Wolaita Sodo University

College of Business and Economics

Department of Marketing Management

MODULE ON FUNDAMENTALS OF MARKETING

MODULE CODE: MKMT M-07

PART I: PRINCIPLES OF MARKETING

PART II: CONSUMER BEHAVIOUR
PART II: MARKETING RESEARCH
Compiled By: Mr. Tarekegn Tesfaye (MBA in Marketing)
Mr. Habtamu Israel (MA in Marketing)

FEBRUARY, 2023
WOLAITA SODO, ETHIOPIA

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Table of Contents
MODULE NAME: FUNDAMENTALS OF MARKETING ..................................................................................... 8
PART I: PRINCIPLES OF MARKETING ............................................................................................................. 8
CHAPTER ONE ............................................................................................................................................... 8
NATURE AND SCOPE OF MARKETING ........................................................................................................... 8
1.1 Definitions and Basic concepts ........................................................................................................... 8
1.2 Philosophies of Marketing / Marketing Management Concepts ...................................................... 13
1.4 Marketing Tasks ................................................................................................................................ 18
1.4.1 Building Customer Relationship ................................................................................................. 18
1.4.2. Demand Management .............................................................................................................. 19
2. THE MARKETING ENVIRONMENT ........................................................................................................... 21
2.1 Micro-Environment ........................................................................................................................... 21
2.2 Macro Environment ......................................................................................................................... 24
CHAPTER THREE .......................................................................................................................................... 27
3. UNDERSTANDING THE MARKET.............................................................................................................. 27
3.1 What is a market? ............................................................................................................................. 27
3.2. Types of market ................................................................................................................................... 27
3.2.1 Consumer markets and buying behavior ................................................................................... 27
Fig. 3.1 Buyer Decision Process ............................................................................................................... 28
Types of consumer buying behavior ....................................................................................................... 29
The four type of consumer buying behavior are: ................................................................................... 29
3. 2. 2. Organizational Markets And Buying Behavior ........................................................................ 38
Stage 1 Problem Recognition ...................................................................................................................... 42
Stage 4 Supplier Search....................................................................................................................... 43
Stage 5 Proposal Solicitation....................................................................................................................... 43
Stage 7 Order-Routine Specification ........................................................................................................... 44
CHAPTER FOUR ........................................................................................................................................... 48
3. MARKET SEGMENTATION TARGETING AND POSITIONING .................................................................... 48
4.1 Market Segmentation ....................................................................................................................... 48
3.2 market Targeting............................................................................................................................... 53
3.3 market positioning ............................................................................................................................ 55
CHAPTR FIVE ............................................................................................................................................... 60

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5. MANAGING PRODUCT ............................................................................................................................ 60
5.2 Classification Of Products ................................................................................................................. 61
5.3 New Product ..................................................................................................................................... 63
5.3.1 New Product Development........................................................................................................ 64
5.3.2 Product Life Cycle And Its Management .................................................................................... 65
5.4 Product Attributes ............................................................................................................................ 67
5.5 Product Mix Policies and Strategies .................................................................................................. 67
5.6 Product Branding, Packaging 'and Labeling ...................................................................................... 67
CHAPTER SIX................................................................................................................................................ 71
PRICING DECISIONS ..................................................................................................................................... 71
6.1 Meaning and significance of pricing ................................................................................................. 71
Meaning of pricing .................................................................................................................................. 71
6.2 Pricing Objectives .............................................................................................................................. 72
6.3. Factors Affecting Pricing Decision .................................................................................................... 74
6.4. Basic methods of determining price ................................................................................................ 77
6.5 Pricing procedures ............................................................................................................................ 79
6.6 Select pricing strategy to reach the market ...................................................................................... 79
CHAPER SEVEN ............................................................................................................................................ 83
7. PROMOTION DECISIONS ......................................................................................................................... 83
7.1 Meaning and Significance of Promotion ........................................................................................... 83
7.2 THE PROMOTIONAL MIX ELEMENTS ................................................................................................. 84
7.2.1 Advertising ................................................................................................................................. 84
7.2.2 Personal Selling .................................................................................................................................. 84
7.2.3 Sales promotion ................................................................................................................................. 85
7.2.4 Public Relation and Publicity .......................................................................................................... 86
7.2.5 Direct Marketing ........................................................................................................................ 87
CHAPTER EIGHT........................................................................................................................................... 89
8. DISTRIBUTION ......................................................................................................................................... 89
8.1 Meaning and Importance of Distribution ......................................................................................... 89
8.2. Marketing Intermediaries And Their Functions ............................................................................... 89
8.3 Channel Design And Management ................................................................................................... 91
8.4. Factors Affecting Marketing Channel Decisions .............................................................................. 92
PART II : BASICS OF CONSUMER BEHAVIOR................................................................................................ 94

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CHAPTER ONE ............................................................................................................................................. 94
1. INTRODUCTION TO CONSUMER BEHAVIOR ........................................................................................... 94
1.1 Definition and characteristics of consumer behavior ....................................................................... 94
1.2 Importance of Studying Consumer Behavior .................................................................................... 95
1.2.1 Reasons for studying consumer behavior .................................................................................. 96
1.2.2 Who Benefits from the Study of Consumer Behavior? .............................................................. 97
1.3 Model of consumer behavior............................................................................................................ 99
CHAPTER TWO .......................................................................................................................................... 100
2. CONSUMER DECISION PROCESSES........................................................................................................ 100
2.1. What Is A Decision? ....................................................................................................................... 100
2.2. Levels of Consumer Decision-Making .......................................................................................... 101
2.2.1. Habitual (Routinized) Response .............................................................................................. 101
2.2.2. Limited Problem Solving ......................................................................................................... 101
2.2.3. Extensive Problems Solving..................................................................................................... 102
2.3. Consumer Decision Making Process .............................................................................................. 103
2.3.1. Problem Recognition................................................................................................................... 103
2.3.2. Information Search ..................................................................................................................... 104
2.3.3 Basic Types of Information Search ............................................................................................... 105
2.3.4. Alternative Evaluation................................................................................................................. 105
2.3.5. Purchase decision ....................................................................................................................... 105
2.3.5. Post purchase behavior or experience ................................................................................... 105
PART TWO ................................................................................................................................................. 107
THE CONSUMER AS AN INDIVIDUAL ......................................................................................................... 107
CHAPTER THREE ........................................................................................................................................ 107
3. CONSUMER NEED AND MOTIVATION................................................................................................... 107
3.1. Overview of consumer needs and Motivation .............................................................................. 107
3.2 Characteristics of Motivation.............................................................................................................. 109
3.3. Needs and Goals Vary among Individuals ...................................................................................... 110
3.4. Theories of Motivation .................................................................................................................. 111
CHAPTER FOUR ......................................................................................................................................... 113
4. PERSONALITY AND CONSUMER BEHAVIOR .......................................................................................... 113
4.1. What is personality? ...................................................................................................................... 113
4.2. The Nature of Personality .................................................................................................................. 113

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 4.3. Theories of Personality .................................................................................................................. 114
CHAPTER FIVE ........................................................................................................................................... 119
5. CONSUMER PERCEPTION ..................................................................................................................... 119
5.1 What is Perception .......................................................................................................................... 119
5.2. Dynamics of Perception ................................................................................................................. 119
Major principles of perception: ............................................................................................................ 119
5.3. Perception Process......................................................................................................................... 120
CHAPTER-6 ................................................................................................................................................ 122
6. LEARNING AND CONSUMER INVOLVEMENT ........................................................................................ 122
6.2. Learning Theories ........................................................................................................................... 123
6.2.1. Behavioral School........................................................................................................................ 123
6.3.2. Cognitive Learning Theory ...................................................................................................... 125
CHAPTER SEVEN ........................................................................................................................................ 129
THE NATURE OF CONSUMER ATTITUDE ................................................................................................... 129
7.1 Definition of Attitude ...................................................................................................................... 129
7.2 Attitude Function ............................................................................................................................ 129
7.3 Characteristics of Attitude .................................................................................................................. 129
7.4 Sources of Attitude Development.................................................................................................. 130
7.5 Structure Models of Attitudes ........................................................................................................ 131
CHAPTER EIGHT......................................................................................................................................... 133
8. INDIVIDUAL DIFFERENCES IN INNOVATIVENESS................................................................................... 133
8.1. The Diffusion of Innovation ........................................................................................................... 133
8.2. The Adoption Process .................................................................................................................... 137
8.2.1. Stages in the Adoption Process................................................................................................... 137
8.3. Adoption and Diffusion through Marketing Strategy ................................................................ 137
8.4. The Adoption Process and Information Sources............................................................................ 138
8.5. A Profile of the Consumer Innovator ............................................................................................. 138
8.5.1. Defining the Consumer Innovator .......................................................................................... 138
PART THREE: THE CONSUMER AS A GROUP ............................................................................................ 140
CHAPTER NINE .......................................................................................................................................... 140
9. THE INFLUENCE OF CULTURE AND SOCIAL CLASS ON CONSUMER BEHAVIOR .................................... 140
CHAPTER TEN ............................................................................................................................................ 143
10. REFERENCE GROUP AND FAMILY INFLUENCES ................................................................................... 143

