Consumer Behaviour Workbook | Analytics | Consumer Behaviour

Consumer Behavior

Consumer behavior is the study of how people buy, what they buy, when they buy and why they buy. It attempts to understand the buyer decision making process, both individually and in groups. It studies characteristics of individual consumers such as demographics, psycho graphics, and behavioral 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. Activities directly involved in obtaining , consuming and disposing of products and services, including the decision processes that precede and follow these actions. This study draws on concepts from various other disciplines like Psychology, Sociology, Anthropology, Economics and Marketing. 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 behavior 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, personalization, customization and one-toone marketing. Social functions can be categorized into social choice and welfare functions. Each method for vote counting is assumed as a 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). “Belch and Belch” define consumer behaviour as 'the process and activities people engage in when searching for, selecting, purchasing, using, evaluating, and disposing of products and services so as to satisfy their needs and desires'.

Why We Need To Study Consumer Behaviour? You cannot take the consumer for granted any more. Therefore a sound understanding of consumer behaviour is essential for the long run success of any marketing program
“Consumers” or the “Customers” play a very critical role as these are the people who finally BUY the goods & services of the organization, and the firm is always on the move to make them buy so as to earn revenue. It's crucial from both the points of view as given below : 1. From the customers' point of view : Customers today are in a tough spot. Today, in the highly developed & technologically advanced society, the customers have a great deal of choices & options (and often very close & competing) to decide on. 1. They have the products of an extreme range of attributes (the 1st P Product), 2. they have a wide range of cost and payment choices (the 2nd P - Price), 3. they can order them to be supplied to their door step or anywhere else (the 3rd P - Place), 4. and finally they are bombarded with more communications from more channels than ever before (the 4th P - Promotion). How can they possibly decide where to spend their time and money, and where they should give their loyalty ? 1. From the marketers' point of view : "The purpose of marketing is to sell more stuff to more people more often for more money in order to make more profit". This is the basic principle of requirement for the marketers in earlier days where aggressive selling was the aim. Now it can't be achieved by force, aggression or plain alluring. For the customers are today more informed, more knowledgeable, more demanding, more discerning. And above all there is no dearth of marketers to buy from. The marketers have to earn them or win them over. The global marketplace is a study in diversity, diversity among consumers, producers, marketers, retailers, advertising media, cultures, and customs and of course the individual or psychological behaviour. However, despite prevailing diversity, there also are many similarities. The object of the study of consumer behaviour is to provide

conceptual and technical tools to enable the marketer to apply them to marketing practice, both profit & non-profit. The study of consumer behaviour is very important to the marketers because it enables them to understand and predict buying behaviour of consumers in the marketplace; it is concerned not only with what consumers buy, but also with why they buy it, when and where and how they buy it, and how often they buy it, and also how they consume it & dispose it. Consumer research is the methodology used to study consumer behaviour; it takes place at every phase of the consumption process: before the purchase, during the purchase, and after the purchase. Research shows that two different buyers buying the same product may have done it for different reasons, paid different prices, used in different ways, have different emotional attachments towards the things and so on. According to Professor Theodore Levitt of the Harvard Business School, the study of Consumer Behaviour is one of the most important in business education, because the purpose of a business is to create and keep customers. Customers are created and maintained through marketing strategies. And the quality of marketing strategies depends on knowing, serving, and influencing consumers. In other words, the success of a business is to achieve organizational objectives, which can be done by the above two methods. This suggests that the knowledge & information about consumers is critical for developing successful marketing strategies because it challenges the marketers to think about and analyze the relationship between the consumers & marketers, and the consumer behaviour & the marketing strategy. Consumer behaviour is interdisciplinary; that is, it is based on concepts and theories about people that have been developed by scientists, philosophers & researchers in such diverse disciplines as psychology, sociology, social psychology, cultural anthropology, and economics. The main objective of the study of consumer behaviour is to provide marketers with the knowledge and skills, that are necessary to carry out detailed consumer analyses which could be used for understanding markets and developing marketing strategies. Thus, consumer behaviour researchers with their skills for the naturalistic settings of the market are trying to make a major contribution to our understanding of human thinking in general. The study of consumer behaviour helps management understand consumers' needs so as to recognize the potential for the trend of development of change in consumer requirements and new technology. And also to articulate the new thing in terms of the consumers' needs so that it will be accepted in the market well.

The following are a few examples of the benefits of the study of consumer behaviour derived by the different categories of people : 1. A marketing manager would like to know how consumer behaviour will help him to design better marketing plans to get those plans accepted within the company. 2. In a non-profit service organization, such as a hospital, an individual in the marketing department would like to know the patients' needs and how best to serve those needs. 3. Universities & Colleges now recognize that they need to know about consumer behaviour to aid in recruiting students. "Marketing Admissions" has become an accepted term to mean marketing to potential students. Consumer behaviour has become an integral part of strategic market planning. It is also the basis of the approach to the concept of Holistic Marketing. The belief that ethics and social responsibility should also be integral components of every marketing decision is embodied in a revised marketing concept - the societal marketing concept - which calls on marketers to fulfill the needs of their target markets in ways that improve society as a whole.

STUDY OF CONSUMERS PSYCHOLOGY

The study of consumers helps firms and organizations improve their marketing strategies by understanding issues such as how
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The psychology of how consumers think, feel, reason, and select between different alternatives (e.g., brands, products); The psychology of how the consumer is influenced by his or her environment (e.g., culture, family, signs, media); The behavior of consumers while shopping or making other marketing decisions; Limitations in consumer knowledge or information processing abilities influence decisions and marketing outcome; How consumer motivation and decision strategies differ between products that differ in their level of importance or interest that they entail for the consumer; and How marketers can adapt and improve their marketing campaigns and marketing strategies to more effectively reach the consumer.

One "official" definition of consumer behavior is "The study of individuals, groups, or organizations and the processes they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy needs and the impacts that these processes have on the consumer and society." Although it is not necessary to memorize this definition, it brings up some useful points:

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Behavior occurs either for the individual, or in the context of a group (e.g., friends influence what kinds of clothes a person wears) or an organization (people on the job make decisions as to which products the firm should use). Consumer behavior involves the use and disposal of products as well as the study of how they are purchased. Product use is often of great interest to the marketer, because this may influence how a product is best positioned or how we can encourage increased consumption. Since many environmental problems result from product disposal (e.g., motor oil being sent into sewage systems to save the recycling fee, or garbage piling up at landfills) this is also an area of interest. Consumer behavior involves services and ideas as well as tangible products. The impact of consumer behavior on society is also of relevance. For example, aggressive marketing of high fat foods, or aggressive marketing of easy credit, may have serious repercussions for the national health and economy.

There are four main applications of consumer behavior:

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The most obvious is for marketing strategy—i.e., for making better marketing campaigns. For example, by understanding that consumers are more receptive to food advertising when they are hungry, we learn to schedule snack advertisements late in the afternoon. By understanding that new products are usually initially adopted by a few consumers and only spread later, and then only gradually, to the rest of the population, we learn that Companies that introduce new products must be well financed so that they can stay afloat until their products become a commercial success It is important to please initial customers, since they will in turn influence many subsequent customers’ brand choices. A second application is public policy. In the 1980s, Accutane, a near miracle cure for acne, was introduced. Unfortunately, Accutane resulted in severe birth defects if taken by pregnant women. Although physicians were instructed to warn their female patients of this, a number still became pregnant while taking the drug. To get consumers’ attention, the Federal Drug Administration (FDA) took the step of requiring that very graphic pictures of deformed babies be shown on the medicine containers. Social marketing involves getting ideas across to consumers rather than selling something. Marty Fishbein, a marketing professor, went on sabbatical to work for the Centers for Disease Control trying to reduce the incidence of transmission of diseases through illegal drug use. The best solution, obviously, would be if we could get illegal drug users to stop. This, however, was deemed to be infeasible. It was also determined that the practice of sharing needles was too ingrained in the drug culture to be stopped. As a result, using knowledge of consumer attitudes, Dr. Fishbein created a campaign that encouraged the cleaning of needles in bleach before sharing them, a goal that was believed to be more realistic. As a final benefit, studying consumer behavior should make us better consumers. Common sense suggests, for example, that if you buy a 64 liquid ounce bottle of laundry detergent, you should pay less per ounce than if you bought two 32 ounce bottles. In practice, however, you often pay a size premium by buying the larger quantity. In other words, in this case, knowing this fact will sensitize you to the need to check the unit cost labels to determine if you are really getting a bargain.

Consumer Research Methods

Market research is often needed to ensure that we produce what customers really want and not what we think they want. Primary vs. secondary research methods. There are two main approaches to marketing. Secondary research involves using information that others have already put together. For example, if you are thinking about starting a business making clothes for tall people, you don’t need to question people about how tall they are to find out how many tall people exist—that information has already been published by the U.S. Government. Primary research, in contrast, is research that you design and conduct yourself. For example, you may need to find out whether consumers would prefer that your soft drinks be sweater or tarter. Research will often help us reduce risks associated with a new product, but it cannot take the risk away entirely. It is also important to ascertain whether the research has been complete. For example, Coca Cola did a great deal of research prior to releasing the New Coke, and consumers seemed to prefer the taste. However, consumers were not prepared to have this drink replace traditional Coke. Primary Methods. Several tools are available to the market researcher—e.g., mail questionnaires, phone surveys, observation, and focus groups. Surveys are useful for getting a great deal of specific information. Surveys can contain open-ended questions (e.g., “In which city and state were you born? ____________) or closed-ended, where the respondent is asked to select answers from a brief list (e.g., “__Male ___ Female.” Open ended questions have the advantage that the respondent is not limited to the options listed, and that the respondent is not being influenced by seeing a list of responses. However, open-ended questions are often skipped by respondents, and coding them can be quite a challenge. In general, for surveys to yield meaningful responses, sample sizes of over 100 are usually required because precision is essential. For example, if a market share of twenty percent would result in a loss while thirty percent would be profitable, a confidence interval of 20-35% is too wide to be useful. Surveys come in several different forms. Mail surveys are relatively inexpensive, but response rates are typically quite low—typically from 5-20%. Phone-surveys get somewhat higher response rates, but not many questions can be asked because many answer options have to be repeated and few people are willing to stay on the phone for more than five minutes. Mall intercepts are a convenient way to reach consumers, but

respondents may be reluctant to discuss anything sensitive face-to-face with an interviewer. Surveys, as any kind of research, are vulnerable to bias. The wording of a question can influence the outcome a great deal. For example, more people answered no to the question “Should speeches against democracy be allowed? than answered yes to “Should speeches against democracy be forbidden?” For face-to-face interviews, interviewer bias is a danger, too. Interviewer bias occurs when the interviewer influences the way the respondent answers. For example, unconsciously an interviewer that works for the firm manufacturing the product in question may smile a little when something good is being said about the product and frown a little when something negative is being said. The respondent may catch on and say something more positive than his or her real opinion. Finally, a response bias may occur—if only part of the sample responds to a survey, the respondents answers may not be representative of the population. Focus groups are useful when the marketer wants to launch a new product or modify an existing one. A focus group usually involves having some 8-12 people come together in a room to discuss their consumption preferences and experiences. The group is usually led by a moderator, who will start out talking broadly about topics related broadly to the product without mentioning the product itself. For example, a focus group aimed at sugar-free cookies might first address consumers snacking preferences, only gradually moving toward the specific product of sugar-free cookies. By not mentioning the product up front, we avoid biasing the participants into thinking only in terms of the specific product brought out. Thus, instead of having consumers think primarily in terms of what might be good or bad about the product, we can ask them to discuss more broadly the ultimate benefits they really seek. For example, instead of having consumers merely discuss what they think about some sugar-free cookies that we are considering releasing to the market, we can have consumers speak about their motivations for using snacks and what general kinds of benefits they seek. Such a discussion might reveal a concern about healthfulness and a desire for wholesome foods. Probing on the meaning of wholesomeness, consumers might indicate a desire to avoid artificial ingredients. This would be an important concern in the marketing of sugar-free cookies, but might not have come up if consumers were asked to comment directly on the product where the use of artificial ingredients is, by virtue of the nature of the product, necessary.

