UNIT 1: INTRODUCTION TO CONSUMERS, MARKETS & TECHNOLOGY

Chapter 1&2

 Defining consumer behavior

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 core of marketing is identifying unfilled needs and delivering products and
services that satisfy these needs.

Consumer behavior explains how individuals make decisions to spend their available
resources (i.e., time, money, effort) on goods that marketers offer for sale. The study of
consumer behavior describes what products and brands consumers buy, why they buy them,
when they buy them, where they buy them, how often they buy them, how often they use
them, how they evaluate them after the purchase, and whether they buy them repeated.

 To understand the evolution of the marketing concept, the most prominent

tools used to implement marketing strategies, the relationship between value
and customer retention, and the objectives of socially responsible marketing.

The Marketing Concept

Marketing and consumer behavior stem from the marketing concept, which maintains that
the essence of marketing consists of satisfying consumers’ needs, creating value, and
retaining customers. It maintains that companies must produce only those goods that they
have already determined that consumers would buy.

The marketing concept evolved from several prior business orientations focused on
production, the product itself, and selling. The production concept, a business approach
conceived by Henry Ford, maintains that consumers are mostly interested in product
availability at low prices; its implicit marketing objectives are cheap, efficient production
and intensive distribution. This approach makes sense when consumers are more interested
in obtaining the product than they are in specific features and will buy what’s available
rather than wait for what they really want.

 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—mostly through the “hard sell” approach. This approach does not consider
customer satisfaction, because consumers who are aggressively induced to buy
products they do not want or need, or products of low quality, will not buy them
again. Unhappy buyers often communicate their dissatisfactions with the product
 through negative word-of-mouth that dissuades potential consumers from making
similar purchases. 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

Consumer Research

The term consumer research refers to the process and tools used to study consumer
behavior. Consumer research is a form of market research, a process that links the
consumer, customer, and public to the marketer through information in order to identify
marketing opportunities and problems, evaluate marketing actions, and judge the
performance of marketing strategies.

A market segment, which enables the marketer to target consumers with specifically
designed products and/or promotional appeals that satisfy the needs of that segment. The
marketer must also adapt the image of its product (i.e., “position” it), so that each market
segment perceives the product as better fulfilling its specific needs than competitive
products. The three elements of this strategic framework are market segmentation,
targeting, and positioning. Market segmentation, targeting, and positioning are the
foundation of turning consumers into customers.

Market segmentation, Target, and Positioning

Market segmentation is the process of dividing a market into subsets of consumers with
common needs or characteristics. It consists of defining or identifying groups with shared
needs that are different from those shared by other groups.

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. The image must
differentiate the company’s offering from competing ones and communicate to the target
audience that the particular product or service fulfills their needs better than competing
offerings do. Successful positioning focuses on communicating the benefits that the product
provides.

The Marketing Mix

The marketing mix (four Ps) consists of four elements:

1. Product or service: The features, designs, brands, and packaging offered, along with
postpurchase benefits such as warranties and return policies.
2. Price: The list price, including discounts, allowances, and payment methods.
3. Place: The distribution of the product or service through stores and other outlets.
4. Promotion: The advertising, sales promotion, public relations, and sales efforts designed
to build awareness of and demand for the product or service.

Socially Responsible Marketing

The marketing concept—fulfilling the needs of target audiences—is somewhat

shortsighted. Some products that satisfy customer needs are harmful to individuals and
society and others cause environmental deterioration. Studying consumer behavior results
in an understanding of why and how consumers make purchase decisions, so critics are
concerned that an in-depth understanding of consumer behavior can enable unethical
marketers to exploit human vulnerabilities in the marketplace and engage in other unethical
marketing practices to achieve business objectives. Because all companies prosper when
society prospers, marketers would be better off if they integrated social responsibility into
their marketing strategies.

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. Regrettably, some marketers ignore laws and market
potentially harmful products

 To understand how the Internet and related technologies improve marketing

transactions by adding value that benefits both marketers and customers

Consumers Have Embraced Technology

Although many assume that only young consumers visit websites and shop online and
“reveal themselves” to marketers, it is not so.

