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Chapter 1 and 2 book - Summary Consumer Behavior

Consumer Behaviour (Radboud Universiteit Nijmegen)

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Summary Consumer Behavior

Chapter 1: technology-driven consumer behavior
The marketing concept
Marketing= the activity, set of institutions and processes for creating, communicating, delivering,
and exchanging offerings that have value for customers, clients, partners and society. The core of
marketing is identifying unfilled needs and delivering products and services that satisfy these needs.

Consumer behavior is the study of consumers’ actions during searching for, purchasing, using,
evaluating, and disposing of products and services that they expect will satisfy their needs.

The marketing concept maintains that the essence of marketing consists of satisfying consumers’
needs, creating value and retaining customers.

Evolution marketing concept:

 The production concept approach by Henry Ford: consumers are mostly interested in
product availability at low prices. Marketing objectives are cheap, efficient production and
intensive distribution.
 More and more companies studied customers’ needs leading to differentiation in products.
They were guided by the product concept, which assumes that consumers will buy the
product that offers them the highest quality, the best performance and the most features.
Disadvantage was that companies only focused on improving their products, instead they
identified customer needs  marketing myopia: focus on products rather than customer
needs.
 Evolving from the last two approaches, the selling concept maintains that marketers’ primary
focus is selling the products that they have decided to produce. The assumption of the selling
concept is that consumers are unlikely to buy the product unless they are aggressively
persuaded to do so.

Implementing the marketing concept requires sellers to use consumer research, market
segmentation, a combination of the product, price, place and promotion strategies, provide value
and result in long-term customer satisfaction and retention.

Market segmentation: the process of dividing a market into subsets of consumers with common
needs or characteristics. Targeting means selecting the segments that the company views as
prospective customers and pursuing them. Positioning is the process by which a company creates a
distinct image and identity for its products, services and brands in consumers’ minds, which is
successful through communicating the (distinct) benefits that the product provides. This is possible
with the marketing mix (four Ps)

The societal marketing concept requires marketers to fulfill the needs of the target audience in ways
that improve, preserve, and enhance society’s well-being while simultaneously meeting their
business objectives. Companies are better off in a stronger, healthier society and marketers that
incorporate ethical behavior and social responsibility attract and maintain loyal consumer support
over the long term.

Technology enriches the exchange between consumers and marketers

Traditionally, advertising is a one-way process in which marketers pays large sums of money to reach
large numbers of potential buyers. The effectiveness of the promotional messages becomes clear by
looking at sales. Electronic communications enable a two-way interactive exchange in which

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consumers instantly react to marketers’ messages (by clicks, visits, etc.), so marketers can gauge the
effectiveness of their promotional messages instantly.

Cross-screen marketing consists of tracking and targeting users across their computers, mobile
phones, and tablets. New software enables marketers to try to figure out when a mobile user is the
same person as a desktop user. Advertising across media platforms is essential, because people use
various devices at the same time.

The internet allows consumers to compare prices more effectively than ever before. The web also
enables marketers to improve customer service inexpensively.

Customer value, satisfaction and retention

Customer value is the ratio between customers’ perceived benefits (economic, functional,
psychological) and the resources (monetary, time, effort, psychological) they use to obtain those
benefits. If you go to a luxe expensive restaurant, you expect delicious food, wonderful service and a
beautiful décor.

Customer satisfaction refers to customers’ perceptions of the performance of the product or service
in relation to their expectations. For example, if you get cold fries at McDonalds, you will be
dissatisfied.

Customer retention involves turning individual consumer transactions into long-term customer
relationships by making it the best interest of customers to stay with the company rather than switch
to another firm.

It is more expensive to win new customers than to retain existing ones, because:

 Loyal customers buy more products and are likely to purchase supplemental products
 Long-term customers are an important asset when new products and services are developed
and tested
 Loyal customers are less price-sensitive and pay less attention to competitors’ advertising
(harder for competitors to enter market)
 Servicing existing customers (who are familiar with the firm) is cheaper.
 Loyal customers spread positive word-of-mouth and refer other customers
 Marketing efforts aiming at attracting new customers are expensive.
 Increased customer retention and loyalty make the employees’ jobs easier and more
satisfying

There are two interrelated forms of customer engagement with marketers:

 Emotional bonds represent a customer’s high level of personal commitment and attachment
to the company
 Transactional bonds are the mechanics and structures that facilitate exchanges between
consumers and sellers.

