Topic 1: MMK266 Summary Notes. What is Consumer Behaviour? CONSUMER BEHAVIOUR SUMMARY NOTES

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1 MMK266 Summary Notes Topic 1: What is Consumer Behaviour? Consumer behaviour: Consumer behaviour is defined as the behaviour that consumers undertake in searching for, purchasing, using, evaluating and disposing of the products (and services) that they expect will satisfy their needs. -Consumers have one goal in mind: to obtain goods and services that meet their needs and wants -CB focusses on how consumers make decisions to spend their available resources (eg money and time) on consumption related items. Consumers may face varying problems acquiring products that satisfy their needs and wants. -Insights gained from CB research may make it easier for marketers to target markets and develop appropriate marketing strategies Why we want to understand consumer behaviour? -To get consumers to repeat behaviour -To get consumers to change behaviour -To understand the barriers and facilitators that influence consumer behaviour -To understand how consumers think, feel and behave Personal consumers and organisational consumers: Personal Consumer: Organisational Consumer: -Buys goods and services for his or her own use, for the use by the household, or for a gift to a friend -In all these instances the goods are bought for final use by individuals who are the end user -EG clothes, food, music, automobile. -MAIN FOCUS OF CONSUMER BEHAVIOUR COURSE -Includes all commercial organisations, public sector agencies and institutions who buy products, equipment and services to run their organisations Buyers, payers and users: The person who purchases a product is not always the final user of the product, or the only user of the product. -There are three primary functions in consumer behaviour: Consumer: Buyer: -The person who consumes or uses the product or service -The person who undertakes the activities to obtain the product or service

2 Payer: -The person who provides the money (or object of value) to obtain the product or service -It is important for marketers to identify which person is most likely to influence the purchasing decision Why marketers study consumer behaviour? Consumer preferences and business environments are constantly evolving Marketers are experiencing shorter life cycles for their products. Changing product life cycles: Changing environmental views and concerns: Changing consumer protection and public policy: Growing role of services marketing: Growing role of nonfor-profit and social marketing: Growing role of global marketing: Changing technology: -Products are increasingly modified, improved or replaced by new and substitute products - Concern about environmental deterioration and resource shortages -There has been a growth in green products and green marketing -Considerable attention has been placed on eliminating sources of consumer confusion and deception in marketing stimuli -Public policy makers protect consumer interests -Continues to grow, however, it is quite difficult to market offerings -Organisations in the public and private not-for-profit sectors are increasingly using marketing strategies to target specific groups and markets -EG Schools and universities have developed marketing campaigns to attract students -Increasingly governments are engaging in targeting consumers - Attractiveness of marketing products and services globally to increase sales -However, it is often difficult for these marketers to understand different cultural needs, practices and consumption habits in these markets -There are many futuristic technological innovations that consumers can use -Marketers who are responsive to consumer needs are more likely to succeed -EG Nike s website allows buyers to choose colours of the shoe and put personal designs on the shoe and have it shipped to them -Technology is enabling marketers to build and maintain relationships with consumers on a much more efficient scale -Digital technologies are also enabling marketers to collect and analyze increasingly complex data on consumers -Consumers have more access to information because of technology. They can easily find reviews for products, and compare different products online easily. Market segmentation: To meet the needs of consumers more effectively, organisations have developed a process of market segmentation, which divides their markets into smaller more profitable segments Targeting the specific needs of a firm s target segments is a process known as positioning

