A study on the factors affecting consumer behavior

Business Economics Project

Submitted for the Fulfillment of the Requirements of the Degree

Of

Masters of Commerce (Hons.), Semester 1 of Academic Year 2023-2024

At

University Business School, Panjab University, Chandigarh

Submitted to Submitted by:

Sanskriti

Professor 30th September, 2023

University Business School

Panjab University, Chandigarh

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ABSTRACT:

C onsumers are the basic economic entities of an economy. All the

consumers intake goods and services directly or indirectly to maximize
their satisfaction and utility. Consumers have limited income and by
which they want to satisfy their maximum utility. And there are many factors
based on which consumers decides on what type of goods and services they
should invest their money on so that they could achieve the maximum level of
satisfaction.

This paper will focus on all of the factors which have an influence on the
consumers regarding their buying decision making and on what basis the
consumers get ready to spend their limited income on. This study emphasizes
on evaluating the possible factors that are responsible for how much or how
little a consumer buys.

1. INTRODUCTION:
Consumer behavior is a central part of our life and it refers to the study of how
individual customers, groups or organizations select, buy, use and dispose
ideas, goods and services to satisfy their needs and wants. What influence the
ultimate consumer to buy a certain good or service and to invest their income
on those goods and services.

According to Engel, Blackwell and Mansard,’ consumer behavior is the actions

and decision processes of people who purchase goods and services for
personal consumption’.

According to Louden and Bitta, ‘ consumer behavior is the decision process and
physical activity, which individuals engage in when evaluating, acquiring, using
or disposing of goods and services,

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Consumer behavior is a combination of factors that affect the consumer buying
behavior. A purchase decision is the result of each and every one of these
factors. An individual is led by his cultural, his social class, his family, his

Personality, and his psychological factors and is influenced by cultural trends as

well as his social and societal environment. Consumer behavior is influenced by
many external as well as internal factors such as situational, environmental,
marketing factors, personal factors, family and culture.

By indentifying and understanding the factors that influence their customers,

brands have the opportunity to develop a strategy , a marketing message and
advertising campaigns more efficiently and more in line with the needs and
ways of thinking of their target consumers, a real asset to better meet the
needs of its consumers and increase their sales. It is important to asses the
kind of products liked by consumers so that companies can produce them.

In a study where 102 CX experts were asked about the CX challenges, Sean
Folan, vice president, Health industry Leader, Cronin Rightly says:

“As marketers, we need to put our own biases aside and see things through the
lens of our customers. We need to steep ourselves in their needs and desires,
focusing on key pain points and the opportunities to delight.”

In its early years, consumer behavior was influenced by motivation research,

which had increased the understanding of customers, and had been used
extensively by consultants in the advertising industry and also within the
discipline of psychology in the 1920s, 30s, 40s. By the 1950’s, marketing began
to adopt technologies used by motivation researchers including depth
interviews, projective techniques etc. Today consumer behavior is regarded as
an important sub discipline technique with marketing and is included as a unit
of study in almost all undergraduate marketing programs.

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Annual growth in household spending:
Consumption categories FY94-FY05 FY05-FY15 FY15-FY25

Food 3.0 4.2 5.3

Apparel and footwear 3.3 6.1 6.2

Healthcare 7.1 8.2 8.3

Education 11.5 8.9 8.9

Conveyance 8.7 9.1 9.1

Non food FMCO 4.9 4.1 5.0

Durable goods 9.8 10.1 10.3

Consumer services 10.6 6.8 6.9

Others 8.4 5.8 6.8

Total consumer market 5.0 5.7 6.7

(%, at 2004-05 prices)

The above table shows the various household spending in different

consumption categories. Households are spending most in durable goods,
education and in conveyance, the spending has been increased from 1994
to 2023. We can also see the increase in the total consumer market which
has been increased from 5.0% to 6.7%. We can say that consumer is
spending more and more in commodities with every passing year(s).

Key words: consumer behavior, factors, income, taste, utility, goods,

services, satisfaction

2. Importance of understanding consumer behavior:

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Understanding consumer behavior is essential for a company to succeed in
its current products and new product launches. Consumers have different
thought processes and attitudes toward buying a particular product. If a
company fails to understand the reaction of a consumer towards a product,
there are high chances of product failure.

Due to the changing fashion, technology, trends, living style, disposable

income, and similar other factors, consumer behavior also changes. A
marketer has to understand the factors that are changing so that marketing
efforts can be aligned accordingly..

This article outlines several importance of consumer behavior:

 Consumer differentiation
 Design relevant marketing Program
 Predicting market trend
 Competition
 Is the customer buying from your competitor?
 Why is a consumer buying from your competition?
 What features attract a consumer to your competitor`s
product?
 What gaps are your consumers identifying in your
products when compared to your competitors?