Focus groups are well suited for some purposes, but poorly suited for others. In general, focus groups are very good for getting breadth—i.e., finding out what kinds of issues are

important for consumers in a given product category. Here, it is helpful that focus groups are completely “open-ended: The consumer mentions his or her preferences and opinions, and the focus group moderator can ask the consumer to elaborate. In a questionnaire, if one did not think to ask about something, chances are that few consumers would take the time to write out an elaborate answer. Focus groups also have some drawbacks, for example:

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They represent small sample sizes. Because of the cost of running focus groups, only a few groups can be run. Suppose you run four focus groups with ten members each. This will result in an n of 4(10)=40, which is too small to generalize from. Therefore, focus groups cannot give us a good idea of: What proportion of the population is likely to buy the product. What price consumers are willing to pay. The groups are inherently social. This means that: Consumers will often say things that may make them look good (i.e., they watch public television rather than soap operas or cook fresh meals for their families daily) even if that is not true. Consumers may be reluctant to speak about embarrassing issues (e.g., weight control, birth control).

Personal interviews involve in-depth questioning of an individual about his or her interest in or experiences with a product. The benefit here is that we can get really into depth (when the respondent says something interesting, we can ask him or her to elaborate), but this method of research is costly and can be extremely vulnerable to interviewer bias. To get a person to elaborate, it may help to try a common tool of psychologists and psychiatrists—simply repeating what the person said. He or she will often become uncomfortable with the silence that follows and will then tend to elaborate. This approach has the benefit that it minimizes the interference with the respondent’s own ideas and thoughts. He or she is not influenced by a new question but will, instead, go more in depth on what he or she was saying. Personal interviews are highly susceptible to inadvertent “signaling to the respondent. Although an interviewer is looking to get at the truth, he or she may have a significant interest in a positive consumer response. Unconsciously, then, he or she may inadvertently smile a little when something positive is said and frown a little when something negative is said. Consciously, this will often not be noticeable, and the respondent often will not consciously be aware that he or she is being “reinforced and “punished for saying positive or negative things, but at an unconscious level, the

cumulative effect of several facial expressions are likely to be felt. Although this type of conditioning will not get a completely negative respondent to say all positive things, it may “swing the balance a bit so that respondents are more likely to say positive thoughts and withhold, or limit the duration of, negative thoughts. Projective techniques are used when a consumer may feel embarrassed to admit to certain opinions, feelings, or preferences. For example, many older executives may not be comfortable admitting to being intimidated by computers. It has been found that in such cases, people will tend to respond more openly about “someone else.” Thus, we may ask them to explain reasons why a friend has not yet bought a computer, or to tell a story about a person in a picture who is or is not using a product. The main problem with this method is that it is difficult to analyze responses. Projective techniques are inherently inefficient to use. The elaborate context that has to be put into place takes time and energy away from the main question. There may also be real differences between the respondent and the third party. Saying or thinking about something that “hits too close to home may also influence the respondent, who may or may not be able to see through the ruse. Observation of consumers is often a powerful tool. Looking at how consumers select products may yield insights into how they make decisions and what they look for. For example, some American manufacturers were concerned about low sales of their products in Japan. Observing Japanese consumers, it was found that many of these Japanese consumers scrutinized packages looking for a name of a major manufacturer— the product specific-brands that are common in the U.S. (e.g., Tide) were not impressive to the Japanese, who wanted a name of a major firm like Mitsubishi or Proctor & Gamble. Observation may help us determine how much time consumers spend comparing prices, or whether nutritional labels are being consulted. A question arises as to whether this type of “spying inappropriately invades the privacy of consumers. Although there may be cause for some concern in that the particular individuals have not consented to be part of this research, it should be noted that there is no particular interest in what the individual customer being watched does. The question is what consumers—either as an entire group or as segments—do. Consumers benefit, for example, from stores that are designed effectively to promote efficient shopping. If it is found that women are more uncomfortable than men about others standing too close, the areas of the store heavily trafficked by women can be designed accordingly. What is being reported here, then, are averages and tendencies in response. The intent is not to find “juicy observations specific to one customer.

The video clip with Paco Under hill that we saw in class demonstrated the application of observation research to the retail setting. By understanding the phenomena such as the tendency toward a right turn, the location of merchandise can be observed. It is also possible to identify problem areas where customers may be overly vulnerable to the “but brush, or overly close encounter with others. This method can be used to identify problems that the customer experiences, such as difficulty finding a product, a mirror, a changing room, or a store employee for help. On line research methods: The Internet now reaches the great majority of households in the U.S., and thus, online research provides new opportunity and has increased in use. One potential benefit of online surveys is the use of “conditional branching.” In conventional paper and pencil surveys, one question might ask if the respondent has shopped for a new car during the last eight months. If the respondent answers “no, he or she will be asked to skip ahead several questions—e.g., going straight to question 17 instead of proceeding to number 9. If the respondent answered “yes, he or she would be instructed to go to the next question which, along with the next several ones, would address issues related to this shopping experience. Conditional branching allows the computer to skip directly to the appropriate question. If a respondent is asked which brands he or she considered, it is also possible to customize brand comparison questions to those listed. Suppose, for example, that the respondent considered Ford, Toyota, and Hyundai, it would be possible to ask the subject questions about his or her view of the relative quality of each respective pair—in this case, Ford vs. Toyota, Ford vs. Hyundai, and Toyota vs. Hyundai. There are certain drawbacks to online surveys. Some consumers may be more comfortable with online activities than others—and not all households will have access. Today, however, this type of response bias is probably not significantly greater than that associated with other types of research methods. A more serious problem is that it has consistently been found in online research that it is very difficult—if not impossible—to get respondents to carefully read instructions and other information online—there is a tendency to move quickly. This makes it difficult to perform research that depends on the respondent’s reading of a situation or product description. On line search data and page visit logs provides valuable ground for analysis. It is possible to see how frequently various terms are used by those who use a firm’s web site search feature or to see the route taken by most consumers to get to the page with the information they ultimately want. If consumers use a certain term frequently that is not used by the firm in its product descriptions, the need to include this term in online content can be seen in search logs. If consumers take a long, “torturous route to information frequently accessed, it may be appropriate to redesign the menu structure

and/or insert hyper links in “intermediate pages that are found in many users routes. Scanner data: Many consumers are members of supermarket “clubs.” In return for signing p for a card and presenting this when making purchases, consumers are often eligible for considerable discounts on selected products. Researchers use a more elaborate version of this type of program in some communities. Here, a number of consumers receive small payments and/or other incentives to sign up to be part of a research panel. They then receive a card that they are asked to present any time they go shopping. Nearly all retailers in the area usually cooperate. It is now possible to track what the consumer bought in all stores and to have a historical record. The consumer’s shopping record is usually combined with demographic information (e.g., income, educational level of adults in the household, occupations of adults, ages of children, and whether the family owns and rents) and the family’s television watching habits. (Electronic equipment run by firms such as A. C. Nielsen will actually recognize the face of each family member when he or she sits down to watch).

It is now possible to assess the relative impact of a number of factors on the consumer’s choice—e.g.,

What brand in a given product category was bought during the last, or a series of past, purchase occasions;

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Whether, and if so, how many times a consumer has seen an ad for the brand in question or a competing one; Whether the target brand (and/or a competing one) is on sale during the store visit; Whether any brand had preferential display space; The impact of income and/or family size on purchase patterns; and Whether a coupon was used for the purchase and, if so, its value.

A “split cable technology allows the researchers to randomly select half the panel members in a given community to receive one advertising treatment and the other half another. The selection is truly random since each household, as opposed to neighborhood, is selected to get one treatment or the other. Thus, observed differences should, allowing for sampling error, the be result of advertising exposure since there are no other systematic differences between groups. Interestingly, it has been found that consumers tend to be more influenced by commercials that they “zap through while channel surfing even if they only see part of the commercial. This most likely results from the reality that one must pay greater attention while channel surfing than when watching a commercial in order to determine which program is worth watching. Scanner data is, at the present time, only available for certain grocery item product categories—e.g., food items, beverages, cleaning items, laundry detergent, paper towels, and toilet paper. It is not available for most non-grocery product items. Scanner data analysis is most useful for frequently purchased items (e.g., drinks, food items, snacks, and toilet paper) since a series of purchases in the same product category yield more information with greater precision than would a record of one purchase at one point in time. Even if scanner data were available for electronic products such as printers, computers, and MP3 players, for example, these products would be purchased quite infrequently. A single purchase, then, would not be as effective in effectively distinguishing the effects of different factors—e.g., advertising, shelf space, pricing of the product and competitors, and availability of a coupon—since we have at most one purchase instance during a long period of time during which several of these factors would apply at the same time. In the case of items that are purchased frequently, the consumer has the opportunity to buy a product, buy a competing product, or buy nothing at all depending on the status of the brand of interest and competing brands. In the case of the purchase of an MP3 player, in contrast, there may be promotions associated with several brands going on at the same time, and each may advertise. It may also be that the purchase was motivated by the breakdown of an existing product or dissatisfaction or a desire to add more capabilities. Physiological measures are occasionally used to examine consumer response. For example, advertisers may want to measure a consumer’s level of arousal during various

parts of an advertisement. This can be used to assess possible discomfort on the negative side and level of attention on the positive side. By attaching a tiny camera to plain eye glasses worn by the subject while watching an advertisement, it is possible to determine where on screen or other ad display the subject focuses at any one time. If the focus remains fixed throughout an ad sequence where the interesting and active part area changes, we can track whether the respondent is following the sequence intended. If he or she is not, he or she is likely either not to be paying as much attention as desired or to be confused by an overly complex sequence. In situations where the subject’s eyes do move, we can assess whether this movement is going in the intended direction. Mind-reading would clearly not be ethical and is, at the present time, not possible in any event. However, it is possible to measure brain waves by attaching electrodes. These readings will not reveal what the subject actually thinks, but it is possible to distinguish between beta waves—indicating active thought and analysis—and alpha waves, indicating lower levels of attention. An important feature of physiological measures is that we can often track performance over time. A subject may, for example, be demonstrating good characteristics—such as appropriate level of arousal and eye movement—during some of the ad sequence and not during other parts. This, then, gives some guidance as to which parts of the ad are effective and which ones need to be reworked. In a variation of direct physiological measures, a subject may be asked, at various points during an advertisement, to indicate his or her level of interest, liking, comfort, and approval by moving a lever or some instrument (much like one would adjust the volume on a radio or MP3 player). Republican strategist used this technique during the impeachment and trial of Bill Clinton in the late 1990s. By watching approval during various phases of a speech by the former President, it was found that viewers tended to respond negatively when he referred to “speaking truthfully but favorably when the President referred to the issues in controversy as part of his “private life.” The Republican researchers were able to separate average results from Democrats, Independents, and Republicans, effectively looking at different segments to make sure that differences between each did not cancel out effects of the different segments. (For example, if at one point Democrats reacted positively and Republicans responded negatively with the same intensity, the average result of apparent indifference would have been very misleading).

