CHAPTER 2 THEORITICAL FOUNDATION. 2.1 Consumer Behavior Every people have their own characteristic and personality which can lead to

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1 CHAPTER 2 THEORITICAL FOUNDATION 2.1 Consumer Behavior Every people have their own characteristic and personality which can lead to different reaction toward the same issue. For a example, two people will react differently when the have to purchase a goods. Every people also have different needs and wants. From different consuming behavior of different personality, it can be seen how one decision making process could be differ from others. Without knowing teenagers would spend on shopping more than working as daily life. We consumed most of the products such as foods, cars, cellphones, services such as beauty centre, insurance, and entertainment such as cinema, music player, television, etc. From the consumers perspective, it will be good to understand consumer behavior, so it will improve their ability to consume wisely. On the other hand, understanding consumer behavior would help the firm to be more precise in formulating their marketing strategy and develop their product. To begin this research, let s take a look on definition of consumer behavior: The study of individuals, groups, or organizations and processes they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy needs and the impacts that these processes have on the consumer and society. (Hawkins, 2009) 7

2 8 The figure below showed the overall model of consumer behavior. Figure 2.1 Overall model of consumer behavior To struggle in this competitive era, firm had to provided its consumer more value than by its competitor. It was important for the firm to considered the value from the consumer point of view. According to Hawkins (2009) providing superior consumer value requires the company to do more jobs in anticipating and reacting to consumer needs than the competitor does. An understanding of consumer behavior was the basis in formulating marketing strategy. By knowing the consumer behavior, firm can predicts what will be the best way to approach the consumer. Previouly mentioned that every target market has its own characteristic, so it requires certain strategy to deal with it. Based on the article by Handi Irawan, Chairman Frontier Consulting Group, in Marketing Magazine, he believed that research on the consumer behavior would give some insight and aspiration for firms in formulating good strategy to develop their brand in certain market. 2.1 Consumer Decision Process

3 9 Analyzing the consumer decision process was part of marketing strategy formulation. Consumer decision process was affected by various influencers. It can be from internal as well as external. Furthermore, consumer behavior was taken under context of a situation. To a firm, how the situation and both of internal and external factors will affected the consumer decision process in pre-purchase attitude, was typically a vital concern. Under situational context, consumer decision process contains five steps of problem recognition, information search, alternative evaluation and selection, outlet selection and purchase, and post purchase process. During this process, several consumer innovative behaviors were formed in order to come up with more precise decision. Among all of those behaviors, observing was becoming more adequate and frequently used by consumers. According to Park and Lessig (1977) observing the consumer behavior of others may simplify consumer decision making by providing information that serves as a sources of consumer s evaluations, aspirations, and behavior. Influencer had a great power to affect the decision making process. Based on Park and Lessig (1977) the influence of observing others as a source of information was accepted if it is perceived as enhancing the individual s knowledge of his/her environment and ability to cope with some aspect of them Consumer propensity to observe can be classified as direct observation of others and indirect observation of others. Direct observation was done by looking at the actual purchase behavior of other consumers. For example, when a new consumer of restaurant, he did not know what to order and he decide to order the same menu as what the guy sit across him was ordered. Furthermore, indirect observation happened when

4 10 the consumer was took into account of further fact or evidence of other to make a decision. For example, consumers who identify a good restaurant based on how many cars in the parking lot. 2.2 Cognitive Learning Theory Cognitive learning theory stressed on the importance of internal mental process of human being. Based on the theory, people supposed to be a problem solver. People will use the information from surroundings to understand the situation. Process of gathering all of the information can be referred as learning process. On the other hand, there was controversy whether people aware of their learning process or not. Cognitive was defined as related to or involved in conscious intellectual activity such as thinking, remembering, and reasoning. Therefore, cognitive learning can be seen when people attempt to explain their behavior by understanding their thinking processes. According to Bettman (1979), consumers gathered information to varying degrees and combine the new information with existing information in their memory. Subsequently, it will connect in complex processing of the information using conscious and often complex mental processes to come up with a solution. 2.3 Social Theory According to Park and Lessig s (1977), consumers tend to observe other s purchase behavior attribute to the motivation of consumer to acquire indication in order to reduce social risk due to poor choice. People naturally have tendency to compare with their surroundings to make sure they will be well accepted. For example, some people asked for opinion before buying clothes. They will asked whether the clothes will be fit

