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Consumer behaviour

Consumer behaviour

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Published by: Shyam Ann on Apr 06, 2011
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Consumer behaviour is the study of when, why, how, and where people do or do not buy product.

It blends elements from psychology, sociology, social anthropology and economics. It attempts to understand the buyer decision making process, both individually and in groups. It studies characteristics of individual consumers such as demographics and behavioural variables in an attempt to understand people's wants. It also tries to assess influences on the consumer from groups such as family, friends, reference groups, and society in general. Customer behaviour study is based on consumer buying behaviour, with the customer playing the three distinct roles of user, payer and buyer. Relationship marketing is an influential asset for customer behaviour analysis as it has a keen interest in the re-discovery of the true meaning of marketing through the re-affirmation of the importance of the customer or buyer. A greater importance is also placed on consumer retention, customer relationship management, personalisation, customisation and one-to-one marketing. Social functions can be categorized into social choice and welfare functions. Each method for vote counting is assumed as social function but if Arrow¶s possibility theorem is used for a social function, social welfare function is achieved. Some specifications of the social functions are decisiveness, neutrality, anonymity, monotonicity, unanimity, homogeneity and weak and strong Pareto optimality. No social choice function meets these requirements in an ordinal scale simultaneously. The most important characteristic of a social function is identification of the interactive effect of alternatives and creating a logical relation with the ranks. Marketing provides services in order to satisfy customers. With that in mind, the productive system is considered from its beginning at the production level, to the end of the cycle, the consumer (Kioumarsi et al., 2009).

but the relation between the stimuli and the response of the consumer. political and cultural circumstances of a society. However. whereas the environmental stimulus are given by social factors.[1] It can be distinguished between interpersonal stimuli (between people) or intrapersonal stimuli (within people). which determines the buyers response. rational decision process. where the focus is not set on the processes inside a consumer. The black box model considers the buyers response as a result of a conscious. The marketing stimuli are planned and processed by the companies. in which it is assumed that the buyer has recognized the problem. The buyers black box contains the buyer characteristics and the decision process. consumer characteristics.[2] The black box model is related to the black box theory of behaviourism.Black box model ENVIRONMENTAL FACTORS Marketing Environmental Stimuli Stimuli Economic Technological Political Cultural Demographic Natural BUYER'S BLACK BOX Buyer Decision Process Characteristics Problem recognition Attitudes Information Motivation search Perceptions Alternative Personality evaluation Lifestyle Purchase decision Knowledge Post-purchase behaviour BUYER'S RESPONSE Product Price Place Promotion Product choice Brand choice Dealer choice Purchase timing Purchase amount The black box model shows the interaction of stimuli. in reality many decisions are not made in awareness of a determined problem by the consumer. based on the economical. decision process and consumer responses. .

and interprets information to create a meaningful picture of the world". selects. Information evaluation At this time the consumer compares the brands and products that are in their evoked set. motives and experiences. Selective comprehension consumer interpret messages in line with their beliefs. organises.Information search Once the consumer has recognised a problem. The marketing organization needs to understand what benefits consumers are seeking and therefore which attributes are most important in terms of making a decision. they search for information on products and services that can solve that problem. . Sources of information include: y y y y Personal sources Commercial sources Public sources Personal experience The relevant internal psychological process that is associated with information search is perception. The selective perception process Stage Description y y y y Selective exposure consumers select which promotional messages they will expose themselves to. attitudes. Selective retention consumers remember messages that are more meaningful or important to them. Selective attention consumers select which promotional messages they will pay attention to. Belch and Belch (2007) explain that consumers undertake both an internal (memory) and an external search. How can the marketing organization increase the likelihood that their brand is part of the consumer's evoked (consideration) set? Consumers evaluate alternatives in terms of the functional and psychological benefits that they offer. Perception is defined as "the process by which an individual receives. and select which sources of information are more effective for the brand. The implications of this process help develop an effective promotional strategy.

