Consumer Markets and Consumer Buying Behavior

Consumer Buying Behavior Consumer Markets and Consumer Buying Behavior Consumer behavior is the actions a person takes in purchasing and using products and services, including the mental and social processes that precede and follow these actions

Consumer Buying Behavior refers to the buying behavior of final consumers

individuals & households who buy goods and services for personal consumption. Prof. P.V. Balakrishnan All these consumers make up the consumer market. The central question for marketers is:

“How do consumers respond to various marketing efforts the company might use?”

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Value of Customers Lifetime Customer Value

1. Transaction basis 1. Focuses firms’ efforts on retaining most valuable asset a) Views each individual interaction as unique (Customers) b) Calculate value of transaction 2. Increases efforts towards long-term goals Determine margin on goods sold 3. Assess costs involved with customer acquisition Primary risk is overestimation of retention rates

Margin – Acquisition costs 4. Four things are needed to successfully utilize LCV

2. Lifetime Customer Value a) Unique customer identification Cumulative Customer Profit $ a) Views each customer as an asset or a series of interactions b) Customer purchase history

b) Calculate value of customer c) Customer communication data

Determine acquisition and response rates d) Accurate cost information

Compute relevant costs 152 34 Use acquisition and retention rates to compute lifetime customer value Year CB-3 CB-4

Model of Buyer Behavior Factors Influencing Consumer Behavior

Marketing and Buyer’s Black Box Buyer Responses Cultural Other Stimuli SocialSocial PersonalPersonal Buyer Characteristics Product Choice Age and Psycho-Psycho- Marketing Reference Age and logical Buyer Decision Process Brand Choice CultureCulture Reference life-cyclelife-cycle logical Product groupsgroups Price Dealer Choice OccupationOccupation MotivationMotivation Perception Buyer Place Sub- EconomicEconomic Perception Buyer Sub- Family situation Promotion cultureculture Family situation LearningLearning Other Purchase Timing LifestyleLifestyle BeliefsBeliefs and and AttitudesAttitudes Economic Purchase Amount RolesRoles PersonalityPersonality SocialSocial and and Technological class and and Political class statusstatus self-conceptself-concept Cultural

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1 Factors Affecting Consumer Behavior: Factors Affecting Consumer Behavior: Culture Culture

Culture is the Most Basic Cause of a Person's Culture is the Set of Values, Perceptions, Wants & Wants and Behavior. Behavior Learned by a Member of Society from Family. Subculture Social Class • Group of people with shared value systems based on • Society’s relatively common life experiences. permanent & ordered • Hispanic Consumers divisions whose members • African American Consumers share similar values, interests, and behaviors. • Asian American Consumers • Measured by: Occupation, • Mature Consumers Income, Education, Wealth and Other Variables. CB-7 CB-8

Factors Affecting Consumer Behavior: Factors Affecting Consumer Behavior: Social Personal

Cars are often seen as a status symbol, and marketers choose which element to present in their advertising.

Compare this ad to the one on the next slide. Click to continue Personal Influences

Groups Family Buying Influence Groups Children can exert a strong influence on family buying decisions. Johnson & Johnson reminds customer’s of its commitment ••MembershipMembership to the American Family.

What other companies use children to influence ••ReferenceReference family buying decisions? Click or press spacebar to return Age and Life Economic Personality & Cycle Stage Occupation Situation Self-Concept FamilyFamily (most(most important)important) •Husband, wife, kids •Husband, wife, kids SocialSocial FactorsFactors ••Influencer,Influencer, buyer,buyer, useruser LifestyleLifestyle IdentificationIdentification

RolesRoles andand StatusStatus ActivitiesActivities InterestsInterests OpinionsOpinions

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SRI Values and Lifestyles (VALS) Lifestyle

High Innovation High Resources InnovatorsInnovators LifestyleLifestyle isis aa modemode ofof livingliving thatthat isis identifiedidentified byby howhow peoplepeople spendspend theirtheir timetime andand resources,resources, whatwhat theythey considerconsider ThinkersThinkers AchieversAchievers ExperiencersExperiencers importantimportant inin theirtheir environment,environment, andand whatwhat theythey thinkthink ofof themselvesthemselves andand thethe Believers Strivers Makers worldworld aroundaround them.them. Believers Strivers Makers

SurvivorsSurvivors Low Resources Low Innovation CB-11 CB-12

2 Factors Affecting Consumer Behavior: Psychological Maslow’s Hierarchy of Needs

Motivation Self Actualization (Self-development) Esteem Needs Psychological (self-esteem) Factors Beliefs and Affecting Perception Social Needs (sense of belonging, love) Attitudes Buyers Choices Safety Needs (security, protection)

Physiological Needs Learning (hunger, thirst)

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Attitude Beliefs

AnAn attitudeattitude isis “a“a learnedlearned predispositionpredisposition toto BeliefsBeliefs areare aa consumersconsumers subjectivesubjective respondrespond toto anan objectobject oror classclass ofof objectsobjects perceptionperception ofof howhow wellwell aa productproduct oror inin aa consistentlyconsistently favorablefavorable oror brandbrand performsperforms onon differentdifferent attributes.attributes. unfavorableunfavorable way.”way.”

