To recognize the stages of the consumer buying decision process. To understand the types of consumer decision making and the level of involvement

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2 Objectives To recognize the stages of the consumer buying decision process To understand the types of consumer decision making and the level of involvement To explore how situational influences may affect the consumer buying decision process To understand the psychological influences that may affect the consumer buying decision process To examine the social influences that may affect the consumer buying decision process

3 Consumer Behavior Exercise Find a person in your class who has recently bought one of the products or services described below: Product or service costing less than 10. Product or service costing over 100 < Product or service costing over Your task is to conduct interview with this person for about 5 minutes. The goal of the interview is to understand the decision process that governed the purchase of the product or service in terms that can be useful to a marketing manager. Try to stimulate a lively and open discussion around these key question areas from which you can: (a) develop a deep understanding of the purchase decision process; and (b) surface the factors, in the environment and in the customer s psyche, that really determined why the customer acted the way she/he did. Main questions that need to be answered are: 1. What did they buy? 2. What were the stages of consumer s purchase decision process? 3. Was this a routine, limited, or extended problem solving? 4. What factors from the environment or from the customer s psyche influenced consumer s buying process?

4 You are going to the deserted island and you need to select one thing. What will you take? Why?

5 Understanding Buying Behavior Customers overall opinions and attitudes toward a firm s products have a great impact on the firm s success To find out what satisfies buyers, marketers must examine the main influences on what, where, when, and how consumers buy By gaining a deeper understanding of the factors that affect buying behavior, marketers are in a better position to predict how consumers will respond to marketing strategies

6 Consumer Behavior Consists of the actions a person takes in purchasing and using products and services, including the mental and social processes that come before and after these actions. The decision processes and purchasing activities of people who purchase products for personal or household use and not for business purposes

7 Starbucks Coffee

8 1. What triggers the decision to buy a cup of coffee? Is it a need? A want? 2. How do you seek information about the purchase of a cup of coffee, knowing that coffee is a commodity? 3. What evaluative criteria do you use when deciding to purchase a particular coffee brand? 4. What is your consideration set of coffee brands? 5. When and where do you buy a cup of coffee? 6. With respect to the purchase of your last cup of coffee, did you experience any cognitive dissonance? If dissatisfied, what was deficient? Did you tell anyone? Will you go back? What marketing activities could be undertaken to reduce this?

9 PURCHASE DECISION PROCESS 1. Problem Recognition: Difference between current and ideal state. Driven by internal and external (mkt) cues. Marketers use sales personnel, advertising, and packaging to help trigger recognition of such needs or problems 2. Information Search Search for options that solve our problems. From memory (knowledge and experiences) and environment (friends, advertising, WWW). * 3. Evaluation of Alternatives Identify consideration set, establish evaluative criteria, and decide among choices.* 4. Purchase - Product Choice Based on brand loyalty, country of origin, availability, experience with sellers, price. 5. Post-purchase Evaluation Examine level of satisfaction. Affects future decisions and word-of-mouth communication. Cognitive Dissonance doubts about whether the decision was a good one.

10 Discussion Point Problem Recognition? How is this advertisement using problem recognition?

11 Evaluation of Alternatives

12 Discussion Point alternative evaluation How Green Is That Product? Check the App! GoodGuide app helps consumers determine which goods or services are the greenest alternatives By scanning a products bar code with a cell phone, the app checks a database of products and displays a numerical score, the higher the score the greener the product?how does this app, and others like it, help consumers evaluate products or brands that offer similar benefits?