3 Philosophical approaches to marketing: Development of the marketing principle: Production concept: Product concept: Selling concept: Marketing concept: Societal marketing concept: -Has the marketing objective of cheap, efficient production and intensive distribution -It is a feasible strategy when demand exceeds supply and when consumers are more focused on obtaining a product rather than its specific features -Based on the assumption that consumers will buy the product that offers them the highest quality, the best performance, and the most features -However, this can result in marketing myopia, which means focusing on the product rather than on what the consumer needs or wants -Focus on aggressive promotion and selling to persuade consumers to buy products. Focus is not so much on improving the product but instead on selling the product -However, if consumers are induced to buy a product that they don t need or want, their unhappiness is likely to be communicated by negative word of mouth. Also it is very likely that a repeat purchase will not occur -Based on the assumption that to be successful, a company must determine the needs and wants of specific target markets and deliver the desired satisfaction better than competition -In other words, produce only what is determined that consumers will buy -It reassesses the traditional marketing concept, to adhere to principles of social responsibility in the marketing of their goods and services. -It still involves meeting the needs of the target market as well as meeting the goals of the marketing firm, but it also focusses on the improvement of society as a whole -However, many firms have been seen to only contribute to social responsibility if it has a positive effect on profits -Societal marketing really requires a long-term perspective

4 Consumer Research: Why consumer research is used? Consumer research provides the basis for the development of new products. It enables marketers to build consumer meaning into the product or service by discovering which attributes are most important to the target market, and then integrating them into the product or service design. -To understand behaviour -Locate target markets -Understand media habits -Determine felt and unfelt needs -How consumers perceive brands -Identify responses before and after marketing promotion A consumer behaviour research study may ask consumers: -What they buy -When they buy -Where they buy -When they buy (eg buy it now, or wait for the price to drop) -How often they buy Types of consumer research: There are two types of research; primary research (ie new specially designed research) or secondary research (ie information already collected for some other purpose). However, the main attention is given to primary research. Primary research is new research especially designed and collected for the purposes of a current research problem. There are two categories of primary research: 1. Qualitative research: -Usually used to understand the issue or discover new ideas, and determine whether people act positively or negatively -EG Focus groups and in depth interviews 2. Quantitative research: -Usually leads to sophisticated statistical analysis with data -There are 3 types of quantitative research: Most CB researchers use a combination of both qualitative and quantitative methods to get the full analysis required

5 Customer value, satisfaction, trust and retention: There is a trend in marketing to focus on improving value to consumers. That is, communicating and delivering value to customers and managing customer relationships in ways that benefit the organisation and its stakeholders. -There are more products in more styles in more versions that are more precisely targeted to the market. As a result the market place is increasingly competitive, and therefore customer satisfaction is important. -It is important for marketers to achieve the full potential of each and every customer Customer value: It can be viewed as the ration between the customer s perceived benefits (economic, functional, psychological) and the resources (monetary, time, effort, psychological) used to obtain those benefits. -In other words what they get vs. what they give. Customer satisfaction: Customer satisfaction is the consumer s perception of the performance of the product or service in relation to his or her expectations. -If exceeded = Very satisfied and delighted customers. Likely to repeat purchases (be loyal) and spread positive word of mouth. -If equalized = Satisfied customers. -If not met = Dissatisfied customers who are unlikely to make a repeat purchase and may spread negative word of mouth. Marketers want to exceed expectations just enough to encourage return purchases. However, if exceeded too much it will impact on business profits. Customer retention: Attempt to make it the best interests of customers to stay with the company rather than switch It is more expensive to win new customers than to keep existing ones -Loyal customers buy more products -Loyal customers are less price sensitive, they are less likely to pay attention to competitors offerings -Loyal customers are cheaper to service, it is easier to determine production, etc -Loyal customers spread positive word-of-mouth. Word-of-mouth from other consumers is the most trusted source of consumer information Sophisticated marketers build selective relationships with customers, depending on where customers rank in terms of profitability Decision Making Model:

