Microeconomics Theories, Free Essay for Students

Published: 2022-02-14
Microeconomics Theories, Free Essay for Students
Type of paper:  Report
Categories:  Company Microeconomics
Pages: 7
Wordcount: 1777 words
15 min read

Huawei Technologies Company Limited is a Chinese multinational company that specializes in telecommunication services. It is among the fortune 500 and was ranked seventy-two. In 2018, Huawei was the second biggest manufacturer of smartphones after Samsung and largest telecommunications equipment manufacturers in the world (Huawei Quarterly Report, 2018). This paper will use microeconomic theories to assist the marketing department of Huawei to understand better, how consumer make decisions in various regions across the globe. The paper will focus on consumer choice theory and behavioral economics to show how it applies to Huawei; explain the benefits and recommendations of the approaches to the performance of the company (Lewis, 2009).

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Behavioral Economics

Classical theories postulate that people make choices to satisfy utility; hence, consumers purchase the most desired products depending on consumer preferences; however, consumers make mistakes in developing their decisions. Behavioural economics assertions that the errors are a result of consumers making limited and flawed rationality that result in making wrong choices hence resulting in poor purchases (Gregory, 2015). For example, consumers are sometimes not motivated towards purchasing a specific product because of their actual cost but by its anticipated cost. Therefore, Huawei Company should take advantage of knowing their consumer's behaviour and perception and finding a technique of nudging individuals into desired decision-making, purchase their product, and increase their revenue and overall company performance (Scott, 2014).

Behavioural economics focuses on economic decisions that are significantly influenced by the psychological, social, emotional and cognitive factors of both people and institutions and how the choices differ based on the ones provided by the classical theory (Thaler & Richard, 2016). A useful behavioural model incorporates the intuitions from the psychological and microeconomic theory. Behavioural economics influences market decisions regarding the choice of a particular product or brand, which are driven by the public. Dominant themes in behavioural economics include heuristics where individuals rely on rules of thumb to make a decision, framing and market inefficiencies where people make non-rational decision-making.

Consumer behaviour marketing is vital in the present business climate. In the current smartphone market, using such marketing strategies will enable Huawei to thrive and acquire a competitive advantage over its rivals such as Samsung, Apple, and LG. Consumer behaviour is the primary element of any product strategy. The key for Huawei to succeed in acquiring a considerable market share, significant sales, brand loyalty, and profitability is by marketing using consumer behaviour insights.

Research dedicated to consumer behaviour offers particular insights that involve cognition and effect. Huawei can use both consumer behaviour and environment to influence its target customers efficiently by managing the decision process of the consumer. The consumer's effective system includes how individuals respond to external stimuli, which is reactive and includes emotions, moods and has important implications for consumer behaviour. The cognitive system is the knowledge of the consumer that involve mental processes such as thinking and deciding about purchasing Huawei smartphones.

A company has a certain degree of cognition based on Huawei developing the context of their smartphones focused on creating an easy to use advanced technology that will have more benefits to the consumer and emphasize on the unique benefits it has to the consumers.

Consumer Environment

Social and physical attributes form the basis of the environment around consumers that includes the social behaviour of other people towards a particular type of smartphone. The physical environment may encompass the impact experienced online and in the retail that plays a significant role in influencing the purchase of a specific brand of phone. Huawei should strive to control the purchasing behaviour of consumers at the marketplace by focusing on product experiences feedback from consumers. Gaining a competitive advantage at the physical environment by influencing consumer behaviour by focusing on branding their stores. This might capture the necessary attention required to focus on the consumer environment. Huawei should concentrate on developing strict controls on dictating their price and the mode of display for their products among retailers across the globe (Richard, 2017).

The best alternative that Huawei can use to maximize its profits is through pricing their smartphones. Correct pricing strategy increases the revenue, and behavioural pricing is the ultimate strategy to increase profits. Psychological pricing is focused on researching the observation of consumers of the Huawei brand.

Anchoring and Reference Prices

The willingness of consumers to pay is significantly affected by anchoring that works as a preference in value than price hence can change the purchasing decision s of consumers. Multiple item pricing and suggestive selling significantly contribute to the rise in consumer purchase. The consumer often requires a reference price for them to decide whether the smartphone they want to purchase is worth the value. The initial reference price for a new product in the market can be high; however, consumers might be able to know whether the item matches the value.

