UNIT 1

Consumer Behavior: Its Origins and Strategic Applications

1. Consumer behavior has changed dramatically in the past decade.

2. For example, the use of the Internet has allowed consumers to order online,
receive information without leaving their homes, and sell products without
advertising in the local newspaper.
3. All of these new ways of selling products and services became available to
consumers during the past fifteen years and are the result of digital technologies.
They exist today because they reflect an understanding of consumer needs and
consumer behavior.
4. Consumer behavior is defined as the behavior that consumers display in
searching for, purchasing, using, evaluating, and disposing of products and services
that they expect will satisfy their needs.

a) Consumer behavior focuses on how individuals make decisions to spend their

available resources on consumption-related items.
b) As consumers, we play a vital role in the health of the economy—local, national,
and international.
c) Marketers need to know everything they can about consumers.
d) Marketers need to understand the personal and group influences that affect
consumer decisions and how these decisions are made.
e) Marketers need to not only identify their target audiences, but they need to
know where and how to reach them.
5. The term consumer behavior is often used to describe two different kinds of
consuming entities: the personal consumer and the organizational consumer.
a) The personal consumer buys goods and services for his or her own use, for the
use of the household, or as a gift for a friend.
i) Products are bought for final use by individuals (referred to as end users or
ultimate consumers).
b) The organizational consumer—includes profit and not-for-profit businesses,
government agencies, and institutions, all of which must buy products, equipment,
and services in order to run their organizations6. Despite the importance of both
categories of consumers, individuals and organizations,

DEVELOPMENT OF THE MARKETING CONCEPT AND THE DISCIPLINE OF CONSUMER

BEHAVIOR
1. The field of consumer behavior is rooted in the marketing concept, a business
orientation that evolved in the 1950s through several alternative approaches
toward doing business referred to, respectively, as the production concept, the
product concept, and the selling concept.

2. The production concept is characterized as the concept used by Henry Ford in the
early 1900s. Ford produced a car for $850 in an era when only the wealthy could
afford a car. The assembly line concept allowed him to reduce the price to $360.
Because of Ford’s products, Americans developed the nation’s extensive highway
system and, eventually, suburbs and their adjacent shopping malls. The production
concept assumes that consumers are mostly interested in product availability at low
prices.Implicit marketing objectives are cheap, efficient production, and intensive
distribution systems. This concept makes sense when consumers are more
interested in obtaining the product than they are in specific features.

3. The product concept assumes that consumers will buy the product that offers
them the highest quality, the best performance, and the most features.
A product orientation leads the company to strive constantly to improve the quality
of its product and to add new features that are technically feasible without finding
out first whether or not consumers really want these features.This concept leads to
“marketing myopia,” that is, a focus on the product rather than on the consumer
needs it presumes to satisfy. Railroads are often used as an example of marketing
myopia, more modern example of marketing myopia might be the PDA.

4. The selling concept is a natural extension of the production and product

concepts. In this concept, marketing’s primary focus is selling the product(s) that it
has unilaterally decided to produce. A hard sell approach is often used to persuade
consumers to buy something (even if they do not really want it). A negative of this
concept is that consumers may not return for repeat sales because they may not
have wanted the product to begin with. This approach is typically used by the
marketers of unsought goods (such as life insurance).

5.The Marketing Concept

The field of consumer behavior is rooted in a marketing strategy that evolved in

the late 1950s. Instead of trying to persuade customers to buy what the firm had
already produced, marketing-oriented firms found that it was a lot easier to
produce only products they had first confirmed, through research, that consumers
wanted.This consumer-oriented concept came to be known as the marketing
concept. Consumer needs and wants became the firm’s primary focus.

The key assumption To be successful, a company must determine the needs and
wants of specific target markets and deliver the desired satisfactions better than
the competition.The marketing concept is based on the premise that a marketer
should make what it can sell, instead of trying to sell what it has made.
a) The older selling concept focused on the needs of the seller.
b) The marketing concept focuses on the needs of the buyer.

Implementing the Marketing Concept

1. The widespread adoption of the marketing concept by American business fed the
need to study consumer behavior.
2. They discovered that consumers were highly complex individuals, subject to a
variety of psychological and social needs quite apart from their survival needs.The
needs and priorities of different consumer segments differed dramatically, and in
order to design new products and marketing strategies that would fulfill consumer
needs, they had to study consumers and their consumption behavior in depth.
3. The term consumer research represents the process and tools used to study
consumer behavior.

