Consumer Markets and Consumer Buying Behavior

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					                                                                                                 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
                Assess costs involved with customer acquisition                           3.   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
                                                                                                                                            1         2      3       4       5
                Use acquisition and retention rates to compute lifetime customer
                value                                                                                                                                      Year

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      Model of Buyer Behavior                                                                   Factors Influencing Consumer Behavior



Marketing and              Buyer’s Black Box                 Buyer Responses              Cultural
Other Stimuli                                                                                                  Social
                                                                                                               Social        Personal
                                                                                                                             Personal
Marketing                  Buyer Characteristics             Product Choice                                                    Age and            Psycho-
                                                                                                                                                  Psycho-
                                                                                           Culture           Reference          Age and            logical
Product                    Buyer Decision Process            Brand Choice                  Culture           Reference        life-cycle
                                                                                                                               life-cycle           logical
                                                                                                              groups
                                                                                                               groups
Price                                                        Dealer Choice                                                  Occupation
                                                                                                                             Occupation         Motivation
                                                                                                                                                 Motivation
Place                                                                                                                         Economic          Perception
                                                                                                                                                 Perception              Buyer
                                                                                                                                                                         Buyer
                                                                                             Sub-
                                                                                             Sub-                              Economic
Promotion                                                                                  culture             Family
                                                                                                                Family        situation
                                                                                                                               situation         Learning
                                                                                            culture                                               Learning
Other                                                        Purchase Timing                                                   Lifestyle
                                                                                                                                Lifestyle       Beliefs and
                                                                                                                                                Beliefs and
Economic                                                                                                       Roles                             Attitudes
                                                                                                                                                  Attitudes
                                                             Purchase Amount                   Social           Roles        Personality
                                                                                                                              Personality
Technological                                                                                  Social            and
                                                                                                                  and             and
                                                                                                                                   and
                                                                                               class
                                                                                                class          status       self-concept
Political                                                                                                       status       self-concept
Cultural

                                                                                   CB-5                                                                                          CB-6
  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
• Mature Consumers
                                                                                                                                      • Measured by: Occupation,
                                                                                                                                        Income, Education, Wealth
                                                                                                                                        and Other Variables.
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    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.




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                                                                                                                                                           Personal Influences
          Groups
          Groups                                              Family Buying Influence
                                                    Children can exert a




 •Membership
                                                    strong influence on




  •Membership
                                                    family buying decisions.
                                                    Johnson & Johnson reminds
                                                    customer’s of its commitment
                                                    to the American Family.




 •Reference
  •Reference                                        What other companies use
                                                    children to influence
                                                    family buying decisions?


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                                                                                                                                       Age and Life                            Economic         Personality &
                                                                                                                                        Cycle Stage       Occupation            Situation        Self-Concept
  Family (most important)
   Family (most important)
 •Husband, wife, kids
  •Husband, wife, kids             Social Factors
                                   Social Factors
 •Influencer, buyer, user
  •Influencer, buyer, user                                                                                                                                Lifestyle Identification
                                                                                                                                                          Lifestyle Identification


     Roles and Status
     Roles and Status                                                                                                                        Activities
                                                                                                                                             Activities            Interests
                                                                                                                                                                    Interests                  Opinions
                                                                                                                                                                                               Opinions


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                                                                                                                                         SRI Values and Lifestyles                    (VALS)
 Lifestyle


                                                                                                                                                                 Innovators
                                                                                                                                                                  Innovators                High Innovation
                                                                                                                                       High Resources

    Lifestyle is a mode of living that is
    Lifestyle is a mode of living that is
      identified by how people spend their
       identified by how people spend their
      time and resources, what they consider
       time and resources, what they consider                                                                                              Thinkers
                                                                                                                                           Thinkers              Achievers
                                                                                                                                                                 Achievers                    Experiencers
                                                                                                                                                                                               Experiencers
      important in their environment, and
       important in their environment, and
      what they think of themselves and the
       what they think of themselves and the
                                                                                                                                           Believers
                                                                                                                                           Believers              Strivers
                                                                                                                                                                   Strivers                     Makers
                                                                                                                                                                                                Makers
      world around them.
       world around them.