 Innovate new products

 Exploit the market opportunities
 Understanding of various roles played by consumer
 Results in consumer satisfaction.

Offering a great product or service is a good start to building a business, but

it isn`t enough to sustain long term sales. If you really want to make a
splash in the market and set up your business for continuing success, the
number one thing you can do is to make your customers feel like you really
“get” them. And that starts with understanding consumer behavior.

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Understanding consumer behavior, and turning that data into actionable
insights, helps you to create a relationship of understanding and trust with
your consumers, which can ultimately increase in brand loyalty. It shows
the consumers that you have done your homework that you understand
their wants and needs, and that you have the solutions they are looking for.
Building that type of rapport with your audience is hugely valuable in
securing and retailing a customer base. According to recent reports, 76% of
consumers expect companies to understand their needs and expectations
and organizations that lead in customer experience outperform their
competitors on the S&P 500 index by 80%. So, not only do consumers
expect you to solve their problems companies also have to clearly
communicate that you do, or else they are likely to turn themselves.

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 3. Objectives of the study:

This study will focus on the following objectives:

 To study about the factors that influences the consumers in

making buying decisions.
 To study the customer buying behavior on purchase of the goods
and services.
 To study the consumer behavior pattern.
 To know the consumer perception on various determinants of
customer buying behavior.
 What factor affects the consumer buying decision and in what
way.

These will be the main topics in which this study will do a finding.

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 4. Factors affecting consumer behavior:

5.1 CULTURAL FACTORS:

Consumer behavior is deeply influenced by cultural factors. It includes:

 Culture: Basically, culture is the part of every society and is the

important cause of person wants and behavior. The influence of culture
on buying behavior varies from country to country therefore marketers
have to be very careful in analyzing the culture of different groups,
regions or even countries.
 Social class: Every society possesses some form of social class which is
important to the marketers because the buying behavior of people in a
given class is similar. Social class is not only determined by income but
there are various other factors as well such as; wealth, education,
occupation etc.

4.2 SOCIAL FACTORS:

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The important social factors are:

 Reference groups: Reference groups have potential in forming a person

attitude or behavior. The impact of reference groups varies across
products ad brands. For example if the product is visible such as dress,
shoes, car etc, and then the influence of reference groups will be high.
 Family: Buyer behavior is strongly influenced by the member of a family,
Therefore marketers are trying to find the roles and influence of the
husband, wife and children. If the buying decision of a particular product
is influenced by wife then the marketers will try to target the women in
their advertisement.
 Roles and Status: Each person possesses different roles and status in the
society depending upon the groups, clubs, family, organization etc., to
which he belongs.

5.3PERSONAL FACTORS:

Some of the important personal factors that influence the buying behavior are
lifestyle, economic situation, occupation, age, personality, and self concept,

 Age: Age and life cycle have potential impact on the consumer buying
behavior. It is obvious that the consumer change the purchase of goods
and services with the passage of time.
 Occupation: The occupation of a person has significant impact on the
buying behavior. For example, a marketing manager of an organization
will try to purchase business suits, and a low level worker in the same
organization will purchase rugged work clothes.
 Economic situation: Consumer economic situation has great influence
on his buying behavior. If the income and savings of customer is high,
then he will purchase more expensive products. On the other hand a
person with low income and savings will purchase inexpensive products.

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  Lifestyle: Lifestyle refers to the way a person lives in a society and is
expressed by the things in his/her surroundings. It is determined by
customer interests, opinions, activities etc. and shapes his whole pattern
of acting and interacting in the world.
 Personality: Personality changes from person to person, time to time
and place to place. Therefore it can greatly influence the buying
behavior of customers. Actually, personality is not what one wears
rather it is the behavior of a man in different circumstances. It has
different characteristics such as dominance, aggressiveness, self
confidence etc which can be useful to determine the consumer behavior
for particular product and service.

4.3 PSYCOLOGICAL FACTORS:

There are four important psychological factors affecting the consumer buying
behavior. These are perception, motivation, learning, beliefs and attitude.

 Motivation: Motivation to do something often influences the buying

behavior of the person. Individuals have different needs such as social
needs, basic needs, security needs, esteem needs, and self actualization
needs. Out of all these, the basic needs and security needs take a
position above all other needs, and these motivate a consumer to buy
products and services.
 Perception: Our perception is shaped when we gather information
regarding a relevant image regarding a certain product. Whenever we
see an advertisement, review, feedback regarding a product we form an
image of that item. As a result, our perception plays an integral role in
shaping our decisions.
 Learning: When a person buys a product, the general tendency is to
learn something more about the product. Learning also comes over a
period through experience. This learning depends on skills and
knowledge, while skill can be gained through practice, knowledge can be
acquired only through experience.

