2009 FIDM/The Fashion Institute of Design & Merchandising BUMT 3850 - Chapter 7 Notes 1 Chapter Understanding Local Buyers Global Marketing, BUMT 3850 Regina Korossy 7 Part of being an effective marketer is understanding (and predicting) buyer behavior. That s what ch. 7 looks at. How marketers tap into the buying habits of local buyers. 1 / 32 2 Culture and Buyer Behavior Marketing & Materialism o Marketing actions are undertaken in the belief that more and better goods will bring an increase in consumers standard of living, an increase in their satisfaction, and perhaps even more happiness. To start out, we must understand that buyers usually buy anything to solve a problem. So marketers try to sell their products to customers with the belief that their goods will increase the buyer s quality of life; it will bring them increased satisfaction; and make them happier individuals. 2 / 32 3 External Influences Culture Economics Technology Politics Local Buyer Behavior Models of Man Buyer characteristics Buyer decision process Buyer Choices Product choice Brand choice Store choice Supplier choice Buyer behavior is influenced by many different factors such as Culture, Economics, Technology, and Politics. We also have the characteristics that make us unique and effect how we make our buying decisions called the Model of Man. So the marketing effort takes all this into consideration and steps in before we make our final buying decision. Local Marketing Effort 3 / 32
4 5 Local Buyer Behavior James Duesenberry: Relative Income hypothesis consumer s well-being is a function of how much income they have relative to their peer groups, not the actual income. Milton Friedman: Permanent income defined as the regularly expected income, is what determines an individual s consumption. Thorstein Veblen: Conspicuous consumption the notion that people make purchases of expensive brands & products in order to display their ability to afford them. Local Buyer Behavior What does the product/service do for the buyer? How does it fit into the consumption and use pattern of the buyer? What are the core benefits? What is the perceived risk and how high is it? The CORE BENEFIT often differs between local markets. The generic function of a product depends more on the local environment than on innate individual preferences. Buyers are GOAL-ORIENTED they buy for a reason. Point is to understand what that reason is. 4 / 32 There are various theories relative to consumer spending and buyer behaviors. Here are just 3 well known ones. James Duesenberry (economist): Relative Income hypothesis consumer s well-being is a function of how much income they have relative to their peer groups, not the actual income. We will spend on how our friends spend rather than how much money wee make. 1. States that individual s attitude toward consumption and saving is dictated more by their income in relation to others than by abstract standard of living. 2. Also states that consumption is not influenced by present income, but by previous levels of consumption (in previous periods). Milton Friedman (American economist): Permanent income (PIH: permanent income hypothesis) says that regularly expected income, is what determines an individual s consumption. Not by current income, but by longer term income expectations. Education and experience play a role. Assumption that we will keep getting paid the same amount of money. Thorstein Veblen (Norwegian/American economist): Conspicuous consumption the notion that people make purchases of expensive brands & products in order to display their ability to afford them. As a method of attaining and sustaining social status (i.e. buying the larger luxury car to show we ve made it. There is a method to the madness!!! Above all buyers are GOAL-ORIENTED they buy for a reason. The marketer's goal is to understand what that reason is!!!! 5 / 32 BUMT 3850 Chapter 7 Notes -- 2
6 There are usually 5 steps to the buyer decision process as shown above. The following slides will review each stage further. Need to get around town Problem recognition Car search Search Narrow down HAPPY can list Make get to school Evaluation of decision and work!!! alternatives Choice Outcomes 6 / 32 7 Problem Recognition o When an individual perceives a difference between an ideal and an actual state of affairs. New products often lead to tension and a recognized problem o It s important to recognize that education about the core benefits might be necessary in order to create a demand for the product. Problem Recognition stage is when an individual perceives a difference between an ideal and an actual state of affairs. New products often lead to tension and a recognized problem. For the local marketed, it s important to recognize that educating the customer about the core benefits might be necessary in order to create a demand for the product. 7 / 32 8 Search o A consumer s search for alternative ways to solve the problem is closely related to his/her level of involvement with the product category. For products with which involvement is high, search tends to be more comprehensive and time consuming. For convenience and habit purchases, the decision process is shorter, with little need for extensive searches or alternative evaluations. o Search intensity is dependent on the perceived availability of the alternative. 8 / 32 The Search stage: Customers will search for alternative ways to solve their problem. How much searching they do will depend on whether the product involvement level is high (such as with a car search) or low (such as for paper towels). For high involvement products the search tends to be more comprehensive and time consuming. For convenience and habit purchases, the decision process is shorter, with little need for extensive searches or alternative evaluations. The search intensity is also dependent on the perceived availability of the alternative. Products with high global brand awareness can overcome that initial distrust for the customer, such as McDonalds vs. some unknown burger place; or Starbucks coffee vs. unknown coffee shop; or Nike tennis shoes vs. a no name tennis shoe. BUMT 3850 Chapter 7 Notes -- 3
