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Consumer Behavior and Defining an Industry

What is consumer behavior?

How do you decide what you want to buy? What other products you consider? Where do you buy? How do you transport products?

How do you use the product? How do you store the product? How much you consume? How the product compares with expectations?

How do you get rid of remaining product? How much you throw away after use? Can you resell items yourself or through a consignment store? How do you recycle some products?

Consumer behavior is affected by consumer influences (personality, motivations, attitudes, etc.) and by organizational influences (advertising, brand, price, etc.)

Decision-process stages
1. 2. 3. 4. 5. Problem recognition Information search Evaluation of alternatives Product choice Outcomes

Involvement impacts every stage of the decision-process:

It is a motivational variable referring to the personal relevance toward an object or activity based on inherent needs, values and interests

Problem solving continuum

Characteristics of purchase decision process Number of brands examined Number of sellers considered Number of product attributes evaluated Number of external information sources uses Time spent searching high Extended problem Many Many Many Many Considerable Consumer involvement Limited problem Several Several Moderate Few Little low Routine problem One Few One None Minimal

Factors determining the level of involvement

Person factors
Needs, importance, values, interests

Object or stimulus
Differentiation of alternatives, source of communication, content of communication

Situational factors
Purchase/use, occasion

Involvement is then led by

Advertisement, which may lead to: Elicitation of counter arguments to ads or effectiveness of ad to induce purchase Products, which may lead to: Relative importance of the product class, perceived differences in product attributes or preference for a particular brand Purchase decision, which may lead to: Influence of price on brand choice, amount of information search, time spent deliberating alternatives or type of decision rule used in choice

High involvement means:

Seeking information, processing it, listening actively to ads, seeking to maximize information, and being influenced by a reference group. This implies performance over price, information promotion and less stores.

Low involvement means:

Gathering information, learning information at random, being a passive audience, seeking acceptable satisfaction, not being influenced by personality and little by a group. This implies key importance of price, promotion bashing and more stores.

Consumer decision rules

There are two types of rules:
Compensatory and non-compensatory The compensatory rule defines attitude towards brand

Attitude scales
Likert scales
Asked to agree or disagree with a statement Easy to prepare and interpret Simple for consumers

Semantic differential scales

Includes bipolar adjectives Relatively easy to construct and administer

Behavior intention scales

Measures likelihood consumers will act a certain way Easy to construct and administer

Constant sum scales

Asked to indicate the relative importance of different product attributes

What is an industry?
Group of organizations offering goods or services that are similar and close substitutes for one another The level of analysis determines what could be classified as direct competitor and what could be classified as substitutes

Analysis and strategy

How to asses and industrys attractiveness: Porters five forces

Threat of new entrants

Bargaining power of buyers

Rivalry among existing industry firms

Bargaining power of suppliers

Threat of substitute products