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10.1 Types of Groups ................................................................................................................................ 143
10.2. Types of Reference Groups .......................................................................................................... 144
10.3. Factors Affecting Reference Group Influence .............................................................................. 144
10.5. Reference Groups Affect Consumer Socialization ....................................................................... 146
PART III: MARKETING RESEARCH .............................................................................................................. 148
CHAPTER ONE ........................................................................................................................................... 148
1. THE NATURE AND SCOPE OF MARKETING RESEARCH .......................................................................... 148
1.1. Definition of Marketing Research .................................................................................................. 148
1.2. Roles and Objectives Research ...................................................................................................... 151
1.3. Scientific Methods Of Research ..................................................................................................... 152
1.4. Characteristics of a Good Research ............................................................................................... 155
CHAPTER TWO .......................................................................................................................................... 157
2. THE RESEARCH PROCESS ....................................................................................................................... 157
2. 1 Establishing The Need For Research .............................................................................................. 157
2.2 Define the problem ......................................................................................................................... 157
2.3 Establish research objectives .......................................................................................................... 158
2.4 Determine research design ............................................................................................................. 158
2.5 Identify information types and sources .......................................................................................... 158
Sources of Data ................................................................................................................................ 158
2.6. Determining Methods of Accessing Data ...................................................................................... 160
2.7 Design data collection forms .......................................................................................................... 160
2.8. Collect data .................................................................................................................................... 161
2.9. Analyze data .................................................................................................................................. 162
2.10. Analyze Data ................................................................................................................................ 162
2.11 Prepare And Present The Final Research Report .......................................................................... 163
CHAPTER THREE ........................................................................................................................................ 164
3. RESEARCH PROPOSAL ........................................................................................................................... 164
3.1. The Value Of Proposals .................................................................................................................. 164
3.2. Types of Research Proposal ........................................................................................................... 164
3.3 Structure Of The Research Proposal ............................................................................................... 165
CHAPTER FOUR ......................................................................................................................................... 169
4. DEFINING THE PROBLEM AND THE RESEARCH OBJECTIVES ................................................................. 169
4.1 Define manager’s problems ............................................................................................................ 169

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 4.2 Define Research Problems .............................................................................................................. 169
4.3. Develop The Research Objectives .................................................................................................. 170
What is a research objective? ............................................................................................................ 170
Research aims .................................................................................................................................. 170
Step 2: Decide on specific objectives ............................................................................................. 171
Step 3: Formulate your aims and objectives................................................................................. 171
CHAPTER FIVE ........................................................................................................................................... 172
5. RESEARCH DESIGN ................................................................................................................................ 172
5.1 Meaning of Research Design........................................................................................................... 172
5.2 The Significant of Research Design ................................................................................................. 172
5.3 Types of Research Design ............................................................................................................... 173
CHAPTER SIX.............................................................................................................................................. 176
6. QUALITATIVE RESEARCH METHODS ..................................................................................................... 176
6.1 Qualitative research ........................................................................................................................ 176
CHAPTER SEVEN ........................................................................................................................................ 179
7. QUANTITATIVE RESEARCH METHODS............................................................................................... 179
7.1. Alternative data collection modes ................................................................................................. 179
Alternative Methods of Data Collection................................................................................................ 179
A. Experiments .................................................................................................................................... 179
B. Natural experiments ...................................................................................................................... 180
C. Textual Analysis ............................................................................................................................. 180
7.2 Factors determining the choice of a particular survey method ..................................................... 181
CHAPTER EIGHT......................................................................................................................................... 182
8. MEASUREMENTS IN RESEARCH ........................................................................................................ 182
8.1 Basic concepts in measurement ..................................................................................................... 182
8.4 Tests of Sound Measurement ......................................................................................................... 184
8.3 Scaled response question forms .................................................................................................... 186
Agreement: ...................................................................................................................................... 186
Satisfaction: ..................................................................................................................................... 187
Frequency: ....................................................................................................................................... 188
Likelihood: ....................................................................................................................................... 188
CHAPTER NINE .......................................................................................................................................... 189
9. DETERMINING THE SAMPLE PLAN AND SIZE ........................................................................................ 189

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 9.1 The Functions Of A Questionnaire .................................................................................................. 189
9.2 The Questionnaire Development Process ...................................................................................... 189
9.3 Developing Questions ..................................................................................................................... 190
9.4 Pre Coding The Questionnaire ........................................................................................................ 191
CHAPTER TEN ............................................................................................................................................ 192
10. DETERMINING THE SAMPLE PLAN AND SIZE ...................................................................................... 192
10.1.1. Basic concepts in sampling ................................................................................................... 192
10.2 Basic sampling methods................................................................................................................ 197
10.3 Methods of determining sample size ........................................................................................... 204
CHAPTER ELEVEN ...................................................................................................................................... 206
11. DATA PREPARATION AND ANALYSIS ................................................................................................... 206
11.1 Stages in data analysing .................................................................................................................... 206

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 MODULE NAME: FUNDAMENTALS OF MARKETING
PART I: PRINCIPLES OF MARKETING
CHAPTER ONE
NATURE AND SCOPE OF MARKETING
Chapter objectives
At the end of this chapter you should be able to:
 Define marketing and discuss its core concepts.
 Explain the evolution of marketing.
 Discuss the importance of marketing.
 Describe marketing management and its dimensions
 Compare the five marketing management philosophies,
 Define marketing management and examine how marketers manage demand and build profitable
customer relationships.
1.1 Definitions and Basic concepts
Definitions
Business firm individuals and non-profit organization engaged in marketing. Products marketed
include goods as well as services, ideas, people and places. Marketing activities are targeted at
market consisting of product purchasers and also individuals and groups that influence the
success of an organization.
Many people think of marketing as selling and advertizing. However selling and advertizing are
the only tip of marketing iceberg. Today, marketing must be understood not in the old sense of
making and selling-but in the new sense of satisfying customer need. Many scholars define
marketing as follows:
According to American Marketing Association, marketing is defined as the performance of
business activities that direct the flow of goods and services from producers to consumers or
users.
According to William J. Stanton, Marketing is a system of business activities designed to plan,
price, promote and distribute want satisfying goods and services to present and potential
customers.
According to Evans and Berman, Marketing is the anticipation, stimulation, facilitation,
regulation and satisfaction of consumer and public‘s demand for products, services,
organizations, people, places, and ideas through the exchange process.
According to Philip Kotler, Marketing is a social and managerial process by which individuals
and groups obtain what they need and want through creating and exchanging products and value
with others.
Generally, the definition of marketing can be grouped in to two: classical (narrow) definition and
modern (broad) definition.
Classical Definition:

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In classical terms marketing can be defined as the performance of business activities that direct
the flow of goods and services from producers to consumers. This definition is too narrow to
describe marketing. It emphasizes the distribution aspect of marketing.
Modern Definition:
In broader terms marketing is defined as a system of business activities designed to plan, price,
distribute and promote want satisfying products (goods and services) to present and potential
customers.
In marketing, there are combinations of activities, which start before the creation of a product
and don‘t end until customers are satisfied. Therefore, product planning, pricing, distribution
and promotion are the main activities performed in marketing.
Marketing includes anticipating demand, which requires a firm to do customer research on a
regular bases so that it develops and introduces products that are desired by consumers,
Management of demand which consists of stimulation, facilitation, and regulation of tasks; and
satisfaction of demand which involves actual performance, safety, availability of options, after
sale service and other factors.
From the above discussions, we can conclude the following about marketing:
 Marketing is the business activity concerned with the flow of goods and services from
producers to consumers.
 Marketing generates and facilitates exchange
 The concept of marketing lies on needs, wants, and demands of customers.
 Marketing is greater than selling.
 Marketing is an integrated activity.
 Marketing is concerned with customer satisfaction
 Basic concepts of Marketing
 Needs, Wants, and Demands
The successful marketer will try to understand the target market‘s needs, wants, and demands.
Needs
Human Need is a state of deprivation of some basic satisfaction. It describes basic human
requirements such as food, air, water, clothing, and shelter. People also have strong needs for
recreation, education, and entertainment. A person has many needs at any given time. Some
needs are biogenic. They arise from physiological states of tension such as hunger, thirst and
discomfort. Other needs are psychogenic; they arise from psychological state of tension such as
the need of recognition, esteem or belonging.
Abraham Maslow, a behavioral scientist classified human needs in to five. He said, a human
need takes the form of a hierarchy. That is, once a person is satisfied with his basic needs, he
keeps on opting for his secondary needs.
Physiological Needs: - Physiological needs arise out of physical imbalances. This includes:
Food, Shelter, Air, Water, Cloth etc. Once the person is satisfied with his primary needs, he
keeps on opting to satisfy his secondary needs. Psychological needs arise out of psychological
imbalances. The various needs under the various sub headings are as follows: -

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  Safety and security
 Security and safety in the work place
 Protection
 Comfort and peace
 No threats or danger
 Orderly and net surroundings
Social Needs
 Acceptance
 Feeling of belonging
 Membership in group
 Love and affection
 Group participation
Esteem needs
 recognition and prestige
 confidence and leadership
 competence and success
 strength and intelligence

Self-actualization needs
 Self fulfillment of potentials
 Doing things for the challenge of accomplishment
 Intellectual curiosity
 Creative and aesthetic appreciation
 Acceptance of reality

Therefore, the marketers duty is to identify the unfilled needs of their product purchasers and
tailor all activities towards fulfilling them.
Wants: - Wants are desires for specific satisfiers of needs. Human wants are continually shaped
and reshaped by social forces and institutions including churches, schools, families and business
cooperation. Needs become wants when they are directed to specific objects that might satisfy
the need. An Ethiopian needs food but wants Enjera.
An American needs food but wants a hamburger, French fries, and a soft drink. A person in
Mauritius needs food but wants a mango, rice, lentils, and beans. Clearly, wants are shaped by
one‘s society.
Demands: - Demands are wants for specific products that are backed by ability and willingness
to buy them. Wants become demand when supported by purchasing power. Many people want a
Mercedes; only a few are able and willing to buy one. Companies must measure not only how
many people want their product, but also how many would actually be willing and able to buy it.
Companies must therefore measure not only how many people want their product but, more
importantly how many would actually be willing and able to buy it.
Product or Offering
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People satisfy their needs and wants with products. A product is any offering that can satisfy a
need or want, such as one of the 10 basic offerings of goods, services, experiences, events,
persons, places, properties, organizations, information, and ideas.