Sequential price anchoring is essential in the smartphone market where a company implements a high pricing policy for every new product they release to the market for a specific time limit. This strategy can work effectively among consumers who are willing to pay for them t get the first experience of the product. The decline in sales results to lowering of the price so that they can attract price-sensitive customers to boost their sales. Huawei can benefit from this technique by establishing a competitive advantage over its competitors. The primary advantage to sequential price anchoring is the additional margins realized that is essential in developing a price differentiation and achieve a viable advantage over competitors (Rehman & Tansif, 2016).

When customers are charged more for a specific product, they tend to appreciate more in obtaining such a product that when they had to pay less for the product. High social status is closely associated with prestige pricing of products. They associate high pricing to superior quality, for such consumers, the quality and price are directly proportional and inversely linked to self-worth. Huawei should focus on innovating a smartphone that is at the pick of mobile technology to be able to exercise prestige pricing and earn more revenue for sales of its phones. An example is the pricing of the iPhone X with a price tag of 999 USD, only limited number of iPhone consumers can afford it while the insensitive price consumers, the phone carries an emotional value for owning such an expensive device. Therefore, this means that the phone is priced higher for its value rather than its cost.

The Decoy Effect

Behavioural economics recognizes symmetrical and asymmetrical dominations and the non-dominated decoy alternative, which emphasizes that, is when dominance is not observed, the decoy effect is likely not to occur (Hartzler, 2012). Huawei Company should practice the decoy effect to increase its performance in the smartphone market where the options for a specific model series are similar except for their prices. Huawei can provide an alternative opportunity that is much expensive, has the best performance compared to the other phones, and has additional features. The decoy effect states that consumers tend to compare products that are comparable avoid those that cannot be compared. Huawei should invent a smartphone that is exemplary compared to the other phones that would provide non-symmetrical domination, although as a similarity of non-dominative decoy substitute.

Theory of Consumer Choice

Consumer choices are the decisions that consumers make regarding products and services they purchase. The approach focuses on addressing the question of how wages affect the supply of labour, the effect of interest rates on household saving, are all demand curves downward sloping. Consumer behaviour establishes how customers of a specific product purchase it over a specified period. It is a division of microeconomics that shows consumption expenses and consumer demand curves (London, 2016). The theory primarily focuses on how individuals decide where to put their money given their budget and preferences. The budget constrictions show the limit to consumption and the purchasing power of an individual. Individual consume less than they desire because of spending constraints and limited income (Mccannell, 2016).

Consumer choices are based on various economic conditions and understanding the relationship between the conditions, and consumer purchasing behaviour is detrimental to a company like Huawei to boost its sales and revenue by effectively predicting consumer choice trends. Each consumer decision contains an opportunity cost; hence demand curves generally demonstrate a downward slope that shows a reverse relationship between price and the quantity demanded (Stratechery, 2016). The individual challenge that companies with a single product in the market experience are that they only hit a single spot in the demand curve. When they do not avail products to consumers who are below the demand curve, they will be forced to lower their prices, hence charging less to those who are above the curve. Huawei offers a variety of smartphones that suits the need of each level of consumer. Therefore, they will sell the numerous products variations at a higher price to consumers prepared to spend more to acquire a quality product. Besides, also include the lower priced products that appeal to consumers down in the demand curve (Johnson & Bickel, 2006).

Huawei should improve their technology innovation to match with their competitors such as Apple and Samsung. The demand curve depicts that the primary driving force behind a decision to purchase is the price of the product. Huawei Company can project the effect of a price change on the consumer choices in a given market. The quantity demanded of Huawei product might change in response to the shift in demand. The consumer's demand curve is a summation of the perfect decisions that a consumer selects considering their budget constraints.

Changes in prices of a particular product affect the income and substitution effect to consumption of a specific product. On a higher indifference curve, users of a particular product can choose their most suitable product. Increase the income level of consumers shifts the budget constraints outwards, hence, a rise in the labour curve (Harley, 2016). This means that employees will significantly reduce the time they work because they can maintain an objective level of revenue by working for fewer hours. In exchange, employees are willing to give up relaxation because of the increasing rewards that work offers. A reduction in prices of products switches the budget restraints away, which changes the slope of the budget constraint (Heda, Stephen & Stephen, 2017). The changes in the income effect of consumer choice and relates to normal and inferior product purchasing. Integrating Consumer Theory and consumer choices with income levels show that increase in income among consumers will raise the future utility that customers can acquire from the market (Economics, n.d.). Therefore, an individual will most likely increase the quality of the product they choose to purchase such as a new Huawei phone than an old one.

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