ADVANCE MICROECONOMICS:

CONSUMER BEHAVIOR
(Group 1)

Joyce Irish G. Obispo - Introduction to Consumer Behavior

Characteristics of Filipino Consumers
What is “Filipino Prosumers”?

Reign Custodio - Theory of Consumer Behavior

A. Marginal Utility / Cardinalist Approach
B. Ordinalist Approach

Jett Daryl Guinto - Law of Diminishing Marginal Utility

Kaye Celine Ritua - Indifference Curve

Charles Lagamon - Consumer’s Equilibrium

INTRODUCTION TO CONSUMER BEHAVIOR

Consumer Behavior

- Refers to the behavior that is displayed by an individual while they are buying, consuming
or disposing any particular product or services. It also involves search for a product,
evaluation of product where the consumer evaluates different features, purchase and
consumption of product. Later, the post-purchase behavior of product is studied which
shows the consumer satisfaction or dissatisfaction where it involves disposal of product
(Solomon, 2009).

Factors affecting an Individual’s Consumer Behavior;

a. Marketing Factors - product design, price, promotion packaging, positioning and

distribution.
b. Personal Factors – age, gender, education and income level.
c. Psychological Factors – buying motives, perception of the product and attitudes towards
the product
d. Situational Factors – physical surroundings at the time of purchase, social surroundings
and time factor
e. Social Factors – social status, reference groups and family
f. Cultural Factors – religion and social class

Importance of Consumer Behavior to Marketers:

1. To understand the Buying Behavior of the consumers

2. To create and retain customers amidst the rising of online stores
3. To understand the factors influencing Consumer’s buying behavior
4. To understand the consumer’s decision to dispose a product or services
5. To increase the knowledge of sales person influencing consumer to buy product
6. To help marketers to the sales of product and create focus in marketing strategies
CHARACTERISTICS OF FILIPINO CONSUMERS

Filipino consumers are very middle-market centered. They are part of Asia’s growing consumers,
who are emerging alongside the “new emerging-market middle class.” According to Peter
Hammond of Mexx, “[…] when Filipinos like what they see, they buy it. But certainly during sale
periods, they’re bargain hunters.” This makes the Filipino market have more potential than the
other Asian markets, he added.

PREFERENCES

According to Luz Barra, Filipino consumers could be understood by analyzing their product
preference(s) for beauty, hygiene, health, and convenience.

72% of Filipinas admitted that they would like to improve their hair and change their complexion,
supporting the idea that Filipinas care about their looks.

Filipino consumers also prefer healthier and more “on-the-go” food. Along with the promotion of
fun runs, exercise, and other physical activities, Filipinos have adopted a healthier lifestyle based
on their food choices.

Consumers are also concerned about their hygiene. Consumers purchase more germ-protection
products like alcohols and hand sanitizers and, in addition, also include personal hygiene products
(panty liners, razors, sanitary pads) in their grocery lists

BRAND LOYALTY

In 2013, a Nielsen online survey on Global Consumers reported that 77% of Filipino respondents
said that they already have preferred brands and types of products before buying. Consumers
seldom switch to different brands and often remain with their favorite shampoo (63%), deodorant
(56%), and coffee (53%). Even if they were presented with a promotional offer from other brands,
Filipinos usually stick to their preferred brand.

According to Bernadette Lee, COO of Pancake House Inc., Filipino consumers are not difficult
when introducing a new brand, but it is hard maintaining their interest with the product. In the
words of Ms. Lee, the only battle in introducing new brands to consumers is the constant “battle
to sustain attention and loyalty.”
Majority of Filipino consumers check the brands’ commitment to making a positive social and
environmental impact. Moreover, 79% of the respondents (the highest globally) of the Nielsen
Global Survey of Corporate Social Responsibility claimed that they are willing to pay extra for
products and services from companies committed to making positive social and environmental
impact.

ADVERTISING

Celebrity endorsements also play an important role when it comes to influencing brand preference.
Companies use these spokespersons to deliver their advertising message and to boost their brand
image. Marketing studies have reported that famous people increase awareness of a company’s
advertising and create positive feelings towards brands.

According to Julius Guevara, Filipinos “are very conscious of celebrities and they find affinity
with the celebrity.” A celebrity’s appearance, popularity, and relatability are the measures on how
big the impact of their endorsement could influence a consumer’s decision on buying their
endorsed brand.

Advertising on the Internet also plays a key role in advertising. According to Stuart Jamieson,
Nielsen’s Managing Director in the Philippines, there is a “rising reliance” on social media
postings, active Internet searching, and Internet forum, wherein consumers can learn more about
the product, and read about the reviews of other consumers like them.

VALUE OF MONEY

Nielsen’s 2013 Philippine Shopper Trends Report revealed affordability as the key driver of new
product purchase for Filipino consumers, followed by convenience and personal recommendation.
Filipino shoppers have said that they like new products or emerging products that are “centered on
affordability, health and sustainability, and convenience as important considerations.”

Filipinos also prefer to shop around for deals. Despite having a prepared list for their shopping
trips, majority of shoppers buy more than they had planned due to these promos, i.e. price-offs,
discounts, and the Pinoy-favourite “Buy 1, Take 1” promo.
According to Nielsen’s 2012 Global Consumer Report, good product promotions are received the
strongest in developing countries where “practicality and creativeness are needed in order to
stretch the budget.”

TYPES OF FILIPINO CONSUMER

1. Impulsive Buyer

2. Sale Seeker

3. Loyal to Brands

4. Green-Minded

5. Buy Less, More Often

WHAT IS “FILIPINO PROSUMERS”?

Filipino Prosumers – (derived from the word “Producers + Consumers) Consumers who are the
first to try what’s new and are relied upon by their circles for recommendations and opinions. They
are known to be influential in what the mainstream will patronize within 18 to 24 months.