Value, cost and Satisfaction

In terms of marketing, the product or offering will be successful if it delivers value and
satisfaction to the target buyer. The buyer chooses between different offerings on the basis of
which is perceived to deliver the most value.
Customer value is the difference between the values the customer gains from owning and using a
product and the cost of obtaining the product. Value gained not necessarily monetary, similarly
cost of obtaining not necessarily monetary. Customers act on perceived value [and perceived
cost] Customer satisfaction depends on a products perceived performance in delivering value
relative to buyer‘s expectations.
Value =Benefits = Functional benefits + emotional benefits_______________
Costs Monetary costs + time costs + energy costs + psychic costs

Based on this equation, the marketer can increase the value of the customer offering by (1)
raising benefits, (2) reducing costs, (3) raising benefits and reducing costs, (4) raising benefits by
more than the raise in costs, or (5) lowering benefits by less than the reduction in costs.
Exchange and Transactions
People can obtain products in one of four ways. The first way is self-production. People can be
relieving hunger through hunting, fishing or fruit gathering. In this case, there no market and no
marketing. The second way is coercion (applying forces). Hungry people can wrest or steal food
from others. The third way is begging. Hungry people can approach others and beg for food.
Marketing emerges when people decided to satisfy needs and wants through exchange. Exchange
is the act of obtaining a desired product from someone by offering something in return. For
exchange potential to exist, the following conditions must be satisfied: -
There are at least two parties
 Each party has something that might be of value to the other party
 Each party is capable of communication and delivery
 Each party is free to accept or reject the exchange offer
 Each party believes it is appropriate or desirable to deal with the other party.
Transaction: - is the trade of values between two parties.
Eg. If Mr. A gives ‗X‘ to Mr. B and receives Y in return, that is a transaction.
Eg. If Mr. A gave $400 to Mr. B and obtained a TV set. This is a classic monetary transaction.
Transaction however do not require money as one of the traded value. A barter transaction
consists of the trading of goods or services for other goods or a service is also possible. A
transaction involves several dimensions, at least two things of values, agreed upon conditions, a
time of agreement, and a place of agreement. Usually a legal system arises to support and
enforce compliance on the part of contract, people would approach transactions with save
distrust, and everyone will lose.
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Relationship Marketing
Transaction marketing is a part of a larger idea called relationship marketing. Relationship
marketing is the practice of building long term satisfying relations with key parties-customers,
suppliers, distributors- in order to retain their long term preferences and business. Smart
marketers try to build up long term, trusting, win-win relationship with valued customers,
distributors, dealers and suppliers. They accomplish this by promising and delivering high
quality, good service, and fair prices to the other parties over time. Relationship marketing
results in strong economic technical and social ties among the parties. The ultimate outcome of
relationship marketing is the building of a unique company asset called a marketing network. A
marketing network consists of the company and all of its supporting stockholders: customers,
employees, supplies, distributors, retailers, and agencies, university scientists, and others with
whom it has built mutually profitable business relationships. The operating principle is simple:
Build a good network of relationship with key stakeholders, and profit will follow.
Market
The concept of exchange leads to the concept of a market.
A market consists of all the potential customers sharing a particular need or want who might be
willing and able to engage in exchange to satisfy their need or want. Traditionally, a market was
the place where buyers and sellers gathered to exchange their goods. The American marketing
Association defines a market as ―The aggregate demand of the potential buyers for product or
services‖. It can be defined as a place where buyers and sellers meet to do exchange. Philip
Kotler defines ―A market as an area of potential exchanges‖ Thus a market is a group of buyers
and sellers interested in negotiating the terms of purchase/sale for goods or services. The
negotiation work may be conducted face-to-face at a certain place or it may be done through
other means of communication, such as correspondence, phone, cable, or it may be done through
business middlemen. E.g. brokers and commission agents.
Marketers and Prospect
The concept of market brings us full circle to the concept of marketing. Marketing means
working units markets to actualize potential exchange for the purpose of satisfying human needs
and wants. When one party is more actively seeking an exchange than the other party, we call the
first party a marketer and the second party a prospect. A marketer is someone who is seeking one
or more prospects who might engage in an exchange of values. A prospect is someone whom the
marketer identified as potentially willing and able to engage in an exchange of values. The
marketer can be a seller or a buyer. Suppose several people want to buy a house that has just
become available. Each prospective buyer will try to market himself or herself to the seller.
These buyers are actually doing the marketing.
In the normal situation, the marketer is a company serving a market in the face of competitors.
The company and the competitors send their respective products and messages directly and /or
through marketing intermediaries to end users. Their relative effectiveness is influenced by their
respective suppliers as well as major environmental forces (demographic, economic, physical,
technological, political /legal, social/cultural).

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1.2 Philosophies of Marketing / Marketing Management Concepts
Large-scale marketing activities in the world did not take shape until the industrial revolution is
the latter part of the 1800s. What philosophy should guide these marketing efforts? What
weights should be given to the interests of the organization, the customers and society? Very
often these interests conflict. Clearly, marketing activities should be carried out under a clear
philosophy of efficient, effective, and responsible marketing. There are five alternative concepts
under which organizations conduct their marketing activity.

1.The Production Concept:

This concept holds that consumers will favor those products that are widely available and
affordable or low in cost. Management of production oriented organization concentrates on
achieving high production efficiently and wide distribution coverage. Organizations that
appreciate this concept assume that consumers like products that are widely available and
accessible at low cost. The production concept is one of the oldest concepts guiding sellers.
The production concept is a useful philosophy in to two types of situations. The first is where
the demand for a product exceeds supply. Here the management should look ways to increase
production. Here consumers are more interested in obtaining the product than in its fine points.
The suppliers will concentrate on finding ways to increase production. The second situation is
where the product‘s cost is high and has to be brought down through increased productivity to
expand the market. Texas instruments provide a contemporary example of the production
concept:
2. The Product Concept: Under this concept, marketing managers assume that consumers will
prefer those products that offer (provide) the most quality, performance, with good features.
Managers in this product-oriented organizations focus their energy on making quality products
and continuous improvement. These managers assume that buyers admire well-made products
and can select, purchase and appreciate product quality. Products oriented companies often
design their product with little or no customer input. These managers are caught up in a love
affair with their product and fail to appreciate that the market may be less ―turned on.‖
They trust that their engineers will know how to design or improve the product. Too often they
will not even examine competitors‘ products because ―they were not invented here.‖ A General
Motors executive said years ago‖ ―How can the public know what kind of car they want until
they see what is available?‖ GM‘s designers would develop plant for a new car. Then
manufacturing would make it. Then the finance department would price it. Finally, marketing
and sales would try to sell it. GM failed to ask customers what they wanted and never brought in
the marketing people at the beginning to help figure out what kind of car would sell.

The product concept leads to ―marketing myopia‖ a focus on the product greater than on the
customer‘s need. A product orientation leads to obsession with technology because managers
believe that technical superiority is the key to business success. Railroad management thought
that users wanted trains rather than transportation and overlooked the growing challenge of the
airlines, buses, trucks, and automobiles. Building bigger and better trains would not satisfy

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consumers' demand for transportation, but creating other forms of transportation and extending
choice would. post office all assume that they are offering the public the right product and
wonder why their sales falter. These organizations too often are looking into a mirror when they
should be looking out the window.

3.The Selling Concept: Under this philosophy/concept/, marketing managers assume that
consumers purchase products if the organization undertakes an aggressive selling and promotion
effort. Therefore, firms emphasize and direct their effort on promotion and selling of their
products. Most firms practice the selling concept when they introduce new products and when
they have over capacity. The selling concept holds that consumers, if left alone, will ordinarily
not buy enough of the organization‘s products. The organization must therefore undertake an
aggressive selling effort.

The concept assumes that consumers typically show buying inertia or resistance and have to be
coaxed into buying, and that the company has available a whole battery of effective selling and
promotion tools to stimulate more buying. The selling concept is practiced most aggressively
with ―unsought goods,‖ those goods that buyers normally do not think of buying such as
insurance, encyclopedias, and funeral plots. These industries have perfected various sales
techniques to locate prospects and hard sell them on product benefits.

