Characteristics as Objects of Consumer Preference

A most distinctive analytical approach to product differentiation has been developed and advocated by Kelvin Lancaster (1966, 1971, 1972, 1975, 1979, 1991) over a 25-year period beginning in the 1970s.1 Other frameworks, examined in Chapter 2–4 and to be discussed in Chapter 6, view products as the objects of analysis, in the sense that consumer preference functions contain them as arguments, with product qualities employed largely as means of obtaining locational coordinates for brands within a product group characteristics space. Lancaster breaks new ground in arguing that consumers view the product as a mere carrier of different combinations of characteristics with which their active choice decisions are directly concerned. It is, therefore, characteristics which comprise the arguments in utility functions. A consumption technology structure depicts the characteristics content of product units, a preference structure captures the psychological attitudes toward characteristics, and this dichotomization permits product differentiation to be viewed as the conjunction of an objective and a subjective set of factors. Lancaster’s contention is that such a structure can draw upon relatively simple frameworks — linear in large part and extensions of existing procedures otherwise — to derive new insights into product differentiation, including product design and consumer choice. Lancaster, in the series of works cited above, has developed and improved the structure over time for fruitful use in positive and normative analysis.