CHAPTER 1 Consumer Behavior: Meeting Changes and Challenges

LEARNING OBJECTIVES After studying this chapter students should be able: 1. To understand what consumer behavior is and the different types of consumers. 2. To understand the relationship between consumer behavior and the marketing concept, the societal marketing concept, as well as segmentation, targeting, and positioning. 3. To understand the relationship between consumer behavior and customer value, satisfaction, trust and retention. 4. To understand how new technologies are enabling marketers to better satisfy the needs and wants of consumers. 5. To understand how marketers are increasingly able to reach consumers wherever consumers wish to be reached. 6. To understand how the worlds economic condition is leading to consumption instability and change. 7. To understand the makeup and composition of a model of consumer behavior.

SUMMARY The study of consumer behavior enables marketers to understand and predict consumer behavior in the marketplace; it is concerned not only with what consumers buy but also with why, when, where, and how they buy it. Consumer research is the methodology used to study consumer behavior; it takes place at every phase of the consumption process: before the purchase, during the purchase, and after the purchase. The field of consumer behavior is rooted in the marketing concept, a business orientation that evolved in the 1950s through several alternative approaches, referred to, respectively, as the production concept, the product concept, and the selling concept. The three major strategic tools of marketing are market segmentation, targeting, and positioning. The marketing mix consists of a companys service and/or product offerings to consumers and the pricing, promotion, and distribution methods needed to accomplish the exchange. Consumer behavior is interdisciplinary; that is, it is based on concepts and theories about people that have been developed by scientists in such diverse disciplines as psychology, sociology, social psychology, cultural anthropology, and economics. Skilled marketers make the customer the core of the companys organizational culture and ensure that all employees view any exchange with a customer as part of a customer relationship, not as a transaction. The three drivers of successful relationships between marketers and customers are customer value, high levels of customer satisfaction, and building a structure for customer retention.

Digital technologies allow much greater customization of products, services, and promotional messages than do older marketing tools. They enable marketers to adapt the elements of the marketing mix to consumers needs more quickly and efficiently, and to build and maintain relationships with customers on a much greater scale. However, these technologies also represent significant challenges to marketers and to business models that have been used for decades. Consumer behavior has become an integral part of strategic market planning. The belief that ethics and social responsibility should also be integral components of every marketing decision is embodied in a revised marketing conceptthe societal marketing conceptthat calls on marketers to fulfill the needs of their target markets in ways that improve society as a whole.

1. Consumer behavior is defined as the behavior that consumers display in searching

for, purchasing, using, evaluating, and disposing of products and services that they expect will satisfy their needs. Consumer behavior focuses on how individuals make decisions to spend their available resources on consumption-related items. b) As consumers, we play a vital role in the health of the economylocal, national, and international. c) Marketers need to know everything they can about consumers. d) Marketers need to understand the personal and group influences that affect consumer decisions and how these decisions are made. e) Marketers need to not only identify their target audiences, but they need to know where and how to reach them. 2. The term consumer behavior is often used to describe two different kinds of consuming entities: the personal consumer and the organizational consumer.
a) a)

The personal consumer buys goods and services for his or her own use, for the use of the household, or as a gift for a friend. i) Products are bought for final use by individuals (referred to as end users or ultimate consumers).

b) The organizational consumerincludes profit and not-for-profit businesses,

government agencies, and institutions, all of which must buy products, equipment, and services in order to run their organizations6. Despite the importance of both categories of consumers, individuals and organizations, this book will focus on the individual consumer, who purchases for his or her own personal use or for household use. ii) End-use consumption is perhaps the most pervasive of all types of consumer behavior.

CONSUMER BEHAVIOR AND THE MARKETING CONCEPT

1. The strategic and applied field of consumer behavior is rooted in three

philosophically different business orientations that lead up to an extremely important business orientation known as the marketing concept.
2. The production orientation focused on gearing up manufacturing skills in order to

expand production. a) An additional focus was on perfecting the production capabilities of the company. b) The production orientation extended from the 1850s to the late-1920s. c) During this time period, demand exceeded supply.
3. The sales orientation focus was to sell more of what the manufacturing department

was able to produce. a) The orientation shifted from producing to selling. b) At some point, supply increasingly reached a point where it was greater than demand. c) The sales orientation began in the 1930s and extended to the 1950s. 4. In the mid-1950s there was a shift from the sales orientation to the marketing orientation. a) Businesses realized the importance of focusing on consumers and their preferences. What Is The Marketing Concept
1. The field of consumer behavior is rooted in a marketing strategy that evolved in the

late 1950s. 2. Companies determined, that in order to be successful, they must determine the needs and wants of specific target markets and deliver the desired satisfactions better than the competition. 3. Instead of trying to persuade customers to buy what the firm had already produced, marketing-oriented firms found that it was a lot easier to produce only products they had first confirmed, through research, that consumers wanted. 4. Recently there has been an important modification to the marketing concept called the societal marketing concept. a) The concept suggests that consumers may respond to their immediate needs or wants, while overlooking what is in their own long-run best interest, or the best interest of their family and neighbors, the best interest of their country or region or the entire planet. b) Enlightened marketers take it upon themselves to remind consumers as to what is in the consumers long-run best interest; at the same time they set out what their own company is doing in order to be a good corporate citizen.