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Characteristics of Attitudes and Preference Valence Attitudes: Multi-attribute Model

Favorable / Neutral / Unfavorable Positive / Indifferent / Negative Evaluation of Overall Intention Brand Product Brand to Beliefs Behavior Intensity Attributes Evaluations Buy

Strongly held versus weakly held Very important to not at all important (ei)(bi)(Ao) (BI) (B) Social Confidence Attribute Brand Specific Norm Importance Evaluations Level of certainty

Ao = Σ biei + SN

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3 Measuring Attitudes Measuring Attitudes

How important is each of the following attributes Evaluate AOL on each of the following attributes? associated with ISPs? Excellent Poor Very Not at all Entertainment Value Important Important Educational Value Entertainment Value Ease of Site Navigation Educational Value Ease of Site Navigation Coding 2 1 0 -1 -2

Coding 5 4 3 2 1

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Measuring Attitudes Measuring Attitudes

• How important is each of the following attributes associated with ISPs? Very Not at all Attribute AOL Roadrunner Important Important Importance (ei) Entertainment Value z Educational Value z Ease of Site 5 X 0 = 0 2 = 10 Ease of Site Navigation z Navigation Entertainment 4 X 2 = 8 0 = 0 • Evaluate AOL on each of the following attributes? Excellent Poor Value Entertainment Value z Educational 3 X 2 = 6 0 = 0 Educational Value z Value Ease of Site Navigation z Overall Rating 14 10 • Evaluate Roadrunner on each of the following attributes? Excellent Poor Entertainment Value z Educational Value z Ease of Site Navigation z

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Measuring Attitudes Factors Influencing Attitude-Behavior Relationship

0510 Ease of Site Navigation Evaluation of Overall Intention Brand Product Brand to Entertainment Value Beliefs Behavior Attributes Evaluations Buy Educational Value

(ei)(bi)(Ao) (BI) (B) = AOL Social = Roadrunner Norm

Attitudes Intentions Behavior

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4 Simultaneous Attribute Strategies Importance-Performance Grid

Attribute Our Competitor’s Simultaneous Ao = Σ biei + SN Importance Performance Performance Result Neglected Poor Poor Opportunity Strategies to stimulate interest: Competitive High Good Disadvantage Redesign the product Competitive Good Poor Advantage Alter beliefs about the brand Head-to-Head Good Competition Alter beliefs about competitors’ brands Null Poor Poor Opportunity Alter the importance weights False Low Good Alarm Call attention to neglected attributes False Good Poor Advantage False Good Competition

Balakrishnan

Types of Buying Decision Behavior Buyer Decision Process

High Low Purchase Involvement Involvement Decision Significant 1. Complex 3. Variety- differences Buying Seeking between Behavior Behavior Evaluation Postpurchase brands Few 2. Dissonance- 4. Habitual of Alternatives Behavior differences Reducing Buying Buying between Behavior Behavior Information brands Search Need Recognition CB-29 CB-31

Buyer Decision Process Step 1. Need Recognition Evoked Set

Buyer Recognizes Needs Arising AnAn evokedevoked setset isis thethe groupgroup ofof brandsbrands thatthat State Where the From: aa consumerconsumer wouldwould considerconsider acceptableacceptable Buyer’s Needs a fromfrom amongamong allall thethe brandsbrands ofof thethe are Fulfilled and Problem Internal Stimuli – productproduct classclass ofof whichwhich hehe oror sheshe isis the Buyer is or a Need. Hunger aware.aware. Satisfied. External Stimuli- Friends

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5 The Buyer Decision Process The Buyer Decision Process Step 2. Information Search Step 3. Evaluation of Alternatives