Research sequence. In general, if more than one type of research is to be used, the more flexible and less precise method—such as focus groups and/or individual interviews— should generally be used before the less flexible but more precise methods (e.g., surveys and scanner data) are used. Focus groups and interviews are flexible and allow the researcher to follow up on interesting issues raised by participants who can be probed. However, because the sample sizes are small and because participants in a focus group are influenced by each other, few data points are collected. If we run five focus groups with eight people each, for example, we would have a total of forty responses. Even if we assume that these are independent, a sample size of forty would give very imprecise results. We might conclude, for example, that somewhere between 5% and 40% of the target market would be interested in the product we have to offer. This is usually no more precise than what we already reasonably new. Questionnaires, in contrast, are highly inflexible. It is not possible to ask follow-up questions. Therefore, we can use our insights from focus groups and interviews to develop questionnaires that contain specific questions that can be asked to a larger number of people. There will still be some sampling error, but with a sample size of 1,000+ responses, we may be able to narrow the 95% confidence interval for the percentage of the target market that is seriously interested in our product to, say, 17-21%, a range that is much more meaningful. Cautions: Some cautions should be heeded in marketing research. First, in general, research should only be commissioned when it is worth the cost. Thus, research should normally be useful in making specific decisions (what size should the product be? Should the product be launched? Should we charge $1.75 or $2.25?) Secondly, marketing research can be, and often is, abused. Managers frequently have their own “agendas (e.g., they either would like a product to be launched or would prefer that it not be launched so that the firm will have more resources left over to tackle their favorite products). Often, a way to get your way is to demonstrate through “objective research that your opinions make economic sense. One example of misleading research, which was reported nationwide in the media, involved the case of “The Pentagon Declares War on Rush Limbaugh.” The Pentagon, within a year of the election of Democrat Bill Clinton, reported that only 4.2% of soldiers listening to the Armed Forces Network wanted to hear Rush Limbaugh. However, although this finding was reported without question in the media, it was later found that the conclusion was based on the question “What single thing can we do to improve programming?” If you did not write in something like “Carry Rush Limbaugh, you were counted as not wanting to hear him.

Overall Model Of Consumer Behaviour

Overall Model of Consumer Behaviour External Influence
Culture Sub-Culture Demographics Social Status Reference Groups Family Marketing Activities

Decision Process

Self Concept and Learning

Problem Recognition Information Research Alternate Evaluation and Selection Outlet Select and Purchase Post Purchase Processes

Internal Influence
Perception Learning Memory Motives Personality Emotions Attitudes

Influence on the consumer

Often, we take cultural influences for granted, but they are significant. An American will usually not bargain with a store owner. This, however, is a common practice in much of the World. Physical factors also influence our behavior. We are more likely to buy a soft drink when we are thirsty, for example, and food manufacturers have found that it is more effective to advertise their products on the radio in the late afternoon when people are getting hungry. A person’s self-image will also tend to influence what he or she will buy—an upwardly mobile manager may buy a flashy car to project an image of success. Social factors also influence what the consumers buy—often, consumers seek to imitate others whom they admire, and may buy the same brands. The social environment can include both the mainstream culture (e.g., Americans are more likely to have corn flakes or ham and eggs for breakfast than to have rice, which is preferred in many Asian countries) and a subculture (e.g., rap music often appeals to a segment within the population that seeks to distinguish itself from the mainstream population). Thus, sneaker manufacturers are eager to have their products worn by admired athletes. Finally, consumer behavior is influenced by learning—you try a hamburger and learn that it satisfies your hunger and tastes good, and the next time you are hungry, you may consider another hamburger.

Article Based on Consumer Behaviour.

Analyzing consumer behaviour ( Vineet Hemrajani )
(The author is Business Analytics Manager, GE-SBI Credit Cards.) To reap the maximum benefits from data analytics, firms have to invest in the right technology, hire the right people and develop standardized and robust processes of data collection, data retrieval, data analysis and strategy implementation. UNDERSTANDING consumer behaviour is the key to success in the marketplace. Companies are constantly looking at customer behavioral patterns to predict future trends. Among the many tools is data analytics. Broadly speaking, data analytics can be described as the process of collecting, analyzing and using data (related to demographic information, past behaviour trends, etc) to better understand and predict the behaviour of existing and prospective customers for business decision-making. The common tools used to conduct data analytics range from simple cross tabulations and segmentation analysis to more sophisticated statistical methods such as multivariate and logistic regression, discriminant analysis and cluster analysis. In the last few years, optimization tools and machine learning algorithms such as neural networks and genetic algorithms have also been used to perform advanced data analysis. The recent years have seen increased use of data analytics in driving business strategies across various industries. While the data analytics methods have been extensively used in FMCG, pharmaceutic and telecoms companies, their mainstay has been the consumer finance industry. The wide scale applications of predictive data analytics started almost four decades ago in the form of credit scoring models pioneered by Fair, Isaac & Company (FICO) in the United States. These credit scoring models or scorecards were used to predict customer default. Today, the FICO Risk score is the benchmark for credit decision process in the US, so much so that the `Prime' and `Sub Prime' markets are defined on the basis of this score. With the exponential increase in computing power and application of information technology in business processes, more and more data analytics techniques and statistical tools are now being applied for Marketing, Risk Management, Pricing and NPI functions in the consumer finance industry. In India, it is common for major banks and financial services companies to use data analytics to better manage their credit card, housing, personal and auto loan and insurance portfolios. But why are businesses increasingly adopting the use of data analytics in their day-to-day working? Clearly because it allows these firms to predict the behaviour of existing and potential customers. Empowered with this information, firms are able to devise suitable strategies to better manage their respective businesses. On the risk management front, data analytics techniques can help a bank develop an approval strategy for its mortgage and auto loan applications and also help to determine

the optimal lending rate. The same techniques can help an insurance firm decide the premium for its policyholders. The data analytics techniques have been extensively used in the credit card businesses to decide on credit and cash line assignments and dynamic authorization and fraud detection activities. Data analytics is also effectively used in managing the collections functions of the consumer finance companies. Using statistical modelling, the companies are able to predict the likelihood of contacting a customer and chances of receiving a payment from him. This information is helpful in choosing the right collections strategies that optimize collection efficiency and effectiveness. On the marketing side, the use of data analytics in the form of response models helps companies design and execute cross sell, up sell, deep sell and retention strategies. In the long run, creative use of past customer data through predictive modeling helps companies in building powerful and effective analytical CRM (customer relationship management) platforms. These analytical CRM platforms allow firms to make suitable offers to its customers and optimize campaigns through e-mail, direct mail, telemarketing and inbound call channels. Consumer finance companies in the US, where the credit bureaus are fairly developed, use data analytics to evaluate the quality of consumer loan and insurance portfolios during mergers, acquisitions and securitization deals. What do companies need to do to use data analytics effectively? Experts believe that to reap the maximum benefits from data analytics, firms have to invest in the right technology, hire the right people and last but not the least develop standardized and robust processes of data collection, data retrieval, data analysis and strategy implementation. For example, a company may invest in a separate analytics data mart to capture the relevant customer data. This data are mainly of three types: demographic, behavioural and contact information. While demographic data refers to information about customer characteristics like age, income, etc., behavioural data includes information of customer's prior performance like transaction history and delinquency behaviour. Contact information includes history of prior offers and contacts made to the customer. Once the data mart is ready, the company needs to build efficient and robust systems for extracting and analyzing data from the data mart. After the required data analysis is completed and a suitable strategy using data analytics has been devised, it is important to ensure that strategies are implemented efficiently and accurately. The implementation of analytically driven strategies has been rather `painful' process for most companies. However if the right IT infrastructure exists and process planning is rigorous then implementation can be accomplished with minimal disruption of business processes and limited impact on the company's resources. To facilitate easier and faster implementation, software that integrate with a

company's work flow and account receivable systems to implement the risk and marketing strategies are now available. Campaign management packages, systems that enable easy execution and tracking of analytically driven targeted marketing campaigns are also being increasingly used by consumer finance companies. After a particular business strategy (a new risk policy or marketing campaign) has been implemented, the companies need to measure the performance of the business strategy and make sure that the results can be tracked effectively for future use. The process of continuous designing, executing, and tracking and allows companies to `test and learn' and thereby helps them gain a competitive edge. The above process requires firms to make investments in technology — database packages, statistical software, implementation platforms, and reporting and analysis tools. Most major software companies have developed data mining and analytics software, however the use of specialized statistical software such as SAS, SPSS for predictive modelling and of reporting and analysis tools such as Business Objects and COGNOS is common. A team of systems specialists and data analysts is required to develop and maintain efficient data marts and robust implementation and analysis systems. To conduct data analytics, teams of econometric and statistical modellers and business analysts that can effectively perform strategic analysis and build predictive models need to be developed. Major financial services firms in India have built internal data analytics and business intelligence teams of data analysts and statistical modellers that support marketing and risk management activities. A significant number of independent third party data analytics companies that provide end-to-end data analytics solutions have also mushroomed in the last couple of years. The market for consumer finance products is growing at a rapid rate in India. To seize this opportunity, new financial services firms are entering the industry and the existing banks are increasingly focusing on retail portfolios. The pressures to make high profits remain high in the face of increasing competition. For consumer finance companies, use of data analytics is no more a luxury but a necessity. Firms that invest in data analytics now will reap in the benefits for a long time to come.