13 5. POST-PURCHASE BEHAVIOR Cognitive Dissonance (post purchase tension) (aren t you glad you bought a Ford?) Satisfaction affects consumer communication and repeat-purchase behavior. The Value of a Satisfied Customer Ford set a target to increase customer retention from 60 % to 80% each additional percentage point is worth $100 million in profits

14 5. POST-PURCHASE BEHAVIOR Customer Satisfaction Studies Satisfied Customers Tell 3 People Dissatisfied Customers Tell 9 People

15 MARKETING MATTERS The Value of a Satisfied (loyal) Customer to the Company Frito-Lay Exxon Kimberly- Clark Loyal customer eats 21 pounds of chips annually $52.50 annually $500 Tissue $16.50 annually

16 Consumer Decision Making

17 Consumer Decision Making Strategies Routinized response behavior A consumer decision-making process used when buying frequently purchased, low-cost items that require very little search-anddecision effort Selecting soft drinks or cereals Limited decision making A consumer decision-making process used when purchasing products occasionally or needing information about an unfamiliar brand in a familiar product category Requires a moderate amount of time for information gathering and deliberation Extended decision making A consumer decision-making process employed when purchasing unfamiliar, expensive, or infrequently bought products A car, home, or college education Impulse buying An unplanned buying behavior resulting from a powerful urge to buy something immediately? When have you made a purchase solely on impulse?? Were you satisfied or dissatisfied with the purchase?

18 Discussion Point?Which of the following are high-involvement products? Which are low-involvement? Tennis shoes A new laptop Bottled water A designer handbag A used car?do you think the level of involvement changes with consumer income level for some products?

19 INVOLVEMENT & MARKETING STRATEGY Low Involvement Maintain Product Quality Avoid Stockouts Reduce Cognitive Dissonance with Ads High Involvement: Use Ads (comparative ads), Personal Selling, Blogs The personal, social, and economic significance of a purchase to the consumer?

20 Influences on the consumer purchase decision process from both internal and external sources

21 SITUATIONAL INFLUENCES Purchase Task reasons for buying For our or someone else s usage? Social Surroundings others present Consumers accompanied by children spend 40% more than the ones shopping by themselves Physical Surroundings - state of venue Decor, music, crowds. Temporal Effects time of day, time available Antecedent States mood, amount of money available Consumers with credit cards purchase more than ones cash or debit cards Mood of Consumer Purchase Reason Physical Surroundings Situational Influences Time Dimension Social Surroundings

22 Psychological Influences on the Buying Decision Process Perception Lifestyle Motives Personality and Self- Concept Psychological Influences Attitudes Learning

23 PSYCHOLOGICAL INFLUENCES ON CONSUMER BEHAVIOR Motivation Motivation is an internal energizing force that drives us to satisfy needs Once need exists, a state of tension drives the consumer to some goal that will reduce this tension and eliminate the need Consequently, only unmet needs motivate3 Patronage Motives Motives that influence where a person purchases products on a regular basis

24 PSYCHOLOGICAL INFLUENCES ON CONSUMER BEHAVIOR Perception Motivated person is ready to act. How they act is influenced by perceptions of situation. Information inputs sensations received through sensory receptors: sight, taste, hearing, smell, and touch. Marketers need to understand: Exposure Stimulus must be within sensory receptors Attention Stimulus must attract our attention Interpretation Interpret stimulus as intended

25 The Perception Process Selective exposure The process by which some inputs are selected to reach awareness and others are not focus on vision Selective distortion An individual s changing or twisting of information that is inconsistent with personal feelings or beliefs person selectively interprets information, not consistent with previous experiences. Selective retention Remembering information inputs that support personal feelings and beliefs and forgetting inputs that do not most elements related to a sales pitch forgotten due to high price mentioned.

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31 PSYCHOLOGICAL INFLUENCES ON CONSUMER BEHAVIOR Personality Set of psychological characteristics that result in consistent patterns of behavior. Personality guides behavior. Traits Innovativeness Assertiveness Extroversion Compliance e.g. preference for known brands Aggression e.g. use razor instead of electric shaver

32 PSYCHOLOGICAL INFLUENCES ON CONSUMER BEHAVIOR PERCEIVED RISK Strategies to Reduce Perceived Risk (anxiety associated with possible negative consequence) Obtain Seals of Approval Secure Endorsements Provide Free Trials/Samples Give Extensive Instructions Provide Warranties/Guarantees