Embracing the Marketing Concept

1. It is often important for companies to continuously conduct marketing research

studies to monitor consumers needs and preferences with respect to the products and services that they currently market and what they might develop in the future. 2. They discovered that consumers were highly complex individuals, subject to a variety of psychological and social needs quite apart from their basic functional needs. a) The needs and priorities of different consumer segments differed dramatically. b) The objectives of a company should be to target different products and services to different market segments in order to better satisfy different needs. c) In order to design new products and marketing strategies that would fulfill consumer needs, they had to study consumers and their consumption behavior in depth. 3. The term consumer research represents the process and tools used to study consumer behavior. Segmentation, Targeting, and Positioning
1. The focus of the marketing concept is to know consumers current needs, and to

secure, a picture of their likely future needs.

2. Market and consumer researchers seek to identify the many similarities and

differences that exist among the peoples of the world.

3. The marketer must adapt the image of its product so that each market segment

perceives the product as better fulfilling its specific needs than competitive products. a) The three elements of this strategic framework are: market segmentation, targeting, and positioning. 4. Market segmentation is the process of dividing a market into subsets of consumers with common needs or characteristics.
5. Market targeting is the selection of one or more of the segments identified for the

company to pursue.
6. Positioning refers to the development of a distinct image for the product or service in

the mind of the consumer, an image that will differentiate the offering from competing ones and faithfully communicate to the target audience that the particular product or service will fulfill their needs better than competing brands. a) Successful positioning centers around two key principles: i) The first principle says that the marketer should communicate the benefits that the product will provide rather than the products features. ii) The second principle states that because there are many similar products in almost any marketplace, an effective positioning strategy must develop and communicate a unique selling propositiona distinct benefit or point of differencefor the product or service.

The Marketing Mix

1. The marketing mix consists of a companys service and/or product offerings to

consumers and the methods and tools it selects to accomplish the exchange.
2. Four basic elements (known as the four Ps) include: a) The productfeatures, designs, brands, packaging, etc. b) The pricelist price (including discounts, allowances, and payment methods). c) The placedistribution of the product or service. d) Promotionadvertising, sales promotion, public relations, and sales efforts

designed to build awareness of and demand for the product or service. CUSTOMER VALUE, SATISFACTION, TRUST, AND RETENTION
1. Since the 1950s many companies have successfully adopted the marketing concept. 2. The marketplace is now increasingly competitive. 3. Savvy marketers today realize that in order to outperform competitors they must

achieve full profit potential from each and every consumer. a) An exchange with a consumer is part of a customer relationship, not just a transaction. 4. Four drivers of successful relationships between marketers and consumers are: a) Customer value. b) High levels of customer satisfaction. c) A strong sense of customer trust. d) Building a structure of customer retention.

Providing Customer Value

1. Customer value is defined as the ratio between the customers perceived benefits

(economic, functional, and psychological) and the resources (monetary, time, effort, psychological) used to obtain those benefits. a) Perceived value is relative and subjective. b) Developing a value proposition is the core of successful positioning. c) Looking for the impact of emerging megatrends is a factor in attaining successful positioning of a brand. Ensuring Customer Satisfaction
1. Customer satisfaction is the individuals perception of the performance of the

product or service in relation to his or her expectations. 2. The concept of customer satisfaction is a function of customer expectations. 3. With respect to customer satisfaction there might be several types of customers: a) Loyalistscompletely satisfied customers who keep purchasing. b) Apostlesthose whose experiences exceed their expectations and who provide very positive word of mouth about the company to others. 5

c) d) e) f)

Defectorsthose who feel neutral or merely satisfied and are likely to stop doing business with the company. Terroriststhose who have had negative experiences with the company and who spread negative word of mouth. Hostagesunhappy customers who stay with the company because of no choice (or other reasons). Mercenariesvery satisfied customers but who have no real loyalty to the company and may defect.

Building Customer Trust

1. Closely related to the challenge of satisfying consumers is the challenge of

establishing and maintaining consumer trust. a) Trust is the foundation for maintaining a long-standing relationship with customers, and it helps to increase the chances that customers will remain loyal. b) Efforts to provide true customer delight in the face of an event that had extremely dissatisfied the customer can be turned around by the marketer, and present a positive win-win outcome for both the consumer and the marketer. Securing Customer Retention
1. The overall objective of providing value to customers continuously and more 2. 3. 4.

