory beliefs or attitudes, influencing post-purchase behavior
and customer satisfaction. Key arguments include post-purchase rationalization, where
consumers seek positive information to justify their decisions, and the role of marketing in
reinforcing satisfaction by aligning messages with consumer beliefs. Unresolved issues include
challenges in measuring dissonance, understanding its evolution over time, and considering
individual differences and cultural variations. Additionally, the theory’s focus on cognitive
aspects overlooks emotional factors, and the impact of social media on amplifying dissonance
through diverse opinions remains underexplored. Integrating these insights with other consumer
behavior theories could provide a more comprehensive understanding of customer satisfaction.

The comparison level theory of satisfaction

Customer satisfaction is measured by comparing the purchase outcome to a benchmark known
as the Comparison Level (CL). When a specific result exceeds the CL, it is referred to as a
positive discrepancy event, which can be regarded as satisfactory (Solomon, 2020; Pillai, 2021;
Oshikawa, 1968). Conversely, if the outcomes go below the Comparison Level, they are
considered negative disparities and are seen as dissatisfying. The theory posits that the parallel
resemblance is measured by averaging the main results divided by comparable interactions
experienced by the consumer (Pillai, 2021; Oshikawa, 1968; Kelley & Thibaut, 1978). With
these, it can be proposed that the consumer is aware of the results; however, they have yet to
personally experience and encompass outcomes achieved by others who have had similar
experiences. There are three main elements in considering CL: first, the outcomes that an
individual has personally experienced; second, the outcomes of others who have had similar
experiences; and finally, the distinctive expectations that are formed in the individual’s current
interaction (Kelley & Thibaut, 1978).

The Comparison Level theory offers valuable insights into how customers assess their
experiences by considering relative outcomes and expectations. It recognizes that satisfaction is
contingent upon context and influenced by both individual and observed interactions.
Comparison Level Theory offers a valuable framework for understanding customer satisfaction
through the lens of expectations and social influences. However, unresolved issues such as
measuring subjective and dynamic comparison levels, integrating with other theories,
addressing cultural differences, managing the impact of digital media, and incorporating
emotional factors highlight the need for further research. Addressing these gaps can enhance
the theory’s applicability and provide deeper insights into consumer behavior and satisfaction
(Khongorzul et al., 2022).

The value percept disparity theory

Value Percept Disparity Theory emphasizes that contentment or dissatisfaction triggers a
cognitive-evaluative process (Locke, 1967). This involves comparing an individual’s perceptions
of a specific object or beliefs about an activity with their personal values—representing their
needs, wants, and desires (Solomon, 2020; Kotler & Keller, 2009). It demonstrates that when an
object or activity closely aligns with an individual’s values, it is positively evaluated (Westbrook
& Reilly, 1983).

Conversely, when there is a significant disparity between the perceived value and actual worth,
the evaluation becomes less favorable. This discrepancy leads to a decrease in positive
emotions and an increase in negative emotions associated with the experience of discontent
(Solomon, 2020; Murray, 1938). The theoretical system must satisfy three essential
characteristics: the perception of product, institution, or marketplace behavior, alignment with
the consumer’s value standards, and judgment regarding the relationship between the
consumer’s perception and value system (Murray, 1938). In reference to this, views of products,
companies, or marketplace behaviors are assessed based on the consumer’s level of value
(Alkilani et al., 2013; Murray, 1938).

The perception of value plays a critical role in molding consumer behavior and affecting the
choices they make when purchasing goods or services. Comprehending the perceived value is
crucial for organizations to fulfill and surpass customer expectations. Perceived value is typically
composed of various elements, such as functional, emotional, and social advantages (Sweeney
& Soutar, 2001). Customers evaluate the entire worth of a product or service by taking into
account how effectively it fulfills their practical requirements, the emotional gratification it offers,
and the potential social status it may bestow.

The Value Percept Disparity Theory examines how consumers assess their happiness with a
transaction by comparing their expectations before making the purchase with their experiences
after making the buy. By acquiring a deep understanding of various perspectives, firms may
customize their products and interactions to more closely match customer expectations, hence
improving overall happiness. Gaining insight into the determinants of perceived value enables
organizations to develop more efficient marketing tactics. Businesses may distinguish
themselves from the competition and connect with consumers on a deeper level by emphasizing
their distinctive advantages and value propositions. Resolving discrepancies between client
expectations and their actual experiences can improve customer satisfaction and foster loyalty.
Additionally, it can cultivate favorable word-of-mouth and advocacy, thereby enhancing the
brand’s market position (Yi, 1990). The Value Percept Disparity Theory guides organizations in
enhancing perceived value, addressing customer expectations, and fostering loyalty.