Major Factors Influencing Consumer Behavior
Consumers do not make their decisions in a vacuum. Their purchases are highly influenced by cultural social, personal, and psychological factors. For the most part, they are “non controllable” by the marketer but must be taken in to account. We want to examine the influence of each factor on a buyer’s behavior. Cultural Factors: In a diversified country like India cultural factors exert the broadest and deepest influence on consumer behavior; we will look at the role played by the buyer’s culture, subculture, and social class. Culture is part of the external influences that impact the consumer. That is, culture represents influences that are imposed on the consumer by other individuals. The definition of culture offered in one textbook is “That complex whole which includes knowledge, belief, art, morals, custom, and any other capabilities and habits acquired by man person as a member of society.” From this definition, we make the following observations:
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Culture, as a “complex whole, is a system of interdependent components. Knowledge and beliefs are important parts. In the U.S., we know and believe that a person who is skilled and works hard will get ahead. In other countries, it may be believed that differences in outcome result more from luck. “Chunking, the name for China in Chinese, literally means “The Middle Kingdom.” The belief among ancient Chinese that they were in the center of the universe greatly influenced their thinking. Other issues are relevant. Art, for example, may be reflected in the rather arbitrary practice of wearing ties in some countries and wearing turbans in others. Morality may be exhibited in the view in the United States that one should not be naked in public. In Japan, on the other hand, groups of men and women may take steam baths together without perceived as improper. On the other extreme, women in some Arab countries are not even allowed to reveal their faces. Notice, by the way, that what at least some countries view as moral may in fact be highly immoral by the standards of another country. For example, the law that once banned interracial marriages in South Africa was named the “Immorality Act, even though in most civilized countries this law, and any degree of explicit racial prejudice, would itself be considered highly immoral.

Culture has several important characteristics:

Culture is comprehensive. This means that all parts must fit together in some logical fashion. For example, bowing and a strong desire to avoid the loss of face are unified in their manifestation of the importance of respect. Culture is learned rather than being something we are born with. We will consider the mechanics of learning later in the course. Culture is manifested within boundaries of acceptable behavior. For example, in American society, one cannot show up to class naked, but wearing anything from a suit and tie to shorts and a T-shirt would usually be acceptable. Failure to behave within the prescribed norms may lead to sanctions, ranging from being hauled off by the police for indecent exposure to being laughed at by others for wearing a suit at the beach. Conscious awareness of cultural standards is limited. One American spy was intercepted by the Germans during World War II simply because of the way he held his knife and fork while eating. Cultures fall somewhere on a continuum between static and dynamic depending on how quickly they accept change. For example, American culture has changed a great deal since the 1950s, while the culture of Saudi Arabia has changed much less.

Dealing with culture. Culture is a problematic issue for many marketers since it is inherently nebulous and often difficult to understand. One may violate the cultural norms of another country without being informed of this, and people from different cultures may feel uncomfortable in each other’s presence without knowing exactly why (for example, two speakers may unconsciously continue to attempt to adjust to reach an incompatible preferred interpersonal distance). Warning about stereotyping. When observing a culture, one must be careful not to over-generalize about traits that one sees. Research in social psychology has suggested a strong tendency for people to perceive an “out group as more homogeneous than an “in group, even when they knew what members had been assigned to each group purely by chance. When there is often a

“grain of truth to some of the perceived differences, the temptation to over-generalize is often strong. Note that there are often significant individual differences within cultures. Cultural lessons. We considered several cultural lessons in class; the important thing here is the big picture. For example, within the Muslim tradition, the dog is considered a “dirty animal, so portraying it as “man’s best friend in an advertisement is counter-productive. Packaging, seen as a reflection of the quality of the “real product, is considerably more important in Asia than in the U.S., where there is a tendency to focus on the contents which “really count.” Many cultures observe significantly greater levels of formality than that typical in the U.S., and Japanese negotiator tend to observe long silent pauses as a speaker’s point is considered. Cultural characteristics as a continuum. There is a tendency to stereotype cultures as being one way or another (e.g., individualistic rather than collectivist). Note, however, countries fall on a continuum of cultural traits. Hofstede’s research demonstrates a wide range between the most individualistic and collectivist countries, for example—some fall in the middle. Hofstede’s Dimensions. Gert Hofstede, a Dutch researcher, was able to interview a large number of IBM executives in various countries, and found that cultural differences tended to center around four key dimensions:

Individualism vs. collectivism: To what extent do people believe in individual responsibility and reward rather than having these measures aimed at the larger group? Contrary to the stereotype, Japan actually ranks in the middle of this dimension, while Indonesia and West Africa rank toward the collectivist side. The U.S., Britain, and the Netherlands rate toward individualism. Power distance: To what extent is there a strong separation of individuals based on rank? Power distance tends to be particularly high in Arab countries and some Latin American ones, while it is more modest in Northern Europe and the U.S. Masculinity vs. femininity involves a somewhat more nebulous concept. “Masculine” values involve competition and “conquering nature by means such as large construction projects, while “feminine values involve harmony and environmental protection. Japan is one of the more masculine countries, while the Netherlands rank relatively low. The U.S. is close to the middle, slightly toward the masculine side. ( The fact that these values are thought of as “masculine or “feminine does not mean that they are consistently held by members of each

respective gender—there are very large “within-group differences. There is, however, often a large correlation of these cultural values with the status of women.

Uncertainty avoidance involves the extent to which a “structured situation with clear rules is preferred to a more ambiguous one; in general, countries with lower uncertainty avoidance tend to be more tolerant of risk. Japan ranks very high. Few countries are very low in any absolute sense, but relatively speaking, Britain and Hong Kong are lower, and the U.S. is in the lower range of the distribution.

Although Hofstede’s original work did not address this, a fifth dimension of long term vs. short term orientation has been proposed. In the U.S., managers like to see quick results, while Japanese managers are known for take a long term view, often accepting long periods before profitability is obtained. High vs. low context cultures: In some cultures, “what you see is what you get” Social Class: Virtually all human societies exhibit social stratification. Stratification sometimes takes the form of a caste system where the member of different caste are reared for certain roles and cannot change their caste membership .More frequently, stratification takes the form of social classes . Social Classes have several characteristics. First, Person with in each social class tend to behave more alike than persons from two different social classes. Second, persons are perceived as occupying inferior or superior positions according to their social class. Third, a person’s social class is indicated by a number of variables, such as occupation, income, wealth, education , and value orientation, rather than by any single variable , fourth, individuals are able to move from one social class to another up or down during their lifetime. The Extent of this mobility varies according to the rigidity of social stratification a given society. Social Factors: A consumer’s behavior is also influenced by social factors, such as the consumer’s reference group, family, and social roles and statuses. Group influences on consumer behavior can impact motivation, values, and individual information processing; they can come from groups to which consumers already belong or from groups to which they aspire to belong (aspirational groups). Groups can exert a

variety of influences on individuals, including: (1) informational influences where the group acts as a source for expert opinions; (2) comparative influences such that the group provides opportunities to manage the individual's self-concept with respect to the group's identity; and, (3) normative influences, whereby the group specifies guidelines and sanctions for appropriate or inappropriate individual behaviors. The influence of groups on consumer behavior tends to vary with a variety of group and product-related factors. For example, the more the group is perceived to be a credible, valued source of approval or disapproval to the consumer, the more likely that consumer is to conform to group values. In addition, the more frequently group members interact, and the more outwardly visible use of the product is to group and non-group members, the greater the group's influence on individual consumption behavior. Family Group: Members of the buyer’s family can exercise a strong influence on the buyer’s behavior. we can distinguish between two families in the buyer’s life . The family of orientation consists of one’s parents. From parents a persons acquires an orientation towards religious, politics, and economics and a sense of personal ambitions, self –worth, and love. Even if the buyer no longer interacts very much with his or her parents, the parents influence on the unconscious behavior of the buyer can be significant. In countries where parents continue to live with their children, their influence can be substantial. In case of expensive products and services, husband and wives engage in more joint decision making. The market needs to determine which member normally has the greater influence in the purchase of a particular products or services. either the husband or the wife , or they have equal influence . The following products and services fall under such: Husband – dominant: life insurance, automobiles, television Wife – dominant: washing machines, carpeting, non –living – room furniture, kitchenware Equal: Living – room furniture, vacation, Housing, outside entertainment.

Internal Influence:
Perception: Perception is how we see ourselves and the world we live in. However, what ends up being stored inside us doesn’t always get there in a direct manner. Often our mental makeup results from information that has been consciously or subconsciously filtered as we experience it, a process we refer to as a perceptual filter. To us this is our reality, though it does not mean it is an accurate reflection on what is real. Thus, perception is the way we filter stimuli (e.g., someone talking to us, reading a newspaper story) and then make sense out of it. Perception has several steps.
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Exposure – sensing a stimuli (e.g. seeing an ad) Attention – an effort to recognize the nature of a stimuli (e.g. recognizing it is an ad) Awareness – assigning meaning to a stimuli (e.g., humorous ad for particular product) Retention – adding the meaning to one’s internal makeup (i.e., product has fun ads)

How these steps are eventually carried out depends on a person’s approach to learning. By learning we mean how someone changes what they know, which in turn may affect how they act. There are many theories of learning, a discussion of which is beyond the scope of this tutorial, however, suffice to say that people are likely to learn in different ways. For instance, one person may be able to focus very strongly on a certain advertisement and be able to retain the information after being exposed only one time while another person may need to be exposed to the same advertisement many times before he/she even recognizes what it is. Consumers are also more likely to retain information if a person has a strong interest in the stimuli. If a person is in need of new car they are more likely to pay attention to a new advertisement for a car while someone who does not need a car may need to see the advertisement many times before they recognize the brand of automobile. Consumer motivation: A marketer's job is to figure out what needs and wants the consumer has, and what motivates the consumer to purchase. Motivation is the drive that initiates all our consumption behaviors, and consumers have multiple motives, or goals. Some of these are overt, like a physiological thirst that motivates a consumer to purchase a soft drink or the need to purchase a new suit for an interview. Other motives are more obscure, like a student's need to tote a Kate Spade bookbag or wear Doc Martens to gain

social approval. Most consumption activities are the result of several motives operating at the same time. Researchers specially trained in uncovering motives often use qualitative research techniques in which consumers are encouraged to reveal their thoughts (cognitions) and feelings (affect) through probing dialogue. Focus groups and in-depth interviews give consumers an opportunity to discuss products and express opinions about consumption activities. Trained moderators or interviewers are often able to tap into preconscious motives that might otherwise go undetected. Sentence completion tasks (e.g., Men who wear Old Spice are . . .) or variants of the Thematic Apperception Tests (TAT), in which respondents are shown a picture and asked to tell a story surrounding it, are additional techniques that provide insight into underlying motives. Consumer motives or goals can be represented by the values they hold. Values are people's broad life goals that symbolize a preferred mode of behaving (e.g., independent, compassionate, honest) or a preferred end-state of being (e.g., sense of accomplishment, love and affection, social recognition). Consumers buy products that will help them achieve desired values; they see product attributes as a means to an end. Understanding the means-end perspective can help marketers better position the product and create more effective advertising and promotion campaigns. Consumer information processing: The consumer information-processing approach aids in understanding consumptive behavior by focusing on the sequence of mental activities that people use in interpreting and integrating their environment. The sequence begins with human perception of external stimuli. Perception is the process of sensing, selecting, and interpreting stimuli in one's environment. We begin to perceive an external stimulus as it comes into contact with one of our sensory receptors—eyes, ears, nose, mouth, or skin. Perception of external stimuli influences our behavior even without our conscious knowledge that it is doing so. Marketers and retailers understand this, and they create products and stores specifically designed to influence our behavior. Fast-food chains paint their walls in "hot" colors, like red, to speed up customer turnover. Supermarkets steer entering customers directly into the produce section, where they can smell and touch the food, stimulating hunger. A hungry shopper spends more money. Close your eyes and think for a moment about the hundreds of objects, noises, and smells surrounding you at this very moment. In order to function in this crowded environment, we choose to perceive certain stimuli while ignoring others. This process is called selectivity. Selectivity lets us focus our attention on the things that provide meaning for interpreting our environment or on the things that are relevant to us,