Segmentation, Targeting, and Positioning

1. The focus of the marketing concept is consumer needs.

2. The marketer must adapt the image of its product so that each market segment
perceives the product as better fulfilling its specific needs than competitive
products.
a) The three elements of this strategic framework are: market segmentation,
targeting, and positioning.
3. Market segmentation is the process of dividing a market into subsets of
consumers with common needs or characteristics.
4. Market targeting is the selection of one or more of the segments identified for
the company to pursue.
5. Positioning refers to the development of a distinct image for the product or
service in the mind of the consumer, an image that will differentiate the offering
from competing ones and squarely communicate to the target audience that the
particular product or service will fulfill their needs better than competing brands.
a) Successful positioning centers around two key principles:
i) The first principle says that the marketer should communicate the benefits that
the product will provide rather than the product’s features.
ii) The second principle states that because there are many similar products in
almost any marketplace, an effective positioning strategy must develop and
communicate a “unique selling Proposition”—a distinct benefit or point of
difference—for the product or service.

The Marketing Mix

1. The marketing mix consists of a company’s service and/or product offerings to

consumers and the methods and tools it selects to accomplish the exchange.
2. Four basic elements (known as the four Ps) include:
a) The product—features, designs, brands, packaging, etc.
b) The price—list price (including discounts, allowances, and payment methods)
c) The place—distribution of the product or service
d) Promotion—advertising, sales promotion, public relations, and sales efforts
designed to build awareness of and demand for the product or service

CUSTOMER VALUE, SATISFACTION, AND RETENTION

1. Since the 1950s many companies have successfully adopted the marketing
concept.
2. The marketplace is now increasingly competitive.
3. Savvy marketers today realize that in order to outperform competitors they must
achieve full profit potential from each and every consumer.
a) An exchange with a consumer is part of a customer relationship, not just a
transaction.
4. Three drivers of successful relationships between marketers and consumers are:
a) Customer value
b) High levels of customer satisfaction
c) Building a structure of customer retention

Providing Customer Value

Customer value is defined as the ratio between the customer’s perceived benefits
(economic, functional, and psychological) and the resources (monetary, time,
effort, psychological) used to obtain those benefits.Perceived value is relative and
subjective.Developing a value proposition is the core of successful positioning.
Customer Satisfaction

1. Customer satisfaction is the individual’s perception of the performance of the

product or service in relation to his or her expectations.
2. The concept of customer satisfaction is a function of customer expectations.
3. With respect to customer satisfaction there might be several types of customers:
a) Loyalists—completely satisfied customers who keep purchasing
b) Apostles—those whose experiences exceed their expectations and who provide
very positive word of mouth about the company to others
c) Defectors—those who feel neutral or merely satisfied and are likely to stop doing
business with the company
d) Terrorists—those who have had negative experiences with the company and who
spread negative word of mouth
e) Hostages—unhappy customers who stay with the company because of no choice
(or other reasons)
f) Mercenaries—very satisfied customers but who have no real loyalty to the
company and may defect

Customer Retention

1. The overall objective of providing value to customers continuously and more

effectively than the competition is to have and to retain highly satisfied customers.
2. This strategy of customer retention makes it in the best interest of customers to
stay with the company rather than switch to another firm
3. In almost all business situations, it is more expensive to win new customers than
to keep existing ones.
4. Studies have shown that small reductions in customer defections produce
significant increases in profits because:
a. Loyal customers buy more products.
b. Loyal customers are less price sensitive and pay less attention to competitors’
advertising.
c. Servicing existing customers, who are familiar with the firm’s offerings and
processes, is cheaper.
d. Loyal customers spread positive word-of-mouth and refer other customers.
5. Sophisticated marketers build selective relationships with customers, based on
where customers rank in terms of profitability, rather than merely strive to “to
retain customers.”
6. Customer profitability-focused marketing tracks costs and revenues of individual
customers and then categorizes them into tiers based on consumption behaviors
that are specific to a company’s offerings.
THE IMPACT OF DIGITAL TECHNOLOGIES ON MARKETING STRATEGIES

Digital technologies allow much greater customization of products, services, and

promotional messages than older marketing tools.. They enable marketers to adapt
the elements of the marketing mix to consumer’s needs more quickly and
efficiently, and to build and maintain relationships with customers on a much
greater scale. Online communication and emerging digital technologies have
introduced several drastic changes into the business environment.Consumers have
more power than ever before. Consumers have access to more information then
ever before. Marketers can offer more services and products than ever before. The
exchange between marketers and customers is increasingly interactive and
instantaneous. Marketers can gather more information about consumers more
quickly and easily. Impact reaches beyond the PC-based connection to the Web.