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Attitudes and beliefs: Consumers attitude and beliefs also influences the
buying decision. Based on this attitude, the consumer behaves in a particular
way towards a product. This attitude plays a significant role in defining the
brand image of a product.

4.4 ECONOMICAL FACTORS:

Consumer buying habits greatly depends on the economic situation of a

country or a market. When a nation`s economy is strong, it leads to a
greater money supply in the market and higher purchasing power for
consumers.

 Personal income: When a person has a higher disposable income, the

purchasing power increases simultaneously. Disposable income
refers to the money that is left after spending towards the basic
needs of a person.
 Family income: Family income is the total income from all the
members of a family. When more people are earning in the family,
there is more income available for shopping basic needs and luxuries.
 Consumer credit: When a consumer is offered easy credit to
purchase goods, it promotes higher spending. Sellers are making it
easy for the consumers to avail credit in the form of credit cards, easy
installments, bank loans, hire purchases, and many such other credit
options.
 Liquid assets: Consumers who have liquid assets tend to spend more
on comfort and luxuries. Liquid assets are those assets, which can be
converted into cash very easily. Cash in hand, bank savings and
securities are some examples of liquid assets. When a consumer has
higher liquid assets, it gives him more confidence to buy luxury
goods.
 Savings: A consumer is highly influenced by the amount of savings
he/she wishes to set aside from his income. If a consumer decided to
saved more, then his expenditure on buying reduces. Whereas if a
consumer is interested in saving more, then most of his income will
go towards buying products.

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5. METHODOLOGY:

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There are two types of methods used in a research, quantitative and
qualitative. Under quantitative method, numerical data is collected and
analyzed. It can be used to find patterns and averages, make predictions,
test casual relationships, and generalize results to wider populations.
Whereas, qualitative method involves collecting and analyzing non-
numerical data (e.g. text, video, audio) to understand concepts, questions
or experiences.

This study includes both qualitative as well as quantitative data under it.
The use of both numerical data as well as non-numerical data is there in
this research.

Qualitative method or data is used where there is a need to focus on people`s

feelings and thinking. For instance like what are the taste and preference of
consumers, what are their wants, what satisfies them most, how they invest
their income on certain products.

Whereas, quantitative method is used to describe the degree of factors which

affects the buying decisions of consumers. Up to what extent the factors affect
the purchasing power of the consumers regarding a product. It also shows the
decisions consumers take in online shopping.

6. LITERATURE REVIEW:

Kumar (2006), identified that a majority of the rural consumers give more
preference to the quality of the product in his research at rural India, which
showed that the income level of the rural consumer is increasing, which also
generates more consumption and purchasing power for the consumers.
Laldinliana(2012), The prominence of promotion effort made by the
marketers/ Producers of these durable products is captured by the ranking of

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choicest buying factors, especially so with two wheelers as seen from the
responses of more than a third of the household sample, pointing out
promotion to be the main factor influencing their purchase.

AA Kumar et al (2014), The Customer decision is the selection of an action from

two or more alternative choices. Customer decision to purchase the goods
from the available alternative choice is known as "Consumer Purchase
Decision".

The marketing people should initiate the participants in the purchase decision
to make the purchases of the product at different marketing strategies. Engel,
et al. (1986, 5), define consumer behavior as

"those acts of individuals directly involved in obtaining, using, and disposing of

economic goods and services, including the decision processes that precede
and determine these acts". Simple observation provides limited insight into the
complex nature of consumer choice and researchers have increasingly sought
the more sophisticated concepts and methods of investigation provided by
behavioral sciences in order to understand, predict, and possibly control
consumer behavior more effectively.

Psychology, social psychology, and sociology are the disciplines most widely
employed in this endeavor which has become a substantial academic industry
in its own right. In order to develop a framework for the study of consumer
behavior it is helpful to begin by considering the evolution of the field of
consumer research and the different paradigms of thought that have
influenced the discipline (Marsden and Littler, 1998).

Consumer behavior is the study of the processes involved when individual or

groups select, purchase, use, or dispose of the product, service, ideas or
experiences to satisfy needs and desires (Michael R.Solomon, 2013).

The expand view of consumer embrace much more than the study of why and
what consumer buy, but also focuses on how marketer influence consumers
and how consumers use the products and services

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Howard and Sheth (1969), proposed one of the earliest models of consumer
behavior. The model integrates various social, psychological and marketing
influences on consumer choice and used to analyze purchasing behavior.
Howard and Sheth (1969) suggested that consumer decision making differs
according to the strength of the attitude toward the available brands; this
being largely governed by the consumer's knowledge and familiarity with the
product class. The definition of consumer behavior given by Belch (1998) is the
process and activities people engage in when searching for, selecting,
purchasing, using, evaluating, and disposing of products and services so as to
satisfy their needs and desires. Behavior occurs either for the individual, or in
the context of a group, or an organization. Consumer behavior involves the use
and disposal of products as well as the study of how they are purchased.