while not wasting our limited information-processing resources on irrelevant items. Did you even notice that after you decide on, say, Florida, for your vacation destination, there seems to be an abundance of ads for Florida resorts, airline promotions for Florida, and articles about Florida restaurants and attractions everywhere? Coincidence? Not really. There are just as many now as there were before, only now you are selectively attending to them, whereas you previously filtered them out. Marketers continuously struggle to break through the clutter and grab consumers' attention. Advertising and packaging is designed to grab our attention through a host of techniques, like the use of contrast in colors and sound, repetition, and contextual placement. Did you watch TV last night? You may have paid attention to many of the ads you saw during the commercial breaks; you may even have laughed out loud at a few of them. But how many can you recall today? Consumers' ability to store, retain, and retrieve product information is critical to a brand's success. When information is processed, it is held for a very brief time (less than one minute) in working, or shortterm, memory. If this information is rehearsed (mentally repeated), it is transferred to long-term memory; if not, the information is lost and forgotten. Once transferred to longterm memory, information is encoded or arranged in a way that provides meaning to the individual. Information in long-term memory is constantly reorganized, updated, and rearranged as new information comes in, or learning takes place. Information-processing theorists represent the storage of information in long-term memory as a network consisting of nodes (word, idea, or concept) and links (relationships among them). Nodes are connected to each other depending on whether there is an association between concepts, with the length of the linkages representing the degree of the association. Figure 2 illustrates a network model of long-term memory. When Edwin Land invented the first Polaroid instant camera, knowledge structures for cameras changed to reflect the association between photography and instant output. Now, knowledge structures are changing to reflect the new I-Zone camera. The complete network brought to mind when a product is activated is called the product schema. Knowing the set of associations that consumers retrieve from longterm memory about a particular product or category is critical to a successful marketing strategy. For new products or services, marketers must first select the set of associations they want consumers to have. This is called positioning the product, or selecting the brand image. Peak Freans' unique positioning as an adult cookie was accomplished by establishing a link between the concept "serious" and "cookie." The brand position is then translated into clever ads, reinforced on product packaging, and integrated into all promotion and communication strategies. Over time, a brand's image can fade or become diluted. Sometimes consumers associate concepts that are not favorable to a brand. When this occurs, marketers reposition the brand, using advertising and other marketing tools to help consumers create new links to positive association and discard links to the unfavorable ones. In the mid-1990s, Hush Puppies shoes made a comeback

after decades of low sales. Introducing exciting, vibrant colors, Hush Puppies repositioned their basic comfort shoe as fashionable, youth-oriented, and "cool." Strategies for successful brand extensions also depend on the brand schema. Generally speaking, a brand extension is more likely to be successful if the set of associations for the extension matches the set of associations of the core product. Would Lifesavers brand toothpaste sell? Probably not, because the associations for Lifesavers (sweet, candy, sugar, fruity) are not the same as those for toothpaste (mint, clean, noncandy). On the other hand, a Lifesavers brand sugared children's cereal with colorful, fruity rings has a much better match of associations. Attitude formation and change: The set of beliefs consumers have stored in long-term memory provides another critical function to marketers: It provides the basis for a consumer's attitude toward a brand or an ad. An attitude is an overall evaluation of an object, idea, or action. Attitudes can be positive or negative, and weakly or strongly held. The statement "I love Ben & Jerry's Vanilla Toffee Crunch" is a strong, positively valenced attitude toward a product. The statement "I dislike the new Toyota ad" is a weak, negatively valanced attitude toward an advertisement. Marketers work hard to continuously monitor consumer attitudes toward their products. Among other things, attitudes can indicate problems with a product or campaign, success with a product or campaign, likelihood of future sales, and overall strength of the brand or brand equity. A popular perspective is that attitude has three components: cognitive, affective, and co native. The cognitive component reflects the knowledge and beliefs one has about the object (e.g., "Digital Club Network is an on-line live music Internet site."), the affective component reflects feelings (e.g., "I like the Digital Club Network site") and the co native component reflects a behavioral tendency toward the object (e.g., "I will become a registered user of digitalclubnetwork.com"). Thus, attitudes are predispositions to behave in a certain way. If you have a favorable attitude toward a politician, you will likely vote for him or her in the next election. Because of this, many marketers use attitude measures for forecasting future sales. It is important to note, however, that the link between attitudes and behavior is far from perfect. Consumers can hold positive attitudes toward multiple brands but intend to purchase only one. External economic, social, or personal factors often alter behavioral plans. Attitudes are dynamic, which means they are constantly changing. As an individual learns new information, as fads change, as time goes on, the attitudes you once held with confidence may no longer exist. Did you ever look at old photos of yourself and wonder "What was I thinking wearing clothes like that? And look at my hairstyle!"

Buyer Decision Process
Buyer decision processes are the decision making processes undertaken by consumers in regard to a potential market transaction before, during, and after the purchase of a product or service. More generally, decision making is the cognitive process of selecting a course of action from among multiple alternatives. Common examples include shopping and deciding what to eat. Decision making is said to be a psychological construct. This means that although we can never “see” a decision, we can infer from observable behaviour that a decision has been made. Therefore we conclude that a psychological event that we call “decision making” has occurred. It is a construction that imputes commitment to action. That is, based on observable actions, we assume that people have made a commitment to effect the action. In general there are three ways of analyzing consumer buying decisions. They are:

Economic models - These models are largely quantitative and are based on the assumptions of rationality and near perfect knowledge. The consumer is seen to maximize their utility. See consumer theory. Game theory can also be used in some circumstances. Psychological models - These models concentrate on psychological and cognitive processes such as motivation and need recognition. They are qualitative rather than quantitative and build on sociological factors like cultural influences and family influences. Consumer behaviour models - These are practical models used by marketers. They typically blend both economic and psychological models.

Nobel laureate Herbert Simon sees economic decision making as a vain attempt to be rational. He claims (in 1947 and 1957) that if a complete analysis is to be done, a decision will be immensely complex. He also says that peoples' information processing ability is very limited. The assumption of a perfectly rational economic actor is unrealistic. Often we are influenced by emotional and non-rational considerations. When we try to be rational we are at best only partially successful.

Consumer Decision-Making Models, Strategies, and Theories
How do consumers make decisions? This question is at the core of much of marketing examination over the past 60 or 70 years. As marketers manipulate the various principles of marketing, so do the consumers they seek to reach–choosing which products and services to buy, and which not to buy, choosing which brands to use, and which brands to ignore. The focus of this paper is to examine the major decision-making models, strategies, and theories that underlie the decision processes used by consumers and to provide some clarity for marketing executives attempting to find the right mix of variables for their products and services. Three Decision-Making Models Early economists, led by Nicholas Bernoulli, John von Neumann, and Oskar Morgenstern, puzzled over this question. Beginning about 300 years ago, Bernoulli developed the first formal explanation of consumer decision making. It was later extended by von Neumann and Morgenstern and called the Utility Theory. This theory proposed that consumers make decisions based on the expected outcomes of their decisions. In this model consumers were viewed as rational actors who were able to estimate the probabilistic outcomes of uncertain decisions and select the outcome which maximized their well-being. However, as one might expect, consumers are typically not completely rational, or consistent, or even aware of the various elements that enter into their decision making. In addition, though consumers are good at estimating relative frequencies of events, they typically have difficulty translating these frequencies into probabilities. This Utility model, even though had been was viewed as the dominant decision-making paradigm, had serious shortcomings that could not be explained by the model. Nobel Laureate Herbert Simon proposed an alternative, simpler model in the mid-1950s. This model was called Satisficing, in which consumers got approximately where they wanted to go and then stopped the decision-making process. An example of this would be in the search for a new apartment. Under the Utility Theory, consumers would evaluate every apartment in a market, and form a linear equation based on all the pertinent variables, and then select the apartment that had the highest overall utility score. With Satisficing, however, consumers might just evaluate apartments within a certain distance to their desired location, stopping when they found one that was “good enough.” This theory, though robust enough to encompass many of the shortcomings of Utility Theory, still left significant room for improvement in the area of prediction. After

all, if a marketing executive can’t predict consumer behavior, then what use is a decision-making paradigm. Simon and others have extended this area in the investigation of the field of bounded rationality. Following Simon, additional efforts were made to develop better understandings of consumer decision making, extending beyond the mathematical optimization of Utility Theory and the somewhat unsatisfying Satisficing Theory. In the late 1970s, two leading psychologists, Daniel Kahneman and Amos Tversky, developed the Prospect Theory, which expanded upon both the Utility Theory and Satisficing Theory to develop a new theory that encompassed the best aspects of each, while solving many of the problems that each presented. Two major elements that were added by Kahneman and Tversky were the concepts of value (replacing the utility found in Utility Theory) and endowment, in which an item is more precious if one owns it than if someone else owns it. Value provided a reference point and evaluated both gains and losses from that reference point. Additionally, gains and losses have a marginally decreasing increase from the reference point. For example, there is a much greater value for the first incremental gain from the reference point than for subsequent gains. Seven Decision-Making Strategies: What this all led to was the development and exploration of a series of useful consumer decision-making strategies that can be exploited by marketers. For each product, marketers need to understand the specific decision-making strategy utilized by each consumer segment acquiring that product. If this is done, marketers can position their product in such a manner that the decision-making strategy leads consumers to select their product. The first two strategies are called compensatory strategies. In these strategies, consumers allow a higher value of one attribute to compensate for a lesser value of another attribute. For example, if a consumer is looking at automobiles, a high value in gas mileage might compensate for a lower value in seating space. The attributes might have equal weight (EQUAL WEIGHT STRATEGY) or have different weights for the attributes (WEIGHTED ADDITIVE STRATEGY).An example of the latter might be to place twice as much importance on gas mileage than seating space. The next three strategies are called non compensatory strategies. In these strategies, each attribute of a specific product is evaluated without respect to the other attributes, and even though a product may have a very high value on one attribute, if it fails another attribute, it is eliminated from consideration. From Simon, the first of these is SATISFICING, in which the first product evaluated to meet cutoff values for all attributes is chosen, even if it is not the best. The second of these strategies, ELIMINATION BY ASPECTS, sets a cutoff value for the most important attribute, and allows all competing products that meet that cutoff value to go to the next attribute and its cutoff value.

