Nonprice Factors in Choice Decisions

The many different courses of action open to businessmen provide many choices for consumers and much of the yearly variation in consumption patterns. In this chapter, we shall look at some customary trade practices from the point of view of the consumer.

FORMS OF NONPRICE COMPETITION

Consumer choice in the real world is far more complex than that envisaged by the price-analysis models of previous chapters. The prospective buyer faces a bewildering array of objects to satisfy his wants, and a constant pressure to develop new wants. Once having decided that he will buy an automobile or a winter coat, a children's record or a box of peaches, he finds a number of different automobiles, coats, records, and boxes of peaches, some at different prices and some at the same price. He can make his purchase in a number of ways-by going to a store and asking for and receiving the item, telephoning an order and taking delivery within a day or two, or writing an order. He can choose whether to pay cash for his purchase, to charge and be billed monthly, or in some cases to receive extended credit. These and more choices surround the consumer as firms intensify their use of nonprice competition, varying the product and the services accompanying it.

For consumers to make a purchase, they need information on what is available, a means of making their choice known, a means of payment, and the transfer of their purchase to their person or home. Shopping, to perform all these functions, requires time and effort on the part of consumers, and business firms offer a number of different services to minimize the effort of purchasing. Marketing personnel have divided consumer purchases into convenience goods and shopping goods on the basis of the consumer's willingness to devote his energy to making purchases. Thus cigarettes, newspapers, soap, and many drugs or grocery products are purchased in the most convenient manner, as opposed to automobiles, household appliances, and most clothing items, for which consumers generally prefer to "shop around." But since one buyer finds one type of service convenient and another finds it awkward, many combinations of various services exist.

The information on what is available comes partly from advertising, partly from seeing goods displayed, and partly from having observed the consumption activities of other people. Business performs the first two functions in a variety of ways. As we have seen, advertising frequently mixes information with persuasion, but in some fields there has been a notable trend to informative labeling and advertising. Manufacturers tag their products with detailed descriptions and instructions for use and maintenance, while some advertising programs explain and demonstrate ways to use the product. The retailer also gives information and, more important, displays products for the consumer's inspection. This function also depends on the manufacturer, who decides whether goods are packaged in "see-through" materials and often provides special display materials for use on retail-store counters or in shop windows. Demonstrators or samples give the consumer a chance to try the product, and for some commodities such sampling is essential. A new car gets a road test, a home appliance a demonstration, clothing must be tried on and swatches of drapery materials must be matched to paint or wallpaper. Other items, like processed foods or hotel rooms, are rarely sampled in advance, although one attraction of motels is the privilege of viewing the room before registering, and morsels of cheese or meat or candy frequently appear in food store promotional campaigns.

Once having decided on a purchase, the consumer must inform the seller of his choice. Despite the mail-order business, most consumers go to stores to buy, and the latest development in purchasing convenience is the shopping centers which have burgeoned since World War II. But other kinds of convenience also exist -- the corner grocery for last-minute purchases, telephone service for ordering flowers, laundry service, bakery or dairy products, the exclusive shop with a specialized knowledge of its customers, and the urban store open late in the evenings. Once in the store, the consumer may need a clerk to take his order, or the store may offer self-selection. For goods like groceries, variety store items, books, and some lines of apparel the consumer gains convenience by self-selection.

In other lines it is a burden to the buyer seeking information or guidance, or a burden to the retailer whose pilferage losses increase.

The physical transfer of goods to the consumer depends partly on the product and partly on the kind of services offered. Delivery by mail or by the seller's trucks may be convenient to some consumption purchases and inconvenient (or unprofitable to the seller) for others. Carpets, major appliances, oil burners, or household fittings which require installation have long been sold on the basis of service as well as the product itself. And although cash-and-carry stores were first introduced to offer lower prices, they now offer convenience, as the consumer's own automobile solves the problem of transportation. Closely related to the transfer of purchases to consumers is the privilege of returning merchandise or obtaining repair service in case of dissatisfaction. For some goods, only the manufacturer can make adjustments, while others reflect varying retail policies. To some extent, this depends on the guarantee or warranty offered with the product, together with the seller's wish to compete pricewise or by varying his services. The seller incurs additional costs by offering repair or return privileges, and these may be reflected in his prices.