Behavioral Information and Targeting

In the online world, specialized “information exchanges” track who is interested in what
through “cookies” (invisible bits of code stored on Web pages). When someone does a
search, for example, on cheapair.com for first-class flights to Paris in September, that
information is captured by a cookie and cheapair.com can sell that cookie using exchanges
such as eXelate or BlueKai. Let’s assume that Hilton wishes to target people who visited
travel-related sites recently, rather than use banner ads or promotional messages in offline
media to attract customers. Hilton logs into the exchange and selects the criteria for the
people it wants to reach. Making it simple, let’s assume that Hilton’s only criterion is
people who looked for flights to Paris in September. Upon logging in, the exchange tells
Hilton how many cookies that meet its criterion are for sale and then Hilton bids on the
price, competing against other advertisers wishing to buy the same cookies.10 If Hilton
wins the auction, it can show its ads to the persons with these cookies embedded in their
browsers, and send ads to them whenever they go online, regardless of the sites they visit.

Customer Value, Satisfaction, and Retention

Customer value is the ratio between customers’ perceived benefits (economic, functional,
and psychological) and the resources (monetary, time, effort, psychological) they use to
obtain those benefits.
Customer satisfaction- refers to customers’ perceptions of the performance of the product
or service in relation to their expectations. As noted earlier, customers have drastically
different expectations of an expensive French restaurant and a McDonald’s, although both
are part of the restaurant industry. A customer whose experience falls below expectations
(e.g., a limited wine list at an expensive restaurant or cold fries served at a McDonald’s)
will be dissatisfied. Diners whose experiences match expectations will be satisfied.
Customers whose expectations are exceeded (e.g., by small samples of delicious food
“from the Chef” served between courses at the expensive restaurant, or a well-designed
play area for children at a McDonald’s outlet) will be very satisfied or even delighted.

Customer Retention

Customer retention involves turning individual consumer transactions into long-term

customer relationships by making it in the best interests 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, for several reasons:

1. Loyal customers buy more products and constitute a ready-made market for new models
of existing products as well as new ones, and also represent an opportunity for cross-
selling. Longterm customers are more likely to purchase ancillary products and high-
margin supplemental products.

2. Long-term customers who are thoroughly familiar with the company’s products are an
important asset when new products and services are developed and tested.
3. Loyal customers are less price-sensitive and pay less attention to competitors’
advertising. Thus, they make it harder for competitors to enter markets.

4. Servicing existing customers, who are familiar with the firm’s offerings and processes, is
cheaper. It is expensive to “train” new customers and get them acquainted with a seller’s
processes and policies. The cost of acquisition occurs only at the beginning of a
relationship, so the longer the relationship, the lower the amortized cost.

5. Loyal customers spread positive word-of-mouth and refer other customers.

6. Marketing efforts aimed at attracting new customers are expensive; indeed, in saturated
markets, it may be impossible to find new customers.25 Low customer turnover is
correlated with higher profits.

7. Increased customer retention and loyalty make the employees’ jobs easier and more
satisfying. In turn, happy employees feed back into higher customer satisfaction by
providing good service and customer support systems.

Internal Marketing

Internal marketing consists of marketing the organization to its personnel. Behavioral and
motivational experts agree that employees will “go the extra mile” to try and retain
customers only if they are treated like valued “internal customers” by their employers.
According to this view, every employee, team, or department in the company is
simultaneously a supplier and a customer of services and products. If internal marketing is
effective, every employee will both provide to and receive exceptional service from other
employees. Internal marketing also helps employees understand the significance of their
roles and how their roles relate to those of others. If implemented well, employees will
view the service or product delivery from the customers’ perspective.

Consumer behavior is interdisciplinary

Consumer behavior stems from four disciplines. Psychology is the study of the human
mind and the mental factors that affect behavior (i.e., needs, personality traits, perception,
learned experiences, and attitudes).

Sociology is the study of the development, structure, functioning, and problems of human
society (the most prominent social groups are family, peers, and social class).