The third strategy, LEXICOGRAPHIC, evaluates the most important attribute, and if a product is clearly superior to others, stops the decision process and selects that product; otherwise, it continues to the next most important attribute. The next two strategies are called partially compensatory strategies, in that strategies are evaluated against each other in serial fashion and higher values for attributes are considered. The first of these strategies is called MAJORITY OF CONFORMING DIMENSIONS, in which the first two competing products are evaluated across all attributes, and the one that has higher values across more dimensions, or attributes, is retained. This winner is then evaluated against the next competitor, and the one that has higher values across more dimensions is again retained. The second partially compensatory strategy is called FREQUENCY OF GOOD AND BAD FEATURES, in which all products are simultaneously compared to the cutoff values for each of their relevant attributes, and the product that has the most “good” features that exceed the cutoff values is the winner. There are other expansions upon these seven basic consumer decision- making strategies, but they are generally captured as shown above. However, two major areas of marketing theory also help to provide additional explanatory power to these strategies. Two Marketing Theories: The first marketing theory is called Consideration. In this theory, consumers form a subset of brands from which the decision-making strategies are applied. For example, if asked to enumerate all the restaurants that one could recall, the list might be quite extensive for most consumers. However, when a consumer first addresses the question of where to dine that evening,a short list of restaurants that are actively considered is utilized for the decision-making process. Multistage decision-making models were summarized by Allan Shocker, in which the increasing complexity of a decision produces more steps in the decision process. In essence, more cognitive effort would be expended in evaluating members of the consideration set and reducing that number to an eventual choice. The second marketing theory is called Involvement, in which the amount of cognitive effort applied to the decision-making process is directly related to the level of importance that the consumer places on acquisition of the specific product. For example, there is rarely a significant amount of decision-making applied to the selection of a pack of chewing gum at the grocery store checkout counter, but there is a much greater amount of decision-making effort applied to the purchase of a new cellphone. This degree of involvement is not necessarily a function of the price, but is more related to the perceived impact on the quality of life of the consumer. The quality of life can come directly from the benefits supplied by the product, or can come

indirectly from the social accolades or sanctions provided by members of the peer group. Summary Application of the three decision making models, the seven decisionmaking strategies, and the two marketing theories can be seen in current efforts by marketing practitioners and academicians to tease apart the complex decisions made by consumers. For example,choice models and conjoint models are multivariate analysis techniques based on these understandings. Consumers are presented with choices in controlled environments that, hopefully, control for other confounding variables, and then the choices are decomposed to understand both the conscious and unconscious elements driving the consumer’s choices. One caveat for practitioners is important to address at this point. When one is attempting to manipulate marketing variables such as price or promotion, or even conduct research into consumer decision-making, it is critical that a solid theoretical base be used. Without this base, the surveys have the potential of producing contradictory or misleading answers, and the attempts to manipulate the variables at hand may produce less.

AIUAPR Model:
Most directly links to the steps in the marketing/promotional process is often seen as the most generally useful:

AWARENESS - before anything else can happen the potential customers must become aware that the product or service exists. Thus, the first task must be to gain the attention of the target audience. All the different models are, predictably, agreed on this first step. If the audience never hears the message, they will not act on it, no matter how powerful it is INTEREST - but it is not sufficient to grab their attention. The message must interest them and persuade them that the product or service is relevant to their needs. The content of the message(s) must therefore be meaningful and clearly relevant to that target audience's needs, and this is where marketing research can come into its own. UNDERSTANDING - once an interest is established, the prospective customer must be able to appreciate how well the offering may meet his or her needs, again as revealed by the marketing research. This may be no small achievement where the advertiser has just a few words, or ten seconds, to convey their message.

ATTITUDES - but the message must go even further; to persuade the reader to adopt a sufficiently positive attitude towards the product or service that he or she will purchase it, albeit as a trial. There is no adequate way of describing how this may be achieved. It is simply down to the magic of the advertiser's art, or based on the strength of the product or service itself. PURCHASE - all the above stages might happen in a few minutes while the reader is considering the advertisement; in the comfort of his or her favorite armchair. The final buying decision, on the other hand, may take place some time later; perhaps weeks later, when the prospective buyer actually tries to find a shop which stocks the product. REPEAT PURCHASE - but in most cases this first purchase is best viewed as just a trial purchase. Only if the experience is a success for the customer will it be turned into repeat purchases. These repeats, not the single purchase which is the focus of most models, are where the vendors focus should be, for these are where the profits are generated. The earlier stages are merely a very necessary prerequisite for this.

This is a very simple model, and as such does apply quite generally. Its lessons are that you cannot obtain repeat purchasing without going through the stages of building awareness and then obtaining trial use; which has to be successful. It is a pattern which applies to all repeat purchase products and services; industrial goods just as much as baked beans. This simple theory is rarely taken any further - to look at the series of transactions which such repeat purchasing implies. The consumer's growing experience over a number of such transactions is often the determining factor in the later - and future - purchases. All the succeeding transactions are, thus, interdependent - and the overall decision-making process may accordingly be much more complex than most models allow for

Problem Recognition:
The Crucial First Stage of the Consumer Decision Process. Problem recognition results when there is a difference between one's desired state and one's actual state. Consumers are motivated to address this discrepancy and therefore they commence the buying process.

Sources of Problem Recognition:
• • • • • •

An item is out of stock Dissatisfaction with a current product or service Consumer needs and wants Related products/purchases Marketer-induced New products

How can you measure problem recognition?

Activity analysis: This method focuses on a particular activity such as preparing dinner, maintaining a lawn, or lighting a fireplace fire. This method attempts to determine what problems the consumer encounters in performing a particular activity. Product analysis: This method focuses on the purchase and/or use of a particular product or brand in an attempt to determine what problems a consumer may encounter in purchasing or using this product. Problem analysis: This method takes an opposite approach in that it starts with a list of problems and asks consumers to indicate activities, products, or brands that are associated with these problems. Human factors research: This approach looks at the capabilities of humans, and attempts to design products in light of these capabilities.

Emotion research: Focus groups and projective techniques are beginning to be used to help us understand the role of emotion in problem recognition.

Ways can marketers react to problem recognition:

Modify the marketing mix (product, price, place or promotion) to resolve a particular problem and improve on the existing level of performance (actual state). In the case of latent problem recognition, the marketer may stimulate problem recognition and direct search, evaluation, and purchase of a product that resolves the problem. For a problem recognition of little importance, the marketer may bring greater attention to this problem (increase its perceived importance) while indicating a solution to this problem. In some instances a marketer may try to either reduce the discrepancy that is the cause of the problem recognition and/or attempt to reduce the importance attached to it, thereby reducing the intensity of the problem. Many cigarette manufacturers attempt to do both in their cigarette advertising.

Generic problem recognition Generic problem recognition refers to a problem that a particular type of product (like milk or tuna) can solve. Selective problem recognition Selective problem recognition refers to a problem that can only be solved by a specific brand or product like Good pasture Milk or Al’s Tuna. Generally, a firm will attempt to influence generic problem recognition when the problem is latent or of low importance and: 1. It is early in the product life cycle. 2. The firm has a very high percentage of the market.
3.

External search after problem recognition is apt to be limited.

4. It is an industry wide cooperative effort.

Causes of problem recognition Problem recognition is a function of the (1) Importance (2) Magnitude of a discrepancy between the desired state and an existing state. Thus, the firm can attempt to influence the size of the discrepancy by altering the desired state or the perceptions of the existing state. Or, the firm can attempt to influence the perception of the importance of an existing discrepancy. Marketers often advertise the benefits their products will provide, hoping that these benefits will become desired by consumers. It is also possible to influence perceptions of the existing state through advertisements. Many personal care and social products take this approach. "Even your best friend won't tell you . . .”or “Kim is a great worker but this coffee . . .” are examples of messages designed to generate concern about an existing state. Suppress problem recognition? Advertisements can be designed that will aid in the suppression of problem recognition. Such an ad would directly or indirectly indicate that a potential problem is not really a problem. Some would say that ads showing healthy active people smoking cigarettes is an attempt to suppress problem recognition about health and smoking. Also, effective quality control, distribution, packaging, and package inserts are commonly used for this purpose. Information Search: Seeking Value The information search stage clarifies the options open to the consumer and may involve. Once the consumer has recognized a problem, they search for information on products and services that can solve that problem. Belch and Belch (2007) explain that consumers undertake both an internal (memory) and an external search. Sources of information include:
• •

Personal sources Commercial sources

• •

Public sources Personal experience

The relevant internal psychological process that is associated with information search is perception. Perception is defined as 'the process by which an individual receives, selects, organizes, and interprets information to create a meaningful picture of the world' The selective perception process Stage Description - Selective exposure consumers select which promotional messages they will expose themselves to. - Selective attention consumers select which promotional messages they will pay attention to - Selective comprehension consumer interpret messages in line with their beliefs, attitudes, motives and experiences - Selective retention consumers remember messages that are more meaningful or important to them The implications of this process help develop an effective promotional strategy, and select which sources of information are more effective for the brand CV.

Two steps of information search

Internal search

Scanning one’s memory to recall previous experiences with products or brands. Often sufficient for frequently purchased products.

External search

• • •

When past experience or knowledge is insufficient The risk of making a wrong purchase decision is high The cost of gathering information is low.

The primary sources of external information are: 1. Personal sources, such as friends and family. 2. Public sources, including various product-rating organizations such as Consumer Reports. 3. Marketer-dominated sources, such as advertising, company websites, and salespeople

ALTERNATIVE EVALUATION
At this time the consumer compares the brands and products that are in their evoked set. 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. The marketing organization needs to understand what benefits consumers are seeking and therefore which attributes are most important in terms of making a decision.

The information search clarifies the problem for the consumer by (1) Suggesting criteria to use for the purchase. (2) Yielding brand names that might meet the criteria. (3) Developing consumer value perception.

A consumer's evaluative criteria represent both • the objective attributes of a brand (such as locate speed on a portable CD player) • the subjective factors (such as prestige). These criteria establish a consumer's evoked set • the group of brands that a consumer would consider acceptable from among all the brands in the product class of which he or she is aware

Measurement of Evaluative Criteria:

Direct methods: • ask consumers what information they use in a particular purchase • observe what consumers say about products and their attributes; e.g., focus groups Indirect methods:

projective techniques: allow a person to indicate what criteria someone else might use

perceptual mapping: consumers judge the similarity of alternative brands (often by ranking), which is processed by a computer to derive a spatial configuration

Purchase decision:
Once the alternatives have been evaluated, the consumer is ready to make a purchase decision. The process of going to the shop to buy the product, which for some consumers can be as just as rewarding as actually purchasing the product. Purchase of the product can either be through the store, the web, or over the phone. Sometimes purchase intention does not result in an actual purchase. The marketing organization must facilitate the consumer to act on their purchase intention. The provision of credit or payment terms may encourage purchase, or a sales promotion such as the opportunity to receive a premium or enter a competition may provide an incentive to buy now. The relevant internal psychological process that is associated with purchase decision is integration.

