Understanding Consumer Needs. 5. Analyzing Consumer Market and Buying Behavior. Why to Study Consumer Behavior? Outline

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1 5. Analyzing Consumer Market and Buying Understanding Consumer Needs Example: Tide s new Swash line Whom to target? Shan-Yu Chou Shan-Yu Chou 2 Outline Influences on Buying Buyer Decision Making Probabilistic Choice Why to Study Consumer? Marketing concept 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

2 Marketing Issues High-low promotional pricing or everyday low price? How to maximize the effectiveness of product placements? Brand extension or establishing a new brand? Distributing products through e- tailers? Simple Response Model Stimulus Organism Response Shan-Yu Chou 5 Shan-Yu Chou 6 Two Research Approaches approaches Cognitive approaches Diversity of Consumer Consumers are different Decision processes are different The context of purchases is different Shan-Yu Chou 7 Shan-Yu Chou 8

3 Model of Buying Buyer Decision Process Marketing stimuli Other stimuli Buyer s Buyer s decision characteristics process Need recognition Internal or external stimuli Product Price Place Promotion Economic Technological Political Cultural Cultural Social Personal Psychological Buyer s decisions Product choice Brand choice Dealer choice Purchase timing Purchase amount Problem recognition Information search Evaluation Decision Postpurchase behavior Shan-Yu Chou 9 Information search Evaluation of alternatives Purchase Postpurchase Commercial or social source Perception and preference Attitude formation Stochastic or deterministic choices? Satisfaction? Inertia or variety seeking? Shan-Yu Chou 0 Influences on Consumer Culture Social Factors Personal Factors Psychological Factors Social Factors Reference Groups Family Roles & Statuses Shan-Yu Chou Shan-Yu Chou 2

4 Influences on Consumer Age and Family Life Cycle Stage Personal Influences Occupation & Economic Circumstances Lifestyle Personality & Self-Concept Motivation\ Desire Optimistic & High Income Optimistic & Low Income Pessimistic &High Income Technographics Career Family Entertainment Fast Forwards Tech- Strivers Hand- Shakers New Age Nurturers Digital Hopefuls Traditionalists Mouse Potatoes Gadget- Grabbers Media Junkies Shan-Yu Chou 3 Psychological Factors Motivation Maslow s Hierarchy of Needs 5 Selfactualization (self-development and realization) 4 Esteem needs (self-esteem, recognition) Beliefs & Attitudes Perception Learning Shan-Yu Chou Social needs (sense of belonging, love) Safety needs (security, protection) Physiological needs (food, water, shelter) Shan-Yu Chou 6

5 Perception Attitude Selective Attention Selective Distortion Selective Retention Are learned. Have an object. Have direction and intensity. Tend to be stable and generalized. Shan-Yu Chou 7 Shan-Yu Chou 8 A n j ji i i= j ji Fishbein s Attitude Model = The strength of belief that the object j has attribute i e = The evaluation of attribute i i b e A = Attitude toward object j b = n = The number of salient beliefs about the object The Effectiveness of Product Placement Lower Plot Connection Visual * Higher Plot Connection Audio * *Congruent placement enhances persuasion; incongruent placement improves memory. Russell (2002), Journal of Consumer Research, Vol.29, No.3. Shan-Yu Chou 9 Shan-Yu Chou 20

6 Learning Classical conditioning Operant conditioning Marketing implications Prospect Theory Reference points Gains and Losses Integrate or Segregate Gains? Integrate or Segregate Losses? Kahneman and Tversky (979), Econometrica, Vol. 47, No.2, Shan-Yu Chou 2 Shan-Yu Chou 22 The New Model of Consumer Choice The value function v(.) from prospect theory is defined over gains and losses relative to some reference point. V is concave for gains and convex for losses: v (x)<0, x >0; v (x)>0, x <0. The loss function is steeper than the gain function: v(x) <-v(-x). Segregation or Integration? How does the joint outcome (x, y) get coded? Multiple gains Multiple losses Mixed gain Mixed loss Shan-Yu Chou 23 Shan-Yu Chou 24

7 Evidence on Segregation and Integration Winning $50 and $25 in two separate lotteries vs. winning $75 in one lottery; A letter from IRS saying due to your arithmetical mistake you own $50 vs. two letters (one from IRS and the other from the state) saying you own $00 and $50 respectively; Winning $00 in a lottery and paying $80 to the landlord for some damage on the rug vs. winning $20 in a lottery. Spending $200 for a car damage and winning $25 vs. spending $75 for a car damage. Thaler (985), Marketing Science. Probabilistic Consumer Choice Why may consumer choice be stochastic? Constant Ratio Model (CRM) Elimination by Aspects (EBA) In which context are these models useful? Shan-Yu Chou 25 Shan-Yu Chou 26 Scenario Brand Windex Lysol Ajax Drying Speed 0 Color Attractiveness Polishing 0 6 Scent Total Shan-Yu Chou 27 Constant Ratio Model u ( x ) P ( X A ) = u ( y ) y A A={Windex, Lysol, Ajax} P(windex A)= P(Lysol A)= P(Ajax A)= Shan-Yu Chou 28

8 Scenario 2 Consumers are indifferent between the choice of Europe and Far East; 3 alternatives : A={Europe, Europe+$bonus, Far East}. What would be the prediction by CRM on choice probabilities? Elimination by Aspects Each alternative is viewed as a set of aspects; At each stage, an aspect is randomly selected; Eliminate those alternatives that do not include the aspect; The process continues until only one alternative remains. Tversky(972), Psychological Review, Vol. 79, No.4. Shan-Yu Chou 29 Shan-Yu Chou 30 Four Types of Buying Significant differences between brands Few differences between brands High Involvement Complex Buying Dissonance- Reducing Buying Low Involvement Variety- Seeking Habitual Buying Shan-Yu Chou 3

Consumer Markets and Consumer Buyer Behavior. Chapter 6

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