                                                                                                                                                                  Survivors
                                                                                                                                                                   Survivors
                                                                                                                                        Low Resources                                         Low Innovation
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   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
    Attitudes                                                                                 (sense of belonging, love)
                               Buyers
                              Choices
                                                                                                  Safety Needs
                                                                                              (security, protection)

                                                                                                Physiological Needs
                             Learning                                                               (hunger, thirst)
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Attitude                                                              Beliefs




  An attitude is “a learned predisposition to
  An attitude is “a learned predisposition to                           Beliefs are a consumers subjective
                                                                        Beliefs are a consumers subjective
   respond to an object or class of objects
    respond to an object or class of objects                             perception of how well a product or
                                                                          perception of how well a product or
   in a consistently favorable or
    in a consistently favorable or                                       brand performs on different attributes.
                                                                          brand performs on different attributes.
   unfavorable way.”
    unfavorable way.”




                                                             CB-15                                                                         CB-16




 Characteristics of
 Attitudes and Preference
   Valence                                                                Attitudes: Multi-attribute Model
       Favorable / Neutral / Unfavorable
       Positive / Indifferent / Negative                             Evaluation of                      Overall            Intention
                                                                                        Brand
                                                                       Product                          Brand                 to       Behavior
                                                                                        Beliefs
   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
                                                             CB-17
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




                                                                                   CB-19                                                                                 CB-20




      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
       Educational Value                                                                    Ease of Site                  5 X                0 =0               2 = 10
       Ease of Site Navigation                                                              Navigation
                                                                                            Entertainment                 4 X                2 =8               0 =0
 •    Evaluate AOL on each of the following attributes?
                                          Excellent                      Poor
                                                                                            Value
       Entertainment Value                                                                  Educational                   3 X                2 =6               0 =0
       Educational Value
                                                                                            Value
       Ease of Site Navigation
                                                                                            Overall Rating                                    14                    10
 •    Evaluate Roadrunner on each of the following attributes?
                                          Excellent                      Poor
       Entertainment Value
       Educational Value
       Ease of Site Navigation

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Measuring Attitudes                                                                        Factors Influencing Attitude-Behavior Relationship



                                                      0           5                 10
Ease of Site Navigation                                                                    Evaluation of                      Overall              Intention
                                                                                                              Brand
Entertainment Value                                                                          Product                          Brand                   to            Behavior
                                                                                                              Beliefs
                                                                                            Attributes                      Evaluations               Buy
Educational Value
                                                                                              (ei)              (bi)              (Ao)                (BI)               (B)
     = AOL                                                                                                                                  Social
      = Roadrunner                                                                                                                          Norm


                                                                                                     Attitudes                   Intentions                    Behavior
                                                                                   CB-23
                                                         Simultaneous Attribute
                    Strategies                           Importance-Performance Grid


              Ao = Σ biei + SN                                  Attribute
                                                               Importance
                                                                                    Our
                                                                                Performance
                                                                                              Competitor’s
                                                                                              Performance
                                                                                                              Simultaneous
                                                                                                                 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
Significant     1. Complex         3. Variety-                                                Decision
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
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                                                           Buyer Decision Process
                                                           Step 1. Need Recognition
Evoked Set



                                                                                       Buyer
                                                                                     Recognizes          Needs Arising
  An evoked set is the group of brands that
  An evoked set is the group of brands that                  State Where the                             From:
   a consumer would consider acceptable
   a consumer would consider acceptable                      Buyer’s Needs               a
   from among all the brands of the                          are Fulfilled and        Problem            Internal Stimuli –
   from among all the brands of the
   product class of which he or she is                       the Buyer is               or a
   product class of which he or she is                                                                       Hunger
                                                             Satisfied.                Need.
   aware.
   aware.
                                                                                                         External Stimuli-
                                                                                                             Friends