33 Minolta Copier This ad seeks to ease perceived risk

34 PSYCHOLOGICAL INFLUENCES ON CONSUMER BEHAVIOR ATTITUDES Lasting evaluation or feeling about a person, object, or idea - Shaped by values and beliefs Marketers try to change attitudes by: Attempting to change beliefs about the extent to which a brand has certain attributes (Gentle Extra Strength Bayer aspirin) Changing the perceived importance of attributes ( Born-on-date important of beer freshness) Adding new attributes to the product (antibacterial this and that)

35 Attitude consists of: Cognitive Knowledge and information Affective Feelings and emotions Behavioral Actions regarding the object or idea

36 PSYCHOLOGICAL INFLUENCES ON CONSUMER BEHAVIOR LIFESTYLES An individual s pattern of living expressed through activities, interests, and opinions Preferences for sports activities, music interests, and political opinions Psychographics is the segmentation tool used to group consumers according to AIOs

37 PSYCHOLOGICAL INFLUENCES ON CONSUMER BEHAVIOR LIFESTYLES

38 SOCIOCULTURAL INFLUENCES ON CONSUMER BEHAVIOR PERSONAL INFLUENCE Opinion Leaders person who influences others attitudes or behaviors because they are perceived as possessing expertise about the product Word of Mouth Buzz

39 Entrepreneurial ideas? Branson

40 Physics ideas? Wineland

41 Fashion ideas? Wang

42 SOCIO-CULTURAL INFLUENCES ON CONSUMER BEHAVIOR REFERENCE GROUPS Membership Group one we belong to Aspiration Group one we want to belong to Dissociative Group one we want to avoid

43 SOCIOCULTURAL INFLUENCES ON CONSUMER BEHAVIOR FAMILY INFLUENCE Consumer Socialization (preferences last a lifetime) Young singles are target for recreational, personal care, and clothing products Young couples with children driven by the needs for kids

44 SOCIOCULTURAL INFLUENCES ON CONSUMER BEHAVIOR SOCIAL CLASS Relatively homogenous divisions in a society into which people who share similar values, interests, and behavior can be grouped. Upper Class financial investment, expensive cars, travel magazines Middle Class home improvements, celebrity magazines Working/Lower Class - tabloids

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46 Organizational Buyer Behavior

47 Objectives To distinguish among the various types of business markets To identify the major characteristics of business customers and transactions To understand several attributes of demand for business products To become familiar with the major components of a buying center To understand the stages of the business buying decision process and the factors affecting this process

48 BUYING JCPENNEY Buying 150,000 tons of paper annually Used for catalogs, newspaper inserts, and direct mail 10 companies from around the world supply paper to JCPenney International Paper (U.S.) Catalyst Paper Inc. (Canada) Stora Enso (Sweden) UPM-Kymmene, Inc. (Finland)

49 BUYING Finnish (or other) GOVERNMENT

50 Business marketing Marketing to organizational buyers (all but ultimate consumers) 1. Industrial (producer) markets They in some way reprocess a product they buy before selling it again to the next buyer Ex. Corning, Inc buys raw materials to make optical fiber 25% sell physical goods 75% provide services 2. Reseller markets Wholesalers and retailers that buy physical products and resell them again without any reprocessing Resellers consider many factors, such as: Level of demand Resale price Space required sales per square foot Supplier s ability to provide adequate quantities when and where needed Ease of placing orders

51 Business marketing Marketing to organizational buyers (all but ultimate consumers) 3. Government markets Federal, state, and local agencies that buy goods for the constituents they serve Although government markets can impose intimidating requirements, they can also be very lucrative 4. Institutional market Institutional markets consist of organizations with charitable, educational, community or other non-business goals Institutions have different goals and fewer resources than other types of organizations

52 This pipe organ producer supplies products mainly to churches? Can you think of other products used mainly by institutional markets?

