Consumer Behavior

Why Understanding Consumer Behavior Important?

• Businesses everywhere are recognizing the importance of understanding
consumer behavior as key to their success.

• It is first step towards meeting the challenges of exciting world of

business.

• Specifically, it helps companies to

a) Satisfy Customers
b) Adopt to marketing concept and
c) Gain legitimacy in society.
Satisfying the Customer
• Peter F Drucker, one of the leading management gurus in the world,
believes that the purpose of business is to create and then retain a
satisfied customer.

• Although, firms have to make money, Drucker argues that making

money is a necessity, not a purpose.

Ex: Lands End, the second-largest catalog clothing retailer in the US,
operates with unusually high inventory levels. Its managers would rather
carry excess inventory than to rather fail to fill an order and risk losing a
customer. If we don’t keep the customer for several years, we don’t make
money, said the company C.E.O. William End, 1994.
Adopting the Marketing Concept

The marketing concept is an improvement of selling concept. In selling

concept, the firm’s principal focus is on finding a buyer for the product it
makes and somehow “selling” that customer into parting with his/her
cash in exchange for the product the firm has to offer.

In contrast, under the marketing concept, the firm’s obsession is to make

what the customer needs or wants. The marketing concept gives firm a
greater market success because its products and services meet customer
need better and customer seek out these products and services.
Gaining Legitimacy in Society

If making money is the only goal of an organization, it does not provide a

legitimate reason for society to support business.

Rather, a society supports business because reason for society to serve its
members by catering to their needs and wants. Focusing on the customer
leads to better serving the society’ s needs.
Consumer Behavior and Consumer Orientation
• The principles of consumer behavior serve a company best when they
are applied to developing and maintaining consumer orientation.

• Consumer Orientation (also referred to as market orientation) means

thorough understanding of consumer needs and wants, the competitive
environment, and the nature of market used to formulate all of the
firm’s plans and actions to create satisfied customer.

• Following a consumer orientation, provides a company with

competitive advantages that lead higher corporate performance in the
form of increased profitability and revenue growth.
• There are six advantages, three that increase profitability and three that
generate growth revenue.

• The three advantages that increase profitability are:

• Cost efficiency from repeat customers
• Price premium from established customers and
• Customer Loyalty in corporate Crisis

• The three advantages that generate growth are:

• Increase Word of Mouth
• One-stop shopping
• New product innovations
Cost Efficiency from Repeat Customers:

• Perhaps the best way a company can maintain

competitive advantage in a mature market is through
retaining its customers. Competitive strategies for
retaining existing customers tend to less costly than
those for gaining new customers.

• According to some estimates, it costs five times more

to attract new customers than to retain an existing one.

• Repeat customers mean cost efficiencies. The cost of

serving established customer is considerably less than
the cost of serving new customers.
Premium Prices from Established Customers

Established customers are already satisfied with the firm. Unless there is a strong
reason to do so, established customers are unlikely to switch their current
suppliers. There are always some cost in switching, and sometimes these costs can
be prohibitive.

Thus if a competitor wants to capture your customer your satisfied customer, it is

more significantly better in value in terms of lower price or higher performance.

The price advantage occurs not only because the established customers are
unwilling to go through the hassle of switching for a lower price but also because
a consumer-oriented firm is able to offer its customer value from four other
avenues:
 • Product Excellence
• Service Excellence
• Brand Reputation
• A consumer-oriented culture in general

• A good example for price advantage through product excellence is provided

by the 3M company. 3M has excellent products like Scotch Tape, Post-it
notepads, which have retained their performance superiority to command
higher prices despite competition.

• On the other hand, IBM has maintained a price advantage in the mainframe
business primarily through service excellence.
• The third source of price advantage is brand reputation. In areas where
quality varies significantly across the competitors and the customer is
unable to judge it control quality consistency, brand reputation becomes a
significant price advantage.

• This is true for Mc. Donald’s in the fast-food business, Marriot in hospitality
industry, and for Boeing in commercial aircraft business.
Protection against Corporate Crisis:

• The third way a consumer orientation enhances publicity is by

providing insulation against a corporate crisis. Four major
sources of crises directly relevant to customer satisfaction are
product tampering, unfair completion, operational breakdown, and
industry restructuring.

• When a company uses consumer orientation to cultivate more

committed customers, those customers will be willing to assist
the company to ensure its survival.

Ex: For not too long ago, it was rumored that Kurkure, the
snack brand, contains plastic, and that Coco-Cola contains
pesticide.
Increased Word-of-Mouth

The best way to grow business is to gain new customers without

significant investment of product, marketing, or sales resources. This is
possible through word-of-mouth communication.