5 11 for them or it will be looks weird on them. This theory supported as well by reference group theory. According to Deutsch and Gerard (1955), there was indication that individuals influenced by others. Others can be defined as known others as well as strangers. 2.4 Attribution Theory Attribution theory defined as the study of perceived causation. (Kelly & Michela, 1980). Referred to Kelly and Michela (1980), people observation of other s purchase behavior will attribute certain characteristic to the brand/product purchased. Purchase behavior of the consumer toward certain brand can caused certain perceived characteristic on other s mind. Other related theory, mentioned how celebrities or even anonymous model can posses meanings, which might be transferred to consumer s mind (McCraken, 1989). The used of celebrities endorsement can relate the brand or product to the celebrity s characters. For instance, when Clear used Christiano Ronaldo as the endorser, consumer will perceive character of the brand as masculine as Christiano Ronaldo. This situation encouraged consumer propensity to observe other s purchase behavior to get more information on the product or brand. 2.5 Propensity to Minimize Risk According to DelVecchio and Smith (2005) risk aversion was a behavior of those who feel threatened and attempt to minimized uncertainty or risk of possible negative outcome. This phenomenon was often happened in marketing ambiance. Consumers

6 12 puzzled by little or no information about the product which often lead to uncertainty feeling. Consumer with high risk aversion tends to avoid uncertainty condition. Consequently, consumer will attempt to gather as much as possible information that could help them in making a decision. This supported as well by Loss Aversion Theory by Tversky and Kahneman (1986, p.8258). It was explained that it will be more extreme when people response to losses rather than response to gains. Another supporting theory was Regret Theory by Zeelenberg (1999, p.101), where people tend to avoid the postdecision regret. Based on those theories, propensity to minimize risk was possibly lead the consumer in observing other s behavior as one way to get more information regarding to the product or brand. 2.6 Elaboration-Likelihood Model According to Petty and Cacioppo (1986), Elaboration Likelihood Model (ELM) was model about attitude form and change that central to what is called as Elaboration Continuum. Based on this model, there were two ways of persuasion; central route and peripheral route. Central route occurs when people response to the messages using their cognitive thought that result in persuasive outcome. Meanwhile, peripheral route occurs when people were not involving elaboration message through cognitive process, thus it is only rely in the environmental state of message. On the high end of ELM process, consumer with a high need for cognition tend to planned information to evaluate its credibility. On the other hand, consumer with lower need for cognition is in low end ELM process. They likely influenced by

13 communications cue such as other s behavior. In low end of ELM process show there was tendency of consumer to observe other s behavior as source of information.

7 13 communications cue such as other s behavior. In low end of ELM process show there was tendency of consumer to observe other s behavior as source of information. More detail of this process can be seen on the figure below. Figure 2.2 Elaboration Likelihood Model 2.7 Consumer Self-confidence Self-confidence as a part of human personality could be a factor that drives a response to certain issue. According to Bearden et al (2001, p.122), consumer selfconfidence can referred to situation in which individual feels capable and convinced with his or her decision and behavior. Automatically, consumer with low self-confidence will observed or even imitated other s behavior used to making a decision. Another opinion came from Park and Lessig (1977), it believed that consumers tend to look for other referent whiles the product getting complex and varies. The truth of selfconfidence possibly affects the consumer propensity to observe was hold up by this theory.

