UNIT-3

 CONSUMER SPENDING AND ITS IMPACT ON THE

ECONOMY

Consumer spending is what households buy to fulfill everyday needs.

This private consumption includes both goods and services. Every one of us is a consumer. The
things we buy every day create the demand that keeps companies profitable and hiring new workers.

Almost two-thirds of consumer spending is on services, like real estate and health care. Other
services include financial services, such as banking, investments, and insurance. Cable and
internet services also count, and even services from non-profits.

The remaining one-third of our personal consumption expenditure is on goods. These include so-

called durable goods, such as washing machines, automobiles, and furniture. More frequently,

we buy non-durable goods, such as gasoline, groceries, and clothing.

Five Determinants of Consumer Spending

There are five determinants of consumer spending. These are the things that affect how much
you spend. Changes in any of these components will affect consumer spending.
 The most important determinant is:
1)Disposable income = Avg.income - TAXES

That's the average income minus taxes Without it, no one would have the funds to buy the things
they need. That makes disposable income one of the most important determinants of demand. As
income increases so does demand. If manufacturers ramp up to meet demand, they create jobs.
Workers' wages rise, creating more spending. It's a virtuous cycle leading to ongoing economic
expansion. If demand increases but manufacturers don't increase supply, then they will raise
prices. That creates inflation.
2)Income per capita

It tells you how much each person has to spend. Income measurements might rise just because
the population increases. Income per person reveals whether each person's standard of living is
also improving.

3)Income inequality

Is the third determinant of spending. Some people's income may rise at a faster pace than others.
The economy benefits when most of the gain goes toward low-income families. They must spend
a more significant share of each dollar on necessities until they reach a living wage. The economy
doesn't benefit as much when increases go toward high-income earners. They are more likely to
save or invest additions to income instead of spending.

4)Household debt

That includes credit card debt, auto loans, and school

loans. Current consumer debt statistics show that household debt has reached new record
levels.Surprisingly, high health care costs are one of the biggest causes of overwhelming debt.

5)consumer expectations. If people are confident, they are more likely to spend now. The Consumer
Confidence Index measures how confident people are about the future. It includes their expectations
of inflation. If consumers expect inflation to be high, they will buy more now to avoid future price
increases. That's why the Federal Reserve targets a 2% inflation rate.
OR

 2. MAJOR FACTORS INFLUENCE CONSUMERS BEHAVIOURS

 Psychological Factor

 Social Factors

 Cultural Factors
 Personal Factor
 Economic Factors

 Psychological Factors

Human psychology is a major determinant of consumer behaviour. These factors are difficult to
measure but are powerful enough to influence a buying decision. Some of the important psychological
factors are:

 Social Factors:

Humans are social beings and they live around many people who influence their buying behavior.
Human try to imitate other humans and also wish to be socially accepted in the society.
Hence their buying behavior is influenced by other people around them.
 These factors are considered as social factors. Some of the social factors are:
1.Family
2.Reference Groups
3.Roles and status

 Cultural factors

A group of people are associated with a set of values and ideologies that belong to a particular
community. When a person comes from a particular community, his/her behavior is highly
influenced by the culture relating to that particular community.
Some of the cultural factors are:
1.Culture
2.Subculture
3.Social Class
 Personal Factors
Factors that are personal to the consumers influence their buying behaviour. These personal factors
differ from person to person, thereby producing different perceptions and consumer behaviour.
Some of the personal factors are:
1.Age
2.Income
3.Occupation
4.Lifestyle

 Economic Factors

Economic factors bear a significant influence on the buying decision of a consumer. Some of the
important economic factors are:
1.Personal Income
2.Family Income
3.Consumer Credit
4.Liquid Assets
5.Savings
  3)CONSUMER BEHAVIOUR CAN BE AFFECTED BY SEVERAL
FACTORS.

It can be different from person to person based on his age, income, sex, education and marital status.
You can easily notice the difference between the buying decisions and consumer behaviour of two
different people from different economic groups.

This article focuses on four important demographic factors and the effect they have on
consumer behaviour.

These factors are age, sex, education and income.

Consumer behaviour is affected as these factors change. You can observe a change in the
consumer behaviour of someone who has grown richer or more educated.

Age is an important demographic factor that affects consumer behaviour.As people grow, their
needs change. Similar changes come to their buying decision making patterns.With age, our
health needs change and so do many other needs. Age brings changes to people’s lifestyle and
with it their needs and personal values are also affected.
When people are young, they spend more on their lifestyle needs from fun and movies to fashion. As
they grow older, their expenses on these things shrink. Elderly people mostly remain indoor, however,
their health related expenses may rise. In this way, age becomes one of the fundamental demographic
factors affecting consumer behaviour and buying decisions.

Sex:

Between male and female sexes, several things are different and these differences also affect their
buying choices.The two sexes have different needs in terms of fashion and lifestyle.
Their consumer behaviour in these two areas can be vastly different. It is mainly the difference in
needs that lead to differing choices.

Income:

Income is a very important factor that affects the buying decisions and consumer behaviour of
people.Across different income levels, the difference in product choices and buying patterns can
easily be marked.
A person in the middle class makes his buying decisions based on utility.
However, someone from the upper class would want style, design and special features while making a
purchase.

Education:

The more educated a person is, the higher the level of discretion he will employ in making
purchases. People’s preferences can change with education.

Every customer is well informed in this era. However, the more educated ones take more time
before deciding a purchase. Education affects a number of things including the fashion you
wear and the programs you watch.

 4.CROSS CULTURAL INFLUENCE ON CONSUMER BEHAVIOUR ?