Most firms practice the selling concept when they have over capacity. Their aim is to sell what
they make rather than make what the market wants. In modern industrial economies, productive
capacity has been built up to a point where most markets are buyer markets (i.e., the buyers are
dominant), and sellers have to scramble hard for customers. Prospects are bombarded with
television commercials, newspaper ads, direct mail, and sales calls. At every turn, someone is
trying to sell something. As a result, the public identifies marketing with hard selling and
advertising.
4.The Marketing Concept: The marketing concept is different from the above three concepts.
Managers under this concept assumes that the key to achieving organizational goals is based on
the determination of the needs and wants of consumers and delivering or providing the desired
satisfaction more efficiently, and effectively, than competitors.
When we compare the marketing concept with the selling concept, the selling concept focuses on
the needs of the seller; the marketing concept focuses on the needs of the buyer. Selling is
preoccupied with the seller‘s need to convert his product into cash. Marketing is preoccupied
with the idea of satisfying the customers‘ needs of the product and the whole cluster of things
associated by creating and delivering the product. The marketing concept rests on four main
pillars, namely target market, customer needs, coordinated marketing, and profitability. These
are shown in figure below -

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The selling concept

Starting point Focus Means Ends

Factory Products Selling & Profits through
promotion sales volume

The marketing concept/orientation

Starting point focus means Ends

Target market Customer Coordinated Profits through
Needs marketing Customer Satisfaction

The pillars of marketing concept/orientation

Target Market: No company can operate in every market and satisfy every need. Nor can it
even do a good job within one broad market. Companies do best when define their target market
(s) carefully and prepare a tailored marketing program. An auto manufacture can think of
designing passenger cars, station wagons, sports carts, and luxury. But this thinking is less
precise than defining a customer target group
Ccustomer Nneeds: A company can define its target market but fail to fully understand the
customers‘ needs. Consider the following example. A major chemical company invented a new
substance that hardened into a marble like material. Looking for an application, the marketing
department decided to target the bathtub market.
Coordinated Marketing: Unfortunately, not all company employees are trained and motivated
to work for the consumer. An engineer complaints that the salespeople were ― always protecting
the customer and not thinking of the company‘s interest‖! He went on to blast customers for
―asking for too much.‖ The following situation highlights the coordination problem.
The marketing vice-president of a major airline wants to increase the airline‘s traffic shape. Her
strategy is customer satisfaction through providing better food cleaner cabins and better trained
cabin crews. Yet she has no authority in these matters. The catering department chooses food
that keeps down food costs, the; maintenance department uses cleaning services that keep down
cleaning cost; and the personnel department hires people without regard to whether they are
friendly and inclined to serve other people. Since these departments generally take cost of
production point of view, she is stymied in creating a high level of customer satisfaction.

Coordinated marketing means two things. First, the various marketing functions: sales force,
advertising, product management, marketing research, and so on- must be coordinated among
themselves. Too often the sales force is made at the product managers for setting ― too high a
price‖ or too high a volume target‖, or the advertising director and a brand manager cannot agree
on the best advertising company for the brand. These marketing functions must be coordinated
from the customer point of view.

15
Second, marketing must be well coordinated with the other company departments. Marketing
does not work when it is merely a department; it only works when all employees appreciate the
impact they have on customer satisfaction.

Profitability:-The marketing concept gives focus to customers‘ satisfaction in order to secure

long-term profitability or sustainable business. It tries to balance the needs of the firm with the
interest of the customer. However it fails to compromise the interest of the society.
5.Societal Marketing Concept: It holds that the organization should determine the needs, wants,
and interests of the target markets and deliver the desired satisfaction more effectively and
efficiently than competitors in a way that maintains or improves the customer‘s and the society‘s
well-being.
The societal marketing concept calls upon marketers to balance three considerations in setting
their marketing policies. Originally, companies based their marketing decisions largely on short-
run company profit. Overtime, companies began to recognize the long-run importance of
satisfying consumer wants, and introduced the marketing concept. Now they are beginning to
think of society‘s interests when making decisions. The societal marketing concept calls for
balancing all three considerations-company profits, consumer wants, and society‘s interests. An
organization exists not only to satisfy customer wants but also to preserve or enhance
individuals‘ and society‘s long-term best interests.
Less toxic products
More durable products Products with reusable or recyclable materials

Importance of marketing
Marketing is part of all of our lives and touches us in some way every day. To be successful each
company that deals with customers on a daily basis must not only be customer-driven, but
customer-obsessed. The best way to achieve this objective is to develop a sound marketing
function within the organization. Financial success often depends on marketing ability. Finance,
operations, accounting, and other business functions will not really matter if there is not
sufficient demand for products and services so the company can make a profit.
Marketing and Society:
It is instrumental in improving living standards, because of large scale production, price of goods
come down. The reduction in price will result in a higher standard of living.
It generates employment/career opportunities. For continuous production, continuous marketing
is needed. Thus increased activity provides more job opportunities to many people.
It stabilizes the economic condition and helps to increase the nation‘s income. Efficient systems
of marketing reduce the cost to the minimum, this in turn lower the prices and the consumers‘
purchasing power increases. This will increase the nation‘s income.
Marketing and the Firm:
 It is an outlet to earn profit
 It provides a decision pad for marketers
 It is a source of new ideas
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  In more detail way of Explanation Marketing has following Importance

(1) Marketing Helps in Transfer, Exchange and Movement of Goods:

Marketing is very helpful in transfer, exchange and movement of goods. Goods and services are
made available to customers through various intermediaries‘ viz., wholesalers and retailers etc.
Marketing is helpful to both producers and consumers.
To the former, it tells about the specific needs and preferences of consumers and to the latter
about the products that manufacturers can offer. ―Marketing involves the design of the products
acceptable to the consumers and the conduct of those activities which facilitate the transfer of
ownership between seller and buyer.‖
(2) Marketing is helpful in raising and maintaining the standard of living of the
community:
Marketing is above all the giving of a standard of living to the community. Paul Mazur states,
―Marketing is the delivery of standard of living‖. Professor Malcolm McNair has further added
that ―Marketing is the creation and delivery of standard of living to the society‖.
By making available the uninterrupted supply of goods and services to consumers at a reasonable
price, marketing has played an important role in raising and maintaining living standards of the
community. Community comprises of three classes of people i.e., rich, middle and poor.
Everything which is used by these different classes of people is supplied by marketing.
In the modern times, with the emergence of latest marketing techniques even the poorer sections
of society have attained a reasonable level of living standard. This is basically due to large scale
production and lesser prices of commodities and services. Marketing has in fact, revolutionized
and modernized the living standard of people in modern times.
(3) Marketing Creates Employment:
Marketing is complex mechanism involving many people in one form or the other. The major
marketing functions are buying, selling, financing, transport, warehousing, risk bearing and
standardization, etc. In each such function different activities are performed by a large number of
individuals and bodies.
Thus, marketing gives employment to many people. It is estimated that about 40% of total
population is directly or indirectly dependent upon marketing in developed nation. In the modern
era of large scale production and industrialization, role of marketing has widened.
This enlarged role of marketing has created many employment opportunities for people.
Converse, In order to have continuous production, there must be continuous marketing, only then
employment can be sustained and high level of business activity can be continued.
(4) Marketing as a Source of Income and Revenue:
The performance of marketing function is all important, because it is the only way through which
the concern could generate revenue or income and bring in profits. ―Any activity connected with
obtaining income is a marketing action. It is all too easy for the accountant, engineer, etc., to
operate under the broad assumption that the Company will realize many dollars in total sales
volume.
(5) Marketing Acts as a Basis for Making Decisions:
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A businessman is confronted with many problems in the form of what, how, when, how much
and for whom to produce? In the past problems was less on account of local markets. There was
a direct link between producer and consumer.
In modern times marketing has become a very complex and tedious task. Marketing has emerged
as new specialized activity along with production.
As a result, producers are depending largely on the mechanism of marketing, to decide what to
produce and sell. With the help of marketing techniques a producer can regulate his production
accordingly.

(6) Marketing Acts as a Source of New Ideas:

The concept of marketing is a dynamic concept. It has changed altogether with the passage of
time. Such changes have far reaching effects on production and distribution. With the rapid
change in tastes and preference of people, marketing has to come up with the same.
Marketing as an instrument of measurement, gives scope for understanding this new demand
pattern and thereby produce and make available the goods accordingly.
(7) Marketing Is Helpful In Development Of An Economy:
Adam Smith has remarked that ―nothing happens in our country until somebody sells
something‖. Marketing is the kingpin that sets the economy revolving. The marketing
organization, more scientifically organized, makes the economy strong and stable, the lesser the
stress on the marketing function, the weaker will be the economy.
The Scope of Marketing: No matter which definition of marketing one prefers, the scope of
marketing is unquestionably broad. Often included are such diverse subject areas as consumer
behavior, pricing, purchasing, sales management. Product management, marketing
communications, comparative marketing, social marketing, the efficiency/productivity of
marketing systems, the role of marketing in economic development. packaging. channels of
distribution, marketing research. Societal issues in marketing, retailing, wholesaling, the social
responsibility marketing, international marketing, commodity marketing, and physical
distribution. Though length, this list of topics and issues does not exhaust the possibilities.
Not all writers would include all the topics under' the general rubric of marketing.
The goal of marketing: The goal of marketing is to attract new customer by promising superior
value, and to keep current customers by delivering satisfaction.
1.4 Marketing Tasks
1.4.1 Building Customer Relationship
Customer relationship management is perhaps the most important concept of modern marketing.
Some marketers define it narrowly as a customer data management activity (a practice called
CRM). By this definition, it involves managing detailed information about individual customers
and carefully managing customer ―touch points‖ to maximize customer loyalty.
Most marketers, however, give the concept of customer relationship management a broader
meaning. In this broader sense, customer relationship management is the overall process of
building and maintaining profitable customer relationships by delivering superior customer value
and satisfaction. It deals with all aspects of acquiring, keeping, and growing customers.