Value Percept Disparity Theory offers valuable insights into customer satisfaction by
emphasizing the importance of perceived value relative to expectations. Key arguments include
the multidimensional nature of value, the impact of individual differences, and the role of
marketing in shaping value perceptions. However, unresolved issues such as measuring
perceived value, understanding its dynamics, addressing cultural and contextual factors,
integrating with other theories, considering emotional influences and the impact of digital and
social media highlights the need for further research. Addressing these gaps can enhance the
theory’s applicability and provide deeper insights into consumer behavior and satisfaction.

Generalized negativity theory

The generalized negativity theory suggests that negative experiences or under-fulfillment of
expectations substantially impact customer satisfaction more than positive experiences
(Szymanski & Henard, 2001; Hayden, 2014). This theory argues that customers are more likely
to remember and share negative experiences whereby these customers share their
dissatisfaction with others, which can cause negative word-of-mouth and harm the company’s
reputation (Tsai et al., 2014; Ferguson & Johnston, 2011). This theory posits that negative
experiences or under-fulfillment of expectations have a stronger influence on customer
satisfaction than positive experiences (Ferguson & Johnston, 2011; Uzir et al., 2020).
Accordingly, customer satisfaction is a consumption-related fulfillment response ranging
between perfect and over-fulfillment levels.

Typical manifestations of customer satisfaction are pleasure, delight, contentment, and relief.
Under-fulfillment of expectations is believed to cause customer dissatisfaction. The formation of
customer satisfaction requires at least a minimum amount of direct experience with a product or
service (Ferguson & Johnston, 2011). The expectancy/disconfirmation paradigm is commonly
used to study customer satisfaction and includes four constructs: expectations, performance,
disconfirmation, and satisfaction. The generalized negativity theory in customer satisfaction
suggests that negative experiences or under-fulfillment of expectations have a more substantial
impact on overall satisfaction than positive experiences (Uzir et al., 2020). The theory maintains
that dissatisfaction is more salient and impactful than satisfaction, and customers are more
likely to express their dissatisfaction and spread negative feedback (Ji & Liu, 2020; Laczniak et
al., 2001). Understanding and addressing negative experiences are crucial for maintaining
customer satisfaction and reputation.

Generalized negativity theory provides the effect of negative experiences on customer

satisfaction. However, it is essential to address its arguments and unresolved issues to develop
a more comprehensive understanding of customer satisfaction dynamics. Balancing the focus
on negativity with the promotion of positive experiences, integrating insights from positive
psychology, and considering contextual and individual differences can enhance the applicability
and robustness of Generalized negativity theory in a rapidly evolving consumer landscape.
Addressing these challenges will help create more effective strategies for managing customer
satisfaction and fostering positive customer relationships.

Hypothesis testing theory

Hypothesis testing theory is a statistical method used to make inferences about a population
based on sample data (Hasibuan, 2020). In the context of customer satisfaction, hypothesis
testing theory involves formulating research hypotheses and conducting statistical tests to
determine if there is a significant relationship between variables (Duca, 2022). For instance, in
the case of customer satisfaction, the null hypothesis (Ho) could be that there is no relationship
between the level of customer satisfaction and buying behavior, while the alternative hypothesis
(H1) could be that there is a significant relationship. Data on customer satisfaction levels and
buying behavior will be collected to test this hypothesis and subsequently be analyzed using
appropriate statistical tests, such as regression analysis, to determine if there is evidence to
support or reject the null hypothesis.

The importance of hypothesis testing theory in customer satisfaction lies in its ability to provide
empirical evidence and support for any insights or claims about the relationship between
variables such as customer satisfaction and buying behavior (Yang et al., 2018). Researchers
can validate their theories and make informed decisions based on statistical evidence by
conducting hypothesis testing. Furthermore, hypothesis testing theory allows for the
identification of causal relationships between variables. This is important because
understanding the factors that drive customer satisfaction and influence buying behavior can
contribute to marketing strategies, product development, and overall business success (Busse
& August 2021). Compared to other customer satisfaction theories, hypothesis testing theory
provides a more rigorous and objective approach to understanding the relationship between
customer satisfaction and buying behavior. Other customer satisfaction theories may rely on
qualitative research methods or anecdotal evidence, which can be more subjective and prone to
bias (Chen & Liu, 2013).