9 10 Evaluation of Alternatives o When a new product or service is in the consideration set A highly involved individual will process the available information matching the pros/cons of the alternatives against preferences o Consumers can deal with multi-attribute evaluations in several ways: They can use gradually less-important features to successively screen out alternatives: a hierarchical decision rule. They can consider all features simultaneously: A compensatory rule hard to do. Fishbein s Multi-Attribute Model Social forces Motivation to comply Social norms Multi-attribute evaluation (ΣBI) Preference Behavioral intent Choice Situational factors (P-O-P) B = beliefs about product attributes; I = importance of the beliefs; P-O-P = point of purchase 10 / 32 9 / 32 The Evaluation of Alternatives stage is when we compare the different alternatives. We can do this in two different approaches: We can use gradually less-important features to successively screen out alternatives called a hierarchical decision rule. Or we can consider all features simultaneously, called a compensatory rule which is hard to do. An example of an hierarchical rule would be to determine which car we want to buy based on a list of the various features of that car listed from most to least important to us: MPG, Safety, Color, Price, etc. Martin Fishbein (psychologist) came up with many theories (theory of planned behavior is another theory). One of his theories is called the multi-attribute model. Multi-attribute evaluation is the sum of beliefs and importance of those beliefs. POP or POS Point of sale where the transaction occurs, could mean checkout counter. Lots of money is spent on POS displays to get customers to make a purchase decision at the checkout area. 11 Choice o The final choice of which alternative to select or try is typically influenced by social norms and by situational factors o Social Norms: Where group pressures to comply are strong social norms influence is expected to override multiattributed evaluation. The social norms can be usefully analyzed by the extended Fishbein model The social norms involve two aspects Social forces Motivation to comply 11 / 32 BUMT 3850 Chapter 7 Notes -- 4
12 13 Outcomes The main question about the outcomes revolves around the degree of customer satisfaction, particularly important in mature markets where choices are many and the needs are already well met. Satisfaction engenders loyalty to the brand and the company. Because buying is typically a risky choice between different brands, the marketer has to make sure that the customer does not encounter cognitive dissonance, a sense of possibly making the wrong choice. One approach is to get satisfied customers to endorse the product, a common strategy in advertising. A Strong Brand Simplifies the Decision Process Reduces information search Reduces perceived risk Places a brand in the evoked consideration set more easily Brand loyalty means decisions go fast. A global brand can focus on: Attitudes Norms P-O-P (point-of-purchase promotions) 12 / 32 If a buyer is satisfied with their product choice, then they will be more likely to buy that product again. That creates brand loyalty. However, after making a decision, buyers may have a fear that they have made the wrong choice on a product. This is called cognitive dissonance. Marketers get around cognitive dissonance by offering money back guarantees and getting celebrities to endorse the product. As was mentioned before a strong brand can simplify the decision process for consumers. 13 / 32 14 The Process Problem definition Exploratory Secondary data Qualitative research Marketers use a number of tools to aid them in researching the local market. As you can see from this slide, it is a convoluted and detailed process. Let s take a look at these tools Research design Measurement/ scaling Questionnaire construction Descriptive Causal Consumer surveys Trade surveys Observation Experiments Sampling Causal Models Fieldwork Data analysis 14 / 32 15 Focus Groups Focus groups have become standard for initial exploratory research. In foreign markets, focus groups are relatively inexpensive, can be completed quickly, and can reach local pockets of the market Unfortunately, they can also constitute an unrepresentative sample, because typical screening criteria are incorrect in the new environment or are not implemented correctly. 15 / 32 Focus groups are a form of qualitative research where a group is asked about their attitudes towards a product, service, concept, ad, idea, or packaging. Questions are asked in an interactive group setting. Focus groups have become standard for initial exploratory research. In foreign markets, focus groups have the advantage of being relatively inexpensive, can be completed quickly, and can reach local pockets of the market. Unfortunately, they can also constitute an unrepresentative sample, because typical screening criteria are incorrect in the new environment or are not implemented correctly BUMT 3850 Chapter 7 Notes -- 5
16 Consumer Survey Research Surveys of large (n = 500 and above) random samples drawn from a sampling frame of representative product users. Central importance in marketing research. Cultural problems involved in the typical consumer survey: High context cultures can make understanding of survey responses difficult. At the same time, face-to-face interviews are prone to bias because of demand characteristics. 16 / 32 Consumer survey research is done quite a bit. You start by targeting users of your product and asking them questions about the product or brand. Surveys of large (n = 500 and above) random samples drawn from a sampling frame of representative product users are of central importance in marketing research. One should be mindful of cultural problems involved in the typical consumer survey and should be conducted differently for high context (i.e. Japan and Latin America) vs. low context (USA) cultures: In high context cultures especially one cannot fully understand consumers from their responses to standard survey questions. Even informal face-to-face interviews can also have biases. 17 Trade Surveys Trade surveys of distribution channels and trade associations can provide a good starting point for further data gathering and analysis. In the U.S., the use of middlemen for information about consumers is usually limited to the sales and scanner records of retailers and wholesalers. In countries with less social mobility and less diversity than the U.S., key informants in the trade are good sources of information about buyers. 17 / 32 Surveying your distribution channels and various trade associations can be useful when you re trying to gain data and analysis. In the US we often use middlemen to gather data through sales and scanner records from retailers. In less developed countries, we can use trade associations and distribution channels. 18 Questionaire Construction The questionnaire employed in the typical consumer survey needs to be carefully pre-tested & translated into the foreign language. It should then be back-translated for verification and adjustment. In high context cultures the questionnaires are typically much longer because of the need to establish the proper context for the questions. 18 / 32 BUMT 3850 Chapter 7 Notes -- 6
