CUSTOMER ANALYSIS BUYING BEHAVIOR OF CONSUMERS CUSTOMER VALUE BUILDING UNDERSTANDING CONSUMERS Sergio Zyman, Former Chief Marketing Officer, Coca Cola Company, says in his recent book “End of Marketing” : “They (consumers) are, quite possibly, the only thing worth thinking about…….Every thing that happens to consumers and every thing that consumers do should affect your marketing decisions……You have to understand the whole environment in which people live…….Anything that happens in that environment is going to change what consumers do and don’t do.” RISE OF CONSUMER DEMOCRACY There has been a seismic change in the consumer markets in the past two decades which has been aptly described as the “rise of consumer democracy”. Suddenly, due to a number of factors, most notably technology and the development of global markets, consumers have more choices than ever before. So marketers have to work harder to make sure that consumer choose their products. STUDY OF CONSUMER BEHAVIOUR Because markets are complex , we need to develop some common framework for grasping a market’s essentials. The marketer should approach the study of a new market by asking 4 questions : 1. What does the market buy ? 2. 3. 4. organization ( FOUR Os OF A MARKET ) Objects Of Purchase Why does it buy ? Objectives of purchase Who buys ? Organization of purchase How does it buy ? Operations of purchasing 6 Os OF A MARKET The 4 Os of a market (Objects, Objectives, Organization and Operations) should be grasped before one contemplates the 4 Ps of the marketing mix. Two further questions of a more descriptive nature can also be asked of a market : 5.When does it buy ? Occasions for purchase 6. Where does it buy ? Outlets for purchase CONSUMER MARKET Consumer Market is the market for products and services that are purchased or hired by individuals and households for personal (nonbusiness) use. Consumer Products : Products purchased for personal use. BUYERS V/S CONSUMERS Mother buying toys for kid (Buyer – Mother, Actual user – Kid) Marketers focus their promotion on both i.e. buyers and the user (ultimate consumer) For example Maggi and Rasna , both try to influence the buyer and the user. Taste and fun aspects for children (main users) and time saving and economy for mothers (actual buyers). CLASSIFICATION OF CONSUMER PRODUCTS (A.) On the basis of their rate of consumption and tangibility : DURABLE GOODS (Tangible goods which normally survive many uses, frequency of purchase is less e.g. Refrigerator, T.V. etc.) NON-DURABLE GOODS (Tangible goods normally are consumed in one or few uses, frequency of purchase is more e.g. Soap, Salt, Tooth paste, Shampoo etc.) SERVICES (Intangibles, Activities,benefits or satisfactions which are offered for sale e.g hair cuts, education, restaurants, airlines etc.) CLASSIFICATION OF CONSUMER PRODUCTS (B.) On the basis of consumers’ shopping habits : CONVENIENCE GOODS (Which the customers usually purchase more frequently, immediately and with the minimum of efforts in comparing and buying, e.g.Soap, Cosmetics, Tobacco etc.) SHOPPING GOODS (Which the customers, in the process of selection and purchase characteristically compares on such basis as suitability,price and style, quality , durability etc., e.g. Furniture, T.V., Automobiles, major appliances etc.) SPECIALITY GOODS (Goods with unique characteristics and/or brand identification for which buyers are willing to make a special purchasing effort, e.g. specific brands and types of fancy goods, hi-fi components, technological items, special items etc.) A SIMPLE MODEL OF CONSUMER BEHAVIOUR INPUT External Influences PROCESS OUTPUT Consumer Decision Making Consumer Decisions and Actions MODEL OF BUYER BEHAVIOUR Marketing Stimuli Other Stimuli ECONOMICAL CULTURAL GEOGRAP HICAL Buyer’s Buyer’s Decision Characteristics Process PRODUCT Inferences Buyer’s Decisions PRODUCT CHOICE PROBLEM RECOGNITION BRAND CHOICE SOCIAL INFORMATION PRICE SEARCH PLACE DEALER CHOICE TECHNOLO GICAL PERSONAL PSYCHOLOGICAL EVALUATION PURCHASE TIME PROMOTION DECISION POST PURCHASE BEHAVIOUR PURCHASE AMOUNT BUYER’S BLACK BOX INPUT PROCESS OUTPUT INFLUENCE ON CONSUMER BEHAVIOUR I. BUYING INFLUENCESPRODUCT CHARACTERISTICS SELLER’S CHARACTERISTICS SITUATIONAL ,, ,, BUYER’S ,, ,, II. BUYING SITUATIONS III. BUYING PROCESS IV. BUYING DECISIONS FACTORS INFLUENCING BUYER’S BEHAVIOUR CULTURAL SOCIAL CULTURE PERSONAL REFERENCE GROUPS AGE,GENDER,LIFE PSYCHOLOGICAL SUB-CULTURE FAMILY CYCLESTAGE, OCCUPATION, ROLES AND INCOME,PERSONALITY STATUS SOCIAL CLASS BUYER MOTIVATION,PERCEPTION,LEARNING, BELIEF & ATTITUDE (A.) CULTURAL FACTORS CULTURE: All aspects of society. It includes Values, Customs, Arts and Skills. Transmitted from generation to generation. SUB-CULTURE: Each culture contains smaller groups of sub-cultures- Nationality, Religion, Race, Geographical location. SOCIAL CLASS: In every society there is inequality in social status among different people and the people are categorized into different social classes.Social scientists have identified six major social classes : UpperUpper, Upper-Middle, Upper-Lower, LowerUpper, Lower-Middle, and Lower-Lower. (B.) SOCIAL FACTORS REFERENCE GROUPS : ( PEOPLE AROUND US ) : Our decision of purchase is not only influenced by our life style, our personality and by other psychological factors but also by the people around us, with whom we interact directly or indirectly (influence our purchase decision), e.g. families, friends, neighbors, colleagues, civic and professional organizations. Aspiration Groups (want to belong to) – adoption of the opinions and outlook of film stars, sports stars, pop stars etc. Disassociate Groups (do not want to belong to) – whose values and behavior an individual rejects, e.g. you may not like to follow the brand choice of your neighbor or your relative etc. SOCIAL FACTORS (REFERENCE GROUPS) The degree to which a reference group will affect a purchase decision depends on an individuals susceptibility to reference group influence and the strength of his/her involvement with the group. Reference group influence on products : Strong Influence – Cars, Color T.V., Furniture,Refrigerator etc. Weak Influence – Tea, Coffee, Soap, Beer, Cig. etc. SOCIAL FACTORS FAMILY: Family of Orientation(One’s parents, brothers and sisters) Family of Procreation(One’s spouse and children) Different family members play different roles. Marketers should study the roles that different family members might play in purchase decisions.(i.e. Initiator,Influencer,Decider,and User). ROLES AND STATUS: (Role of a manager carries more status than role of clerk and his status). (C.) PERSONAL FACTORS AGE GENDER LIFE CYCLE STAGE *** OCCUPATION INCOME LIFE STYLE PERSONALITY etc. PERSONAL FACTORS LIFE CYCLE STAGE *** (The family life cycle) families go through stages, each stage creates different consumer demands : Single / Bachelor stage (Young unmarried living away from home) Newly married Full nest 1 (youngest child under 6) Full nest 2 (youngest child over 6) Full nest 3 (older married couples with dependent children) Empty nest 1 (older married couples with no children living with them, head still working) Empty nest 2 (,, ,, ,, ,, ,, ,, ,, ,, ,, Head retired) Solitary survivor in labor force Solitary survivor retired Modernized life cycle includes divorced and no children (D.) PSYCHOLOGICAL FACTORS MOTIVATION (Need arises-Person seeks its satisfaction-It is known as motive). A motive is an internal energizing force that orients a person’s activities toward satisfying a need or achieving a goal. Actions are effected by a set of motives, not just one. If marketers can identify motives then they can develop a better marketing mix. All our needs can be classified as - Primary (Physiological) and Secondary (Acquired these are Psychological make-up) MASLOW’S THEORY OF MOTIVATION According to Abraham Maslow human needs are arranged in a hierarchy, from the most pressing to the least pressing. People will try to satisfy their most important needs first. When a person succeeds in satisfying an important need, that need will cease being a current motivator, and the person will try o satisfy the next most important need. HIERARCHY OF HUMAN NEEDS SelfActualization Needs (self development and realization) Esteem Needs (self-esteem,recognition,status) Social Needs (sense of belonging,love) Safety Needs (security,protection) Physiological Needs (hunger, thirst,shelter etc.) HERZBERG’S THEORY OF MOTIVATION According to Frederick Herzberg there are two factors that are considered by consumers in deciding which brand to buy : dissatisfiers (factors that cause dis-satisfaction) and satisfiers (factors that cause satisfaction). The absence of dissatisfiers is not enough; satisfiers must be actively present to motivate a purchase. PSYCHOLOGICAL FACTORS PERCEPTION ( How we see the world around us ) (Information inputs are the sensations received through 5 sense organs-Eyes (sight), Ears (hearing), Nose (smell), Tongue (taste) and Skin (touch). Perception is the process of selecting, organizing, and interpreting information inputs to produce meaning, i.e. we chose what information we pay attention to, organize it and interpret it. PSYCHOLOGICAL FACTORS (PERCEPTION) How a motivated person actually acts is influenced by his or her perception of the situation, beliefs and attitudes. People can emerge with different perceptions of the same object because of the three perceptual processes : selective attention, selective distortion, selective retention. PSYCHOLOGICAL FACTORS LEARNING (Adult’s human behavior is learned behavior. Skills & knowledge gained from past experiences). Most human behavior is learned. Learning theorists believe that learning is produced through the interplay of drives, stimuli, cues, responses, and reinforcement. BELIEF AND ATTITUDE (Descriptive thoughts are beliefs, Attitudes are feelings positive / negative) THE BUYING DECISION PROCESS Marketers have to go beyond the various influences n buyers and develop an understanding of how consumers actually make their buying decisions. Specifically, marketers must identify who makes the buying decision (buying roles), the types of buying