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Relationship Building Blocks: Customer Value and Satisfaction
The key to building lasting customer relationships is to create superior customer value and
satisfaction. Satisfied customers are more likely to be loyal customers and give the company a
larger share of their business.
Customer Value: Attracting and retaining customers can be a difficult task. Customers often face
a bewildering array of products and services from which to choose. A customer buys from the
firm that offers the highest customer-perceived value the customer‘s evaluation of the difference
between all the benefits and all the costs of a market offering relative to those of competing
offers. Importantly, customers often do not judge values and costs ―accurately‖ or ―objectively.‖
They act on perceived value. To some consumers, value might mean sensible products at
affordable prices, especially in the after math of recent recession. To other consumers, however,
value might mean paying more to get more.
Customer Satisfaction: Customer satisfaction depends on the product‘s perceived performance
relative to a buyer‘s expectations. If the product‘s performance falls short of expectations, the
customer is dissatisfied. If performance matches expectations, the customer is satisfied. If
performance exceeds expectations, the customer is highly satisfied or delighted.
Outstanding marketing companies go out of their way to keep important customers satisfied.
Most studies show that higher levels of customer satisfaction lead to greater customer loyalty,
which in turn results in better company performance. Smart companies aim to delight customers
by promising only what they can deliver and then delivering more than they promise. Delighted
customers not only make repeat purchases but also become willing marketing partners and
―customer evangelists‖ who spread the word about their good experiences to others.
1.4.2. Demand Management
Marketing managers in different organizations might face any of the following states of demand.
The marketing task is to manage demand effectively. The various states of demand and the
corresponding marketing management task according to P.Kotler are the following:
Negative demand: This is a state in which all or the major parts of the society, dislikes the
product and may even pay a price to avoid it. Examples are vaccination, alcoholic employees,
dental work, and seat belts. The corresponding marketing task is to analyze why the market
dislikes the product and whether product redesign, lower price, or more positive promotion can
change the consumer attitudes. This marketing task or activity is known as CONVERSIONAL
marketing which tries to change people‘s want rather than serve their wants.
No demand: This is a case where target customers may be uninterested in or indifferent to a
particular product. For example, farmers may not know about a new farming method; college
students may not be interested in taking foreign language courses. Marketing managers are
concerned with finding ways to connect the product‘s benefits with the user‘s needs and
interests. This marketing task is known as STIMULATIONAL marketing; it tries to stimulate a
want for an object in people who initially have no knowledge or interest in the product
Latent demand: Consumers have a want that is not satisfied by any existing product or service.
This state of demand where many customers share a strong need for something that does not
exist in the form of actual product is called LATENT demand. Examples include the need for

19
harmless cigarettes, more fuel-efficient cars, etc. In this case marketing managers respond by
trying and developing effective goods and services that will satisfy the demand through analysis
and measurement of the potential market. The marketing task is called DEVELOPMENTAL
marketing and its task is to measure the size of the potential market and trying to develop a new
product or service that would satisfy the demand.
Falling demand: Sooner or later, every organization faces falling demand for one or more of its
products. For example, churches have seen their membership decline, and private colleges have
seen fewer applications. The marketer must find the causes of market decline and re-stimulate
demand by finding new markets, changing product features, or creating more effective
communication and the marketing task is REMARKETING.
Irregular demand: It is a state in which the timing pattern of demand is marked by seasonal and
volatile fluctuations causing problems of idle capacity and overworked. For example museums
are under-visited during weekdays and overworked during weekends. The corresponding
marketing task is SYNCHROMARKETING, i.e., to find ways to alter the time pattern of
demand through flexible pricing, promotion and other incentives so that it will better match the
time pattern of supply.
Full demand: The organization has just the amount of demand it wants and can handle. It is a
state where the current level and timing of demand is equal to the desired level and timing of
demand. The marketing task is MAINTENANCE marketing and is designed to maintain the
current level of demand against changing consumer preferences. The organization maintains
quality, and continually measures satisfaction to make sure it is doing a good job.

Overfull demand: It is a state in which demand is higher than the company can or wants to
handle. The marketing task is called DEMARKETING and its task is finding ways to reduce the
demand temporarily, or permanently. De-marketing involves such actions as raising prices and
reducing promotion and service. It does not aim to destroy demand, but only to reduce it. It
calls for using normal marketing tools in reverse.
Unwholesome- demand: Unwholesome products such as cigarettes, alcohol, and hard drugs will
attract organized effort to destroy the demand or interest in particular product or service. The
corresponding marketing task is known as COUNTER MARKETING it is a difficult task in
that the aim is to get people who like something to give it up. Marketing manager cope with
these tasks by carrying out marketing research, planning, implementation and control.

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 CHAPTER TWO
2. THE MARKETING ENVIRONMENT
Chapter Objectives
Upon the completion of the unit, students will be able to:
 Define marketing environment
 Describe the environmental forces that affect the company‘s ability to serve its
customers.
 Explain how changes in the demographic and economic environments affect marketing
decisions
 Identify the major trends in the firm‘s natural and technological environments.
 Explain the key changes in the political and cultural environments.
 Discuss how companies can react to the marketing environment
 Explain how changes in macro factors (such as demographic, economic, and political)
affect marketing activities.
Definition of Marketing Environment
A company's marketing environment consists of the actors and forces outside marketing that
affect marketing management's ability to develop and maintain successful transactions with its
target customers. The marketing environment offers both opportunities and threats. Companies
must use their marketing research and intelligence systems to watch the changing environment
and must adapt their marketing strategies to environmental trends and developments. The
marketing environment may be divided into two: Internal environment and External
environment.
The Internal Environment: The Internal variables are inherent in the organization and are
controlled by management. The external variables are those which cannot be coordinated and
controlled by the management. The environmental forces that influence organizations marketing
program are not limited to the external forces. It is also shaped by the internal environment.
Any marketing system is influenced by the internal non-marketing resources that include
production facilities, financial capability, human resources, company location, research and
development capability, and company image. In fact, management controls these internal
variables.
The External Environment: The external environment is the totality of major institutions and
forces that are external and potentially relevant to the firm. In fact, management cannot control
these external variables. The marketing external environment consists of a microenvironment
and a macro-environment.

2.1 Micro-Environment
The micro-environment consists of forces close to the company that affect its ability to serve its
customers. Marketing management's job is to create attractive offers for target markets.
However, marketing managers cannot simply focus on the target market's needs. Their success

21
also will be affected by actors in the company's micro-environment – suppliers, marketing
intermediaries, customers, competitors, and various publics.
Suppliers
Suppliers are firms and individuals that provide the resources needed by the company to produce
its goods and services. Supplier developments can seriously affect marketing. Marketing
managers must watch supply availability. Supply shortages or delays, labor strikes, and other
events can cost sales in the short run and damage customer good will in the long run. Marketing
managers also monitor the price trends of their key inputs. Rising supply costs may force price
increases that can harm the company's sales volume.
Marketing Intermediaries
They are firms that help the company to promote, sell and distribute its goods to final buyers.
They include middlemen, physical distribution firms, marketing services agencies and financial
intermediaries.
Middlemen are distribution channel firms that help the company find customers or make sales to
them. These include wholesalers and retailers who buy and resell merchandise (they are often
called resellers). Selecting and working with middlemen is not easy. No longer do manufacturers
have many small, independent middlemen from which to choose, they now face large and
growing middlemen organizations. These organizations frequently have enough power to dictate
terms or even shut the manufacturer out of large markets.
Physical distribution firms-They help the company to stock and move goods from their points
of origin to their destinations. Working with warehouse and transportation firms, a company
must determine the best ways to store and ship goods, balancing factors such as cost, delivery,
speed and safety.
Marketing services agencies are the marketing research firms, advertising agencies, media firms
and marketing consulting firms that help the company target and promote its products to the right
markets. When the company decides to use one of these agencies, it must choose carefully
because these firms vary in creativity, quality, service and price.
Financial intermediaries include banks, credit companies, insurance companies and other
businesses that help finance transactions or insure against the risks associated with the buying
and selling of goods. Most firms and customers depend on financial intermediaries to finance
their transactions.

Like suppliers, marketing intermediaries form an important component of the company's overall
value delivery system. In its quest to create satisfying customer relationships, the company must
do more than just optimize its own performance. It must partner effectively with marketing
intermediaries to optimize the performance of the entire system.
Customers
The company needs to study its customer markets closely. Customer market can be broadly
classified in to five types. The figure below shows five types of customer markets.
Consumer markets consist of individuals and households that buy goods and services for
personal consumption.
22
Business markets buy goods and services for further processing or for use in their production
process.
Reseller markets buy good and service to sell at a profit
Government markets are made up of government agencies that buy goods and services to
produce public services or transfer the good and service to others who need them.
Finally, international markets consist of these buyers in other countries, including consumers,
producers, resellers, and governments. Each market type has special characteristics that call for
careful study by the seller.
Competitors
The marketing concept states that to be successful, a company must provide greater customer
value and satisfaction than its competitors do. Thus, marketers must do more than simply adapt
to the needs of target consumers. They also must gain strategic advantage by positioning their
offerings strongly against competitors' offerings in the minds of consumers.
Publics
The company's marketing environment also includes various publics. A public is any group that
has an actual or potential interest in or impact on an organization's ability to achieve its
objectives.