ethnicity.Purchase decision Once the alternatives have been evaluated. the organisation can influence the purchase decisions much more easily. The provision of credit or payment terms may encourage purchase. past experience reference groups. locality. Not surprisingly non-store shopping behavior has increasingly been recognized as an important field of investigation. relatively little is known about why consumers purchase products through . has grown in importance and today's consumers have access to a wider and more diverse range of in-home shopping media than ever before. The marketing organization must facilitate the consumer to act on their purchase intention. Sometimes purchase intention does not result in an actual purchase. personality. royalty. attitudes. social class. Foxall (2005) further suggests the importance of the post purchase evaluation and that the post purchase evaluation is key due to its influences on future purchase patterns. beliefs. family. or a sales promotion such as the opportunity to receive a premium or enter a competition may provide an incentive to buy now. sub-culture.Once the integration is achieved. sex and all In most developed countries non-store retailing. Postpurchase evaluation The EKB model was further developed by Rice (1993) which suggested there should be a feedback loop. The organisation can use variety of techniques to achieve this. and feelings. motivation. psychographics (lifestyle). While previous research focused on shopper demographics and low-involvement products. especially shop-at-home television. Consumer behaviour concern with consumer need consumer actions in the direction of satisfying needs leads to his behaviour of every individuals depend on thinking External influences Consumer behaviour is influenced by: culture. lifestyle. Internal influences Consumer behaviour is influenced by: demographics. the consumer is ready to make a purchase decision. The relevant internal psychological process that is associated with purchase decision is integration. knowledge.

After all.as mentioned. Customer relationship management: happy customers = profitable customers Jason Nash Friday 23 May 2008 17:10 Customers. So surely it's not rocket science to try and understand a bit about them: what they like. call them what you will but without them. which ones are more trouble than they're worth and which ones are the best. which ones need a bit more love. product solutions marketing manager. Pareto's age old law says 20% of them bring you 80% of revenue. Implications for travel-marketing practice and research are discussed. Based on exploratory and confirmatory factor analysis. An understanding of things like purchase and payment history as well as specific preferences and business needs can significantly enhance their experience of doing business with you. .especially now. I often ask at customer events how many in the audience can tell me who their most profitable customers are and it's always surprising how few hands go up. four motive factors for the willingness to purchase vacation packages via shop-at-home travel television programs were found.shop-at-home television and a knowledge gap exists in understanding shop-at-home consumer behavior toward complex. the present study investigates the booking motives of shop-at-home travel television program viewers using a sample of 978 consumers. writes Jason Nash. But beyond this. so being able to 'add value' by having all the customer knowledge at your finger tips can only be a good thing. but it is important to understand the impact of these on customer profitability . the ultimate goal should be profitable customers. Microsoft Dynamics CRM. you don't have a business. but it's still surprising how few SMBs are adopting this sort of approach to customer relations. At a basic level. Adopting a choice motivation typology as a framework. it can be hugely beneficial to understand more about the makeup of your customers. There's nothing wrong with this. There's nothing revolutionary about this idea. high-involvement services such as vacation travel. and subsequent cluster analyses identified four significant and distinct buyer groups. in times of economic uncertainty. When attracting new customers and striving to retain existing ones. clients. consumers. there are many offers and incentives that businesses employ to sweeten the deal. there is a lot of analysis that can be done to find out more about individual customer profitability. so knowing which ones they are is important on many levels . happy customers are good customers and usually profitable. Customer satisfaction comes from great customer service.

