What motivates a buyer? The earliest understanding of the rationale of buyer behavior was provided by well-known economist Adam Smith. According to him, a human being is a rational individual. He or she evaluates various alternatives and will buy or select alternatives where the marginal utility is more than the marginal price he or she paid for it. Consider the case of Priti, a housewife. After spending a few hours on her shopping she is tired and walks over to a nearby restaurant. She has the choice of either buying a fruit juice, a soft drink, a tea or coffee. A glass of fresh fruit juice costs her Rs 7.50, a soft drink also costs her Rs 7.50, and tea or coffee costs Rs 3.50. Now if she decides to buy a soft drink, then the utility of this soft drink is more than the marginal price she is paying to get it. In this case she is paying almost Rs 4.00 more than a cup of tea or coffee. The utility of soft drink to her at this time is more than tea or coffee or fruit juice.
The assumption in the economic version of buyer behavior is that the lowest priced product will sell as its marginal utility will always be higher than others. Price therefore is the critical factor in determining customer choice. Another assumption is that all products are alike and no differentiation is possible between them. Finally, the customer is aware of the alternatives available to him or her.
The economic model can explain human behavior to a limited extent only because humans are not always rational beings. We are all known to indulge in acts and shopping behavior which are not necessarily rational. For example, a young man who loves his wife very dearly, and works in a different town away from his wife and family may make a long distance call almost every day not caring for the cost. The economists would like us to believe that this young man will consider the marginal cost and utility of making a long distance call and writing a letter (buying postage and stationary)
Besides, rarely the information on alternatives complete. Marketers create differentiation in their products. Branding is common in manufactured consumer goods. And each brand communicates a different image. However, the limits to product differentiation through technology, features, packaging, intangibles like guarantee or warranties are soon reached. In today’s world of technology standardization there is hardly any differentiation between two brands of the same product on a feature to feature basis. Price then becomes important yet not the crucial factor. Hence the economic model does provide limited but useful insight into buyer behavior.