Challenges Marketers Face

1. The digital revolution in the marketplace, and its impact on consumer behavior,
presents many challenges for today’s marketers.

2. Some suggest that because virtual competition eliminates distance and location-
based benefits, online sellers will compete almost exclusively on the basis of price
for branded merchandise. This statement leads to the question, “Does this mean
that competitive differentiation will become meaningless in the virtual
marketplace?”

MARKETING ETHICS AND SOCIAL RESPONSIBILITY

The societal marketing concept requires that all marketers adhere to principles of
social responsibility in the marketing of their goods and services. A restructured
definition of the marketing concept (to reflect social responsibility) would be to
fulfill the needs of the target audience in ways that improve society as a whole
while fulfilling the objectives of the organization. A serious deterrent to the societal
marketing concept is a short-term orientation toward increased market share and
quick profits. The societal marketing concept advocates a long-term perspective,
recognizing that all companies that incorporate ethical behavior and social
responsibility in all of their business dealing attract and maintain loyal consumer
support over the long term. The primary purpose for studying consumer behavior
as part of a marketing curriculum is to understand why and how consumers make
their purchase decisions. These insights enable marketers to design more effective
marketing strategies, especially today when advanced technologies enable
marketers to collect more data about consumers and target them more precisely.
To avoid exploiting consumers, marketers should develop a code of ethics—many
have accomplished this task. It is better to self-regulate than to be regulated by
government.Marketing ethics and social responsibility are important components of
organizational effectiveness.

Consumer Behavior and Decision Making Are Interdisciplinary

1. Consumer behavior was a relatively new field of study in the mid-to-late 1960s.
2. Marketing theorists borrowed heavily from concepts developed in other scientific
disciplines:
a) Psychology—the study of the individual
b) Sociology—the study of groups
c) Social psychology—the study of how an individual operates in groups
d) Anthropology—the influence of society on the individual
e) Economics—to form the basis of this new marketing discipline
3. Many early theories concerning consumer behavior were based on economic
theory, the idea that individuals act rationally to maximize their benefits
(satisfactions) in the purchase of goods and services.
4. Later research discovered that consumers are just as likely to purchase
impulsively, and to be influenced not only by family, friends, advertisers and role
models, but by mood, situation, and emotion.

A Simplified Model of Consumer Decision-Making

The process of consumer decision-making can be viewed as three distinct but

interlocking stages: the input stage, the process stage, and the output stage.
1. The input stage influences the consumer’s recognition of a product need and
consists of two major sources of information: The firm’s marketing efforts (the
product itself, its price, promotion, and where it is sold). The external sociological
influences on the consumer (family, friends, neighbors, other informal and
noncommercial sources, social class, cultural and subcultural memberships)
2. The process stage focuses on how consumers make decisions. The psychological
factors inherent in each individual (motivation, perception, learning, personality,
attitude) affect how the external inputs influence the consumer’s recognition of a
need, prepurchase search for information, and evaluation of alternatives.
The experience gained through evaluation of alternatives, in turn, affects the
consumer’s existing psychological attributes.
3. The output stage of the consumer decision-making model consists of two closely-
related post decision activities:Purchase behavior, which can be a trial purchase or
a repeat purchase.The postpurchase evaluation of the product feeds directly into
the consumer’s experience in the process stage of the model.

Consumer Research:
(A) Consumer researchers today use two different types of Research Paradigms
to study CB

(i) Quantitative Research: It is also known as positivism – researchers are known as

positivist. The research methods used in positivist research are borrowed primarily from
the natural sciences and consist of experiments, survey techniques and observation. The
findings are descriptive, empirical and, if collected randomly (using a probability
sample) can be generalized to larger population.
(ii) Qualitative Research: It is also known as interpretivism. Researchers are also known as
interpretivists. Among the RM they use are depth interviews, projective techniques, and
other methods borrowed from cultural anthropology. Broadly speaking, the findings of
qualitative research cannot be generalized to large population.
Marketers have discovered that these two research paradigms are really complementary in
nature.
The prediction made possible by positivist research together produce a richer and more robust
profile of consumer behaviour than either research approach used alone.