6 Input stage: Process stage: Output stage: Firms marketing activities + external sociocultural influences Decision steps + internal psychological factors (modified by experience) Post-decision behaviour (repeat purchase, evaluation) Market Segmentation: Market segmentation (differentiated approach) is the process of dividing a market into distinct subsets of consumers with common needs. Each company identifies the parts of the market it can serve best, and better than the competition. -Without market differentiation the individual would have to make do -Differentiating can take place through many marketing mix elements, including; price, styling, packaging, promotional appeals, distribution, superior service, etc. -Market segmentation benefits both participants in the market place (ie firms and consumers) The opposite (prevailing way) of marketing was through mass marketing, offering the same product to all consumers. The primary advantage of mass marketing is that it costs less, by only using a single standardized product and market strategy. However, the majority of marketers cannot follow this undifferentiated marketing approach Organisations are realizing that they cannot appeal to all individuals (or at least not in the same way) because buyers are too numerous, too widely scattered, and too varied in their needs and purchasing behaviours. Therefore marketers need to segment markets, into smaller profitable segments. Commonality shared with consumers regarding a need or interest constitutes a market segment, enabling the marketer to target consumers with specially designed products and promotional appeals. Targeting: involves selecting one or more of the market segments identified for the company to pursue. Positioning: involves developing a distinct image for the product or service in the mind of the consumer. That is consumers perceive the product as being more beneficial, compared to products offered by competitors. Repositioning: involves changing the promotional appeal, distribution strategy or the price, based on characteristics of the new segment or changing characteristics of the existing segment. Criteria for effective market segmenting: To be an effective market segment, it should be: 1. Identifiable: some variables such as lifestyle are more difficult to identify. 2. Sizeable: must have sufficient people to warrant tailoring product and promotional campaign 3. Stable or growing: try to avoid segments that are unpredictable or are in embracing fads 4. Accessible (reachable): reach those in segment in an economical way 5. Congruent with the marketer s objectives and resources

7 Basis for segmentation: Hybrid segmentation formats use a combination of two or more segmentation bases to create rich and comprehensive profile of particular consumer segments Consumer rooted segmentation criteria: Includes two types of personal attributes: -Facts, which are evidence based and determined through objective categories -Cognitions, which are mostly determined through subjective categories Geographic segmentation: Demographics segmentation: -The market is divided by location. Consumers living in the same area are assumed to share the same needs and wants. There are notable differences between rural and regional, different states, cities, climates, and nations. -It is segmentation based upon the identifiable and measurable statistics of a population (EG age, gender, marital status, income, education) -Demographic information is often the most accessible and cost effective way of identifying a target market. It can identify business opportunities to marketers, resulting from shifts in age, gender, and income distribution -However, demographic segmentation tends to be one-dimensional and does not differentiate between brands. AGE: A consumers age is often a strong determinant of their product choices and consumption patterns. -EG Young adults join health clubs for the desire to look good, where as those over 35 tend to join for dealing with stress, and those over 55 join for physical therapy -A recent segmentation approach is to group individuals into Cohorts. A consumer cohort consists of consumers born during the same period of time and are likely to share similar consumer characteristics. EG Gen Y, Gen X, baby boomers. GENDER: People are usually segmented on the basis on whether they are male or female.