The proliferation of the internet has changed the playing field and made customer satisfaction all the more important. Kurt Thearling provides a business and technological overview of data mining and outlines how. Multiple spreadsheets. there is often a lack of focus on customer service which is severely impacting this. In addition. despite these 'deals'. once you have these foundations laid then you can start to make use of analysis tools and get some real insight into customer behaviour. but also for identifying which ones the low margin or unprofitable accounts are and. Making sure all the details in your system are accurate and up-to-date relies on a high level of user adoption and that has to be a central consideration when any new system is implemented. The problem comes in assessing the profitability of individual customers and using this analysis in a meaningful way. understanding why. customer needs.technologies and techniques for recognizing and tracking patterns within data . Naturally. However. companies have found that they need to understand their customers better. the trick is to adopt a more sophisticated approach to CRM than is normally considered in order to get this level of analysis around customer profitability. but also realize the challenges of leveraging this knowledge to create intelligent. and CRM systems in particular. data mining can reinforce and redefine customer relationships. along with sound business processes and complementary technologies.helps businesses sift through layers of seemingly unrelated data for meaningful relationships. databases or systems are a familiar feature for many SMBs but it's impossible to do any profitability analysis until you have a single version of the truth. the time frame in which these responses need to be made has been shrinking. proactive pathways back to the customer. Data mining . social networking sites and the like. The first stage is to bring all your data into one place and have trust in its integrity. A customer's continuing business is no longer guaranteed. more importantly. have made it much easier for customers to express their dissatisfaction which can have a negative impact on future profits and brand value.However. play a big part in solving this. and to quickly respond to their wants and needs. It is no longer possible to wait until the signs of customer dissatisfaction are obvious . Blogs. Most marketers understand the value of collecting customer data. technology. This is vital for customer retention. It's only when you're equipped with this level of information then can you really start to assess the success of marketing programmes and pricing offers or judge the strength of a relationship by something more tangible than whether customers come along to corporate hospitality days. Data Mining and Customer Relationships by Kurt Thearling The way in which companies interact with their customers has changed dramatically over the past few years. In this accessible introduction. where they can anticipate. However. As a result. rather than simply react to.

In addition. email. Customers want things that meet their exact needs. Increased marketing costs. more products. You will need to automate: y y y y The Right Offer To the Right Person At the Right Time Through the Right Channel The right offer means managing multiple interactions with your customers.before action must be taken. If you don't react quickly enough. Niche competitors. A successful company needs to reinforce the value it provides to its customers on a continuous basis. meaning that you need to look at multiple criteria when evaluating how to proceed. shopkeepers had no trouble understanding their customers and responding quickly to their needs. More customers. It is now a cliché that in the days of the corner market. etc. Everything costs more. the right channel means that you can interact with your customers in a variety of ways (direct mail. Your interactions with them need to move toward highly segmented marketing campaigns that target individual wants and needs. The right time is a result of the fact that interactions with customers now happen on a continuous basis. Your best customers also look good to your competitors. profitable segments of your market and try to keep the best for themselves. This is significantly different from the past. Interacting with your customers is also not as simple as it has been in the past. To succeed. and less time to react means that understanding your customers is now much harder to do.). the time between a new desire and when you must meet that desire is also shrinking. not things that sort-of fit. more competitors. and would know what to do when a customer walked into the store. Successful companies need to react to each and every one of these demands in a timely fashion. and customers that you have today could vanish tomorrow. This means that the number of products and the number of ways they are offered have risen significantly. your competitors will). Printing. postage. when quarterly mailings were cutting-edge marketing. The right person means that not all customers are cut from the same cloth. You need to make sure that you are choosing the most effective medium for a particular interaction. The attention span of a customer has decreased dramatically and loyalty is a thing of the past. telemarketing. prioritizing what the offers will be while making sure that irrelevant offers are minimized. The market will not wait for your response. companies must be proactive and anticipate what a customer desires. . Streams of new product offerings. Customers and prospective customers want to interact on their terms. A number of forces are working together to increase the complexity of customer relationships: y y y y Compressed marketing cycle times. special offers (and if you don't provide the special offer. Finally. They will focus on small. But today's shopkeepers face a much more complex situation. The shopkeepers would simply keep track of all of their customers in their heads. the customer will find someone who will.