decisions (buying behavior / buying situations) and the steps in buying process ( stages in the buying decision process). DIFFERENT ROLES IN BUYING DECISIONS Initiator : A person who first suggests the idea of buying the particular product or service. Influencer : A person whose view or advice influences the decision. Decider : A person who decides on any component of a buying decision. Buyer : The person who makes the actual purchase. User : A person who consumes or uses the product or service. FOUR TYPES OF BUYING BEHAVIOR (BUYING SITUATIONS) High Involvement Significant Differences between Brands Few Differences between Brands Complex buying behavior (Extensive Problem Solving) Dissonance reducing buying behavior (Limited Problem Solving) Low Involvement Variety-seeking buying behavior Habitual buying behavior (Routinized Response Behavior) FIVE STAGE MODEL OF THE CONSUMER BUYING PROCESS Problem recognition Information search Evaluation of alternatives Post-purchase behavior Purchase decision SUCCESSIVE SETS INVOLVED IN CONSUMER DECISION MAKING Total Set Awareness Set Consideration Set Choice Set ? Buying Decision STEPS BETWEEN EVALUATION OF ALTERNATIVES AND A PURCHASE DECISION Attitude of others Evaluation of alternatives Purchase intention Purchase Decision Unanticipated situational factors BUILDING CUSTOMER VALUE DELIVERING PROFITABLE VALUE Business: is a value delivery system. Business Process : is the task of delivering value to the market at a profit . TWO VIEWS OF VALUE DELIVERY PROCESS (A) Traditional Physical Process Sequence : Make the product Make Design Procure Sell the product Advertise Promote Service Distribute Price Sell ( Used in Economies of Scarcities ) TWO VIEWS OF VALUE DELIVERY PROCESS (B) The Value Creation and Delivery Sequence Choose the value Provide the value Product Sourcing Communicate the value Sales Force Distributing Sales Promotion Advertising Servicing Customer Segmentation Market Selection / Focus Value Positioning Dev. Service Development Pricing Making ( Used in More Competitive Economies ) DELIVERING PROFITABLE VALUE • • • Business is a value delivery system. Each business is the disciplined choice of a true winning value proposition and deliberately designed integration of all resources and actions around the profitable delivery of this value proposition. Profitable value is the resulting experiences customers derive by doing business with the organization. DELIVERING PROFITABLE VALUE • • An Organization bases its decision about products and services and how they are developed, made and distributed entirely on the profitable superiority of the resulting experiences for customers. A customer chooses a firm over others because it offers the greatest positive combination of end-result benefits and price (i.e. the greatest value ) in the perception of that customer. DELIVERING CUSTOMER VALUE ( THE VALUE CHAIN ) • • • Michael Porter of Harvard proposed the Value Chain as a tool for identifying ways to create more customer value. Every firm is a collection of activities that are performed to design, produce, market, deliver and support its product. The value chain identifies nine strategically relevant activities that create value and cost in a specific business. These nine valuecreating activities consist of five primary activities and four support activities. THE VALUE CHAIN S u p p o r t Firm Infrastructure Human Resource Management Technology Management Procurement Margin Inbound Logistics Operations Outbound Logistics Marketing and Sales Service Margin Primary Activities ( Margin is the difference between all value chain costs and the price to the customers ) CUSTOMER VALUE - is defined by the following equation : V = Q+F / P Where; V= Customer Value Q= Product Quality as Perceived by Customers F= Product Features Valued by Customers P= Price of Product to the Customers - an increase in the numerator or a decrease in the denominator will increase the value. CUSTOMER VALUE • Customer delivered value is the difference between total customer value and total customer cost. ( Total Customer Value : is the bundle of benefits customers expect from a given product or service ). (Total Customer Cost : Buyer evaluates time, energy and psychic costs alongwith the monetary cost to form a total customer cost ). CUSTOMER VALUE • Buyers will buy from the firm that they perceive to offer the higher customer delivered value. CUSTOMER Product Value Services Value Total Customer Difference DELIVERED VALUE Personnel Value Image Value Value Total Customer Cost Time Cost Energy Cost Psychic Cost Monetary Price ATTRACTING AND RETAINING CUSTOMERS Today, more and more companies are recognizing the importance of satisfying and retaining current customers. Company’s aim should go beyond satisfying the customer, it should be delighting the customer. The key to customer retention is Customer satisfaction. A highly satisfied customer stays loyal longer, and talks favorably about the company and its products. HE pays less attention to competing brands and advertising and is less sensitive to price.