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



                                                                           Consumer May Use Careful
                                                                            Consumer May Use Careful
                                 •Family, friends, neighbors              Calculations & Logical Thinking
                                                                          Calculations & Logical Thinking
    Personal Sources
    Personal Sources             •Most effective source of
                                    information                             Consumers May Buy on Impulse and
                                                                            Consumers May Buy on Impulse and
                                 •Advertising, salespeople
                                                                                    Rely on Intuition
                                                                                     Rely on Intuition
   Commercial Sources
   Commercial Sources            •Receives most information
                                    from these sources                           Consumers May Make Buying Decisions
                                                                                 Consumers May Make Buying Decisions
                                                                                           on Their Own.
                                                                                            on Their Own.
     Public Sources              •Mass Media
     Public Sources              •Consumer-rating groups                             Consumers May Make Buying Decisions
                                                                                     Consumers May Make Buying Decisions
                                                                                         Only After Consulting Others..
                                                                                          Only After Consulting Others
                                 •Handling the product
   Experiential Sources
   Experiential Sources          •Examining the product
                                 •Using the product                     Marketers Must Study Buyers to Find Out
                                                                         How They Evaluate Brand Alternatives
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The Buyer Decision Process                                             The Buyer Decision Process
Step 4. Purchase Decision                                              Step 5. Postpurchase Behavior


              Purchase Intention
              Purchase Intention
       Desire to buy the most preferred brand                                            Satisfied Customer!
       Desire to buy the most preferred brand




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



               Purchase Decision                                                        Dissatisfied Customer
               Purchase Decision
                                                               CB-37                                                                  CB-38




          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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                                                                                                                         Pentice-Hall
                                                                                                                    A Conceptual Model Of Service Quality
Loyalty: Retaining Customers
                                                                                                             Word-of-Mouth
                                                                                                                                                                            Past Experience
Customer retention = higher profits                                                                          Communication
                                                                                                                   s
                                                                                                                                              Personal Needs



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

      Referred customers use less support                                                                                                     Service Quality
                                                                                                                                              Specifications

                                                                                                                                     Gap 2

                                                                                                                                       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: Consumer is aware of
                              Awareness: Consumer is aware of
                                product, but lacks information.
                                                                              Percentage of Adopters




                                product, but lacks information.                                                              Early Majority                      Late Majority
                          Interest: Consumer seeks
                           Interest: Consumer seeks
                                                                                                       Innovators




                        Information about new product.
                         Information about new product.                                                                 Early
                                                                                                                                              34%                34%             Laggards
                                                                                                                       Adopters
                Evaluation: Consumer considers
                Evaluation: Consumer considers
                      trying new product.
                       trying new product.                                                                                   13.5%                                         16%

           Trial: Consumer tries new                                                                         2.5%                      Time of Adoption
                                                                                                            Early                                                                Late
           product on a small scale.

 Adoption: Consumer decides
to make regular use of product.

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

                                                                                             Divisibility
    Everett Rogers(1950s) surveyed a                                                         Divisibility
                                                                                           Can the innovation
                                                                                            Can the innovation
    large sample of people to find out their                                             be used on aapilot test/
                                                                                          be used on pilot test/
                                                                                               trial basis?
                                                                                                trial basis?
                                                                     Risk
                                                                     Risk
    adoption process for new products.                       Do consumers perceive
                                                              Do consumers perceive                                 Relative Advantage
                                                                                                                    Relative Advantage
                                                             the innovation as risky?
                                                              the innovation as risky?                                  Is the innovation
                                                                                                                         Is the innovation
             Based on this survey, he came up with the       Economic, psycho-social?
                                                              Economic, psycho-social?                                superior to existing
                                                                                                                       superior to existing
                                                                                                                             products?
             classification:                                                                                                  products?

    2.5% Innovators
    13.5% Early Adopters                                                                                                 Compatibility
                                                                                                                         Compatibility
                                                                Observability
                                                                Observability                                         Does the innovation
                                                                                                                      Does the innovation
    34% Early Majority                                         Can results be easily
                                                                Can results be easily                                  fit the values and
                                                                                                                        fit the values and
                                                            Observed or communicated
                                                            Observed or communicated                                   experience of the
    34% Late Majority                                                                                                   experience of the
                                                                    to others?
                                                                     to others?               Complexity                  target market?
                                                                                              Complexity                   target market?
    16% Laggards                                                                             Is the innovation
                                                                                              Is the innovation
                                                                                                  difficult to
                                                                                                   difficult to
                                                                                            understand or use?
                                                                                             understand or use?
                                                                                                                                         CB-53
     Balakrishnan




     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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