7. DATA ANALYSIS:

Fig, (Source: secondary data)

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The above data shows the behavior of consumers based on different factors
like mix marketing, personal, social;, cultural and mental.

In the Fig. 1.1, we can clearly depict that most of the consumers make their
decision of buying products and services based on the marketing mix. In the
process of determining the decisions, consumers are influenced by marketing
mix. Marketing mix consists of product strategy, price strategy, distribution
strategy, and promotion strategy.

The next highest contributing factor is the mental factor or the psychological
factor. Psychological factor includes motivation, perception, learning, attitude,
belief system.

Third comes the personal factors. Personal factors such as occupation, age and
life cycle stage, economic situation, lifestyle, personality and self concept.

Next are the social factors which include reference groups, family, role and
status. A consumer`s family has a major impact on attitude and behavior, and
families themselves are critically important in society as consumer units.

Lastly comes the cultural factors. Cultural factors have a strong influence on
consumer buying behavior. Cultural factors includes the basic values needs,
wants, preferences, perceptions and behaviors that are learned by a consumer
from their near family members and other important people around them.

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 Fig. 1.2

(Source: secondary data)

Figure 1.2 shows the reasons for consumers shifting to online shopping.

When we are purchasing offline there is a limitation of time as the physical

shops gets closed after a certain time. But in online shopping we can scroll
through commodities 24/7, which is the major benefit of online shopping.

Also through online shopping we can compare the prices of multiple products
in no time. There are many sales which comes from time to time offering
better and lower prices. It saves much more time than offline shopping. It is
more convenient as we don`t have to go to the shops physically. It offers a
greater variety, free shipping offer, provides the convenience of everything at
one place, avoid crowds and it also avoids the checkout line. All these features
of online shopping are resulting in shifting the consumer behavior.

Fig. 1.3

The above table shows the choices of consumers in toothpastes. A survey was
conducted from several people, asking about their preferences over
toothpaste in terms of all factors. From that data it was depicted that Colgate
has the maximum number of consumers. Over half of the respondents

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preferred Colgate over toothpastes. Second preference of consumers was
close up which contributed 15% in total. Third was Peposedent contributing
about 14%. Fourth was Dabur with 10% preferences. Himalaya and Vicco
contributed about 4% and 3% respectively.

Fig. 1.5

(Source: secondary data)

The above figure shows some responses of respondents, in what way they
decide to buy a product. Like the quality of product, price of product,
information about the product and its substitutes, brand etc.

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 8. CONCLUSION:
Consumer behavior refers to a process in which consumers select, buy and
utilize of products and services to meet consumer’s needs and desires.
Different processes are conducted in the consumers purchasing behavior.
Firstly, the consumers attempt of discovering which products they want to
consume, then they select merely those products that warrant greater efficacy.
After products are being selected, the buyers create a measurement of the
accessible finance that they are capable to allocate. Finally, the consumers
analyze the dominant prices of products and form the decision about the
products they should consume. During the interval, there are different factors
that influence on the purchases of Consumer likes civil components, cultural
components, personal components and psychological components also.

This research based on factor affecting consumer buying behavior. It can be

concluded that, there are four main factors which affects consumer buying
behavior such as Personal factor (Age and stages of life cycle, Occupation,
Personality and Lifestyle), Psychological factor (Motivation, Perception,
Learning and Memory), Social factor and Economic factor (Personal income,
Family income, Income expectations, Savings, Consumer credit and Other
economic factors). It also concluded that a consumer affects at the different
ages and stages of life cycle.

The motivation and perception also affect the consumer buying behavior and
surrounding of the consumer play a major role for influencing the buying
decision. This research helps in understanding of factor affecting consumer
buying behavior for decision making towards the products.

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9. REFERENCES:

i. Armstrong JS 1991, Prediction of Consumer Behavior by Experts

and Novices. Journal of consumer research. (2) 251-6
ii.
Hansen T. (2005). Perspectives on consumer decision making: An
Integrated approach. Journal of consumer behavior. 4(6), 420-437.
iii. Impulse buying (2012). In Business Dictionary. Retrieved from
http:www.nusinessdictionary.com/definition/impulse-
buying.html.
iv. Carrigan, M., Attalia, A. (2001). The myth of the ethical consumer-
do ethics matter in purchase behavior? Journal of Consumer
Marketing. 18(7), 560-578.
v. Consumer behavior. 10th Edition by Leon Schiftman and Leslie
Kanuk.
vi. Kotler, P., Caslione,J. (2009). How Marketers Can Respond in
Recession and Turbulence, Journal of Consumer Behavior, 8(2).
187-448.
vii. Pride, W. M., Ferrell, O.C. (2007). Foundations of Marketing (2nd
ed.). Boston. MA: Houghton Miffin Company.

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