Purchase Decision: Buying Value

Three possibilities

From whom to buy

which depends on such considerations • Terms of sale • Past experience buying from the seller • Return policy.

When to buy

which can be influenced by • store atmosphere • time pressure • a sale • pleasantness of the shopping experience.

Do not buy

Post-purchase Behavior: Value in Consumption or Use
Ever have doubts about the product after you purchased it? This simply is post purchase behaviour and research shows that it is a common trait amongst purchasers of products. Manufacturers of products clearly want recent consumers to feel proud of their purchase, it is therefore just as important for manufacturers to advertise for the sake of their recent purchaser so consumers feel comfortable that they own a product from a strong and reputable organization. This limits post purchase behaviour. i.e. You feel reassured that you own the latest advertised product. It is common for customers to experience concerns after making a purchase decision. This arises from a concept that is known as “cognitive dissonance”. The customer, having bought a product, may feel that an alternative would have been preferable. In these circumstances that customer will not repurchase immediately, but is likely to switch brands next time. To manage the post-purchase stage, it is the job of the marketing team to persuade the potential customer that the product will satisfy his or her needs. Then after having made a purchase, the customer should be encouraged that he or she has made the right decision. It is not effected by advertisement.

After buying a product, the consumer compares it with expectations and is either satisfied or dissatisfied. Satisfaction or dissatisfaction affects • consumer value perceptions • consumer communications • repeat-purchase behavior.

Many firms work to produce positive post purchase communications among consumers and contribute to relationship building between sellers and buyers. Cognitive Dissonance. The feelings of post purchase psychological tension or anxiety a consumer often experiences Firms often use ads or follow-up calls from salespeople in this post purchase stage to try to convince buyers that they made the right decision.

• •

Customer Relationship Management
Customer relationship management is a broadly recognized, widelyimplemented strategy for managing and nurturing a company’s interactions with customers and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales related activities, but also those for marketing, customer service, and technical support. The overall goals are to find, attract, and win new customers, nurture and retain those the company already has, entice former customers back into the fold, and reduce the costs of marketing and customer service. According to Forrester Research, spending on customer relationship management is expected to top $11 billion annually by 2010, as enterprises seek to grow top-line revenues, improve the customer experience, and boost the productivity of customerfacing staff Overview Once simply a label for a category of software tools, CRM has matured and broadened as a concept over the years. Today, customer relationship management generally denotes a company-wide business strategy embracing all customer-facing departments and even beyond. When an implementation is effective, people, processes, and technology work in synergy to develop and strengthen relationships, increase profitability, and reduce operational costs. Challenges Tools and work flows can be complex to implement, especially for large enterprises. While some companies report great success, initiatives have also been

known to fail—mainly owing to poor planning, a mismatch between software tools and company needs, roadblocks to collaboration between departments, and a lack of workforce buy-in and adoption.[citation needed] Tools and Trends Previously these tools were generally limited to contact management: monitoring and recording interactions and communications with customers. Software solutions then expanded to embrace deal tracking and the management of accounts, territories, opportunities, and—at the managerial level—the sales pipeline itself. Next came the advent of tools for other customer-facing business functions, as described below. Perhaps the most notable trend has been the growth of tools delivered via the Web, also known as cloud computing and software as a service (SaaS). In contrast with conventional on-premises software, cloud-computing applications are sold by subscription, accessed via a secure Internet connection, and displayed on a Web browser. Companies don’t incur the initial capital expense of purchasing software; neither must they buy and maintain IT hardware to run it on. For these and other reasons, the SaaS option has proven very attractive, and SaaS applications have garnered a large share of the market. They are currently its fastest-growing segment. Vendors include: Salesforce.com, RightNow and SugarCRM. CRM technology has been, and still is, offered as on-premises software that companies purchase and run on their own IT infrastructure. Vendors include: Oracle Corporation, SAP AG, and Amdocs. In 2009, SaaS represented approximately 20% of all customer relationship management spending, and continued its trajectory of outselling on-premises software by a ratio of 3-to-1. Types/variations Sales Force Automation As its name implies, a sales force automation (SFA) system provides an array of capabilities to streamline all phases of the sales process, minimizing the time that reps need to spend on manual data entry and administration. This allows them to successfully pursue more customers in a shorter amount of time than would otherwise be possible. At the heart of SFA is a contact management system for tracking and recording every stage in the sales process for each prospective customer, from initial contact to final disposition. Many SFA applications also include features for opportunity management, territory management, sales forecasting and pipeline, work flow automation, quote generation, and product knowledge. Newly-emerged priorities are modules for Web 2.0 e-commerce and pricing management. Marketing Systems for marketing (also known as marketing automation) help the enterprise identify and target its best customers and generate qualified leads for the sales

team.A key marketing capability is managing and measuring multichannel campaigns, including email, search, social media, and direct mail. Metrics monitored include clicks, responses, leads, deals, and revenue. Marketing automation also encompasses capabilities for managing customer loyalty, lists, collateral, and internal marketing resources. As marketing departments are increasingly obliged to demonstrate revenue impact, today’s systems typically include performance management features for measuring the ROI of campaigns.

Customer Service and Support: Recognizing that customer service is an important differentiator, organizations are increasingly turning to technology platforms to help them improve their customers’ experience while increasing efficiency and keeping a lid on costs. Even so, a 2009 study revealed that only 39% of corporate executives believe their employees have the right tools and authority to solve customer problems.“. The core for customer service has been and still is comprehensive call center management, including such features as intelligent call routing, computer telephone integration (CTI), and escalation capabilities. More recently, e-service capabilities—Web self-service, knowledge management, email response management, Web chat, collaborative browsing and virtual assistants—are gaining in importance. In fact, today’s profusion of customer service channels has prompted many companies to deploy integrated support applications that deliver knowledge-enabled solutions across all of them. Another key trend is the increasing popularity of SaaS platforms for customer service, owing to their rapid deployment, low initial cost, and now-established efficacy for large and complex contact centers. Analytics Relevant analytics capabilities are often interwoven into applications for sales, marketing, and customer service. These features can be complemented and augmented with links to separate, purpose-built applications for analytics and business intelligence. Sales analytics let companies monitor and understand customer actions and preferences, through sales forecasting, data quality management, and dashboards that graphically display key performance indicators (KPIs). Marketing applications generally come with predictive analytics to improve customer segmentation and targeting, and features for measuring the effectiveness of online, off line, and search marketing campaign Web analytics have evolved

significantly from their starting point of merely tracking mouse clicks on Web sites. By evaluating customer “buy signals,” marketers can see which prospects are most likely to transact and also identify those who are bogged down in a sales process and need assistance. Marketing and finance personnel also use analytics to assess the value of multi-faceted programs as a whole. Customer service analytics are increasing in popularity as companies demand greater visibility into the performance of call centers and other support channels, in order to correct problems before they affect customer satisfaction levels. Support-focused applications typically include dashboards similar to those for sales, plus capabilities to measure and analyze response times, service quality, agent performance, and the frequency of various customer issues. Integrated/Collaborative Departments within enterprises—especially large enterprises—tend to function in their own little worlds. Traditionally, inter-departmental interaction and collaboration have been infrequent and rivalries not uncommon. More recently, the development and adoption of the tools and services has fostered greater fluidity and cooperation among sales, customer service, and marketing. This finds expression in the concept of collaborative customer relationship management, which uses technology to build bridges between departments. The objective is sharing and harnessing information from all quarters to improve the quality of customer service, and increase customer satisfaction and loyalty as a result. For example, feedback from a technical support center can enlighten marketers about specific services and product features customers are asking for. Similarly, demand generation strategies need to marry marketing programs with structured sales processes —that is, campaign-engendered leads must be quickly and efficiently funneled to sales. Reps, in their turn, want to be able to pursue these opportunities without the time-wasting burden of re-entering records and contact data into a separate SFA system. Conversely, lack of integration can have negative consequences: If a sales force automation or customer relationship management system isn’t adopted and integrated among all departments, several sources might contact the same customers for an identical purpose. Owing to these and related factors, many of the top-rated and most popular products come as integrated suites. Despite all this, many companies are still not fully leveraging these tools and services to align marketing, sales, and service to best serve the enterprise and its customers. Often, implementations are fragmented; isolated initiatives by individual departments to address their own needs. Systems that start disunited usually stay that way: Siloed thinking and decision processes frequently lead to separate and incompatible systems, an incomplete customer view, and dysfunctional processes.

Small Business Basic customer management can be accomplished by a contact management system, an integrated solution that lets organizations and individuals efficiently track and record customer and supplier interactions, including emails, documents, jobs, faxes, scheduling, and more. This kind of solution is gaining traction with even very small businesses, thanks to the ease and time savings of handling customer contact through a centralized application rather than several different pieces of software, each with its own data collection system. In contrast with contact managers, bona fide customer relationship management tools usually focus on accounts rather than individual contacts. They also generally include opportunity management for tracking sales pipelines plus added functionality for marketing and customer service. As with larger enterprises, small businesses are finding value in online management solutions, especially for mobile and telecommuting workers. Social Media Social media sites like Twitter and Facebook are greatly amplifying the customer voice in the marketplace, and are predicted to have profound and far-reaching effects on the ways companies manage their customer relationships. This is because customers are using these social media sites to share opinions and experiences on companies, products, and services. As social media isn’t moderated or censored, individuals can say anything they want about a company or brand, whether pro or con. Increasingly, companies are looking to gain access to these conversations and take part in the dialog. More than a few systems are now integrating to social networking sites. Social media promoters cite a number of business advantages, such as using online communities as a source of high-quality leads and a vehicle for crowd sourcing solutions to customer-support problems. Companies can also leverage customers’ stated habits and preferences to personalize and even “hyper-target” their sales and marketing communications. Some analysts take the view that business-to-business marketers should proceed cautiously when weaving social media into their business processes. These observers recommend careful market research to determine if and where the phenomenon can provide measurable benefits for customer interactions, sales, and support. Strategy Choosing and implementing a system is a major undertaking. For enterprises of any appreciable size, a complete and detailed plan is required to obtain the funding, resources, and company-wide support that can make the initiative successful.