A person’s culture has a huge influence on their thought processes and behaviours. Because it’s so
influential on how people perceive the world around them, their place in it, and how they make
decisions, it tends to play a role in determining how and why we consume goods and
services.Sometimes, it’s really obvious how culture influences buying behaviour.

Cultural prohibitions against consuming products such as alcohol or meat, or cultural preferences
for styles of clothing, make it easy to understand some buying patterns. Cultural behaviours, such
as household size or the role of women in managing households, also influence who buys certain
products or in what size.
Cultural elements such as time orientation (whether a culture tends to focus on the past, present or
future) seem to bear influence on elements of online shopping such as trust and social
interaction.Of course, human personalities vary and that variety encompasses the extent to which
an individual takes on board the particular influences of their culture.

Indian consumers tend to be more family orientated than western ones but that doesn’t mean
there aren’t Indian consumers who don’t make highly individualistic purchasing decisions or
Western ones that don’t think collectively.

But culture never really quite goes away. Anyone that violates cultural norms will be sanctioned by
their wider social group, whether they choose to resist that pressure or not. Individuals are rarely
uninfluenced by this effect and it will affect their behaviour.

To some extent, culture is simply what comes most naturally to a person – what fits within their
values and belief systems, and what they see others around them doing. Culture influences what
feels right, normal and desirable.

Retailers that ask consumers to swim against the social current are making it harder for the
consumer to choose their services. It’s usually better practice to make it possible and easy for
consumers to choose your product within their cultural comfort zone.

Cultural elements

So which cultural elements are likely to influence buying behaviour?

There are many different aspects of culture that have been analysed by cultural researchers over the
years. These include, in particular, youth orientation, long-term vs short-term orientation (also
known as time orientation), masculinity vs. femininity, the power distance index,
individualism/collectivism, indulgence against restraint and uncertainty avoidance.

There’s been research into how each of these elements of culture impact on consumer behaviour and
how best to manage this. Cultural factors can be expressed in unexpected ways. For example, a
culture’s time orientation tends to find expression in how tolerant it is of lateness and inefficiency
and how people living in that culture manage their personal time.

SUB CULTURE
Every society is composed of smaller sub-units, homogenous within, and heterogeneous outside,
all of which when put together make a complex society. Such sub-units or sub- groups are known
as sub-cultures; people within sub-cultures possess distinctive sets of values, beliefs, customs and
traditions etc...

TYPES OF SUB CULTURE

1. Nationality
2. Religion
3. Geographic
4. Caste
5. Gender
6. Age
  5)SOCIAL STRATIFICATION ?
( manushulni veru chesi chudadam bases on income rich,poor… etc or bases on caste aswell
Social stratification is the presence in a society of clearly distinct consumer groups divided by
socio-economic factors. Typically, income is a key driver of this, though lifestyles, status and
other factors come into play in some cultures. Social stratification significantly affects
consumer preferencesSub Processes Of Social Stratification
Social Stratification based on Economy

Economic strata have existed in almost every society .In his materialistic philosophy Karl Marx has
given enormous importance in the economic analysis of strata but in the place of strata he refers the
term class.

These economic classes according to Marx are the actual representatives of social stratification.
Emile Durkheim and Ferdinand Tonnies also discussed economic strata in their interpretation of
Gesellschaft and organic solidarity. Class thus is one of the most important base for social
stratification but according to Karl Mannheim stratification is not only based on economic
condition but it is also related with non- economic factors.

Social Stratification based on Politics

There is also a political stratification propounded by Gumplowiez and Ratzenhofer who believe
that stratification is derived from the conquests of divergent ethnic groups.

On the other hand Mosca believes that stratification is simply a distinction between dominant
political groups and the masses. Thus the ruling class determines the structure of society and the
level of civilization. Plato also assumed that stratification is based on the structure and dynamics
of ruling class.

6)REFERENCE GROUPS AND FAMILIES

A reference group includes individuals or groups that influence our opinions, beliefs, attitudes
and behaviours.

They often serve as our role models and inspiration. Marketers view reference groups as
important because they influence how consumers interpret information and make purchasing
decisions.

Reference groups influence what types of products you will purchase and which brand of product
you choose.
Types:

1. A normative reference group:Influences your norms, attitudes, and values through direct
interaction.

Examples : your parents, siblings, teachers, peers, associates and friends.

2. A comparative reference group: Is a group of individuals whom you compare yourself against
and may strive to be like.
Examples : celebrities and heroes

The services selected correspond to the following four categories:

1.publicly consumed luxurie - BMW, AUDI, GUCCI

2.publicly consumed necessities - HOUSE

3.privately consumed luxuries - HOTELS

4.Privately consumed necessities - I feel shy

Three types of reference group influences are studied- informational, value expressive and utilitarian.
The results reveal that reference group influence is greatest for publicly consumed services.
  7 . PERSONAL INFLUENCE - WORD OF MOUTH

Power of individuals to sway or control the purchasing decisions of others.

Personal influence can be either external or internal.

 External personal influence -Involves social interaction between two or more people, such as
a neighbours, a mother, a father, and a child.

Example- A mother might seek advice from a neighbour about a product and convey this information
to her family.

 Internal personal influence - occurs when decisions are influenced by mental processes that
have to do with other people or groups.
Example- A teenager may purchase a record album because he wants to be perceived as being “with
it” to his friends.

In both cases, identifying personal influences in a target market and turning these influences into a
positive force is important to advertisers because face-to-face communication frequently has more
impact than “nonpersonal” advertising in determining brand choice.