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Effect of Inflation on Consumers Buying behavior for high end products

I.V

Literature Review

Introduction

D.V

Peter Doyle, Arch G, Paul Micthell (13 April 2002)

Findings from a study of British industrial marketing managers support seven hypotheses on the relationship between buying classes and buying phases. Differences in the composition and size of buying centers in straight rebuy, modified rebuy, and new-task buying situations are examined

Jay R. Ritter (30 APR 2012) The average returns on low-capitalization stocks are unusually high relative to those on large-capitalization stocks in early January, a phenomenon known as the turn-of-the-year effect. This paper finds that the ratio of stock purchases to sales by individual investors displays a seasonal pattern, with individuals having a below-normal buy/sell ratio in late December and an above-normal ratio in early January.

John R. Ronchetto(Oct., 1989) the organizational buying system concept is introduced as an organizing framework for exploring the patterned, repeated interactions that characterize ongoing purchasing processes. Applying a structural perspective to the study of influence, the authors assert that organizational actors derive influence from the position they occupy within the buying system. An analysis of a 171-member organizational network demonstrates that individual influence in organizational buying is derived from properties of both the formal and the informal structures.

Buying behavior

Household Income

Age

Monthly expenses

C.V

Gender

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. Consumers change their consumption habits with change in the perceived inflation rates. They tend to consume more if the perceived inflation rates are high 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 behavior 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.

Conclusion

Result

Abstract

The result we obtained from our research is that inflation effects the purchasing of products. People look for cheap similar products instead of buying the same expensive product. Since the prices increase, the demand of high end products decreases. Consumer stops buying that product and starts looking for cheap alternatives. But sometimes customers buy the expensive products too because there is no alternate product available and the product is really important for them to have.

Methodology

We concluded from this research that persistently high inflation leads to perverse consumption behavior since perceived income may be significantly different from observed disposable income. As far as the empirical findings are concerned, if external shocks are to have a similar impact on high-inflation, we would then require that the underlying consumer spending responses to shocks should be broadly similar. Ideally, we would like to compare the results of an underlying structural model for the whole region with individual country estimates. Against this background, the results of our panel data analysis suggest some general applicability of our theoretical framework. However, it does not seem to be the case that individual country consumption functions are identical.

In the end I would like to conclude it with some facts like however inflation affects the whole country but it depends that how strong you are, the more u stronger the less u got affected and inflation really won’t affect your spending.

Research questions which I choose to find out the behavior of consumers in inflation tell us that inflation won’t affect you much if you have high income while if you are a middle or low income person than it’ll affect you and your buying behavior, you might quit buying such things which you used to bought before inflation and the important thing is that you should know the ups and downs of economy and if you know how to tackle such situations you’ll be able to spend well in inflation.

Population: Posh areas of Lahore.

Sample population: Gulberg, Model Town, DHA.

Sample size: 300 homes. 100 from each area.

Discussion

we make clusters of high income people, cluster of middle income people and also same with classes and To perform our research task we made clusters depending upon the classes, income and area. So geographical area. As we all know that inflation is really a big problem for any country and it affects people and their buying power. Well we are talking about expensive goods; an average income person cannot afford expensive goods daily. For that person buying can go through with a long process so it’ll take a while for that person to buy such things and during inflation such middle incomes persons don’t even think to buy high end products because they know such things are out of reach. If we talk about low income person than it is quite clear that they don’t have enough money to buy expensive goods so no matter if there is inflation or not such person is not going to think about it. Now how high income person with high standard of living reacts in inflations? A person with high income and standards will never be worried of inflation because increase in prices never stops him to buy any product.

Hypothesis

H0: Inflation has no significant relationship with consumer buying behavior.

H1: Inflation has significant relationship with consumer buying behavior.

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