“Filipino Prosumers have truly realized the power they have in influencing not just the marketplace
but society as a whole. The mere act of choosing at the grocery, at the supermarket, in a boutique,
or in the mall are more than just shopping and buying for Filipino Prosumers. The choice in itself
carries ripples of effect to the rest of the society. For them, the power to choose is more than just
about which brand or product to bring home; the choice also reflects how they are answering the
call to be socially-responsible individuals,” says Phil Tiongson, Havas Ortega’s Head of Data &
Analytics.

Here are the five characteristics of a Filipino Prosumer:

1. They are the first ones to try the newest things and are always in the know.

2. They are more mindful of their shopping habits.

3. They are concerned about a brand or company’s involvement with key social issues.

4. They shift to ‘patriotic shopping’.

5. They choose brands that care for the environment.

THEORY OF CONSUMER BEHAVIOR

- the principle assumption upon which the theory of consumers behavior and demand is built is:
a consumer attempts to allocate his/her limited money income among available goods and
services so as to maximize his/her utility. (satisfaction)

TWO MAIN APPROACHES:

1. Marginal Utility/ Cardinalist Approach

* Alfred Marshall
* Can be measured (Utils)
* Quantitative
*Quantifies the added satisfaction that a consumer garners from consuming additional
units of goods and services.
*Giving different choices a specific utility value
*The concept of marginal utility is used by economists to determine how much of an item
consumer are willing to purchase.
2. Ordinalist Approach

* J.R. Hicks and R.G.D. Allen

* cannot be measured but compared as rank.
*The ordinalist approach assumes that a consumer aims to maximize his level of
satisfaction from a given income he will use to purchase the commodities.
*Moreover, this approach assumes that the consumer has not yet reached his maximum
level of satisfaction. Thus, he prefers to consume as much as he can from quantities of all
commodities.
*Ranking choices by order of preference.
THE LAW OF DIMINISHING MARGINAL UTILITY

- As more and more of a good are consumed or service used, the less satisfied you will be
with each successive use or consumption.
- When the Total Utility (TU) is at maximum, the Marginal Utility (MU) = 0
- When the total utility begins to decrease, the marginal utility = negative

INDIFFERENCE CURVE

An indifference curve depicts a line representing all the combinations of two goods that consumers
place equal value. That is to say, they would be indifferent to either good. The consumer has no
preference for either combination of goods on the same line because they are understood to provide
the same level of utility to the consumer.

Example:

In this example, we will assume that consumers derive the same amount of utility from selecting
any combination of the foods.
 Fries Burgers

35 1

30 3

25 5

20 7

15 10

The indifference curve has a convex shape because as you consume more of the same product,
your marginal utility, extra satisfaction gained from one more of that product decreases.

The diagram above shows an indifference curve. Any combination lying on this curve gives the
same level of consumer satisfaction.
INDIFFERENCE MAP

A graph of indifference curves for several utility levels of an individual consumer is called an
indifference map. The higher the indifference, the higher utility compared to indifference curves
below it.

For example, IC3 has a higher utility than IC2 and IC2 has a higher utility than IC1.

MARGINAL RATE OF SUBSTITUTION

The Marginal Rate of Substitution (MRS) is defined as the rate at which a consumer is ready to
exchange a number of units good X for one more of good Y at the same level of utility.

Combination Good X Good Y

A 2 10 MRS Formula:
(MRSxy) = ∆Y/ ∆X
B 3 7
C 4 5 (MRSxy)= Y2-Y1/X2-X1
D 5 3
E 6 2
From the table, at point A, we can see that the consumer is ready to exchange three units of Good
Y for one additional unit of Good X. Therefore, at this stage, the consumer’s Marginal Rate of
Substitution of X for Y is 3.

The MRS of X for Y represents the amount of Y which the consumer has to give up for the gain
of one additional unit of X so that his or her level of his or her utility (satisfaction) remains the
same. We assume that any of the five combinations in the table have the same level of utility.

The MRS of Good X for Good Y diminishes as more and more of Good X is substituted for Good
Y. In other words, as the consumer has more and more of good X he is prepared to give up less
and less of Good Y.

CONSUMER’S EQUILIBRIUM

When consumers make choices about the quantity of goods and services to consume, it is presumed
that their objective is to maximize total utility. In maximizing total utility, the consumer faces a
number of constraints, the most important of which are the consumer's income and the prices of
the goods and services that the consumer wishes to consume. The consumer's effort to maximize
total utility, subject to these constraints, is referred to as the consumer's problem. The solution to
the consumer's problem, which entails decisions about how much the consumer will consume of a
number of goods and services, is referred to as consumer equilibrium.

Example:

This condition states that the marginal utility per dollar spent on good 1 must equal the marginal
utility per dollar spent on good 2.
Example:

To illustrate how the consumer equilibrium condition determines the quantity of goods 1 and 2
that the consumer demands, suppose that the price of good 1 is $2 per unit and the price of good 2
is $1 per unit.

The consumer equilibrium is found by comparing the marginal utility per dollar spent (the ratio of
the marginal utility to the price of a good) for goods 1 and 2, subject to the constraint that the
consumer does not exceed her budget of $5. The marginal utility per dollar spent on the first unit
of good 1 is greater than the marginal utility per dollar spent on the first unit of good 2(12 utility>
9 utility). Because the price of good 1 is $2 per unit, the consumer can afford to purchase this first
unit of good 1, and so she does. She now has $5 − $2 = $3 remaining in her budget. The consumer's
next step is to compare the marginal utility per dollar spent on the second unit of good 1 with
marginal utility per dollar spent on the first unit of good 2.