8 Propensity to Conform Some consumers were habitually conformed their decision to relatives before end up to final decision. It could be one trait that affected consumer behavior. In some situation, people looked for others opinion to cross check their decision. This might referred as attention to social comparison. According to Bearden and Rose (1990), consumer happened to confirm the product decision of peers and other in various situations. This symptom was occurred in order to monitor or observe other behavior for adequate social cues. Consumer acquires confirmation through the observation, prior to final decision in which lead relationship between high propensities to conform to propensity to observe Unique Characteristics of Indonesian Consumer Prior research in Indonesia, in year 2007, had been done for the use to determine the characteristic of Indonesian consumer. It aimed to inspire and help the firm to be more specified in selecting target market as basis of formulating marketing strategy. According to the research, there were 10 unique characteristics of Indonesian Consumer as listed in the table below. Table 2.1 Indonesian s Consumer Unique Characteristics No Characteristic Explanation 1 Short-term thinker This characteristic was affected by education culture. They rarely thought for a long term and merely think for a short term. It practically supported of stumble on instantaneous to make it faster. 2 Unplanned Consequently to first characteristic, it lead Indonesian consumer to be unplanned in which never look back or

9 15 prepared for the future. It can be seen from the low rate of Indonesian people with insurance. It is only 1.67% of the GDP compare to Singapore with 3.5 % or even Europe with 5.1%. 3 Informal Socialize By looking at the history, majority of the Indonesian tribe was lived in a group that lead informal socialization such as family gathering becomes a culture. During the gathering, people sharing an experience toward some product or services. Word of mouth and opinion leader were part of this unique characteristic. 4 Technology Illiterate Low technology penetration in Indonesia makes people got to be technology illiterate, which unfamiliar with the technology and did not know the used of it. According to Frontier research only 7-8% of Indonesian people aware of Internet service in 2005 and most of them lived in urban area. It most likely exaggerated by the low education level in Indonesia. 5 Context Oriented Indonesian consumer likely looked on the cover first instead of the content. Related to the instantaneous, they only skimmed the information even if worried about the content. Based on Frontier survey in case of SMS content found most of Indonesian people got used of it for light information such as gossip, entertainment, and ring tone. Heavier information such as politics, economics was on the last option. 6 Imported brand oriented Indonesian consumer still perceived the local brand as cheaper brand and low quality. On the other hand, they perceived imported stuff as much better than local stuff. Driven by pride, they were more self-assured when used imported good instead of local good.

10 16 7 Religious Indonesian consumer care much about religious issues. As the world's most populous Muslim-majority nation, with almost 86.1% of muslim, Halal or Non Halal become essential issue in business industry especially food and beverages. Consumers were carefully choosing the product guided by the religious aspect. 8 Pride This characteristic drove by three factors. First, socializing which triggered them to show off what they had. Second, feudalism that constructed certain social classes. It highly possible motivated them to move quickly to higher level. Third, measurement of the success level was based on material and position. This characteristic can be explained further by the Maslow hierarchy needs, where most of Indonesian focused more on the self esteem rather than self actualization 9 Strong Subculture Ethnic and local cultures still become biggest issue in Indonesia. Since Indonesia contained of approximately 525 tribes which had moderately high ethnocentrism level. 10 Environment Careless Most of Indonesian still careless toward the environment. Low awareness as regards to importance of save the environment was still major issue as it mentioned earlier in relation to short term thinker characteristic. Some marketer viewed this result as inspiring information that could help enhancing the firm s performance. In the other side, some others were not really taking this into account. However, according to Handi Irawan, Chairman Frontier Consulting Group and the Researcher, this research was good to learn more about consumer

11 17 behavior, attitude, and habit. Far from the thinking of how this information could be use to the product, marketer supposed to look on the long-term effect. Consumer behavior was not static; it can be changed along with the development in many aspects of life. Therefore, this research would be good to used as monitoring tools toward consumer behavior trend. Each of this character was likely lead to a certain pre-purchased attitude that would affect consumer decision making process, especially consumer propensity to observe

CHAPTER 5 CONCLUSION AND RECOMMENDATION. 5.1 Conclusion The objectives of this study to explore the understanding of consumer propensity

81 CHAPTER 5 CONCLUSION AND RECOMMENDATION 5.1 Conclusion The objectives of this study to explore the understanding of consumer propensity to observe and revealed the underlying factors in Jakarta and