New Theoretical and Empirical Perspectives of Consumer Efficiency

ABSTRACT - This paper introduces the concept of consumer efficiency and makes some preliminary comments on six papers giving varied perspectives of consumer efficiency which were delivered at the annual Association for Consumer Research Conference. Some additional directions for analysis of consumer efficiency not discussed at the Conference are also identified.

Citation:

George B. Sproles (1980) ,"New Theoretical and Empirical Perspectives of Consumer Efficiency", in NA - Advances in Consumer Research Volume 07, eds. Jerry C. Olson, Ann Abor, MI : Association for Consumer Research, Pages: 178-179.

Advances in Consumer Research Volume 7, 1980     Pages 178-179

NEW THEORETICAL AND EMPIRICAL PERSPECTIVES OF CONSUMER EFFICIENCY

George B. Sproles, University of Houston

[The comments in this paper are edited from a forthcoming full-length paper on this subject which is currently in preparation.]

ABSTRACT -

This paper introduces the concept of consumer efficiency and makes some preliminary comments on six papers giving varied perspectives of consumer efficiency which were delivered at the annual Association for Consumer Research Conference. Some additional directions for analysis of consumer efficiency not discussed at the Conference are also identified.

THE CONCEPT OF CONSUMER EFFICIENCY

The general concept of efficiency is deeply rooted in the discipline of economics and is extensively applied in the engineering sciences. Basically the study of efficiency deals with the analysis of inputs and outputs of a system, for instance the efficiency of production, the efficiency of a gasoline engine, or the efficiency of a marketing strategy. Emphasis is frequently placed on the principle of maximizing efficiency, or obtaining the greatest useful output for a particular level of input.

In the context of consumer behavior, consumer efficiency refers to the degree to which a consumer obtains the greatest possible utility or satisfaction from a consumption decision, given a fixed set of resources allocated to the decision. This concept, and all that it implies about rational consumer decision-making, is controversial. Some consumer analysts, many of them marketers, question the very notion that consumers will overtly attempt to maximize (or optimize) utility in their consumption decisions. However, a growing number of consumer analysts from various academic disciplines including marketing, economics, home economics and consumer sciences are now giving explicit support to the existence of rationality and efficiency in consumer performance in the market (some of these authorities are specifically cited in the papers presented). Thus consumer efficiency is emerging as a legitimate topic and a major frontier for consumer research.

PERSPECTIVES OF CONSUMER EFFICIENCY

The efficiency of consumer performance in the market may be approached from at least three major analytical perspectives. First, we may focus attention on how efficiently the marketplace for goods and services functions. This has historically been an interest of economists, and a rich literature has developed on that topic; recently this has been commanding attention from business, public policy makers and consumer analysts. Second, we may focus attention on how efficiently the consumer performs when making a consumption decision. This is a three dimensional problem including the level of skill or knowledge which the consumer has to apply to the decision (e.g. educational level, informational level, prior purchasing/product usage experience, consumer sophistication), the efficiency with which the consumer executes the decision-making process, and the quality of the outcome (utility or satisfaction obtained). Third, it is often necessary to consider certain socio-political factors which intervene in the optimal functioning of markets or optimal consumer choice, for example the needs to conserve resources, to protect those who cannot protect themselves, and to share wealth as equally as is possible across all segments of the population. Thus efficiency of performance may revolve around an issue such as how much energy is consumed in producing and/or operating a product, or how much safety must be built into a product to reasonably assure consumers will not innocently injure themselves when using the product.

The six papers which follow examine differing aspects of the first two of the three perspectives. Specifically, three papers deal with the efficient performance of markets, and three focus on how consumer information and consumer education can become inputs to improve consumers' choices. The general focus of each paper is indicated by the topic headings which follow.

Price Variations in Local Markets

One major factor influencing efficiency of performance is the degree to which prices for any given brand vary across retail outlets in a local market. Loren Geistfeld, Scott Maynes and Greg Duncan point out in their paper that a primary cause of consumption inefficiency is informational imperfections in local consumer markets, especially when consumers are uninformed about the extent of price variation within the market. The issue becomes even more complex when variations in product quality, and consumers' knowledge of quality, are substantial. As a first empirical analysis of this problem, the researchers gathered data on prices of various brands in six product categories across three cities of varied sizes. Based on the findings some preliminary policy implications are proposed.