Research indicates that satisfied customers talk to three other customers.

However, dissatisfied customers talk to seven other customers.
One-stop Shopping

The second source of business growth is the increase in the number of

products a satisfied customer buys from the same company. Both household
and business customers prefer to do one-stop shopping for several reasons

The fundamental concept underlying one-stop shopping is lifetime

revenues. It represents the net present value of all products and services a
satisfied customer is likely to buy over his or her lifetime.

The lifetime revenue concept has interesting implications. For example, once
you sell machinery, you can also sell insurance, financing and maintenance,
and repair services.
New Product Innovations

• A third way that customer orientation generates revenue growth is by

facilitating the introduction of new products.

• Customer input in the early stages of new-product development is one

of the major reason for success of an innovation because it allows the
research and development departments to incorporate customers
wishes as they develop new technologies.
What is Consumer Behavior?
Consumer Behavior is the mental and physical activities undertaken by
household and business customers that result in decisions actions to pay
for, purchase, and use products and services.

Customers: Types, Roles and Behaviors

Household
(Consumers)
Users Buyers
Mental Activities
Businesses
Physical Activities

Behaviors Payers

Consumer Roles
Types
• Conventionally, the term consumer has referred to households markets, and the
corresponding term for the business market has been “customer”. We use the term
“consumer” to refer both the markets.

• In a marketplace, transaction, a customer can play one or all three of the following
roles –
• A Buyer (Selecting a product)
• A Payer ( Paying for a product)
• A Use/Consumer (Using/consuming a product)

• The Customer can also play other roles in the buying decision, such as the initiator (a
person who suggests the idea of buying the product or service), influencer ( a person
whose view or advice influences the decision), decider (a person who decides on any
component of the buying decision – when to buy, where to buy, what to buy, what to
buy or how to buy), approver (a person who approves of the recommendations of the
decider after considering the concerns of influencers and users), or the gatekeeper (a
person who controls access of information to any of the other roles)
 Consumer Behavior Domain
Household Business

Products Consumer Products Business Products

Services
Consumer Services Business Services
• In the upper left-hand quadrant are household products targeted exclusively to the
household market. Items that are often replenished, such as food and milk, are examples
of such products. Other products that are not often replenishes as often, such as clothing,
electric razors, are listed in this category.

• In the upper right-hand quadrant are business products that are sold exclusively to
business firms or to individuals who use them for conducting their business. Ex:
Machine tools, corporate jets, internal power generator.

• In the lower left-hand quadrant is the consumers exclusively targeted to the household
market. Ex: Hairstyling, dental cleaning, baby-sitting, home cleaning services.

• In the lower right-hand quadrant is the business services sector, targeted to businesses.
Ex: Management training and consulting services.

Of course, some product, like automobile are targeted to both household and business.
Consumer & Customer
• The term consumer is used for both personal consumers and organizational
consumers and Notes represents two different kinds of consuming entities.

• The personal consumer buys goods and services for her or his personal use
(such as cigarettes), or for household consumption (such as sugar, furniture), or
for just one member of the family (such as a pair of shoes for the son), or a
birthday present for a friend (such as a pen set). In all these instances, the
goods are bought for final use, referred as “end users” or “ultimate
consumers.”

• The other category of consumer is the organisational consumer, which includes

profit and not-for-profit organisations. Government agencies and institutions
(such as local or state government, schools, hospitals etc.) buy products,
equipment and services required for running these organisations.
Manufacturing firms buy raw materials to produce and sell their own goods.
Buyers and Users
• The person who buys a particular product may not necessarily be the
user, or the only user of this product. Likewise, it is also true that the
person who purchases the product may not be the decision-maker.

• For example, the father buys a bicycle for his school going son (the son is
the user), or he buys a pack of toothpaste (used by the entire family), or
the mother is the decision maker when she buys a dress for her three-year-
old daughter. The husband and wife together may buy a car (both share
the decision). It is clear that in all cases buyers are not necessarily the users
of products they buy. They also may not be the persons who make the
product selection decisions.
Whenever consumer behavior occurs in the context of a multi-person
household, several different tasks or roles as mentioned in the table below
may be performed in acquiring and consuming a product or service.
 Inter-disciplinary Dimensions of Consumer Behavior
• Consumer vary tremendously in their ages, income, education level, mobility
pattern and tastes and preferences.
• Around two decades ago it was argued that Economics was Marketing’s “Mother
Discipline”
• Because consumer purchase decision is governed by their economic and mental
forces.
• Mental forces like fear, pride, fashion, possession, sex or romance create desires and
wants in the minds of the consumer, but economic forces such as purchasing power
may come in the way of satisfying those wants hence the consumer has to choose
between those wants and select the products according to the priority of
consumption.
• However the rapid changes taking place in the external environment, has also
had a bearing on the consumer behavior is seen in the complex manner in which
the consumer behaves.
• The various disciplines having influence on the consumer behavior.

