Changing Consumer pattern from Price to Attribute; an Empirical study

H K Renushree

Abstract


One of the most fundamental building blocks of economics is the law of demand. Demand theory describes and explains individual choice of consumption bundles. Traditional theory considers optimizing behaviour when the consumer's choice is restricted to consumption bundles that satisfy a budget constraint. The budget constraint is determined by price–income pairs.

On the other hand Characteristics demand theory states that consumers derive utility not from the actual contents of the basket but from the characteristics (attributes) of the goods in it. This theory was developed by Kelvin Lancaster in 1966 in his working paper “A New Approach to Consumer Theory”. Lancaster argued that individuals do not have preferences for marketed goods or services as such; instead they have preferences for particular characteristics. The individual gets utility not from the consumption of goods directly but from the acquisition of these characteristics embodied in the goods. Labelling characteristics by the letter Y, an individual's utility can be written as U = U (Y1, Y2, …, YN) where the various items inside brackets are N characteristics that 'matter' to this person's subjective well-being.

The traditional theory of demand recognizes that the desire for a product fluctuates with the price of the item. The simplified summary of the theory says other things remaining constant higher the price, the lower the demand vice versa. But there are other important considerations that influences more than price in recent times. Attributes of products like shape colour aroma packing and durability etc can also have significant influences on the level of demand for products.

With this background, this article analyses empirically changing consumer behaviour from price to attributes based on primary data.


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