One of your current concerns is customer attention (sometimes known as "churn"). We describe situations in which a better understanding of your customers can provide tangible benefits and a measurable return on investment. they address the broader business and technical issues. In the past. Instead. a pattern might indicate that married males with children are twice as likely to drive a particular sports car than married males with no children. so you need to figure out a cost-effective way of doing this. You are responsible for managing the relationships with the company's cellular telephone customers. and presents it in a relevant way for business users. we hope that you will appreciate that data mining needs to work as part of a larger business process (and not the other way around!). the hyperbole surrounding data mining suggested that it would eliminate the need for statistical analysts to build predictive models. technology automates the mining process. the . The traditional approach to solving this problem is to pick out your good customers (that is. such as their integration into today's complex information technology environments. which has been eating severely into your margins. What Is Data Mining? Data mining. integrates it with commercial data warehouses. An Example Imagine that you are a marketing manager for a regional telephone company. Because data mining software lacks the human experience and intuition to recognize the difference between a relevant and an irrelevant correlation. It is important to realize. this somewhat surprising pattern might be quite valuable. the value that an analyst provides cannot be automated out of existence. The leading data mining products are now more than just modeling engines employing powerful algorithms. For many years. However. If you take nothing else from this book. data mining is not magic.The purpose of this book is to provide you with a thorough understanding of how a technology like data mining can help solve vexing issues in your interactions with your customers. Today. by its simplest definition. However. Data mining uses well-established statistical and machine learning techniques to build models that predict customer behavior. If you are a marketing manager for an auto manufacturer. statistical analysts will remain in high demand. as well as with established business practices. looking for statistically significant patterns. You understand that the cost of keeping customers around is significantly less than the cost of bringing them back after they leave. For example. data warehousing and marketing automation). statisticians have manually "mined" databases. though. automates the detection of relevant patterns in a database. Data mining needs to work with other technologies (for example. that data mining is just a part of the overall process. Analysts will still be needed to assess model results and validate the plausibility of the model predictions.

On the other hand. and radio/television advertising. This involves a number of areas. With this understanding comes the ability to interact with customers in this market. Relevance to a Business Process For data mining to impact a business. Give your customers what they need. so any efforts now would also be wasted. with big spenders receiving the best offers. The key is finding the correct middle ground. It might be months before they have an understanding of your company's value to them. Or. you don't to start the process immediately upon signing a customer up. On the other hand. The way in which data mining impacts a business depends on the business process. Don't worry about the ones who will stay. Take product marketing as an example. By then. You can't wait until a week before a customer's contract and then pitch them an offer in order to prevent them from churning. which could very well come from your understanding of your market and the customers in that market. using a number of channels. This solution is probably very wasteful. The key is determining which type of customer you're dealing with. you might be using data mining to automatically find the optimal point. The issue that must be addressed is that the results of data mining are different from other datadriven business processes. among others. including direct marketing. Or they might simply want a better rate for evening calls because their employer provides the phone and they have to pay for calls outside of business hours. print advertising. Instead of providing the customer with something that is proportional to their value to your company. There are differences between your customers. as we will discuss later. There are undoubtedly many "good" customers who would be willing to stick around without receiving an expensive gift. This persuasion might involve some sort of gift (possibly a new phone) or maybe a discount calling plan. One big spending customer might value the relationship because of your high reliability. The value of the gift might be based on the amount that a customer spends. a customer who takes advantage of all of the latest features and special services might require a new phone or other gift in order to stick around for another year. and you need to understand those differences in order to optimize your relationships. nearly all of the results presented to the user are things that they knew existed in the database already. they have likely decided what they are going to do and you are unlikely to affect their decision at such a late date. Data mining is part of a much larger series of steps that takes place between a company and its customers. It is also important to consider timing in this process. A report showing the breakdown of sales by product line and region is straightforward for the user to . it needs to have relevance to the underlying business process. The customers to concentrate on are the ones that will be leaving. and thus wouldn't need a gift in order to continue with it. telemarketing. you should instead be providing the customer with something proportional to your value to them.ones who spend a lot of money with your company) and try to persuade them to sign up for another year of service. In most standard interactions with customer data. This solution to the churn problem has been turned around from the way in which it should be perceived. not the data mining process. A marketing manager's job is to understand their market.