Types of Publics
Financial Publics: influence the company's ability to obtain funds. Banks, investment houses, and
stockholders are the major financial publics.
Media Publics: carry news, features and editorial opinion. They include newspapers, magazines
and radio and television stations.
Government Publics: management must take government developments into account. Marketers
must often consult the company's lawyers on issues of product safety, truth in advertising and
other matters.
Citizen action Publics:a company's marketing decisions may be questioned by consumer
organizations, environmental groups, monetary groups, and others. Its public relations
department can help it stay in touch with consumer and citizen groups.
Local Publics: include neighboring residents and community organizations. Large companies
usually appoint a community relations' officer to deal with the community, attend meetings
answer questions and contribute to worthwhile causes.
General Publics:a company needs to be concerned about the general public's attitude toward its
products and activities. The public's image of the company affects its buying.
Internal Publics: include workers, manager, volunteers and the board of directors. Large
companies use newsletters and other means to inform and motivate their internal publics. When
employees feel good about their company, this positive attitude spills over to external publics.
A company can prepare marketing plans for these major publics as well as for its customer
markets. Suppose wants a specific response from a particular public, such as goodwill, favorable
word of mouth, or donations of time or money. The company would have to design an offer to
this public that is attractive enough to produce the desired response.
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2.2 Macro Environment
The macro-environment consists of the larger societal forces that affect the whole micro-
environment – demographic, economic, natural, technological, political and cultural forces. The
company and all of other actors operate in a large macro environment of forces that shape
opportunities and pose threats to the company. The figure below shows that the six major forces
in the company's macro-environment.
Major Forces in the company's macro-environment
Demographic Environment
Demography is the study of human population in terms of size, density, location, age, gender,
race, occupation and other statistics. The demographic environment is of major interest to
marketers because it involves, people, and people make up markets.
There are several demographic factors that marketers should take into account:
Worldwide population growth: Marketers should monitor the population, because the
population consists of consumers.
Population age mix: National populations vary in their age mix.
Ethnic markets: Countries also vary in ethnic and racial makeup.
Educational groups: The level of education also influences a company‘s marketing activity.
Household patterns: In many countries, the ―traditional household‖ (husband, wife, and
children) is no longer popular.
Geographical patterns: Location makes a difference in preferences.
In another word, marketers have to analyze the marketing variables composed of age, sex,
family, occupation, education, race, religion and nationality so that we can develop and distribute
products depending on their need and wants.
Economic Environment
People alone do not make market. They must have money to spend and willingness to spend it.
Total purchasing power is a function of current income, prices, savings and credit availability.
Marketers should have to analyze these variables so that they can develop products and price
them depending on the purchasing power of the people. It is depending on the analysis of these
variables that we can forecast the demand for our products.
Therefore the following factors should be considered:
 Inflation (rise in price levels)
 Disposable personal income (income after paying taxes)
 Discretionary income (income after paying for their basic needs such as food, shelter,
clothing and other basic necessities).
 Reductions in discretionary income hurt sellers of discretionary goods and services, such
as automobiles, large appliances and vacations.
Physical Environment
Physical Environment:- the physical environment is concerned with the availability of natural
physical resources. Marketers should be aware of the threats and opportunities associated with
four trends in the physical environment.

24
Potential shortages of raw materials. The earth‘s materials consist of the infinite, the finite
renewable, and the finite nonrenewable. An infinite resource, such as air, poses no immediate
problem. Finite renewable resources, such as forests and food, have to be used wisely. Forestry
companies are required to reforest timberlands in order to protect the soil and to ensure sufficient
wood to meet future demand. Food supply can be the major problem in that the amount of arable
land is relatively fixed, and urban areas are constantly encroaching on farmland. Finite
nonrenewable resources, such as oil, coal, and various minerals, pose a problem on firms
marketing performance.
 Unstable cost of energy:
 Increased level of pollution
 Changing the role of government in environmental protection.
Technological Environment: Technology has a tremendous impact on our lives- life styles,
consumption patterns and economic well-being underlying any economic environment is the
technological base the technical skills and equipment that affect the way an economy‘s resources
are converted to output. Marketers must help their firms decide what technical developments will
be acceptable to society. With the growing concern about environmental pollution and the
quality of life, some attractive technological developments may be rejected because of their long-
run effects on the environment. Farther more organizations have to see the possible side effects
of technology and the emergence of improved substitute products that can adversely affect their
operations.

Political and legal: Any organization operates within the framework of the political and legal
systems. Similarly marketing system should also follow the rules, regulations and restrictions of
the government. Nowadays there is an increasing amount of legislation regulating businesses,
and marketing should strictly adhere to these regulations.
Social and cultural: This affects how and why people live and behave as they do – which affects
customer buying behavior and eventually the economic, political and legal environment.
Variables include language, education, religious beliefs, type of food they eat, style of clothing
and housing, and how society views marriage and family.
Changes tend to be very slow but have far reaching effects. Within different sub-groups, the
effects of social and cultural environment may manifest themselves in different ways. The
differences require special attention when looking at segmenting markets.
Examples include the changing role of Women in Western (U.S.A., U.K. & Europe) world;
environmental campaigns such as the anti-CFC propellant & refrigeration gases movement
(ozone layer) and the reduction of carbon dioxide emissions, which contribute to the greenhouse
effect.
Socio-cultural environment has a great impact on marketing systems, Cultural patterns, life
styles, social values, beliefs and attitudes are changing much faster. Consequently, the socio-
cultural environment affects how and why people live and behave as they do- which affects
customer buying behavior and eventually the economic, political and legal environment. The
socio-cultural environment affects marketing in the following ways:
25
Emphasis on the quality of life rather than quantity of goods.
Attitude towards health and fitness Impulse buying Desire for convenience.

26
 CHAPTER THREE
3. UNDERSTANDING THE MARKET
Chapter Objectives
 After completing this chapter, the students should be able to:
 Understand the Market
 Identify Types of market
 Distingush Consumer markets and Its buying behavior From Organizational Markets
and Its Buying behavior
3.1 What is a market?
A market is an aggregate of people who, as individuals or organizations, have needs for products
in a product class and who have the ability, willingness and authority to purchase such products.
3.2. Types of market
Based on the intended use of a product or service, markets can be divided in to two broad
categories: consumer markets and organizational markets, and each market has its own buying
behavior.
3.2.1 Consumer markets and buying behavior
The consumer market consists of all individuals and households who buy or acquire goods and
services for personal consumption. Consumer buying behavior refers to the buying behavior of
final consumers (individuals & households) who buy goods and services for personal
consumption. Consumer behavior include mental activity, emotional and physical that people use
during selection, purchase, use and dispose of products and services that satisfy their needs and
desires.

Study consumer behavior to answer: ―How do consumers respond to marketing efforts the
company might use?‖ Consumers vary tremendously in ages, incomes, educational levels,
mobility patterns and tastes. Marketers thus try to distinguish different consumer groups to
develop products or services tailored to their needs. Consequently, the need for the analysis of
buyer behavior arises because it is through the study of buyer behavior that marketers can
distinguish the need of different market segments or consumer groups effectively.

In fact the buyer, the product, the seller and the situational characteristics interact to yield the
buying outcome.

Customer versus consumer

The difference between a consumer and a customer is a very thin line. By definition, a customer
is someone who buys services or goods from someone else while a consumer is someone that
consumes a certain product or commodity. For example, a customer is best exemplified by a
coffee shop that buys a coffee maker, from a coffee maker manufacturer. This means that the
restaurant buys the said equipment, for the benefit of its patrons or guests. In this connection, the
restaurant is clearly pictured as a customer and not the actual consumer. However, in a similar
scenario wherein you directly go to the coffee maker manufacturer and buy their product so that
you can bring it home for your family‘s use at home, then you are the real consumer.
27
 Simply said, if you are going to use a particular product for purposes other than your own
consumption, like for commercial usage, then you are considered a customer.

The consumer buying decision processes

The buying decision making process is a problem solving approach consisting of five stages:
need recognition, information search, evaluation of alternatives, purchase decision, and post
purchase behavior. Clearly the buying process starts long before actual purchase and continues
long after. Marketers need to focus on the entire buying process rather than on just the purchase
decision. Consumers pass through all the five stages with every purchase. But in more routine
purchases, they often skip or reverse some of the stages. However, we use the model in the figure
below because it shows all the considerations that arise when a consumer face a next and
complex purchase situations.

Need Information Evaluation of Purchase Post Purchase

Recognition Search Alternatives Decision Behavior

Fig. 3.1 Buyer Decision Process

Stage 1 Need Recognition/ problem identification

The buying process starts with need recognition where the buyer recognizes a problem or need.
The buyer senses his/her actual state and some desired state. The need can be triggered by
internal stimuli when one of the person‘s normal needs, hunger, thirst, sex rises to a level high
enough to become a drive. A need can also be triggered by external stimulisuch as advertisement
or sight of the product. Or perhaps dissatisfaction with the present product creates tension. Once
the need has been recognized, often consumers become aware of conflicting uses for their scarce
resources, time, priority, approval by the family and reference groups etc. At this stage the
marketer should research consumers to find out what kinds of needs or problems arise, what
brought them about, and how they led the consumer to this particular product.
Stage 2 Information Search
Consumer search information after recognizing the need or want. As more information is
obtained, the consumers' awareness and knowledge of the available brands and features increase.
A company must design a marketing mix to make prospects aware of and knowledgeable about
its brand. Consumers should be asked how they first heard about the brand, what information
they received, and what importance they placed on different information sources. The
information search can occur internally, externally or both. The consumer can obtain information
from any of several sources:
- Personal Source:-family, friends, neighbors, acquaintances.
- Commercial Sources:- advertising, salespersons, dealers, packages, displays
28
 - Public Sources:-mass media, consumer-rating organizations.