As consumers buy more and more online, it has become important to understand what makes them
satisfied during electronic transactions. Determinants of customer satisfaction with online websites
and merchants are:

1. Adaption: purchase recommendations match one’s needs (feeling like a unique customer)
2. Interactivity: ability to view merchandise offerings from different perspectives (like search
tools or comparison tools)

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3. Nurturing: receiving reminders about making purchases, providing relevant information for
one’s purchases
4. Commitment: delivering goods on time, responding to problems, customer-friendly return
policies, taking good care of customers
5. Network: customers share experiences about purchases, useful network for sharing
experiences
6. Assortment: satisfying shopping needs, wide assortment
7. Transaction ease: merchant’s website can be navigated fluently, a first-time buyer is able to
make a purchase without much help
8. Engagement: attractive website design, enjoyable shopping at the site, inviting site, feel
comfortable shopping at the site
9. Loyalty: seldom consider switching to another merchant, usually click on the merchant’s site
10. Inertia: unless becoming very dissatisfied, changing to a new merchant would not be worth
the bother; finding it difficult to stop shopping
11. Trust: counting on the merchant to complete purchase transaction successfully; trusting
site’s performance, reliable and honest merchant

Engagement and nurturing are more drive by emotions, while assortment and transaction ease are
driven by mechanics of the transactions. Transaction-based and emotional bond-based customer
relationships model:

HIG Fans: high bonds and Loyal customers:

H high purchase levels frequent purchasers,
(high commitment) but without high
Transaction based

bonds (price
sensitive, stay loyal
for rational reasons
not emotional)
LOW Delighted customers: Transactional
high bonds but modest customers: low
purchase levels bonds and
infrequent
purchasers
HIGH LOW
Emotional based

Linked levels of customer satisfaction with customer behavior identified several types of customer:

 The loyalists: completely satisfied customers who keep purchasing. Apostles are loyal
customers whose experiences with the company exceeded their expectations.
 The defectors: feel neutral or merely satisfied with the company and are likely to switch to
another company that offers them a lower price. Raise satisfaction to turn them to loyalists
 The terrorists: customers who have had negative experiences with the company and spread
negative word-of-mouth.
 The hostages: unhappy customers who stay with the company because of a monopolistic
environment or low prices
 The mercenaries: satisfied customers who have no real loyalty to the company and may
defect because of lower price elsewhere or an impulse.

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Classifying customers according to profitability involves tracking the revenues obtained from
individual customers, which are grouped into four tiers:

1. The platinum tier: heavy users who are not price-sensitive and are willing to try new
offerings
2. The gold tier: customers who are heavy users but not as profitable because they are more
price-sensitive than those in the higher tear (ask for discounts and buy from several
providers)
3. The iron tier: customers whose spending volume and profitability do not merit special
treatment from the company
4. The lead tier: customers who actually cost the company money because they claim more
attention than is merited by their spending (spread negative word-of-mouth).

Retention measurement methods:

 Customer valuation: value customers and categorize them according to their financial and
strategic worth  decide where to invest for deeper relationships
 Retention rates: the percentage of customers at the beginning of the year who are still
customers at the end of the year
 Analyzing defections: look for the root causes, not mere symptoms. For example, analyze
customers’ complaints, examine details when talking to customers.

Internal marketing consists of marketing the organization to its personnel. Personnel will ‘go the
extra mile’ if they are treated like valued internal customers. It also helps employees understanding
the significance of their roles and how their roles relate to those of others. Everybody sees another
as customers.

Consumer behavior is interdisciplinary

Consumer behavior stems from four disciplines:

1. Psychology: the study of the human mind and the

mental factors that affect behavior (needs, traits,
perception, attitudes, etc.)
2. Sociology: the study of the development,
structure, functioning and problems of human
society
3. Anthropology: compares human societies’ culture
and development (cultural values and subcultures)
4. Communication: the process of imparting of
exchanging information personally or through
media channels and using persuasive strategies.

The process of consumer decision making includes the

input, process and output stages of decision making. The
input stage focusses on the firm’s marketing efforts are,
sociocultural influences and methods of
communications. The process stage focuses on how
consumers make decisions. The experience gained
through evaluation of alternatives becomes a part of the
consumer’s psychological factors through the process of
learning.

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Chapter 2 Segmentation, targeting and positioning

Market segmentation and effective targeting
To be an effective/viable target, a market segment must be:

 Identifiable: separate segments based on common or shared needs by using demographics,

lifestyles and other ‘bases for segmentation’.
 Sizeable: segment must consist of enough consumers to make targeting it profitable.
 Stable and growing: stable in lifestyles and consumption patterns and avoid unpredictable
segments.
 Reachable: segment must be accessible, able to communicate
 Congruent with the marketer’s objectives and resources: not every segment fits with a
company his objectives

Bases for segmentation

Segmentation begins by dividing the market in homogeneous groups, classified in two types:

 Behavioral data: evidence-based, determined from questioning or observation. It consists of

consumer-intrinsic factors (such as age, gender, income) and consumption-based factors
(such as quantity of product purchased, frequency of buying a given product)
 Cognitive factors: abstracts in consumer’s mind, more difficult to discover. It consists of
consumer-intrinsic factors (such as personality traits, cultural values) and consumption-
specific attitudes and preferences (such as the benefits sought in products and attitudes
regarding shopping.