(B) The consumer research process:

Steps in Consumer Research Process:
(i) Developing research objectives:
A carefully thought out statement of objectives helps to define the type and level of information
needed. Is it to find out consumer attitudes about online shopping? To determine what
percentage of households e-mail?
Yes Prepare report

(ii) Collecting Secondary Data:

Internal sources: P&L statement, balance sheets, sales figure, and prior research report.
External sources: Govt publication, periodicals and books & commercial data.
(iii) Designing primary research:
Quantitative research designs: Three Basic RD used here are
• Observational Research:
OR is an important method of consumer research because marketers recognize that the best way
to gain an in-depth understanding of the relationship between people & product is by watching
them in the process of buying and using products. Many large corporations and advertising
agencies used trained researchers/observers to watch note & sometimes videotape consumers in
stores, malls or their own homes. Mechanical observation like security cameras in ATM counter
to observe problems customer may have in using ATMs.
• Experimentation:
The best example is shopping mall; we can judge the consumers inside about how long
respondents spend in looking at the product, the time spent in examining each side of the
package, the products purchased, and the order of the purchases.
• Surveys:
If researchers wish to ask consumers about their purchase preferences and consumption
experiences they can do so in person, by mail, by telephone or online through questionnaire.
Qualitative RD & Data Collection Method:
• Depth Interview:
It is a lengthy (generally 30mnts to an hour) non-structured interview between a respondent and
a highly trained interview between a respondent and a highly trained interviewer. Respondents
are encourages to talk freely about their activities, attitudes and interest to the product category
or brand under study.
• Focus Group:
Consists of 8 to 10 respondents who meet with a moderator-analyst for a group discussion
“focussed” on a particular product or product category. Respondents are encouraged to discuss
their interests, attitudes, reactions, motives, life styles, feelings about the product or product
category,usage experience and so forth.

• Projective Techniques:
Designed to tap the underlying motives of individuals. They consist of a variety of disguised
tests that contain ambiguous stimuli, such as in complete sentences, untitled pictures or cartoons,
workassociation test.
(i) Thematic Apperception Test (TAT): respondents are shown pictures or cartoons
concerning the product or the topic under study and asked to describe what is
happening in the picture. It is believed that respondents will actually reveal their own
motivations, attitudes, personalities and feelings about the situations.
(ii) Word Association Test: This is a relatively old and simple technique. Respondents
are read a series of words or phrases, one at a time and asked to answer quickly with
the first word that comes into mind after hearing each one. By responding in rapid
succession, it is assumed that they indicate what they associate most closely with the
word or phrase spoken and reveal their true feelings.
(iii) Sentence Completion Test: The interviewer reads the beginning of a sentence and
the respondent is required to finish it. This technique is believed to be useful in
uncovering the images consumers have about products and stores. The information
collected can be used to develop promotional campaigns.
(iv) The Third Person Technique: The interviewer asks the respondent to describe a
third person. For this, respondents are presented with some information about the
person. It is believed that when they describe a neighbour or a third person, they
usually respond without hesitation and in doing so, they express their own attitudes
or motives as they infer the attitudes or motives of someone else.
(iv) Sampling & data collection:
Probability sampling – Non-probability sampling.
(v) Data analysis and reporting research findings:
In qualitative research, the moderator or test administrator usually analyses the responses
received. In quantitative research, the researcher supervises the analysis.
(vi) Report Preparation:
 In both qualitative & quantitative research, the research report includes a brief executive
summary of the findings. Depending on the assignment from marketing management, the
research report may or may not include recommendations for marketing action. The body of the
report includes a full description of the methodology used and for quantitative research, also
includes tables and graphics to support the findings. A sample of the questionnaire is usually
included in the appendix to enable management to evaluate the objectivity of the findings.

Implementing a Better Market Segmentation Plan

There are 4 main stages that need to be considered when implementing or revising
your market segmentation plan:
1. Objective Setting
 Set segmentation objectives and goals
 Identify segmentation variables and develop hypothesis
2. Identify Customer Segments
 Research design
 Data collection
 Analyze data and identify segments
 Validate all results
3. Develop Segmentation Strategy
 Select target segment
 Identify segmentation implications & recommendations
4. Execute Go-To-Market Plan (launch plan)
 Identify key stakeholders
 Develop communications & operational launch plan
 Execute and monitor
As you can see by the above breakdown, within each stage there are sub-steps that need to be
thought about before moving on to the next stage.
Most marketers fall short during the first two stages. The research and data collection, though
often rushed, is the most important stage of the implementation process of market
segmentation.