19 20 Sampling Lack of comprehensive and reliable sampling frames has long been a problem for marketing researchers in many countries. Company s can hire firms that specialize in developing lists for direct marketing and survey research. Still sampling equivalence can be questionable because the appropriate profiles differ (e.g. high income in one country might not be high in another). Fieldwork 19 / 32 Typically handled by a subcontracting marketing research firm, sometimes a full-service advertising agency As economic growth occurs, mature markets will emerge in many countries. It s important to choose a representative sampling to survey. There are companies that specialize in developing lists for direct marketing and survey research. Still sampling equivalence can be questionable because the appropriate profiles differ (e.g. high income in one country might not be high in another). Sometimes the best way to gather information is to go out there and study certain markets ourselves. This can usually be done by subcontracting a marketing research firm or a full-service advertising agency. As the market matures and grown economically there will emerge more differentiated demand different versions of a product in various price points. 20 / 32 21 Understanding Industrial Buyers The Business-to-Business (B2B) Marketing Task: The marketer should help the buying organization succeed. Industrial Buyers are influenced by the same forces as individual consumers, but also conditioned by the organizational culture in which they operate. The organizational culture reflects company policies and ways of making decisions. The industrial buying process involves several stages from problem recognition to performance review. 21 / 32 BUMT 3850 Chapter 7 Notes -- 7
22 Industrial Buyers: Building Relationship Relationship Marketing is important in B2B. o The term is applied to a marketing effort involving: Various personalized services Creation of new and additional services Customizing a company s offering to the needs of a special buyer o Takes a long-term view 22 / 32 23 Relationship Marketing Things a marketer can do to create a workable relationship: o Adopt the buyer s viewpoint. o Accept and demand transparency. o Grow with the relationship. o Be proactive. Always consider how the culture of the nation and the culture of the organization affect relationship marketing. 23 / 32 24 Three Market Environments EMERGING NEW GROWTH MATURE Markets can be describes as emerging, new growth, and mature. The aim in an emerging market is market development with a long time horizon. In a new growth market the goal is to participate and as the market grows, your business will grow as well, all boats rise with the tide. The focus in a mature market is on market share and customer satisfaction. We will look closer at these three types of markets in the following chapters. 24 / 32 25 Dominant Market Features Feature Emerging New Growth Mature cycle stage Growth Mature Life Intro Tariff barriers High Medium Low Nontariff barriers High High Medium Domestic Weak Getting Stronger Strong competition Foreign competitors Weak Strong Strong Financial Institutions Weak Strong Strong Consumer markets Embryonic Strong Saturated Industrial markets Getting stronger Strong Strong Political risk High Medium Low Polical risk High Medium Low 26 Marketing Marketing Strategy Analysis Dominant Marketing Tasks Product/Market Situation Task Emerging New Growth Mature Research focus Feasibility Economics Segmentation Primary data sources Visits Middlemen Respondents Customer analysis Needs Aspirations Satisfaction Segmentation base Income Demographics Life style Strategic focus Marketing development Participation in growth Compete for share Competitive focus Lead/follow Domestic/foreigm Strengths/weaknesses Product line Low end Limited Wide Product design Basic Advanced Adapted New product intro Rare Selective Fast Pricing Affordable Status Value Advertising Awareness Image Value-added Distribution Weak Getting stronger Strong Distribution Build-up Penetrate Convenience Media advertising Weak Strong In store promotion Promotion Awareness Trial Value Service Extra Desired Required BUMT 3850 Chapter 7 Notes -- 8
27 Understanding local markets involves conceptual skills & imaginative rethinking more than new analytical marketing skills. The core benefit of a product or service can vary considerably across countries because of differing environmental conditions surrounding product usage. 28 Consumer behavior concepts and models are useful tools when examining buyers in foreign markets, but underlying cultural assumptions have to be reconsidered. 27 / 32 28 / 32 29 Local market research is difficult because of lack of data, language problems, & cultural differences in how people respond to surveys, but can be done with proper adaptation. 30 In B2B the local marketer should help the buying organization succeed, and make the buyer look good. Firms must take into account the culture of the purchasing agent and the culture of the organization. 29 / 32 30 / 32 31 It is useful to distinguish between three market environments: 1. The mature market, where share and customer satisfaction define the strategies 2. The new growth market, where the global marketer needs to participate & all boats rise with the tide. 3. The emerging market, where the aim is market development with a long time horizon. 32 End of Chapter 7 31 / 32 32/32 BUMT 3850 Chapter 7 Notes -- 9