There's not much for the user to do other than sit back and watch the envelopes go out. There are two parts to this problem: 1) presenting the output of the data mining process in a meaningful way. Mailing costs can often be reduced by an order of magnitude without significantly reducing the response rate. it won't be of any use. The key is to put the user in a context in which they feel comfortable. This is where interaction and context comes in.understand because they intuitively know that this kind of information already exists in the database. Data mining. extracts information from a database that the user did not know existed. the understanding process can get a bit complicated. and 2) allowing the user to interact with the output so that simple questions can be answered. The user needs to view the output of the data mining in a context they understand. It's all in the marketing manager's head. Unless the output of the data mining system can be understood qualitatively. Both of these cases are inextricably linked. Response rates and (probably most importantly) financial indicators (for example. If they can understand what has been discovered. Marketing users need to understand the results of data mining before they can put them into actions. cost. on the other hand. if the user is responsible for ordering a print advertising campaign. Creative solutions to the first part have recently been incorporated into a number of commercial data mining products. etc. profit. For example. If the company sells different products in different regions of the county. A data mining analysis might determine that customers in New York City are now focused in the 30-to-35-year-old age range. Relationships between variables and customer behaviors that are non-intuitive are the jewels that data mining hopes to find. there is no problem translating a display of this information into a relevant understanding of the business process. they can get a list of customers to target (send them a catalog. How does someone actually use the output of data mining? The simplest way is to leave the output in the form of a black box. and return on investment) give the user a sense of context that can quickly ground the results in reality. they will trust it and put it into use. If they take the black box and score a database. whereas previous analyses showed that these customers were primarily aged 22 to 27. understanding customer demographics is critical. and then let them poke and prod until they understand what they didn't see before. Then there's the more difficult way to use the results of data mining: getting the user to actually understand what is going on so that they can take action directly. it is a much bigger leap to take the output of the system and translate it into a solution to a business problem. This can be a very effective approach. Because data mining usually involves extracting "hidden" patterns of customer behavior. Data Mining and Customer Relationship Management Customer relationship management (CRM) is a process that manages the interactions between a . And because the user does not know beforehand what the data mining process has discovered. increase their credit limit. This change means that the print campaign might move from the Village Voice to the New Yorker There's no automated way to do this.).

the more data the better. In the worst cases. increase buying. This . and also to align campaigns more closely with the needs. In theory. and attitudes of customers and prospects. requires significant data about prospective customers and their buying behaviors. manages the campaign directed at the defined market segments." creating a physical file on tape or disk. Recently. which someone then carried to another computer and loaded into the marketing database. To be successful. marketers must feed the results into campaign management software that. identifying market segments. If the necessary information exists in a database. the data mining process can model virtually any customer activity. in turn. and return on investment (ROI). who struggle to sift through the minutiae to find the nuggets of valuable information. the link between data mining and campaign management software was mostly manual. massive data stores often impede marketers. This separation of the data mining and campaign management software introduces considerable inefficiency and opens the door for human errors. How Data Mining Helps Database Marketing Data mining helps marketing users to target marketing campaigns more accurately.company and its customers. In practice. it involved "sneaker net. The first task. which. cross-selling. Typical questions that data mining addresses include the following: · Which customers are most likely to drop their cell phone service? · What is the probability that a customer will purchase at least $100 worth of merchandise from a particular mail-order catalog? · Which prospects are most likely to respond to a particular offer? Answers to these questions can help retain customers and increase campaign response rates. The primary users of CRM software applications are database marketers who are looking to automate the process of interacting with customers. In the past. The key is to find patterns relevant to current business problems. marketers have added a new class of software to their targeting arsenal. as the name implies. Data mining applications automate the process of searching the mountains of data to find patterns that are good predictors of purchasing behaviors. Tightly integrating the two disciplines presents an opportunity for companies to gain competitive advantage. however. After mining the data. Scoring Data mining builds models by using inputs from a database to predict customer behavior. database marketers must first identify market segments containing customers or prospects with high-profit potential. They then build and execute campaigns that favorably impact the behavior of these individuals. wants.