Sl. No Discipline Comprising of Or governed by

1. Economics Demand, Supply, Income, Purchasing Power
2. Psychology Needs & Motivation, Personality, Perception,
Learning Attitudes

3. Sociology Society, Social Class, Power, Esteem, Status

4. Socio Psychology Group Behavior, Conformity to Group Norms,
Group Influences, Role Leader Values, Belief,
Caste System

5. Cultural Anthropology Attitude towards wealth, joint family system

1. Economics –
1. Rational being
2. Demand (consumption) and Supply (production) are the basic elements in economics
3. Demand is considered to be a function on price – Higher the price, lesser the demand
and vice versa
4. Income – Disposable Income (take home – taxes), Discretionary Income (spending on
necessary items like food, clothing, home etc)

2. Psychology - How an individuals mind work while taking a decision

a. Needs & Motivation – Needs can be said to be a state of felt deprivation in a person.
Similarly motivation can defines as those forces that cause people to behave in certain ways
b. Personality & Consumer Behavior
Personality may be defined as a predisposition to react in a given stimulus in a particular
manner and this may be in the form of consistent response to environmental stimuli.

There are certain characteristic features of personality:

1. Personality reflects individual difference (traits). Thus marketers can segment the market
based on a certain common consumer traits.
2. Personality is consistent and enduring
Ex: Mothers very often say that their child has been stubborn from the day of birth itself.

3. Personality can change under certain circumstances like birth, death of loved on, divorce, a
major career promotion.
c. Perception
People have the tendency to view the same phenomenon differently.
 The behavior of the consumer in the market place depends to large extent on his
knowledge of the world. Sensations form the outside world are altered by
previous learning, memories, expectation, fantasies and personality beyond the
pure stimulus.

 Stimulus can be sensory inputs like products, packages, names etc.

 Consumer behavior is very strongly affected by the concept of perceived quality.

In the absence of direct experience or other information, consumers often rely on
price as an indicator of quality.
d. Learning
Permanent change in the behavior which occurs as a result of practice.

One cannot overlook the role of drives, motives or need for learning take place only because the
response has satisfied some need or needs.
Ex: The purchase of shampoo may be associated with a number of needs like, cleanliness, conditioner,
economical, adds to prestige, fragrance etc.

“Reinforcement” is probably involved in the learning of preferences for products, it may be

“primary” (as when a housewife is satisfied with her new hair do) or “secondary” ( as when her
husband and children compliment on it)

Marketers have applied the learning process to study the effectiveness of advertising and used
this to teach the consumers about their products and also helped them to develop brand loyalty.
e. Attitude
Attitudes are learned, primarily through interaction with other, particularly family
and peer groups. Marketers are more interested in knowing how attitudes are formed
and how they are changed.

Certain characteristic features of attitude: 

• Attitudes are a learned predisposition ( attitude are formed on account of direct
experience with the product, information from reliable sources etc.)

• Attitude have consistency

• Attitude formation can be an account of individuals personality

In marketing, a consumer’s attitude towards a particular brand may be because if his belief
about certain attributes present in the brand and the relative importance of these attributes. So
marketers try to bring about some attitude change by

1. Changing basic motivational function ( increasing knowledge,   value,  utility of product

etc)  example:  Burnol  can be used for burns and also as an antiseptic cream.

2. Associating the product with the special group,  event or cause (ITC  classic cigarette is
associated with people who play golf etc.)

3. Relating two conflicting attitudes  advertisement shows by using less fat,  cholesterol
content oil “ Saffola”  husband in recovering from severe heart problem,  this may the
housewife switch over to using “saffola”
4. Altering component of the multi-attribute model that is
•  Changing the relative evaluation of attributes
• Changing brand believes through advertisement
• Adding an attribute
• Changing the overall brand rating 

• Changing the relative evaluation of attributes:  consumer markets can be segmented in the the same product
category according to brand that offer different features or beliefs.

• For example ‘Moov’ -  a balm to relieve pain in the back ( spinal cord area)  and  ‘Iodex’  to relieve pain due to
any inflammation or swelling like sprain etc.

• Changing brand belief:  this calls for changing attitude of consumers by changing beliefs or perceptions  about
the brand itself.
 • For example  P&G’s ‘Ariel  microshine’  detergent -  claims that detergent is a tough cleaner, 
powerful stain remover,  easy to use,  Unlike the other detergents which only whiten the
clothes.

