Consumer behaviour is the study of when, why, how, and where people do or do not buy product.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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