5.

6.

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

THE IMPACT OF DIGITAL TECHNOLOGIES ON MARKETING STRATEGIES

1. Digital technologies have allowed marketers to customize their products, services,

and promotional messages.

2. They enable marketers to adapt the elements of the marketing mix to consumers

needs more quickly and efficiently, and to build and maintain relationships with customers. 3. Marketers are collecting and analyzing increasingly complex data on consumers buying patterns and personal characteristics, and quickly analyzing and using this information to target smaller and more focused groups of consumers. 4. Technology enables consumers to find more information. Consumers Have More Power Than Ever Before
1. Consumer can use intelligent agents to locate the best prices for products or

2. 3. 4. 5.

services, bid on various marketing offering, bypass distribution outlets and middlemen, and shop for goods around the globe and around the clock from the convenience of their homes. Marketers must offer more competitively priced products, with more options. Through devices like TiVo, consumers have more power over what they see or hear in the marketplace. Consumers have access to more information then ever before. Marketers have been reducing their advertising expenditures on major networks and investing their advertising dollars in newer media.

Consumers Have More Access To Information Than Ever Before

1. Reviews of products are easily found.

Marketers Can And Must Offer More Services And Products Than Ever Before
1. The digitization of information enables sellers to customize the products and services

they are selling and still sell them at reasonable prices. 2. Marketers can customize promotional messages. Increasing Instantaneous Exchanges Between Marketers and Customers
1. Digital or new media communication enables a two-way interactive exchange in

which consumers can instantly react to the marketers message.

2. Marketers can quickly gauge the effectiveness of their promotional messages.

Impact Reaches Beyond the PC-Based Connection Of The Web

1. While computer access to the Internet is extensive and growing, in the future we are

likely to see the mobile phone or PDA emerge as the preferred access too, as it brings e-mail and text messaging to one particular device. 2. The large numbers of highly mobile consumers are making a cell device a preferred communication tool. THE EXPANDING MOBILE CONSUMER
1. Cellular service providers are increasingly seeing the cell phones screen as an

opportunity to secure advertising revenue. 2. We can expect expanded use of wireless media messages as: a) The availability of flat-rate data traffic to consumers increases. b) With creation of enhanced screen image quality. c) Increased consumer-user experiences with improved Web-related applications. CONSUMER BEHAVIOR IN A WORLD OF ECONOMIC INSTABILITY
1. This edition of Consumer Behavior was written in a time of recession and widespread

economic downturn in consumer confidence. 2. Economic events will impact what and how much consumers are able to purchase. 3. Some consumers really suffer in times of recession and widespread economic downturn. 4. Much of the process of consumer decision making and the dynamics of consumer research and shopping will still go on, but it will be different. CONSUMER BEHAVIOR INTERDISCIPLINARY AND DECISION MAKING ARE

1. Consumer behavior was a relatively new field of study in the mid-to-late 1960s. 2. Marketing theorists borrowed heavily from concepts developed in other scientific

disciplines: a) Psychologythe study of the individual. b) Sociologythe study of groups. c) Social psychologythe study of how an individual operates in groups. d) Anthropologythe influence of society on the individual. e) Economicsto form the basis of this new marketing discipline. 3. Many early theories concerning consumer behavior were based on economic theory, the idea that individuals act rationally to maximize their benefits (satisfactions) in the purchase of goods and services. 4. Later research discovered that consumers are just as likely to purchase impulsively, and to be influenced not only by family, friends, advertisers and role models, but by mood, situation, and emotion.

A Model of Consumer Decision Making

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

interlocking stages: the input stage, the process stage, and the output stage.
2. The input stage influences the consumers recognition of a product need and consists

of two major sources of information: a) The firms marketing efforts (the product itself, its price, promotion, and where it is sold). b) The external sociological influences on the consumer (family, friends, neighbors, other informal and noncommercial sources, social class, cultural and subcultural memberships). 3. The process stage focuses on how consumers make decisions. a) The psychological factors inherent in each individual (motivation, perception, learning, personality, attitude) affect how the external inputs influence the consumers recognition of a need, prepurchase search for information, and evaluation of alternatives. b) The experience gained through evaluation of alternatives, in turn, affects the consumers existing psychological attributes. 4. The output stage of the consumer decision-making model consists of two closelyrelated post decision activities: a) Purchase behavior, which can be a trial purchase or a repeat purchase. b) The postpurchase evaluation of the product feeds directly into the consumers experience in the process stage of the model.