Consumer Behavior Utility Theory

What is utility?
Utility is an economic term that measures the total value or level of satisfaction that a consumer derives
from purchasing and using a service or product. People typically buy things because they need them or will
enjoy having and using them. While it’s difficult to assign a specific value to the satisfaction you get from a
product, assigning that value is essential in the world of microeconomics. Utility refers to the total
satisfaction or value that you get from consuming a particular product or service. Utility values are critical
for determining why different goods have different costs and levels of demand. Products with higher utility
usually have more demand, meaning they can command higher prices. Characteristics of Utility There are
four characteristics of utility including form, time, place, and possession.
1. Form utility is the value that an item has based on the form that it takes. Individual car parts have value,
but when someone assembles them into a functional vehicle, the utility the car offers is higher than the
utility offered by each of its parts alone.
2. Time utility is the satisfaction that a product offers to a consumer based on when they receive the
product. A hungry consumer receives more pleasure from food than someone who just ate. If a consumer
never encounters a product, even if it’s high quality, they never receive its utility.
3. Place utility is the value that a product offers based on where the product is. If you’re hiking, a hiking
backpack provides significant utility. If you’re trying to bring your books to school, a hiking backpack
works, but isn’t quite as useful, offering less value. If you’re staying at home for the next few weeks, the bag
provides much less utility.
4. Possession utility describes the utility that something offers based on who has that item. A DVD in a
store has value, but it doesn’t provide as much value as it would if it were in a consumer’s DVD player,
letting a group of people watch the movie. The DVD offers additional utility because someone who will use
it possesses it.
 Porter's Generic Competitive Strategies (ways of competing)
A firm's relative position within its industry determines whether a firm's profitability is above or below the
industry average. The fundamental basis of above average profitability in the long run is sustainable
competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or
differentiation. The two basic types of competitive advantage combined with the scope of activities for
which a firm seeks to achieve them, lead to three generic strategies for achieving above average
performance in an industry: cost leadership, differentiation, and focus. The focus strategy has two variants,
cost focus and differentiation focus.

1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost
advantage are varied and depend on the structure of the industry. They may include the pursuit of economies
of scale, proprietary technology, preferential access to raw materials and other factors. A low cost producer
must find and exploit all sources of cost advantage. if a firm can achieve and sustain overall cost leadership,
then it will be an above average performer in its industry, provided it can command prices at or near the
industry average.

2. Differentiation
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely
valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and
uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price.

3. Focus
The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The
focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the
exclusion of others.

The focus strategy has two variants.

(a) In cost focus a firm seeks a cost advantage in its target segment, while in
(b) differentiation focus a firm seeks differentiation in its target segment.
Both variants of the focus strategy rest on differences between a focuser's target segment and other segments
in the industry. The target segments must either have buyers with unusual needs or else the production and
delivery system that best serves the target segment must differ from that of other industry segments. Cost
focus exploits differences in cost behaviour in some segments, while differentiation focus exploits the
special needs of buyers in certain segments.
What is the AIDA Model in Marketing?

The AIDA Model, which stands for Attention, Interest, Desire, and Action model, is an advertising effect
model that identifies the stages that an individual goes through during the process of purchasing
a product or service. The AIDA model is commonly used in digital marketing, sales strategies, and public
relations campaigns.

The AIDA Model Hierarchy

The steps involved in an AIDA model are:

 Attention: The first step in marketing or advertising is to consider how to attract the attention of
consumers.
 Interest: Once the consumer is aware that the product or service exists, the business must work on
increasing the potential customer’s interest level.

For example, Disney boosts interest in upcoming tours by announcing stars who will be performing on the
tours.

 Desire: After the consumer is interested in the product or service, then the goal is to make consumers
desire it, moving their mindset from “I like it” to “I want it.”

For example, if the Disney stars for the upcoming tour communicate to the target audience about how great
the show is going to be, the audience is more likely to want to go.

 Action: The ultimate goal is to drive the receiver of the marketing campaign to initiate action and
purchase the product or service.
Therefore, the AIDA model says that Awareness leads to Interest, which leads to Desire, and
finally, Action.
Let us consider ways to use the AIDA model by looking into each part of the hierarchy.

First Step: Attention

Often, the attention part is overlooked by many marketers. It is assumed that the product or service already
got the attention of the consumers – which may or may not be the case. In any event, don’t just assume that
everyone is already aware of your product. One of the best approaches to attracting consumer attention is
what’s called “creative disruption” – breaking existing patterns of behavior through a highly creative
message. This can be done in several ways:

 Placing advertisements in unexpected situations or locations. This is often referred to as guerrilla

marketing.
 Creating shock in advertisements through provocative imagery.
 An intensely targeted message. This is also referred to as personalization.
Essentially, the goal is to make consumers aware that a product or service exists.

Second Step: Interest

Creating interest is generally the hardest part. For example, if the product or service is not inherently
interesting, this can be very difficult to achieve. Make sure that advertising information is broken up and
easy to read, with interesting subheadings and illustrations. Focus on what is most relevant for your target
market in relation to your product or service, and on conveying only the most important message you want
to communicate to consumers.
A good example of this is Wendy’s “Where’s the beef?” ad campaign that focused on the fact that Wendy’s
hamburgers contained more beef than their competitors’ hamburgers.

Third Step: Desire

The second and third steps of the AIDA model go together. As you are hopefully building interest in a
product or service, it is important that you help customers realize why they “need” this product or service.
Think about how the content in infomercials is presented – they aim to provide interesting information on
the product, along with the benefits of buying it – benefits that ideally make consumers want the product
more and more. Infomercials do this extremely well by showing the product being used in several creative
situations. Convey to the audience the value of the product or service, and why they need it in their life.

Fourth Step: Action

The last step of the AIDA model is getting your consumer to initiate action. The advertisement should end
with a call to action – a statement that is designed to get an immediate response from the consumer. For
example, Netflix uses persuasive text to convince the consumer to try their free trial. Netflix communicates
how convenient their product is and highlights its value, then urges consumers to sign up for a free trial.
Good advertising should elicit a sense of urgency that motivates consumers to take action RIGHT NOW.
One commonly used method for achieving this goal is making limited-time offers (such as free shipping)