We intend to find out the buying behavior of the consumers through their perception of prevailing prices, availability of choices and the perceived government policies.
Consumers rely on various information cues or product attributes in their decision-making. Price represents extrinsic cues, and is one of the most important kinds of information consumers' use when they make a purchase decision, accounting for 40 percent of their information search (The influence of retail environment on price perceptions, 2003, Byoungho Jin & Brenda Sternquist, journal: International Marketing Review). Consumers change their consumption habits with change in the perceived inflation rates. They tend to consume more if the perceived inflation rates are high (Impact of Inflation on Consumer Life Style: Some Empirical Results on the Money Illusion and Consumer Purchasing Behaviour, 1979, Gunter Poser, Zoher E. Shipchandler, European Journal of Marketing) for example if an individual perceive the price of a particular product to go high in future, he would rather consume the product now at the prevailing price than wait for the price to go up.
Buying behaviour is also affected by the perceived availability of choices. When the consumer perceives the economic conditions to be adverse he engages in minimal search of alternatives and hence perceives limited availability of choices (External search effort: An investigation across several product categories, Sharon E Beatty and Scott M Smith, Journal of Consumer Research, 1987)
An individual's buying decision is also influenced by the perceived government policies. If a person feels that the current policies are enough to fight against price rise and unemployment then he will be encouraged to buy. Not much literature review is available to demonstrate any direct relation between perceived government policies and buying behavior but indirect studies have been done on this example buying decision and inflation (Buyer Behavior in a Stagflation/Shortages Economy, Eugene J. Kelley and L. Rusty Scheewe).
Personal finance index is dependent on the following factors: Perceived current family income, perceived future income and Perceived availability of finance (University of Michigan Consumer Confidence Index survey).
One of the very important factor in determining the consumer confidence is the level of income of an individual. The higher the income, higher will be the consumer confidence (Consumer confidence and the permanent income hypothesis: a note, McIntyre, K.H, 2002)
The idea that relative income is of more importance compared to the real income might not hold true in certain cases as is empirical from the study done by Kenneth V. Greene, Phillip J. Nelson, 2007 (Is relative income of overriding importance for individuals?) whose findings were opposite to their hypothesis and it revealed that people are actually more interested in real rather than relative income. Therefore in our research we have taken perceived current real family income as one of the measure of personal finance index.
The perceived availability of credit or cheap finance is also one of the indicators of consumer confidence. If an individual thinks that's easy finance is available then his perceived confidence goes up (Understanding compulsive buying tendencies among young Australians: The roles of money attitude and credit card usage, Ian Phau & Charise Woo, 2008) for example
An increase in the unemployment rate or a recession period is likely to generate an increase in uncertainty among consumers, even among those who may not themselves be unemployed. This is likely to increase precautionary savings and decrease confidence and consumption As such, one can expect a negative relationship between unemployment and consumer confidence�i.e., the higher the unemployment rate, the lower sentiment and consumption are likely to be. (DION, David Pascal (2006): Does Consumer Confidence Forecast Household Spending?)
Expectations regarding the future of the economy and their own personal finances, and may therefore contain useful information not yet captured by other indicators. Such information might be particularly relevant for the intervening period between the announcement of a policy shift and the time it is implemented. For example, suppose that following an election, a change in administration leads households to expect an improvement in the economy. We would expect this (positive) sentiment to have an impact on consumers' current and projected future spending patterns. Moreover, consumer attitudes also incorporate households' estimates of the impact of rare or unique shocks�e.g., an event such as Hurricane Katrina�that cannot be systematically built into models but affect the economy in significant ways. (Trends in consumer sentiment and spending by Maude Toussaint-Comeau, economist, and Daniel DiFranco, associate economist
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