Demographic segmentation divides consumers according to age, gender, ethnicity, income and
wealth, marital status, occupation, household types and size, and geographical location. All
segmentation plans include demographic data because: demographics are the easiest way to classify
people and can be measured more precisely; it offers the most cost-effective way to reach segments;
marketers can identify new segments created by shifts in populations’ demographics; demographics
determine many consumption behaviors, attitudes and media exposure patterns.

Social class is a hierarchy in which individuals in the same class generally have the same degree or
status, while different social classes vary in terms of values, product preferences and buying habits.

PRIZM: a household segmentation model that groups consumers into (66) segments based on
socioeconomic ranking, consumer behavior and media exposure patterns.

Green consumers; attractive prospects for many products, three types:

1. Environmental activists: ‘green’ enthusiasts, lifestyles focused on health and sustainability.

2. Organic eaters: concerned about sustaining their own health and not so much about
sustaining the planet
3. Economizers: experimenting with buying eco-friendly products to save money.

Another identification of green consumers contains:

1. True greens: persons who have adopted environmentally friendly behaviors.

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2. Donor greens: these individuals feel guilty about their lack of environmentally sound buying
behavior, and sometimes consider environmental impacts when purchasing products. Willing
to sacrifice financially but unwilling to change shopping behaviors.
3. Learning greens: learning about
environmental issues, but aren’t actively
engaged in ecological causes. They seek easy
ways to support the environment
4. Non-Greens: people who don’t care about
environmental issues.

Psychographics: lifestyle of consumers, such as

activities, interests and opinions. VALS (‘values and
lifestyle) is the most popular segmentation system
combining lifestyles and values.

The VALS framework consists of three primary

motivations:

 Ideals motivated (these consumer segments are

guided by knowledge and principles)
 Achievement motivated (these consumer
segments are looking for products and services
that demonstrate success to their peers)
 Self-expression motivated (these consumer
segments desire social or physical activity,
variety and risk)

Benefit segmentation: segmenting based on the

benefits that consumers seek from products and
services.

Usage rate segmentation: reflects the differences

among heavy, medium, light users and non-users of
a specific product, service or brand. This can be important, because for example 25% of all those who
drink beer account for about 75% of all beer consumed. The rate of usage is strongly related to
product awareness status: the degree of a consumer’s awareness of the product and it features, and
whether he or she intends to buy it reasonably soon. Another related factor is product involvement:
the degree of personal relevance that the product holds for the consumer.

Usage occasion segmentation: consumers purchase some products for specific occasions (like a
birthday, Valentine’s Day)

Behavioral targeting
Behavioral targeting consists of sending comers personalized and prompt offers and promotional
messages designed with the objective to reach the right consumer and deliver to them highly
relevant messages at the right time and more accurately than when using conventional segmentation
techniques. Behavioral targeting is based on tracking of three factors: online navigation, current
geographic location and purchase behavior.

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Showrooming: scan barcodes of products in physical stores and check the items’ price online in order
to purchase them at the lowest price. With geofencing, companies send a message to a person’s
smartphone near a store with a promotional code, purposely to make sales.

Predictive analytics are measures that foresee consumers’ future purchases on the bases of past
buying information and other data. It often focuses on noticing significant changes in consumer’s
buying behavior (such as the arrival of a new baby), because customers spend more during these
times.

Positioning and repositioning

A position is the image and unique identity of a product or brand, it represents how marketers want
consumers to perceive products and brands.

Steps positioning process:

1. Define the market of the product or brand (relevant buyers, competitors)

2. Identify product’s key attributes and consumer’s perceptions regarding the relevant
attributes
3. Research how consumers perceive competing offerings on the relevant attributes
4. Determine the target market’s preferred combination of attributes
5. Develop a differentiated value-based positioning concept that communicates the applicable
attributes as benefits
6. Create a positioning statement focused on the benefits and value that the product provides
and using it to communicate with the target audiences

Umbrella positioning: a statement or slogan that describes the universal benefit of the company’s
offering (sometimes doesn’t refer to a specific product). For example, McDonalds’ slogan “I’m Lovin’
It”.

Premier positioning focuses on the brand’s exclusivity. For example, a fragrance brand positioned
itself as ‘the costliest perfume in the world’.

Position against competition: position statement that acknowledge competing brands. For example:
We’re No. 2. Best brand.

Positioning based on key attributes

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