Consumer Satisfaction and Complaining--Indicators of Market Performance

One ultimate criterion for determining the degree to which a market is performing efficiently may be the level of consumer satisfaction, dissatisfaction and complaining which exists for the product category in general and the specific brands in the category. In his paper on this subject Laird Landon raises the issue of making a specific differentiation between market performance and marketing performance. It is pointed out that measures of consumer satisfaction/dissatisfaction may indicate market performance, but are especially useful to marketers in assessing how effectively the individual firm is in satisfying consumer demand.

Deregulation--Key to Efficient Market Performance

The degree to which regulation or deregulation can influence efficient market performance is hotly debated. Lawrence Shepard, a leading analyst of this problem from a consumer point of view, argues in his paper that deregulation can lead to substantial increases in market efficiency, both in terms of prices consumers pay and in amount of information available to consumers. Shepard offers three example areas, deregulation by federal agencies (e.g. the CAB, SEC and ICC), the fall of fair trade retailing, and reform of state licensing of professional groups.

Information as Human Capital--A Theoretical Development

The remaining papers turn to the effects of information and education on consumer efficiency. First, Roger Swagler presents an emerging theory of information as human capital, based on recent theoretical developments from two streams of economic theory, human capital and use of time. The basic notion of the theory is that consumers enter into a consumption decision with some prior stock of informational capital, and will engage in further search only based on perceived costs versus benefits of search. A series of hypotheses regarding the roles of age, income and education on extent of search are also proposed.

Information and Consumer Efficiency--Research on Consumer Information Processing

Research on consumer information processing may find much to say about how consumers may efficiently use information, and how specific informational cues and seeking strategies may lead to increased efficiency. My research with colleagues Loren Geistfeld and Suzanne Badenhop offers an example of such a research program. Our paper briefly discusses the problem of operationalizing consumer efficiency in research, and presents a summary of an information processing research program using one key operationalization based on objective product quality. Findings indicate that information may indeed enhance consumers' efficiency in evaluating alternative levels of quality, but this is at least in part dependent on the levels of informational cues (contents) available and used by consumers.

Consumer Education--A Baseline for Efficient Consumer Performance

Increasing the amount of consumer education available to students and consumers is often proposed as a prerequisite to increasing the efficiency of consumer performance. As Gayle Royer, director of the Consumer Education Resource Network, points out, studies have shown that far less than half the adult population can cope with the basic subject matter which might be taught through consumer education. Royer reviews her recent work in the development of a model for the content for consumer education and discusses its implications. Problems and future directions for research on the impact of consumer education are also introduced.

CONCLUDING COMMENTS

One overall theme emerges from the preceding six papers: A combination of consumer education, information and regulation or deregulation of markets is needed to provide consumers with an environment in which they may perform efficiently. As of 1979 we are only scratching the surface of this important societal issue and debate. To be sure, each of the three topics of information, education and regulation are receiving extensive scholarly attention, but rarely is this cast strictly as efficiency-oriented research. More attention to the interface of education, information and protection are needed before we may accurately map the optimal environments in which consumers may perform.

It is generally appropriate to close with recommendations for future research. In this respect perhaps the most important recommendation is that more research, whether it be from marketing or consumer economists or public policy makers, should be overtly cast as efficiency-oriented research. That is, criterion variables for study should include those with a direct bearing on improvement of market performance, and findings should be interpreted in terms such as how much a particular variable may have increased or decreased consumer efficiency. A substantial body of literature along such a line now exists (e.g., on unit pricing effects, truth-in-advertising campaigns, effects of energy efficiency labeling). It seems, however, that findings are frequently interpreted narrowly (e.g., from the viewpoint of a particular advocate) or negatively (e.g. to suggest that a presumed beneficial aid such as unit pricing or energy labeling will not be used by consumers). A more positive and broadly viewed approach to such issues may be needed if we are to fairly assess the results of any program or policy measure on effective consumer performance in the market.

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