53 Dimensions of Marketing to Business Customers

54 Transaction Characteristics Transactions between businesses differ from consumer sales in several ways Business orders tend to be much larger Purchases tend to be made by committee Discussions and negotiations can require considerable marketing time and selling effort Reciprocity is an arrangement unique to business markets in which two organizations agree to buy from each other Agreements that threaten competition are illegal but a certain amount still occurs

55 Business Customer Attributes Business customers differ from consumers Better informed Demand more detailed product information Goals of a purchasing agent may include advancement or financial awards Some suppliers and business customers build and maintain mutually beneficial relationships or partnerships

56 Business Customer Concerns Concerns of business customers include Price Influences operating costs, which in turn affect selling price, profit margin and the ability to compete Product quality most firms have standards or specifications they must meet and not exceed Service typically business customers desire market information, inventory maintenance, on-time delivery and repair services Supplier relationships with a strong relationship, buyers can reduce their search efforts and their price uncertainty

57 Business Buying Methods Most business purchasers use one of the following purchase methods: Description used when products are standardized such as agriculture products Inspection used when products have unique characteristics such as buildings or vehicles Sampling used for homogeneous products when examining the entire lot is not feasible such as grain Negotiation used commonly for onetime projects such as buildings or capital equipment

58 Discussion Point Indicate the method of buying (description, inspection, sampling or negotiation) an organization would likely use for each of the following: A building for the home office of a light bulb manufacturer Wool for a clothing manufacturer An Alaskan cruise for a company retreat, booked through a travel agency One-inch nails for a building contractor

59 Buy Classes Straight Rebuy Modified Rebuy New Buy

60 Discussion Point Categorize the following purchases as new-task, modified rebuy or straight rebuy: For 25 years Bob has purchased white toothpicks from Smith Restaurant Supply and recently placed an order for yellow toothpicks For the past year, Jill s investment company has purchased envelopes from AAA Office Supply and now needs to purchase boxes to mail year-end portfolio summaries to clients Reliance Insurance supplies its salespeople with small personal computers to assist in their sales efforts, recently the company agreed to supply them with faster, more sophisticated computers

61 Volvo Aero Chemical Automatics KEY COMPONENTS FOR ROCKET ENGINE ENGINES FOR SPACE VEHICLES Pratt & Whitney Lockheed Martin Boeing SPACE VEHICLES NASA Russian Federal Space Agency JAXA

62 Characteristics of organizational buying behavior DEMAND Derived Demand demand for industrial products and services is driven by demand for consumer products and services.

63 Demand for forestry products is driven by demand for education

64 Characteristics of organizational buying behavior DEMAND Inelastic Demand P = D Inelastic demand means that business customers buy the same quantity whether the price goes up or down Example: A BMW Z4 Roadster has a list price starting at just over $55,000. If the price of tires, batteries, or stereos goes up or down, BMW still must buy enough to meet consumer demand for the Z4. Joint demand occurs when two or more items are used in combination to produce a product

65 Key organizational buying criteria cont. When buying products internationally buying criteria is supplemented with suppliers ISO 9000 standards certification (quality management and assurance system) ISO Supplier development buying criteria become requirements that are communicated to prospective suppliers. Organizational buyer shapes suppliers products, services, and capabilities to fit buyers needs Ex. Deere & Company s supplier-development engineers work with suppliers to improve the efficiency, quality, and reduce their costs Ex. Caterpillar trains its suppliers in just-in-time inventory system Supply partnership when the buyer and supplier adopt mutually beneficial objectives, policies, and procedures in order to lower costs or increase the value of products and services delivered

66 ORGANIZATIONAL BUYING PROCESS 1. Stage 1: Problem Recognition Make-Buy Decision 2. Stage 2: Information Search Value Analysis appraisal of design, quality, performance 3. Stage 3: Alternative Evaluation Bidder s List qualified suppliers Several potential suppliers are identified They are given product/delivery specifications Have to respond with exact specs within 30 days 4. Stage 4: Purchase Decision Could take a long time (also depends on where we are) 5. Stage 5: Postpurchase Behavior Formally examine purchase (has value been provided to organizational buyers?)

67 The Buying Center The people within an organization who make business purchase decisions are called the buying center and includes the following roles: Users members who frequently initiate the purchase, use the product and evaluate the product Influencers technical personnel who develop the specifications and evaluate alternative products Buyers select suppliers and negotiate terms Deciders actually choose the products Gatekeepers control the flow of information to and among people who occupy other roles in the buying center

68 Influences on the Buying Decision