ConsumerConsumer MayMay UseUse CarefulCareful Personal Sources •Family, friends, neighbors CalculationsCalculations && LogicalLogical ThinkingThinking Personal Sources •Most effective source of information ConsumersConsumers MayMay BuyBuy onon ImpulseImpulse andand Rely on Intuition Commercial Sources •Advertising, salespeople Rely on Intuition Commercial Sources •Receives most information from these sources ConsumersConsumers MayMay MakeMake BuyingBuying DecisionsDecisions onon TheirTheir Own.Own. PublicPublic SourcesSources •Mass Media •Consumer-rating groups ConsumersConsumers MayMay MakeMake BuyingBuying DecisionsDecisions OnlyOnly AfterAfter ConsultingConsulting OthersOthers.. •Handling the product ExperientialExperiential SourcesSources •Examining the product •Using the product Marketers Must Study Buyers to Find Out How They Evaluate Brand Alternatives CB-34 CB-35

The Buyer Decision Process The Buyer Decision Process Step 4. Purchase Decision Step 5. Postpurchase Behavior

PurchasePurchase IntentionIntention Satisfied Customer! DesireDesire toto buybuy thethe mostmost preferredpreferred brandbrand

Unexpected Attitudes Consumer’s of Others Situational Factors Expectations of Product’s Performance. Product’s Perceived Performance. Cognitive Dissonance Cognitive Dissonance

Dissatisfied Customer PurchasePurchase DecisionDecision

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Post Consumption Behavior: Complaint Response Behavior How Customers Dispose of Products

63% of customers with a loss between $1 and $5 did not complain

Not buy again.

54% Problem unresolved

Not buy again.

30% Problem resolved

Not buy again.

DON’T LET IT ARISE!

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6 A Conceptual Model Of Service Quality Loyalty: Retaining Customers

Word-of-Mouth Past Experience Communication Personal Needs Customer retention = higher profits s

5% retention rate increases profit by 25-95% Expected Services

In e-apparel, repeat customers spend twice as Gap 5

much in months 24-30 CUSTOMER Perceived Service Loyal Customers provide valuable referrals

External Gap 1 Gap 4 Referred customers cost lot less to acquire PROVIDER Service Delivery Communications to Customers E-bay spends less then $10 to get each new customer Gap 3

Referred customers use less support Service Quality Specifications

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Management Perceptions of Customer Expectations

Source: Zeithaml, Parasuraman, and Berry (1990), Delivering Quality Service: Balancing Customer Perceptions and Expectations, The CB-45 Free Press, New York, New York. CB-47

Five Critical Gaps Satisfaction – Loyalty Link

1. Service provider does not know what the customer expects; 2. Wrong service-quality standards are set; 3. Service quality standards are not met; 4. What is delivered does not equal what was promised; 5. Gaps 1-4 leads to service that does not equal expectations.

Ref: Jones & Sasser, HBR, 1995 CB-48 CB-49

Stages in the Adoption Process Adopter Categories

Awareness:Awareness: ConsumerConsumer isis awareaware ofof product, but lacks information. product, but lacks information. Early Majority Late Majority Interest:Interest: ConsumerConsumer seeksseeks Information about new product. Information about new product. Early Laggards Adopters 34% 34% Evaluation: Consumer considers

Evaluation: Consumer considers Innovators tryingtrying newnew product.product. 13.5% 16% 2.5% Time of Adoption Trial: Consumer tries new of Adopters Percentage product on a small scale. Early Late

Adoption: Consumer decides to make regular use of product.

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7 ACCORD: Adopter Categorization for New Products Influence (of Product Characteristics) on Rate of Adoption

Everett Rogers(1950s) surveyed a DivisibilityDivisibility CanCan the the innovation innovation bebe used used on on a a pilot pilot test/ test/ large sample of people to find out their trial basis? RiskRisk trial basis? adoption process for new products. DoDo consumers consumers perceive perceive RelativeRelative AdvantageAdvantage thethe innovation innovation as as risky? risky? IsIs the the innovation innovation Based on this survey, he came up with the Economic,Economic, psycho-social? psycho-social? superiorsuperior to to existing existing classification: products?products? 2.5% Innovators Compatibility 13.5% Early Adopters Observability Compatibility Observability DoesDoes the the innovation innovation Can results be easily 34% Early Majority Can results be easily fitfit the the values values and and Observed or communicated Observed or communicated experienceexperience of of the the 34% Late Majority to others? to others? ComplexityComplexity targettarget market? market? 16% Laggards IsIs the the innovation innovation difficultdifficult to to understandunderstand or or use? use?

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Review of Concepts

Define the consumer market and construct a simple model of consumer buyer behavior. Name the four major factors that influence consumer buyer behavior. List and understand the stages in the buyer decision process. Describe the adoption and diffusion process for new products.

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