In contrast, this theory utilizes statistical techniques to analyze data and draw conclusions
based on evidence. Overall, hypothesis testing theory is crucial in customer satisfaction
research because it provides a systematic and data-driven approach to understanding the
relationship between variables (Yang et al., 2018; Szymanski & Henard, 2001).

Using hypothesis testing, researchers can go beyond mere speculation and make evidence-
based conclusions about the impact of customer satisfaction on buying behavior. The analysis
of a nationally representative survey of 22,300 customers in Sweden in 1989-1990 revealed that
satisfaction is best specified as a function of perceived quality and disconfirmation (Anderson &
Sullivan, 1993). This suggests that when customers perceive high quality and experience a
smaller gap between their expectations and the actual product or service performance, their
satisfaction levels are higher (Szymanski & Henard, 2001; Lin, 2007; Yang et al., 2018; Chen &
Chiu, 2018). Hypothesis testing theory enhances our understanding of the relationship between
customer satisfaction and buying behavior, leading to informed business decisions.

The theory underscores the importance of managing customer expectations through accurate
information and reliable performance, recognizing the role of disconfirmation in shaping
satisfaction and understanding the impact of individual differences and dynamic expectations.
By leveraging the insights from hypothesis testing theory, businesses can develop more
effective strategies to meet and exceed customer expectations, ultimately enhancing
satisfaction and loyalty. As the consumer landscape continues to evolve, adapting to the
principles of hypothesis testing theory will be essential for sustaining competitive advantage and
achieving long-term success.

Equity theory
Equity theory examines the fairness of the exchange between a customer and a business. The
theory suggests that customers compare the ratio of their inputs (such as money, time, and
effort) to the outputs they receive (such as product quality, service, and overall experience) with
the ratios of others (Ruyter & Wetzels, 2000). If customers perceive an imbalance in this
exchange, it can result in dissatisfaction and potentially influence their buying behavior (Lin,
2007). In a highly competitive market, understanding equity theory is essential for businesses
striving to satisfy their customers and retain their loyalty. By aligning the inputs and outputs to
create a fair and equitable exchange, businesses can drive customer satisfaction and positively
influence buying behavior (Ihemeje et al., 2020).

Understanding the importance of equity theory in shaping customer satisfaction and buying
behavior can provide businesses with valuable insights into attracting and retaining customers.
By ensuring a fair and equal exchange, businesses can create a positive buying experience that
leads to customer satisfaction and loyalty (Liu et al., 2008). Equity theory is a customer
satisfaction theory in marketing that focuses on fairness. According to the theory, customers
evaluate the fairness of their exchanges with a company based on the perceived balance
between what they contribute (input) and what they receive (output) (Shao et al., 2009). This
evaluation of fairness influences the customer’s overall satisfaction with the company and their
future usage of its services (Ruyter & Wetzels, 2000). The theory suggests that if customers
perceive an imbalance in the exchange, either in terms of high costs or inadequate benefits,
they are likely to feel dissatisfied and may seek alternative options or disengage from the
relationship with the company (Cugini et al., 2007). This theory suggests that companies should
strive to create a sense of fairness and equity in customer interactions by aligning customer
value with their expectations and treating all customers fairly and equally. Equity theory, as a
customer satisfaction theory in marketing, emphasizes the importance of fairness in the
exchange between customers and companies. By understanding and applying equity theory,
marketers can enhance customer satisfaction by ensuring customers perceive a fair value
exchange. Therefore, to optimize customer satisfaction, companies should provide customers
with fair and balanced exchanges that align with their expectations (Davcik et al., 2015). Equity
as a concept delves into the intricacies of customer-company interactions by examining the
perceived balance between what the customer contributes and what they receive (Ruyter &
Wetzels, 2000). It emphasizes the importance of fairness in these exchanges and sheds light on
the consequences of perceived imbalances. When customers feel that the costs outweigh the
benefits or vice versa, their satisfaction with the company is compromised, potentially leading
them to explore alternative options or terminate their relationship with the company altogether
(Terpstra & Verbeeten, 2014). Understanding equity theory helps businesses create fair
interactions, enhance satisfaction, and build lasting customer relationships.

Perceived fairness in Equity Theory accurately measures equity perceptions, considers cultural
differences, understands the impact of digital interactions, integrates with other theories,
incorporates emotional factors, and adapts to customer empowerment trends to enhance the
theory’s robustness and applicability. As businesses navigate an increasingly complex and
dynamic consumer landscape, addressing these challenges will help ensure that perceived
fairness remains a cornerstone of customer satisfaction strategies.

