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Consumer Preferences
Updated on March 21, 2024
Article byPrakhar Gajendrakar
Edited byPrakhar Gajendrakar
Reviewed byDheeraj Vaidya, CFA, FRM
Consumer Preferences Definition
Consumer Preferences are a set of properties or elements that define the buying behavior of
consumers in a given market. As they affect market demand, companies evaluate and understand
consumers’ mindsets and ascertain the forces that compel them to buy specific products. They
use this information to produce the right products or services, making them available to
consumers at the right time to maximize sales and profits.

Consumer Preferences
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Consumers have a unique perspective when they look for specific products and services. For
some, the motivation for buying a product can be a dire need. For others, it can be the
satisfaction of having bought a product. Quality, happiness, and utility are some other reasons for
the purchase decisions consumers make based on their personal preferences. When consumers in
large numbers share the same preferences, they form a target market. It is also called consumer
choices.

Table of contents
Consumer Preferences Definition
Consumer Preferences Explained
Factors
Types
Examples
Assumptions
Frequently Asked Questions (FAQs)
Recommended Articles
Key Takeaways
Consumer preferences are the subjective determinants of a consumer’s buying behavior. They
include personal tastes, likes and dislikes, and predispositions of individual consumers.
They define the demand in a given market, and by extension, they also govern what suppliers
will produce to meet this demand in the market.
Paul Anthony Samuelson, an American economist, introduced this concept through the Theory of
Revealed Preference in 1938.
It is mainly of four types: Conditional, Unconditional, Qualitative, and Quantitative.
The theory of consumer preferences in economics has three main assumptions: Completeness,
Transitivity, and Non-satiation.
Sellers and companies study it to understand consumer mindset and buying behavior. It is also
referred to as consumer choices.
Consumer Preferences Explained
Consumer preferences is the study of varying consumer choices that govern buying decisions in
a market. They are the factors that influence the choices that consumers make when buying
products and services. Consumers are driven by a desire to maximize their satisfaction with
every purchase.

Paul Anthony Samuelson introduced the Theory of Revealed Preference in 1938. It states that
consumer preferences can be revealed by the choices they make in different scenarios and
conditions. For example, if a consumer chooses to buy a certain product over another, it can be
concluded that the consumer prefers the first product.

When consumers in a market consider buying a product, they take several factors into account,
such as price, demand, brand, quality, physical attributes, features, inflation, personal income,
durability, happiness quotient, additional services, etc., based on which they make their final
buying decision. The broad categories that affect consumer choices can be categorized into
personal, psychological, social, cultural, and environmental factors, among others.

Consumer preference in microeconomics is the study of rational consumer behavior. It is

important to note that this theory operates under certain assumptions, and it describes why
people buy what they buy.

From a business perspective, companies evaluate and forecast the changing needs and
perceptions of people to ensure they offer better quality products and services to make maximum
sales and generate profits. A company that wishes to stay relevant and competitive in the market
must acknowledge and meet the changing consumer preferences of its target audience or
potential customers.

Companies modify and strengthen their marketing strategies and selling processes from time to
time to attract customers and influence their purchase decisions. Studying consumer choices is a
constant activity because preferences not only change with time but also with place, technology,
demographics, market dynamics, and current trends, with a certain degree of uncertainty attached
to such behavioral predictions.

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Factors
Let us look at the factors that dominate a consumer’s mind.
Price is acknowledged as one of the key factors impacting consumer preferences. Typically,
every customer’s choice is more or less affected by a product’s price. In general, people are
looking to get a good deal.
Satisfaction and fulfillment are basic preferences among consumers, as observed by marketers. If
a product solves a problem, consumers will likely prefer it.
Variety coupled with stability is a major factor that impacts consumer preferences. Most people
tend to look for the same product in different forms before making a choice.
Additional features, qualities, and new functionality of a product influence consumer preferences
in a market.
Brand reputation is another driving factor. Many people are willing to buy a product even when
there is a cheap alternative available because of the brand and prestige associated with a product.
It is a psychological factor.
Demand and supply are significant determinants of consumer preferences. The less a product is
available, the more people are willing to buy it. At the same time, the unavailability of a product
may lead to a change in consumer choices.
Most businesses understand a critical factor, which is time. Many people lose interest in a
product or service if they feel purchasing it is too time-consuming, or there is a gratification
delay. Time can change people’s preferences in no time. This is particularly true of e-commerce
websites and online shopping.
Detailed product information steers buying decisions. Consumers prefer products that offer
comprehensive information about how it was manufactured, how it should be used, what impact
it will have on the environment, etc. This applies especially to people who wish to buy
environmentally friendly products and want to abide by certain values or product selection
criteria.
The purchase experience and customer service are other significant factors. People prefer certain
products or services because of the ambiance, experience, or customer service they receive when
they buy the product or service. This is frequently observed in the food and hospitality industry.
Types
Let us discuss the types of consumer preferences below:

Qualitative: It focuses on the features and characteristics of a product or service, such as design,
brand reputation, durability, and usability, defining the core qualities of the product.
Quantitative: Such preferences are based on the tangible and quantifiable attributes of a product.
For example, the size, shape, and quantity of a product are considered important.
Conditional: It refers to preferences that change based on certain conditions. If the conditions a
consumer has defined are not met, they would mostly opt for an alternative. For example, a
consumer buying cleaning supplies may set a condition that they would buy a particular
company’s products only if it offered a discount or sold a bundle (a set of related items sold
together).
Unconditional: This refers to preferences that do not depend on any parameter or condition. It
means a consumer will be willing to spend money on such products, irrespective of their price,
size, shape, color, timely availability, features, functions, etc.
Companies prefer consumer behavior driven by unconditional preferences, which means
consumers will not replace their products with any other product. For example, if a consumer
wants to buy a luxury car of a particular make and model, they will wait for the car until it
becomes available and will not hesitate to pay any price that the seller demands.

Assumptions
The assumptions of consumer preferences in economics are:

#1 – Completeness
It states that a consumer is always capable of ranking and ordering all the products and services
available to them and can effectively compare two similar products and identify the differences.
In simple words, the theory assumes that consumers can always opt for one product over another.

#2 – Transitivity
This assumption is highly relevant to consumers’ rational decision-making process. It states that
consumer preferences are always shifting. If there are three products, P1, P2, and P3, and a
consumer chooses P1 (the first product) over P2 (the second product), they are most likely to
prefer P1 (the first product) over P3 (the third product), too.
#3 – Non-satiation
The third assumption describes the behavior of consumers where they constantly chase after
more, making it a priority. Consumers tend to think the more they get, the better it is. Therefore,
non-satiation states that if a consumer has to choose between two products, they will always opt
for the one that is more and not less than the other product.