Benefits must be defined, risks assessed, and cost quantified in three general areas: • Processes: Though customer relationship management has many technological components, business processes lie at its core. It can be seen as a more customercentric way of doing business, enabled by technology that consolidates and intelligently distributes pertinent information about customers, sales, marketing effectiveness, responsiveness, and market trends. Therefore, before choosing a technology platform, a company needs to analyze its business work flows and processes; some will likely need re-engineering to better serve the overall goal of winning, managing, and satisfying customers. Moreover, planners need to determine the types of customer information that are most relevant, and how best to employ them. • People: For an initiative to be effective, an organization must convince its staff that change is good and that the new technology and work flows will benefit employees as well as customers. Senior executives need to be strong and visible advocates who can clearly state and support the case for change. Collaboration, teamwork, and two-way communication should be encouraged across hierarchical boundaries, especially with respect to process improvement. • Technology: In evaluating technology, key factors include alignment with the company’s business process strategy and goals; the ability to deliver the right data to the right employees; and sufficient ease of use that users won’t balk. Platform selection is best managed by a carefully chosen group of executives who understand the business processes to be automated as well as the various software issues. Depending upon the size of the company and the breadth of data, choosing an application can take anywhere from a few weeks to a year or more. Implementation Implementation Issues Many enterprises have derived great benefit from customer relationship management: dramatic increases in revenue, higher rates of customer satisfaction, and significant savings in operating costs. For others, however, the benefits have been limited and disappointing. Under-performing deployments peaked in the early 2000’s, when a number of companies spent large sums on CRM only to have it fail to deliver the hoped-for results. Proponents emphasize that technology should be implemented only in the context of careful strategic and operational planning. Implementations almost invariably fall short when one or more facets of this prescription are ignored: • Poor planning: Initiatives can easily fail when efforts are limited to choosing and deploying software, without an accompanying rationale, context, and support for the work force.In other instances, enterprises simply automate flawed customerfacing processes rather than redesign them according to best practices.[8]

Poor adoption: In an early-2000’s survey of more than 600 enterprises, Gartner reported that 42% of all purchased licenses had become “shelf-ware”—software paid for but never installed. This often stems from a poor technology fit: A company compromises on capabilities or else tries to achieve too much in a single stroke, ending up with an overly complex and costly deployment that yields scant ROI. Poor integration: For many companies, customer relationship management manifests in the form of piecemeal initiatives that address a glaring need: improving a particular customer-facing process or two (via simple contact management or sales planning), or automating a favored sales or customer support channel. Such “point solutions” offer little or no integration or alignment with a company’s overall strategy. They offer a less than complete customer view and often lead to unsatisfactory user experiences. Toward a solution: overcoming siloed thinking. Experts advise organizations to recognize the immense value of integrating their customer-facing operations. In this view, internally-focused, department-centric views should be discarded in favor of reorienting processes toward information-sharing across marketing, sales, and service.[8] For example, sales representatives need to know about current service issues and relevant marketing promotions before attempting to cross-sell to a specific customer. Marketing managers should be able to leverage customer information from sales and service to better target campaigns and offers. And support agents require quick and complete access to a customer’s sales and service history.

Adoption Issues Historically, the landscape is littered with instances of low adoption rates. In 2003, a Gartner report estimated that more than $1 billion had been spent on software that wasn’t being used. A contemporaneous AMR Research study found that of 80 large customers surveyed, 47% had difficulty with end-user adoption, leading to abandoned projects or unused software modules. More recent research indicates that the problem, while perhaps less severe, is a long way from being solved. According to a CSO Insights less than 40 percent of 1,275 participating companies had end-user adoption rates above 90 percent. In a 2007 survey from the U.K., four-fifths of senior executives reported that their biggest challenge is getting their staff to use the customer relationship management systems they’d installed. Further, 43 percent of respondents said they use less than half the functionality of their existing system; 72 percent indicated they’d trade functionality for ease of use; 51 percent cited data synchronization as a major issue; and 67 percent said that finding time to evaluate systems was a major problem. With expenditures expected to exceed $11 billion in 2010, enterprises need to address and overcome persistent adoption challenges. Specialists offer these recommendations for boosting adoptions rates and coaxing users to blend these tools into their daily work flow:

Choose a system that’s easy to use: All customer relationship management solutions are not created equal. Some vendors offer more user-friendly applications than others, and simplicity should be as important a decision factor as functionality. • Choose the right capabilities: Employees need to know that time invested in learning and usage will yield personal advantages. If not, they will work around or ignore the system. • Provide training: Changing the way people work is no small task, and help is usually a requirement. Even with today’s more usable customer relationship management systems, many staffers still need assistance with learning and adoption. Provide consistent support. Prompt, expert, always-accessible technical support goes a long way to facilitate use and confidence with a new system.

Privacy and data security system One of the primary functions of CRM software is to collect information about customers. When gathering data as part of a CRM solution, a company must consider the desire for customer privacy and data security, as well as the legislative and cultural norms. Some customers prefer assurances that their data will not be shared with third parties without their prior consent and that safeguards are in place to prevent illegal access by third parties. Market structures The following table lists the top CRM software vendors in 2006-2008 (figures in millions of US dollars) published in Gartner studies. Vendor 2008 Revenue 1,475 2,055 2008 2007 Share (%) Revenue 16.1 1,319.8 22.5 2,050.8 10.6 4.9 6.4 39.6 100 676.5 421.0 332.1 3,289.1 8,089.3 2007 2006 Share (%) Revenue 16.3 1,016.8 25.3 1,681.7 8.3 5.2 4.1 40.6 100 451.7 365.9 176.1 2,881.6 6,573.8 2006 Share (%) 15.5 26.6 6.9 5.6 2.7 43.7 100

Oracle SAP Salesforce.co 965 m Amdocs 451 Microsoft 581 Others 3,620 Total 9,147

The following table lists of the top software vendors for CRM projects completed in 2006 using external consultants and system integrators, according to a 2007 Gartner study.

Case Study
Levi strauss & Co. The marketer has to learn about the needs and changing of the consumer behaviour and practice the Marketing Concept. Levi strauss & Co. were selling jeans to a mass market and did not bother about segmenting the market till their sales went down. The study into consumer behaviour showed their greatest market of the baby boomers had outgrown and their NEEDs had changed. They therefore came out with Khaki or dockers to different segments and comfortable action stocks for the consumers in the 50 age group. Thus by separating the market and targetting various groups and fulfilling their needs, they not only made up for the lost sales but far exceeded the previous sales. They also targeted the women consumers for jeans and both men and women started wearing jeans in greater numbers. The offering given by the company must be enlarged to suit various segments. Maruti Udyog For example Maruti Udyog Ltd has come out with many models. Maruti 800, Maruti Van, Zen, Alto, Veagon R, Versa Gypsy, Esteem, Boleno and other models. For successful marketing one should: 1. Find consumer needs of various segments. 2. Position Products (new & existing) to these segments. 3. Develop strategies for these segments. Practice greater selectivity in advertising and personal selling and creating more selective media and distribution outlets.

Consumer perceptions on the incorporation of established brands : The acquisition of Body Shop by L’Oréal This thesis aims at investigating consumers’ perceptions on the incorporation of an established brand and how the general attitude and buying behaviour is altered in the course of an acquisition. The combination of two or more brands in a newly formed conglomerate implies a combination of values, principles and associations that might affect a company’s appeal. Therefore, underlying reasons for M&As will be elaborated upon as well as branding concepts based on brand image, loyalty and reputation in order to bridge the two theoretical areas with a case study. The acquisition of Body Shop International by L’Oréal represents the practical case, which will be analysed in reference to consumers’ reactions towards it. Quantitative consumer questionnaires will be conducted in order to collect representative data on consumers’ perceptions and associations of the brand Body Shop. Moreover, an expert interview with a Body Shop representative will be executed in order to add the company’s perspective. By analysing the results of the questionnaire, the thesis reveals an observable trend towards a correlation of the awareness of the acquisition and a negative shift in customer perception. The buying behaviour is however not found to be influenced by the combination of the two firms. In conclusion, it can be stated that the need for preacquisition analysis regarding strategic fit and compatibility of values and associations is assured. The study clearly identifies that brand dilution is a possible threat for established brands and implies the risk of lost credibility and loyalty. The Role of Cultural Differences in the Product and Promotion Adaptation Strategy: A L'Oreal Paris Case Study Nowadays, firms are becoming more and more global. However, are consumers becoming global too? Therefore, the challenge for the firms consists in determining if they should adapt their products or if they should consider the consumers as being global, and keep their product standardized. The purpose of this paper is to investigate adaptation strategy in South Korea, Japan and People’s Republic of China (PRC) for make-up products and its promotion considering the influence of culture on the consumer behaviour. This is studied referring to the European market. L’Oréal Paris is used as an example to illustrate the study. This study is a case study about L’Oréal Paris. To conduct it, we chose to use qualitative interviews and document analysis. Different kinds of interviews have been done in order to know more about the company adaptation strategy, the culture and the consumer behaviour in Asia. Written sources as external documents from L’Oréal Paris, websites,

press articles, scientific articles and literature have been used to complete the primary data. Culture is a system of meanings shared by members of a group. It is an important part of marketing because it influences the consumers’ wants and needs and because it impacts on the interpretations of products’ communication. This demonstrates that the culture impacts consumer behaviour. The study of the consumer behaviour conducts companies to adapt their products features, their packaging, their symbolic attributes, their service attributes and their promotion. The empirical data comes from various sources. We interviewed three managers from L’Oréal Paris and as well girls from the following nationalities: three Japanese girls, one Chinese girl and two Korean girls. We also interviewed a specialist of cosmetics. All these interviews were conducted in order to answer our objectives. The interviews with the Asian girls and with the specialist of cosmetics were conducted in order to collect data on the culture and on the consumer behaviour. The interviews with the managers of L’Oréal Paris were conducted in order to collect data on their adaptation and standardization strategies on the studied markets. Cultural aspects impact directly or indirectly on the consumer behaviour. The culture diversity creates the consumer behaviour diversity as it can be noticed in South Korea, Japan and PRC where the culture and the behaviours are very different than in Europe. L’Oréal Paris is trying to know more about these consumer behaviour differences in order to answer the consumers’ demands and to adapt its products and promotion strategy. L’Oréal Paris is adapting some elements of its product range and its promotion. The three countries studied are very different culturally speaking. However, the adaptations on products and promotion made by L’Oréal Paris do not take fully into account these cultural and consumer behaviour differences. Moreover, many promotion and products aspects are standardized. Thus, the L’Oréal Paris adaptation strategy in the Asian zone is a mix between standardization and adaptation. In its adaptation strategy, the firm considers some elements of the consumer behaviour therefore of the culture. To conclude, the cultural differences may influence the make-up products and promotion adaptation strategy. Practice what you preach!? : A study of the gap between attitude and behaviour towards organic milk The trend of environmentally friendly consumption permeates our whole society and the general attitude towards the consumption of it is strongly positive. However, the existence of an attitude-behaviour gap became clear to us since the actual green consumption does not reflect the positive attitude. In this thesis focus is on one specific product - organic milk. Therefore, the purpose of this thesis is to explain the dissonance

between attitude and behaviour towards organic milk. In order to reach our purpose we chose to perform a pilot study targeting students at the University of Linkoping. Both qualitative and quantitative methods have been used in the collection of data. It has been done using a survey and interviews. We were able to establish the existence of an attitude-behaviour gap towards organic milk amongst students at the university, and that this gap in fact arises before an intention to buy organic milk is even formed. Since a behavioral intention is not formed, an actual corresponding behaviour will not occur. The attitude-behaviour gap is explained by the fact that other factors than attitude influence the formation of the intention. In this case the factors strongly counteracting the attitude are consumer habits, social influence, to what extent the consumer feels an ethical obligation to buy organically and whether the consumer identifies herself with the issue. Together, these factors are so strong that they succeed in neutralizing the positive attitude.

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