• Adding  an  attribute:  Means either adding and attitude that previously has been
ignored or one that represents and improvement or technological innovation.
 For example-  Initially Bournvita was positioned as a superior product to milk,  health builder. 
Now  Bournvita’s  advertisement claims it as  a necessary product ( health builder) Containing
vital calcium,  vitamin and carbohydrates -  a must for growing children.

• Changing the overall brand rating: Altering the consumer overall assessment off the
brand directly without attempting to improve or change their evaluation of a single
brand attribute. 
•
Usually this strategy is used by some form of global statement like “ this is the largest
selling brand”
•  Changing belief about competitors brands:  The attitude change agent is very often a
respected authority or group. Because  the amount of attitude change is related to the
credibility of the source of the message. 

• 3. Sociology ( study of groups)

 Man is a social human being existing within a society.  Society is one of the most dominant
and complex types of social organisation.  Each societies has its own set of values,  believes
and culture,  which will have a bearing on the behavior of its members i.e. the consumers..

For the purpose of marketing we have divided any society into three distinct social classes;   
upper,  middle and lower classes of consumers.

•  One purpose of studying sociology is to answer this specific question:  out effect one very
important aspect of consumer choice behavior that is affected by social class is that of the
general priorities and references people show.  what is  important to the different classes.
•  Consumer belonging to the upper class places high priority on the external and visible evidences
of his/her consumption. They give a lot of importance to status and Prestige and have expensive
tastes and preferences. 

• The middle class consumer has exhibited a sense of rationality and hence their buying behavior
reveal a greater sense of choice.

• The consumers belonging to the lower class are not always rational and have limited choice in
decision making. Consumers belonging to this category draw very less income they are very price
conscious and hence may not get carried away by the other aspects of marketing mix elements. 

The three social classes vary in  their choice of store patronage,  the magazines read by them and
clothing and furniture selected by them.
The society can also be categorized into:

1. Primary Vs  secondary groups

The primary group consists of family, neighbors, co-workers etc.  this group comprises of person who
interact with one another on a regular basis and whose opinions are valued as important.

For example, for child going to the school the type of lunch box and water bottle and school bag he/she 
designs to purchase will be based on the views expressed by his/her  classmates,  who will take the place of
the primary group.

The secondary group may comprise of people who interact occasionally and their opinions or views may not
be considered as important as compared to the primary group.

The secondary group may be an acquaintance or neighbor you may interact with once in a while. 
2. Formal Vs  informal group

Formal groups refer to a formal organization setup,  where by all the members who belong to a
particular formal organization meet and interact daily to  take and implement decision path into
the running of the organization.

• Informal group may comprise of the family, neighbors,  friends of co-workers interact in an
informal atmosphere occasionally. The nature of interaction is on an informal basis, due
weight age is given to the opinions or views expressed by the group members.

An informal group could be all the family members sitting together and discussing to take a
decision regarding which model of color TV is to be purchased..
3. Membership Vs  symbolic groups
The term membership signifies,  it consists of a formal organization set up where in all the
members having nominated are elected members.
Ex:  Lions Club, Rotary Club etc.

All the members of the formal organization are working in a formal environment towards the
achievement of organizational objectives and goals.

Symbolic group may comprise of people not be the members of a formal group but identify
themselves with a particular group and through various behavioral pattern tries to symbolize
themselves with the group, which influence their action.
Ex:  Young boy maybe a cricket fan of Sachin Tendulkar and by practicing various strokes of Sachin as
a member of the cricket club symbolises himself as a good cricketer
From the marketers point of view there are certain to 11 groups which play and active
part in influencing consumer choices.  these consumer  relevant groups are: 

Family groups,  friendship groups, formal social groups,  shopping groups, consumer
action group,  work group, reference group.

Through market segmentation marketers can find the certain common patterns among
specific groups of customers and workouts  strategies which will help to the specific
group
4. Social Psychology ( How an individual operates in a group)

The buyer is living in social environment, is influenced by it and in turn influences its
course of development. On account of this is a member of several groups/
organizations  at the same time. There is a constant interaction between the individual
and all organizations of which he is a member.

These interactions leave some imprint on his mind, influencing  him in his day to day
life and consequently, on his buying behavior. 
5. Cultural and anthropology

 Psychology describes why human beings behave, cultural anthropology explain how they
behave. 

India  is a  developing modern society a with many traditional characteristics which can
be said to be a part of our culture.
•  Joint family system
•  Caste system
•  Ritualism
•  Social class
•  Attitude towards wealth