whereas a low score indicates the opposite. branch office. customers of a bank who use the institution only for a checking account. some customers wait for their funds to clear before moving the money quickly into their stock-brokerage or mutual fund accounts outside the bank. and so on. for example. marketing managers can use campaign management software to immediately identify large deposits and trigger a response. . and refinement of possibly tens to hundreds of highly segmented campaigns that run monthly. It manages and monitors customer communications across multiple touch-points. the campaign management software can help measure the profitability and ROI of all ongoing campaigns. Based on the size of the deposit. assessment. Today's campaign management software goes considerably further. After scoring a set of customers. A score (typically a numerical value) is assigned to each record in the database and indicates the likelihood that the customer whose record has been scored will exhibit a particular behavior. daily. This represents a loss of business for the bank. cross-product purchasing. if a model predicts customer attrition. and coordinated messages and value propositions (offers or gifts perceived as valuable) to customers and prospects. the triggered promotion can then provide an appropriate incentive that encourages customers to invest their money in the bank's other products. execution. The software can also run campaigns with multiple "communication points. point of sale. a high score indicates that a customer is likely to leave. and so on. by tracking responses and following rules for attributing customer behavior. customer service." triggered by time or customer behavior such as the opening of a new account. Increasing Customer Lifetime Value Consider. The prediction provided by a model is usually called a score. such as direct mail. The system might automatically schedule a direct mail or telemarketing promotion as soon as a customer's balance exceeds a predetermined amount. The Role of Campaign Management Software Database marketing software enables companies to deliver timely. Campaign management automates and integrates the planning. For example. weekly. these numerical values are used to select the most appropriate prospects for a targeted marketing campaign.behavior might be attrition at the end of a magazine subscription. An analysis reveals that after depositing large annual income bonuses. willingness to use an ATM card in place of a more expensive teller transaction. Finally. or intermittently. To persuade these customers to keep their money in the bank. telemarketing. interactive web. pertinent.

Other representations of the model often incorporate expected costs and expected revenues to provide the most important measure of model quality: profitability. Today. Evaluating the Benefits of a Data Mining Model Figure 1-1. Figure 1-1 Gains Chart The top curve represents the expected response if you allow the model scores to determine the target audience. Ideally. The shaded area between the curve and the line indicates the quality of the model.2 can help determine the number of prospects to include in a campaign. the better the business results.Combining Data Mining and Campaign Management The closer data mining and campaign management work together. The steeper the curve. A profitability graph such as Figure 1." suggests some benefits available through data mining. the number of responses grows linearly with the target size. Under this scenario. campaign management software uses the scores generated by the data mining model to sharpen the focus of targeted customers or prospects. which shows a "gains chart. The target is now likely to include more positive responders than in a random selection of the same size. the better the model. thereby increasing response rates and campaign effectiveness. marketers who build campaigns should be able to apply any model logged in the campaign management system to a defined target segment. Figure 1-2 Profitability Chart . The diagonal line illustrates the number of responses expected from a randomly selected target audience.

and Thinking Machines Corporation. Stephen Smith. Prior to Vertex. and telecommunications. selecting a threshold score of approximately 0. he was Director of Engineering at AnVil. 2000). he was Vice President of Strategic Technology at Capital One.In this example. life sciences. He is currently Head of Decision Sciences for Vertex Data Science. Kurt Thearling has more than fifteen years of experience with analytics and data mining. Kurt Thearling (McGraw Hill. However. Before joining Capital One. utilities. he was Chief Scientist at Wheelhouse. it is easy to see that contacting all customers will result in a net loss. a multi-national business process outsourcer. He received his Ph.8 will maximize profitability. in Electrical Engineering from the University of Illinois and has multiple undergraduate engineering degrees from the University of Michigan. including financial services." . Dun & Bradstreet. Prior to Wheelhouse.D. a marketing technology and services company. where he led the company's technology innovation organization. an in silico drug discovery company focused on the commercial analysis of biological and clinical datasets. insurance. Before AnVil. he held senior technology positions at Xchange. His background includes work in a variety of areas. Excerpted with permission from Building Data Mining Applications for CRM by Alex Berson. He has written numerous articles on the topic of data mining and is a co-author of the book "Building Data Mining Applications for CRM.

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