CONSUMER'S CHOICE

For the consumer to exercise a wise choice among all these alternative services, two conditions must be met. First, the consumer in a local market must actually have access to different firms offering different services-a number of outlets must exist. Second, the consumer must recognize and evaluate those differences which do exist.

The number of competing sellers and the ways in which they compete vary widely in different locations. Only the mail-order houses provide the same services throughout the nation, and because of freight charges the prices to consumers vary by areas. With automobiles, intrinsic to our consumption pattern, however, any local market for consumer goods has widened appreciably. Sellers find more potential customers and also potential competition from more distant sellers. Store location, a complex problem, depends partly on whether transportation for consumers is convenient or inconvenient.

Although the typical consumer has, by using a car or public transportation, many alternative shopping services, his choice with some consumer goods is limited by a trade practice known as selected distribution. In many fields, including shoes, automobiles, some cosmetics and jewelry, some appliances and high-grade clothing, the manufacturer sells his output only to retailers whom he selects within a given market area. The exclusive agency allows only one dealer to sell the manufacturer's product within a given geographical district, and joint agency distribution limits the number of retail outlets selling the product in a given area.

Selected distribution limits competition, of course, and may or may not provide compensating services to the consumer. From the manufacturer's point of view, he can expect more energetic selling, and hence larger sales, especially where the agency contract prohibits the dealer from selling other brands. At the same time, the potential consumer demand depends entirely on the chosen dealer's effectiveness and may not be fully explored. The dealer's prices and margins are protected to cover certain costs-for example, a substantial inventory investment in shoes or china or silverware, or a complete servicing organization for automobiles or appliances. In some cases, therefore, the consumer benefits from a wide selection of styles within a given brand and from the servicing or guarantees of the chosen dealer. Against this must be weighed the inconvenience of seeking out the agency and of being forced to visit many outlets in order to compare different brands. Furthermore, if selected distribution limits rather than expands the potential market, higher costs, particularly selling costs, may be passed on to the consumer. The shopping methods actually available to consumers, therefore, may be limited not only by the number of different outlets within reach but also by the manufacturer's distribution policy.

Theoretically, the consumer's preferences enable him to gain maximum satisfaction from his consumption purchases. But there are utilities and disutilities in the purchasing process itself, and the consumer may choose not only to buy more oranges and fewer apples but also to buy more services instead of less. In order to maximize satisfaction, therefore, the consumer must recognize and understand not only the differences between products and their accompanying services but also, where prices differ, the extent to which price variations represent real differences in product or services. He must compare not only the utility from Libby's and Del Monte's foods but also the utility from driving to a supermarket, collecting a week's food, and paying cash and from telephoning to another store, having the order delivered, and paying a monthly bill.

Two factors hamper the consumer's ability to analyze these differences rationally. One is the staggering amount of time and effort involved, that is, the costs of analyzing differences in costs. An individual evaluation of all the available choices to satisfy any want would require a major touring expedition, comparing prices, product differences, and variations in shopping services. Very few consumer purchases are worth this approach, so that consumers tend to form shopping habits-presumably those which on the whole maximize their utility-which govern their purchases. It should be pointed out that price competition as well as nonprice competition depends, for its effectiveness, on consumers' awareness of and interest in differences among different sellers. If consumers neither know nor care that a penny a pound can be saved on X brand butter at Y store, the increased sales associated with lower prices will not be forthcoming. It is possible, therefore, for consumers themselves to change their consumption patterns rather markedly by changing their shopping habits.

The second factor inhibiting the consumer's ability to evaluate his alternative choices is his lack of knowledge-a subject to be treated more extensively in a later chapter. At the moment, we should note that an exhaustive and accurate comparison of utilities is well-nigh impossible even for those consumers who might devote time and energy to the problem.

A major effect of nonprice competition on consumer's choice, therefore, is to narrow the area of rational conscious decision and increase the effect of habit, impulse, or ignorance. And many types of nonprice competition themselves intensify these factors, as when advertising substitutes emotional appeals for facts, when the location or display of merchandise leads to spur-of-the-moment buying, or when a sound reputation for quality and service keeps satisfied customers returning to the same store.

Source: The Economics of Consumption: Economics of Decision Making in the Household