Anthropology compares human societies’ culture and development (e.g., cultural values
and subcultures). Communication is the process of imparting or exchanging information
personally or through media channels and using persuasive strategies.
Consumer Decision-Making

The input stage of consumer decision-making includes two influencing factors: the firm’s
marketing efforts (i.e., the product, its price and promotion, and where it is sold) and
sociocultural influences (i.e., family, friends, neighbors, social class, and cultural and
subcultural entities). This stage also includes the methods by which information from firms
and sociocultural sources is transmitted to consumers.

The process stage focuses on how consumers makes decisions. The psychological factors
(i.e., motivation, perception, learning, personality, and attitudes) affect how the external
inputs from the input stage influence the consumer’s recognition of a need, pre-purchase
search for information, and evaluation of alternatives. The experience gained through
evaluation of alternatives, in turn, becomes a part of the consumer’s psychological factors
through the process of learning.

The output stage consists of two post-decision activities: purchase behavior and post-
purchase evaluation

Chapter 2
Market segmentation is the process of dividing a market into subsets of consumers with
common needs or characteristics. Each subset represents a consumer group with shared
needs that are different from those shared by other groups. Targeting consists of 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. The image differentiates the
company’s offering from competition by communicating to the target audience that the
product, service, or brand fulfills their needs better than alternatives.

To be an effective target, a market segment must be identifiable, sizeable, stable and

growing, reachable, and congruent with the marketer’s objectives and resources.

Identifiable Marketers divide consumers into separate segments on the basis of common or
shared needs by using demographics, lifestyles, and other factors named “bases for
segmentation.” Some segmentation factors, such as demographics (e.g., age, gender,
ethnicity), are easy to identify, and others can be determined through questioning (e.g.,
education, income, occupation, marital status). Other features, such as the product benefits
buyers seek and customers’ lifestyles, are difficult to identify and measure.

Sizeable To be a viable market, a segment must consist of enough consumers to make

targeting it profitable. A segment can be identifiable, but not large enough to be profitable.
For example, athletic and slim men with wide shoulders and narrow waists often have to
buy suits with trousers that are larger than they need (and have them retailored). Other than
high-end fashion designers such as Prada and Dolce & Gabbana, most American clothiers
make suits only for men who have more generous waists than the relatively small segment
of very athletic men.

Stable and Growing Most marketers prefer to target consumer segments that are relatively
stable in terms of lifestyles and consumption patterns (and are also likely to grow larger and
more viable in the future) and avoid “fickle” segments that are unpredictable. For example,
teenagers are a sizeable and easily identifiable market segment, eager to buy, able to spend,
and easily reached. Yet, they are also likely to embrace fads, and by the time marketers
produce merchandise for a popular teenage trend, interest in it may have waned.

Bases of segmentation

A segmentation strategy begins by dividing the market for a product into groups that are
relatively homogeneous and share characteristics that are different from those of other
groups. Generally, such characteristics can be classified into two types: behavioral and
cognitive.

Behavioral data is evidence-based; it can be determined from direct questioning (or

observation), categorized using objective and measurable criteria, such as demographics,
and consists of:

1. Consumer-intrinsic factors, such as a person’s age, gender, marital status, income, and
education.

2. Consumption-based factors, such as the quantity of product purchased, frequency of

leisure activities, or frequency of buying a given product.

Cognitive factors are abstracts that “reside” in the consumer’s mind, can be determined
only through psychological and attitudinal questioning, and generally have no single,
universal definitions, and consist of:

1. Consumer-intrinsic factors, such as personality traits, cultural values, and attitudes

towards politics and social issues.

2. 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, occupation,
marital status, household type and size, and geographical location. These variables are
objective, empirical, and can be determined easily through questioning or observation.
They enable marketers to classify each consumer into a clearly defined category, such as an
age group or income bracket. Similarly, one’s social class is defined by computing an index
based on three objective and quantifiable variables: income (number of dollars earned),
education (number of years studied for the highest degree held), and occupation (prestige
scores associated with various occupations). As discussed later, consumers’ geographic
locations and zip codes can be easily matched with their demographics.