8 Psychographic segmentation (also referred to as lifestyle analysis): Sociocultural segmentation: -Women are still critical family influencers for many products and services used by other family members. EG Women often purchase underwear for their husband. MARITAL STATUS: Can segment on marital status groupings such as; singles, parents, couples, etc. -EG Some marketers are segmenting on the basis of one person households with single serve prepared meals. INCOME, EDUCATION AND OCCUPATION: Many marketers use income because they feel it is a strong indicator of the ability to pay for a particular product or brand. However, this is not always accurate as the actual choice may be based on the consumer s lifestyle, taste, values, etc. -EG Consumers with lower incomes and education tend to spend more time online at home. -Closely aligned with psychological research and identifies relevant aspects of a consumer s personality, buying motives, interests, attitudes, beliefs and values. -EG Respondents are asked to evaluate statements in terms of their degree of agreement (ie strongly agree, disagree, strongly disagree) -Involves segmenting based on group and cultural variables, such as; social class, family life cycle, sub-cultural membership, etc. FAMILY LIFE CYCLE: The family desires different products as they move through the family life cycle. -EG Young singles may need basic furniture for their first flat, while child free parents may refurbish homes with more elaborate pieces of furniture SOCIAL CLASS: People belong to a certain social class (ie low SES, or high SES) -EG Many hotels provide different levels of service to different social classes CULTURE, SUBCULTURE, AND CROSS CULTURE: Members of the same cultural group tend to share common values, beliefs and customs towards consumer practices. Often products alter or reposition themselves in some way to fit into several cultures at once. EG Nestle and positioning of chocolates. Consumption specific segmentation criteria: Use-related segmentation: Benefit segmentation: -Categorizes consumers in terms of product, brand or service usage RATE OF USAGE: Most marketers prefer to target campaigns towards heavy profitable users. However, other marketers take not of the gaps in market coverage for light and medium users. Marketers also consider current versus future potential of consumers. AWARNESS LEVEL: Marketers have to determine whether potential consumers are aware of the product, interested in the product or need to be informed about the product. BRAND LOYALTY: Brand switchers (non-loyal consumers) usually have a different focus in place on low price, deals, etc. USER SITUATION: Under other circumstances, in other situations and on other occasions, the consumer may make different choices. EG it may depend whether it is a weekday or weekend, whether on holiday, whether gift for friend, etc. -Categorizes consumers based on key benefits they look for in

9 Multiple Choice: 1. Consumer Behaviour is the study of behaviour that consumers display in, purchasing, using, and disposing of the products and services that they expect will satisfy their needs. a. searching for; evaluating b. evaluating; searching for c. trialing; evaluating d. finding; suggesting e. trialing; deciding 2. The consumer-oriented philosophy that evolved when marketers realized it would be easier to sell more goods to consumers who had already expressed interest is: a. the selling concept. b. the marketing concept. c. the societal marketing concept. d. the customer satisfaction philosophy. e. the production concept. 3. is the process of dividing a market into distinct subsets of consumers with common needs or characteristics and selecting one or more subsets to target with a distinct marketing strategy. a. Segmentation b. Targeting c. Positioning d. Micromarketing e. None of the above 4. Hasbro, the makers of the popular board game Monopoly brought out a Russian version of the game including Russian street references and adding Russian bear tokens is an example of Hasbro successfully: a. understanding the Russian market. b. differentiating between Russians and Americans. c. using psychographic personality and lifestyle basis of segmentation. d. using sociocultural and cross-cultural affiliation basis for segmentation. e. using psychological segmentation following the Cold War. 5. A new entrant to an industry that is filling a niche not occupied by stronger competitors would likely benefit from marketing. a. cross-cultural

10 Two broad types of needs: 1. Innate (biogenic) needs: 2. Acquired (psychogenic) needs: -Needs that are primary needs in order to sustain life -EG Food, water, shelter, clothing -Needs that are secondary needs that we learn in response to our culture or environment -EG Prestige, affection and learning -Because most needs are acquired; marketers primary focus is to manipulate these needs Wants usually refer to the object or experience that will result in satisfying the need Goals: Goals: are sought-after results of motivated behaviour All behaviour is goal-orientated Marketers are concerned with consumers product specific goals, which is the branded products consumers select to fulfil their needs Needs and goals are interdependent, that is neither exists without the other. However, people are often not as aware of their needs as they are of their goals The selection of goals: The selection of goals depends on: -Personal experiences -Physical capabilities -Goal accessibility (EG having enough money) -Cultural norms and values -Perception of ourselves; the products we would like to own are often perceived in terms of how closely they reflect our self-image Personal goals that focus on extrinsic benefits (such as financial success, social status and being attractive to others) are associated with higher degrees of compulsive buying that goals that stress intrinsic benefits (such as self-acceptance and connection with the community) Positive and negative motivation: Motivation can either be positive or negative in direction Positive goal: -Is a goal towards which behaviour is directed, and thus it is referred to as an approach object -EG One consumer may join a gym in order to get fit