Perceived performance theory

The theory of perceived performance states that when a consumer’s expectations are ignored in
their post-consumption or repeat purchase, a purchased service or product will perform in a very
clear manner (Darawong & Sandmaung, 2019; Gandhi & Saini, 2013). It is inferred that
consumer satisfaction evaluations are influenced mainly by perceived performance, regardless
of prior expectations. This suggests that the perception of service/product quality alone is
sufficient. The primary factor that determines pleasure is the performance of the service or
product during consumption, without any comparison, which is generally known as “unapprised
cognition” (Darawong & Sandmaung, 2019; Irfan, 2014).

Research has demonstrated that the perceived performance of a product or service is a crucial
factor in determining customer satisfaction (Mohammed et al., 2017; Gottlieb and Beatson,
2018; Brown et al., 2008). Customer satisfaction is the subjective evaluation of how effectively a
product or service fulfills the customer’s expectations. Research has indicated that customer
satisfaction is influenced not just by the actual performance of a product or service but also by
the customer’s expectations and their judgment of how well the product or service meets those
expectations (Ganesh, 2023; Gottlieb and Beatson, 2018). The correlation between the quality
of service and the perception of value is essential for comprehending customer satisfaction
(Gottlieb and Beatson, 2018; Ganesh, 2023; Brown et al., 2008). Empirical research has
continuously demonstrated that customer satisfaction is significantly impacted by the perceived
performance of a product or service (Gottlieb and Beatson, 2018). Moreover, studies conducted
in the restaurant sector have demonstrated that customer satisfaction is more closely linked to
perceived performance rather than disconfirmation (Brown et al., 2008). Recognizing how
perceived performance influences customer satisfaction is crucial for businesses to improve
their overall reputation and cultivate customer loyalty.

The theory can be argued on the critical role of expectations, the impact of marketing and
communication, and the use of feedback for continuous improvement. However, issues such as
measuring perceived performance and expectations, cultural and contextual differences may
have emotional and psychological concentration for further research. Addressing these gaps
can enhance the theory’s applicability to consumer behavior and satisfaction.

Discussion
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1. Utility Maximization: This theory posits that consumers aim to maximize their overall
satisfaction (utility) given their budget constraint. Consumers allocate their income
across different goods and services to achieve the highest possible level of utility. For
example, a consumer with a limited budget might choose to buy a combination of food,
clothing, and entertainment that provides the greatest overall satisfaction, rather than
spending all their money on just one item. The utility maximization framework uses
indifference curves (representing combinations of goods providing equal utility) and
budget constraints (representing the feasible combinations of goods given income and
prices) to graphically illustrate optimal consumption choices. In a free enterprise
economy, this theory drives competition among firms, as they strive to offer goods and
services that best satisfy consumer preferences.

2. Revealed Preference Theory: This theory infers consumer preferences from their
actual purchasing decisions. It argues that if a consumer chooses one bundle of goods
over another, it is revealed that they prefer the chosen bundle. This theory avoids the
need to directly measure utility, which is often difficult. For instance, if a consumer
chooses a more expensive brand of coffee over a cheaper one, it is revealed that they
value the quality or other attributes of the more expensive brand more than the price
difference. In a free market, this theory helps businesses understand consumer choices
and adjust their offerings accordingly.

3. Behavioral Economics: This approach acknowledges that consumers do not always

act rationally as assumed in traditional economic models. It incorporates psychological
factors, such as cognitive biases, emotions, and social influences, into the analysis of
consumer behavior. For example, framing effects (how choices are presented) or loss
aversion (the tendency to feel the pain of a loss more strongly than the pleasure of an
equivalent gain) can significantly influence consumer decisions. In a free enterprise
economy, understanding behavioral economics allows businesses to design marketing
strategies that effectively appeal to consumers' psychological tendencies.

4. Consumer Surplus: This concept measures the difference between the maximum
price a consumer is willing to pay for a good and the actual price they pay. It represents
the net benefit a consumer receives from purchasing a good. For example, if a
consumer is willing to pay $10 for a book but only pays $8, their consumer surplus is $2.
In a free market, consumer surplus is a key indicator of market efficiency and consumer
welfare. A competitive market tends to maximize consumer surplus.

In a free enterprise economy, these theories are interconnected and help explain how
consumers' choices drive market forces. Businesses respond to consumer preferences
by producing and pricing goods and services accordingly. The interaction between
consumer choices and business responses shapes the allocation of resources and
determines the overall efficiency and welfare of the economy.