Understanding Consumer Needs • Example: Tide ’s new Swash line • Whom to target? 5. Analyzing Consumer Market and Buying Behavior

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Why to Study Outline Consumer Behavior? • Influences on Buying Behavior  concept • Buyer Decision Making • Probabilistic Choice Behavior  What is consumer behavior? Consumer behavior is the study of the process by which consumers make decisions.

Shan-Yu Chou 3 Shan-Yu Chou 4 Marketing Issues Simple Response Model

 High-low promotional or everyday low price?  How to maximize the effectiveness of product placements? Stimulus Organism Response  extension or establishing a new brand?  Distributing products through e- tailers?

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Two Research Approaches Diversity of Consumer Behavior

• Behavior approaches • Consumers are different • Cognitive approaches • Decision processes are different • The context of purchases is different

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Marketing Other Buyer’s Buyer’s decision stimuli stimuli characteristics process Need recognition Internal or external stimuli Product Economic Cultural Problem recognition Price Technological Social Information search Information search Commercial or social Place Political Personal Evaluation source Cultural Psychological Decision Postpurchase behavior Evaluation of Perception and preference alternatives Attitude formation Buyer’s decisions Purchase Stochastic or deterministic Product choice Brand choice choices? Dealer choice Purchase timing Postpurchase Satisfaction? Purchase amount Inertia or variety seeking? Shan-Yu Chou 9 Shan-Yu Chou 10

Influences on Social Factors Consumer Behavior • Culture • Social Factors • Personal Factors Reference • Psychological Factors Groups

Roles & Family Statuses

Shan-Yu Chou 11 Shan-Yu Chou 12 Influences on Consumer Technographics Behavior Motivation\ Career Family Entertainment Desire Personal Influences Optimistic & Fast New Age Mouse High Income Forwards Nurturers Potatoes

Age and Family Life Lifestyle Cycle Stage Optimistic & Tech- Digital Gadget- Low Income Strivers Hopefuls Grabbers Occupation & Personality & Economic Circumstances Self-Concept Pessimistic Hand- Traditionalists Media Junkies &High Income Shakers

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Maslow’s Hierarchy Psychological Factors of Needs 5 Self- actualization (self-development and realization) Motivation 4 Esteem needs (self-esteem, recognition) Social needs 3 Beliefs & (sense of belonging, love) Attitudes 2 Safety needs Perception Learning (security, protection) Physiological needs 1 (food, water, shelter) Shan-Yu Chou 15 Shan-Yu Chou 16 Perception Attitude

 Selective Attention  Are learned.  Selective Distortion  Have an object.  Selective Retention  Have direction and intensity.  Tend to be stable and generalized.

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The Effectiveness of Product Fishbein ’s Attitude Model Placement 1 Lower Plot Higher Plot Connection Connection

n = Visual * Aj∑ b ji e i i=1 = Audio * Aj Attitude toward object j b = The strength of belief that the object j has attribute i ji *Congruent placement enhances persuasion; = ei The evaluation of attribute i incongruent placement improves memory. n = The number of salient beliefs about the object 1Russell (2002), Journal of Consumer Research, Vol.29, No.3.

Shan-Yu Chou 19 Shan-Yu Chou 20 1 Learning Prospect Theory

• Classical conditioning • Reference points • Operant conditioning • Gains and Losses • Marketing implications • Integrate or Segregate Gains? • Integrate or Segregate Losses?

1Kahneman and Tversky (1979) , Econometrica , Vol. 47, No.2, 263-292.

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The New Model of Segregation or Integration? The value function v(.) from prospect How does the joint outcome (x, y) get coded? theory is defined over gains and losses Multiple gains relative to some reference point. Multiple losses V is concave for gains and convex for Mixed gain losses: Mixed loss v’’ (x)<0, x >0; v”(x)>0, x <0. The loss function is steeper than the gain function: v(x) <-v(-x).

Shan-Yu Chou 23 Shan-Yu Chou 24 Evidence on Probabilistic Consumer Segregation and Integration 1 Choice Behavior Winning $50 and $25 in two separate lotteries vs. winning $75 in one lottery; • Why may consumer choice be A letter from IRS saying due to your arithmetical stochastic? mistake you own $150 vs. two letters (one from IRS and the other from the state) saying you • Constant Ratio Model (CRM) own $100 and $50 respectively; Winning $100 in a lottery and paying $80 to the • Elimination by Aspects (EBA) landlord for some damage on the rug vs. In which context are these models winning $20 in a lottery. Spending $200 for a car damage and winning useful? $25 vs. spending $175 for a car damage. 1Thaler (1985), Marketing Science.

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Scenario 1 Constant Ratio Model

Brand Windex Lysol Ajax • = u ( x ) Drying Speed 0 1 1 • P ( X | A) • ∑ u ( y ) Color Attractiveness 2 4 3 y∈ A • A={Windex, Lysol, Ajax} Polishing 11 10 6 • P(windex|A)= Scent 3 5 4 • P(Lysol|A)= • P(Ajax|A)= Total 16 20 14 •

Shan-Yu Chou 27 Shan-Yu Chou 28 Scenario 2 Elimination by Aspects 1

• Consumers are indifferent between the Each alternative is viewed as a set of choice of Europe and Far East; aspects; • 3 alternatives : A={Europe, At each stage, an aspect is randomly Europe+$1bonus, Far East}. selected; • What would be the prediction by CRM on Eliminate those alternatives that do not choice probabilities? include the aspect; The process continues until only one alternative remains. 1 Tversky(1972), Psychological Review , Vol. 79, No.4.

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Four Types of Buying Behavior

High Low Involvement Involvement Significant Complex Variety- differences Buying Seeking between Behavior Behavior Few Dissonance- Habitual differences Reducing Buying between Buying brands Behavior Behavior

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