Stage 3 Evaluations of Alternatives

After all the reasonable alternatives have been identified, the consumer has to evaluate each
alternative with respect to certain qualities of a product such as shape, color, effectiveness,
portability, comfort, cost, tastes, size, operation system, etc. depending on the nature of the
product.
Stage 4 Purchase Decisions
In the evaluation stage, the consumer ranks brands and forms purchase intentions. Generally, the
consumer's purchase decision will be to buy most prepared brand, but two factors can come
between the purchase intention and the purchase decision. The first factor is the attitude of
others. The second factor is unexpected situational factors. The consumer may form a purchase
intention based on factors such as expected income, expected price, and expected product
benefits.
Stage 5 Post Purchase Behaviors

The marketer's job doesn't end when the product is bought. Four possible outcomes occur in the
post purchase stage; delighted, satisfied, dissatisfied and cognitive dissonance. What determines
whether the buyer is satisfied or dissatisfied with a purchase? The answer lies in the relationship
between the consumer's expectations and the product's actual performance. If the products fall
short of expectations, the consumer is disappointed, if it meets expectations, the consumer is
satisfied, if product's actual performance exceeds expectations, and the consumer is delighted.
Cognitive dissonance is a form of post purchase doubt about the appropriateness of the decision.
To reduce dissonance consumer can: Justify decision, seek new information, avoid contradictory
information and return the product. Moreover, marketers can develop effective communication,
send post purchase thank you or letter, and display product superiority in ads and offer
guarantees.

Types of consumer buying behavior

The four type of consumer buying behavior are:

 Routine Response/Programmed Behavior--buying low involvement frequently purchased

low cost items; need very little search and decision effort; purchased almost automatically.
Examples include soft drinks, snack foods, milk, household products etc.
 Limited Decision Making--buying product occasionally. When you need to obtain
information about unfamiliar brand in a familiar product category, perhaps. Requires a
moderate amount of time for information gathering. Examples include buffet, clothes--know
product class but not the brand.

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 Extensive Decision Making/Complex high involvement, unfamiliar, expensive and/or
infrequently bought products. A lot of time is required to search or making decision.
High degree of economic/performance/psychological risk. Examples include cars, homes,
and computer.
 Impulse buying,Choices made on the spur of the moment, often without prior problem
recognition, no conscious planning. Example goods sale for discount.

Types of consumer buying decisions

Consumer decision making varies with the type of buying decision. Consumer buying behavior
differs greatly for a tube of tooth paste, a tennis racket, an expensive camera and new car. More
complex decisions usually involve more buying participants and more buyer deliberation. Types
of consumer buying behavior are determined by:

1. Level of consumer involvement-Involvement consists of the personal, social, and economic

significance of the purchase to the consumer.

Purchase involvement is often referred to as ―the level of concern for or interest in the purchase
situation, and it determines how extensively the consumer searches information in making a
purchase decision.Although purchase involvement is viewed as a continuum (from low to high),
it is useful to consider two extreme cases here. Suppose one buys a certain brand of product
(e.g., Diet Pepsi) as a matter of habit (habitualpurchase). For him/her, buying a cola drink is a
very low purchase involvement situation, and he/she is not likely to search and evaluate product
information extensively.

In such a case, the consumer would simply purchase, consume and/or dispose of the product
with very limited post-purchase evaluation, and generally maintain a high level of repeat
purchase motivation. However, if the purchase involvement is high and the consumer is
involved in extensive purchase decision making (e.g., personal computer), he/she is more likely
to be involved in more elaborate post-purchase evaluation often by questioning the rightness of
the decision: ―Did I make the right choice? Should I have gone with other brand?‖ This is a
common reaction after making a difficult, complex, relatively permanent decision. This type of
doubt and anxiety is referred to as post-purchase cognitive dissonance.

2. Length of time to make decision

3. Costs of the goods and services

4. Degree of information search

5. Number of alternatives considered

Based on the above criteria there are four types of consumer buying decisions explained below

A. Complex Buying Behavior

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Consumers undertake complex buying behavior when they are highly involved in a purchase and
perceive significant differences among brands, or when the product is expensive, risky,
purchased infrequently and highly self-expressive. Typically, the consumer has much to learn
about the product category. For example, a personal computer buyer may not know what
attributes to consider.

This buyer will pass through a learning process, first developing beliefs about the product, then
developing attitudes, and then making a thought full purchase choice. Marketers of high-
involvement products must understand the information gathering and evaluation behavior of
high-involvement consumers. They need to help buyers learn about product

Class attributes and the irrelative importance and about what the company's brand offers on the
important attributes. Marketers need to differentiate their brand's features, perhaps by describing
the brand's benefits using print media with long copy. They must motivate store sales-people and
the buyer's acquaintances to influence the final brand choice.

B. Dissonance-Reducing Buying Behavior

Dissonance-reducing buying behavior occurs when consumers are highly involved with an
expensive, infrequent or risky purchase, but see little difference among brands. For example,
consumers buying carpeting may face a high-involvement decision because carpeting is
expensive and self-expressive. Yet buyers may consider most carpet brands in a given price
range to be the same. In this case, because perceived brand differences are not large, buyers may
shop around to learn what is available, but buy relatively quickly. They may respond primarily to
a good price or to purchase convenience.

After the purchase, consumers might experience post purchase dissonance (after-sales
discomfort) when they notice certain disadvantages of the purchased carpet brand or hear
favorable things about brands not purchased.

To counter such dissonance, the marketer's after-sale communications should provide evidence
and support to help consumers feel good both before and after their brand choices.

C. Habitual Buying Behavior

Habitual buying behavior occurs under conditions of low consumer involvement and little
significant brand difference. For example, take salt. Consumers have little involvement in this
product category they simply go to the store and reach for a brand. If they keep reaching for the
same brand, it is out of habit rather than strong brand loyalty. Consumers appear to have low
involvement with most low-cost, frequently purchased products. Consumers do not search
extensively for information about the brands, evaluate brand characteristics and make weighty
decisions about which brands to buy Instead, they passively receive information as they watch
television or read magazines. Ad repetition creates brand familiarity rather than brand
conviction.

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D. Variety-Seeking Buying Behavior
Consumers undertake variety-seeking buying behavior in situations characterized by low
consumer involvement, but significant perceived brand differences. In such cases, consumers
often do a lot of brand switching. For example, when purchasing biscuits, a consumer may hold
some beliefs, choose a biscuit like hiphop, glory, abuweled without much evaluation, then
evaluate glory during consumption.

Major factors influencing consumers buying behavior

The buyer characteristics influencing consumer-buying behavior consist of cultural, social,

personal, and psychological characteristics.
Factors Affecting Consumer Buying Behavior

Cultural Social Personal Psychological

 Culture  Reference  Age  Motivation

 Subculture Group  Occupation  Perception
 Social Class  Family  Economic  Learning
 Role &  Life styles  Beliefs &
Status  Personality Attitudes
Cultural Characteristics  self-concept
Cultural factors exert the broadest and deepest influence on consumer behavior. They include
culture, subculture, and social class.
Culture
Culture is defined as a set of learned beliefs, values, attitudes, habits and forms of behavior that
are shared by society and are transmitted from generation to generation within that society. It is
the complex of symbols and artifacts created by a given society and handed down from
generation to generation as determinants and regulators of human behavior. The symbols may be
intangible (attitudes, beliefs, values, languages, religion) or tangible (tools, housing, products,
and works of art). In short, culture implies a totally learned and 'handed down way of life.
Culture is the most determinant of a person's wants and behavior because human behavior is
largely learned.
It is the most basic cause of a person's wants and behavior. Human behavior is largely learned.
Growing up in a society, a child learns basic values, perceptions wants and behaviors from the
family and other important institutions. Every group or society has a culture, and cultural
influences on buying behavior may vary greatly from country to country. Failure to adjust to
these differences can result in ineffective marketing or embarrassing mistakes. Hence marketers
are always trying to spot cultural shifts in order to imagine new products that might be wanted.
Then marketers should seriously consider the culture in choosing target markets and preparing
marketing programs. For example, the introduction of processed horsemeat in Ethiopia would be

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meaningless while it is delicious and highly demanded in Europe. This shows us that culture may
determine the success or failure of a business organization.
.
Subculture
Each culture contains smaller sub-cultures, or groups of people with shared value systems based on
common life experiences and situations. Subcultures include religions, racial groups, and geographic
regions. Many subcultures make up important market segments, and marketers often design products and
marketing programs tailored to their needs. Each culture contains smaller groups or subcultures, and each
of these provides more specific identification and socialization for its members. These subcultures can be
identified in the form of nationality, religion, race, and geographical locations such as urban-rural
distribution. From these explanations, it is easy to understand a specific product or attribute may mean
different things to different subcultures.
Social Class
Almost every society has some form of social class structure. Social classes are society's relatively
permanent and ordered divisions whose members share similar values, interests, and behaviors.Social
class is not determined by a single factor, such as income, but is measured as a combination of occupation
income, education, wealth and other variables. In some social systems, members of different classes are
reared for certain roles and can't change their social position. Marketers are interested in social class
because people within a given social class tend to exhibit similar buying behavior. Roughly, any society
can be divided into three major groups: upper, middle and lower classes.Social classes should distinct
product and brand preferences in areas such as clothing, home furnishings, leisure activity and
automobiles.

