Consumer Choice in the Third World: A study of the welfare effects of advertising and new products in a developing country PDF
Preview Consumer Choice in the Third World: A study of the welfare effects of advertising and new products in a developing country
CONSUMER CHOICE IN THE THIRD WORLD Consumer choice throughout the Third World is increasingly being influenced by advertising and new products. Whether these phenomena operate to the advantage or detriment of consumers in these im poverished societies is a controversial and important question. In this book it is argued that existing answers to the question based on the traditional theory of demand are inadequate. An alternative approach to assessing the welfare effects of advertising and new products based on the more realistic product characteristics model of consumer demand is offered, with an application to a developing country. Consumer decision-making is viewed as a multi-stage process. By conveying information about characteristics, advertising influences the consumer's perception of products and thereby his choice between them. The welfare effects of this pre-choice influence of advertising are assessed with the aid of techniques of scaling product characteristics used mainly in psychology and marketing. Because consumers often rationalise their behaviour in the manner posited by the psychological theory of cognitive dissonance, it is shown that advertising also has important welfare effects after a choice has been made. The exclusive concern of most existing approaches with the pre-choice influence of advertising underestimates its true impact on consumer choice. New products are almost always developed in and for the socio economic conditions prevailing in rich countries. For this reason it is argued that they tend to have an inegalitarian welfare impact when introduced in developing countries. Sometimes, as in the particular case considered, their introduction may even cause absolute losses for the poorest members of these societies. The book concludes by urging that developing countries adopt an active products policy which recognises the welfare issues involved in product choice and implements policies on the basis of them. Jeffrey James is Assistant Professor of Economics at Boston University. At present he is on leave working at the International Labour Office, Geneva. He has previously held appointments at the University of Bath, Queen Elizabeth House, Oxford, and New College, Oxford. His first book, with Keith Griffin, was entitled The Transition to Egalitarian Development. Together with Frances Stewart he edited The Economics of New Technologies in Developing Countries. CONSUMER CHOICE IN THE THIRD WORLD A study of the welfare effects of advertising and new products in a developing country Jeffrey James © Jeffrey James 1983 Softcover reprint of the hardcover 1st edition 1983 978-0-333-31999-4 All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, without permission First published 1983 by THE MACMILLAN PRESS LTD London and Basingstoke Companies and representatives throughout the world ISBN 978-1-349-06111-2 ISBN 978-1-349-06109-9 (eBook) DOI 10.1007/978-1-349-06109-9 To Anita Contents Acknowledgements ix Introduction 1 Consumer Choice and Welfare 4 2 Advertising, Choice and Welfare 28 3 Methodology: Scaling Product Characteristics 44 4 The Perception of Laundry Cleaning Products in Barbados 64 5 Advertising, Imperfect Knowledge and Welfare Losses 80 6 Advertising, Cognitive Dissonance and Learning 101 7 The Welfare Effects of the Introduction of New Products in Developing Countries 120 8 The Welfare Impact of New Products in the Barbados Laundry Soap and Detergent Market 135 9 Conclusions: The Need for a Products Policy 155 Appendix The Survey Method and Respondent Profile 166 Index 174 vii Acknowledgements A number of the ideas discussed in this book were formulated during the first year of a Research Fellowship financed by the Ministry of Overseas Development at Queen Elizabeth House, Oxford, and were later incorporated in two published papers. The first, entitled 'Galbraith Revisited: Advertising in Non-Affluent Societies', World Development, vol. 8 (January 1980), was written jointly with Stephen Lister. The second, 'New Products: A Discussion of the Welfare Effects of the Introduction of New Products in Developing Countries', Oxford Economic Papers, vol. 33 (March 1981 ), forms the basis of Chapter 7 and shares authorship with Frances Stewart. In 1979 further ideas were stimulated during, and especially after, a study of the laundry soap and detergent market in Barbados which was financed by the International Labour Office, Geneva. The preliminary results of this research, on which much of Chapters 4, 5, 6 and 8 is based, were published as a World Employment Programme Research Working Paper in May 1980. I am very grateful to the International Labour Office for permission to reproduce some of the material from the working paper. I am also indebted to the editors of World Development for allowing me to reproduce a diagram from the article written with Stephen Lister mentioned above, and to Y oram Wind for permission to reproduce a diagram from his article 'The perception of a firm's competitive position', which appeared in F. Nicosia and Y. Wind, Behavioral Models for Market Analysis: Foundations for Marketing Action (The Dryden Press, 1977). At various stages of the research I have gained considerably from the assistance and comments of Robert Bacon, Chris Baron, Ajit Bhalla, Tony Coxon, Keith Griffin, Yehuda Kotowitz, Stephen Lister, Clive Payne, Ken Seddon, Frances Stewart, Robin Stinchcombe, Tim Thomas, Richard Tomlins and Wouter Van Ginneken. I am particularly grateful to Robert Bacon, Stephen Lister and Frances Stewart, whose trenchant criticisms led to many significant improvements in the argument, and to Tony Coxon, without whose help the intricacies of ix X Acknowledgements multidimensional scaling techniques would ever have remained a mystery. In Barbados a great many people, mainly those unlucky enough to be selected for interview, were generous with their time and knowledge. To all of them, especially Barry Cozier and Hamilton Roche, I wish to express my gratitude. May 1982 JEFFREY JAMES Introduction It is remarkable how many of the things which common sense tells us are part of economic welfare form almost no part of the literature of the subject. None of the major works on welfare economics, for example, contains more than passing references to advertising, new products or 'inefficient' consumer choices. 1 The failure to deal adequately with such major facts of economic life must be counted as a serious weakness of the subject. The aim of this book is an attempt to redress the imbalance by integrating these issues more closely into the discussion of welfare economics. A recurring theme of the following chapters is that the neglect of these problems is due to the fact that the assumptions of the traditional theory of demand - on which welfare economics relies-are unsuited to, even incapable of, dealing with them. But this is not the only reason. For many years an alternative and more realistic theory of consumer demand has been available. The view of consumer behaviour which treats products as a bundle of characteristics - associated mainly with Lancaster-offers the basis for integrating advertising, new products and consumer 'inefficiency' into welfare economics and showing how they operate in specific situations. Yet, no advantage has been taken of this potential. There is a remarkable absence of empirical work using this approach to consumer behaviour in either developed or developing countries. In one recent view this can be attributed to the lack of an experimental/empirical tradition in economics. Thus, although Kelvin Lancaster's work has extended the deterministic theory of consumer demand, it is surprising to note the minor role played by economists in expanding knowledge about individual choice behaviour ... In large part, this condition is due to the absence of a strong empirical/experimental tradition in economics and to the economist's preoccupation with aggregate data bearing on very broad policy questions. 2
The list of books you might like
