Chapter 1: Consumer Behavior: Its Origins and Strategic Applications

Consumer Behavior

Flow of Presentation

Consumer v/s customer Consumerism Consumer Behavior Why consumer Behavior Orientation of Marketplace Consumer value, satisfaction & retention Consumer decision-making Model

Personal Consumer

The individual who buys goods and services for his or her own use (consumer), for household use, for the use of a family member, or for a friend ( customer)

Organizational Consumer

A business, government agency, or other institution (profit or nonprofit) that buys the goods, services, and/or equipment necessary for the organization to function.

CONSUMERISM

As individuals we all are unique. We use or consume on a regular basis food, clothing, shelter, transportation, education, luxuries, services etc. As consumers, we play a vital role in the health of economy. The purchase decision we make affect the demand for basic raw materials , they affect the employment of workers and deployment of resources and hence the overall economy of nation.

Consumerism essentially means the growing wants and needs of an individual for goods and services. India is one of the largest and fastest growing economies in the world. The consumers standard of life is going higher and hence his needs are escalating as well. Consumers are now participants in global market as well as cyber market globalization, liberalization and consumerism

INCREASE IN CONSUMERISM

Increase in disposable income Mass-media Reachability of distribution channels and media Digital revolution Increased competition Consumers have more power than ever before Consumers have access to more information than ever before Marketers offer variety of products Mall-culture

Consumer Behavior
The behavior that consumers display in searching for, purchasing, using, evaluating, and disposing of products and services that they expect will satisfy their needs.

Consumer Behavior Is Interdisciplinary

Psychology (the study of individual) Sociology (the study of groups) Social psychology (the study of how an
individual operates in groups)

Anthropology
individual)

(the influence of society on the

Economics

Why Consumer Behavior

In order to succeed in any business, and especially in todays dynamic and rapidly evolving marketplace, marketers need to know everything they can about consumerswhat they want, what they think, how they spend their leisure time etc.
Marketers need to understand the personal and group influences that affect consumer decision making

Contd

As marketers, it is important for you to recognize why and how individuals make their consumption decisions so that you can make better strategic marketing decisions. If you understand consumer behavior, you are able to predict how consumers are likely to react to various informational and environmental cues and shape strategies accordingly.

The Study of Consumer Behavior

The study of consumer behavior is the study of how individuals make decisions to spend their available resources (time, money, effort) on consumption-related items.

The Study of Consumer Behavior

It includes the study of: What they buy Why they buy it When they buy it where they buy it How often they buy it And How often they use it. How they evaluate it after purchase The impact of such evaluations on future purchase

The Study of Consumer Behavior

Take the Example of Toothpaste: What they buy (regular, gel, striped, in a tube, powder) Why they buy it (to brighten or whiten teeth, to remove stains, to prevent cavities, to freshen mouth, to reduce sensitivity .) When they buy it (..) where they buy it (kirana store, superstore, hypermarket, convenience store, ..) How often they buy it (weekly, monthly, bimonthly) And How often they use it. (when they wake up, after every meal, when they go to bed, or any combination )

Development of the Marketing Concept

Production Concept
Product Concept Selling Concept Marketing Concept

The Production Concept

Assumes that consumers are interested primarily in product availability at low prices Marketing objectives:

Cheap, efficient production Intensive distribution Market expansion

The Product Concept

Assumes that consumers will buy the product that offers them the highest quality, the best performance, and the most features Marketing objectives:

Quality improvement Addition of features

Tendency toward Marketing Myopia

MARKETING MYOPIA

Marketing Myopia refers to "focusing on products rather than customers. Marketing myopia is a term used in marketing as well as the title of an important marketing paper written by Theodore Levitt

The Selling Concept

Assumes that consumers are unlikely to buy a product unless they are aggressively persuaded to do so Marketing objectives:

Sell, sell, sell

Lack of concern for customer needs and satisfaction

The Marketing Concept

Assumes that to be successful, a company must determine the needs and wants of specific target markets and deliver the desired satisfactions better than the competition Marketing objectives:

Make what you can sell Focus on buyers needs

The Marketing Concept

Implementing the Marketing Concept

Consumer Research Segmentation Targeting Positioning

The term consumer research represents the process and tools used to study consumer behavior. The focus of marketing concept is consumer needs

ACQUIRED NEEDS

All the consumers have same biological needs. We also acquire needs after we are born. These needs are shaped by the environment and the culture in which we live, by our education, and by our experiences. These are know as acquired needs. There are usually many people who develop the same needs.

The Marketing Concept

Implementing the Marketing Concept

Consumer Research Segmentation Targeting Positioning

Process of dividing the market into subsets of consumers with common needs or characteristics

The Marketing Concept

Implementing the Marketing Concept

Consumer Research Segmentation Targeting Positioning

The selection of one or more of the segments to pursue.

The Marketing Concept

Implementing the Marketing Concept

Consumer Research Segmentation Targeting Positioning

Developing a distinct image for the product in the mind of the consumer

POSITIONING
It refers to the development of a distinct image for the product or service in the mind of consumer, an image that will differentiate the offering from competing brands and communicate target audience that the particular product or service will fulfill their needs better than competing brand. Successful positioning happens when 1. communicating the benefits 2. USP

Marketing mix Product Place Price Promotion

Service marketing mix Product Place Price Promotion People Process Physical evidence

Successful Relationships
Value, Satisfaction, and Retention

Customer Value Customer Satisfaction Customer Retention

Value= customer perceived benefits/ customer cost or resources Customer perceived benefits include economic, functional, psychological Resources or cost includes monetary, time, effort, psychological

Successful Relationships
Value, Satisfaction, and Retention

Customer Value Customer Satisfaction Customer Retention

The individual's perception of the performance of the product or service in relation to his or her expectations. P>E=DELIGHTED P=S=SATISFIED P<E=NOT SATISFIED

Successful Relationships
Value, Satisfaction, and Retention

Customer Value Customer Satisfaction Customer Retention

The objective of providing value is to retain highly satisfied customers. Loyal customers are key They buy more products They are less price sensitive They pay less attention to competitors advertising Servicing them is cheaper, as they are aware of firms offering They spread positive word of mouth

Customer Profitability-Focused Marketing

Tracks costs and revenues of individual consumers Categorizes them into tiers based on consumption behavior A customer pyramid groups customers into four tiers

Customer Profitability-Focused Marketing

Tier 1: Platinum
Tier 2: Gold Tier 3: Iron Tier 4: Lead

CUSTOMER PYRAMID

Platinum: it includes heavy users who are not price sensitive and are willing to try new offerings Gold: they are heavy users but not as profitable because they are more price sensitive than platinum Iron: it consists of customers who are not profitable to company Lead: includes customers who cost to the company

Consumer behavior and decision making model

The process of consumer decision making can be viewed as three distinct but interdependent stages 1. input stage 2. process stage 3. output stage

A Simplified Model of Consumer Decision Making

Input stage

The input stage influences the consumer recognition of product need and consists of two major sources of information. > the firms marketing efforts (4ps) > external influences The cumulative impact of each firms marketing efforts, and external influences acts as input that are likely to affect what consumer purchase.

Process stage

It focuses on how consumer make decision. The psychological factors inherent in each individual affect how the external inputs from the I/p stage influences recognition of need, prepurchase for information and evaluating alternatives.

Output stage

It includes two post-decision activities. > purchase behavior > post-purchase evaluations