Social Factors
A consumer behavior also is influenced by social factors, such as consumer's small groups, family and
social roles and status.
Groups
A person's behavior is influenced by many small groups. Groups which have a direct influence and to
which a person belongs are called membership groups. Some are primary groups with whom there is
regular but informal interaction such as family, friends, neighbors and co-workers. Some are secondary
groups, which are more formal and have less regular interaction. These include organizations like
religious groups, professional associations and trade unions.
Reference groups are groups that serve as direct (face to face) or indirect points of comparison or
reference in forming a person‘s attitudes or behavior. People often are influenced by reference groups to
which they don't belong. For example, an aspiration group is one to which the individual wishes to be a
member of or whishes to be identified with such as a professional society.

Marketers try to identify the reference groups of their target market. Reference groups influence a person
in at least three ways. They expose a person to new behaviors and lifestyles.They influence the person's

33
attitudes and self-concept because he/she wants to "fit in". They also create pressures to conform that may
affect the person's product and brand choices.

Manufacturers of products and brands subject to strong group influence must figure out how to reach the
opinion leaders in the relevant reference groups. Opinion leaders are people with in a reference group
who, because of special skills knowledge, personality or other characteristics, exert influence on others.
Opinion leaders are found in all strata of society and one person may be an opinion leader in certain
product areas and an opinion follower in others. Marketers try to identify the personal characteristics of
opinion leaders for their products, determine what media they use, and direct messages at them.
Family
Family members can strongly influence buyer behavior. Parents provide a person with an orientation
toward religion, politics, and economics and a sense of personal ambition, self-worth, and love. Even if
the buyer no longer interacts very much with parents, they can still significantly influence the buyer's
behavior. In countries where parents continue to live with their children their influence can be crucial.
Roles and Status
A person belongs to many groups – family, clubs, and organizations. The person's position in each group
can be defined in terms of both role and status. For instance, a person plays the role of a child with his/her
parents. In his/her family, he/she plays the role of marketing manager. A role consists of the activities
people are expected to perform according to the persons around them. Each of a person's roles will
influence some of his/her buying behavior.

Each role carries a status reflecting the general esteem given to it by society. People often choose
products that show their status in society. For example, the role of marketing manager has more status in
our society than the role of a child. As a marketing manager, a person will buy the kind of clothing that
reflects his/her role and status.
Personal Factors
A buyer's decisions also are influenced by personal characteristics such as the buyer's age and life-cycle
stage, occupation, economic situation, lifestyles, and personality and self-concept.
Age and Lifecycle Stage
People change the goods and services they buy over their lifetimes. Tastes in food, clothes,
furniture and recreation are often age related. Buying is also shaped by the stage of the family
life cycle – the stages through which families might pass as they mature overtime. Marital status,
presence or absence of children, and their ages also affect buying decision. Marketers term these
factors collectively as family life cycle. Marketers often define their target markets in terms of
life cycle stage and develop appropriate products and marketing plans for each stage.
Occupation
A person's occupation affects the goods and services bought. Blue-collar workers tend to buy more work
clothes, where as white –collar workers buy more suits and ties. Marketers try to identify the occupational
groups that have an above – average interest in their products and services. A company can even
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specialize in making products needed by a give occupational group. For example, computer software
companies will design different products for marketing managers, accountants, engineers, lawyers and
doctors.
Economic Situation
A person's economic situation will affect product choice. A person can consider buying an expensive
product (brand) if he/she has enough spendable income, savings, or borrowing power. Marketers of
income sensitive goods closely watch trends in personal income, savings and interest rates. If economic
indicators point to a recession, marketers can take steps to redesign, reposition, and re-price their
products.
Life Style
People coming from the same subculture, social class, and occupation may have quite different lifestyle.
Lifestyle is a person's pattern of living as expressed in his/her activities, interest and opinions. Lifestyle
captures something more than the person's social class or personality. It profiles a person's whole pattern
of acting and interacting in the world.The technique of measuring lifestyle is known as psychographics.
Life style classifications are by no means universal – they can vary significantly from country to country.
The lifestyle concept, when used carefully can help the marketer understand changing consumer values
how they affect buying behavior.
Personality and Self-Concept
Each person's distinct personality influences his/her buying behavior. Personality refers to the unique
psychological characteristics that lead to relatively consistent and lasting responses to one's own
environment. Personality is usually described in terms of traits such as self-confidence, dominance,
sociability, autonomy, defensiveness, adaptability and aggressiveness. Personality can be useful in
analyzing consumer behavior for certain product or brand choices.

Many marketers use a concept related to personality – a person's self-concept (also called self image). The
basic self-concept premise is that people's possessions contribute to and reflect their identities; that is,
"We are what we have". Thus, in order to understand consumer behavior, the marketer must first
understand the relationship between consumer self concept and possessions.
Psychological Factors
A person's buying choices are further influenced by four major psychological factors: Motivation,
Perception, Learning, Beliefs and attitudes.
Motivation
A person has many needs at any given time. Some are biological, arising from states of tension such as
hunger, thirst or discomfort. Others are psychological, arising from the need for recognition, esteem or
belongingness. Most of these needs will not be strong enough to motivate the person to act at a given
point in time. A need becomes a motive when it is aroused to a sufficient level of intensity. A motive
(drive) is a need that is sufficiently pressing to direct the person to seek satisfaction.

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Perception
A motivated person is ready to act. How the person acts is influenced by his/her perception of the
situation. Two people with the same motivation and in the same situation may act quite
differently because they perceive the situation differently.

Why do people perceive the same situation differently? All of us learn by the flow of information
through our five senses: sight, hearing, smell, touch and taste. However, each of us receives,
organizes, and interprets this sensory information in an individual way. Perception is the process
by which people select, organize and interpret information to form meaningful picture of the
world.People can form different perceptions of the same stimulus because of three perceptual
processes: selective attention, selective distortion and selective retention.

Selective Attention: the tendency for people to screen out most of the information to which they
are exposed. People are exposed to a great amount of stimuli every day. For example, the
average person may be exposed to a lot of advertising a day. And it is impossible for a person to
pay attention to all these stimuli. Thus, marketers have to work especially hard to attract the
consumer's attention. Their message will be lost on most people who are not in the market for the
product. Moreover, even people who are in the market may not notice the message unless it
stands out from the surrounding sea of other ads.

Selective Distortion: it describes the tendency of people to adapt information to personal

meanings. In other words, noted stimuli do not always come across in the intended way. Each
person fits incoming information into un-existing mind-set. People tend to interpret information
in a way that will support what they already believe. Thus, marketers must try to understand the
mindsets of consumers and how these will affect interpretations of advertising and sales
information.

Selective Retention: people also will forget much that they learn. They tend to retain
information that supports their attitudes and beliefs. Because of selective retention, a person is
likely to remember good points made about a particular product, which he/she is familiar, and
forget good points made about competing products.Because of selective exposure, distortion and
retention marketers have to work hard to get their messages through. This fact explains why
marketers use so much drama and repetition in sending messages to their market.

Learning

When people act, they learn. Learning describes changes in an individual's behavior arising from
experience. Learning theorists say that most human behavior is learned. Learning occurs through

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the interplay of drives, stimuli, responses and reinforcement. The practical significance of
learning theory for marketers is that they can build up demand for a product by associating it
with strong drives, using motivating cues, and providing positive reinforcement.

Beliefs and Attitudes

Through doing and learning, people acquire their beliefs and attitudes. These, in turn, influence
their buying behavior. A belief is a descriptive thought that a person has about
something.Marketers are interested in the beliefs that people formulate about specific products
and services, because their beliefs make up product and brand images that affect buying
behavior. If some of the beliefs are wrong and prevent purchase, the marketer will want to launch
a campaign to correct them.

People have attitudes regarding religion, politics, clothes, music, food and almost everything
else. An attitude describes a person's relatively consistent evaluations, feelings and tendencies
toward an object or idea. Attitudes put people into a frame of mind of liking or disliking things,
of moving toward or away from them.

Attitudes are difficult to change. A person's attitudes fit into a pattern, and to change one attitude
may require difficult adjustments in many others. Thus, a company should usually try to fit its
products into existing attitudes rather than try to change attitudes. Of course, there are
expectations in which the great cost of trying to change attitudes may pay off.We can now
appreciate the many individual characteristics and forces acting on consumer behavior. The
consumer's choice results from the complex interplay of cultural, social, personal, and
psychological factors. Although many of these factors cannot be influenced by the marketer, they
can be useful in identifying interested buyers and in shaping products and appeals to better serve
their needs.

Consumer buying roles

There are five buying roles; these are Initiator, Influencer, Decider, User and Buyer. The initiator
is the person who identifies that there exists a need or want; the influencer is the one who
influences the purchase decision, the actual purchase activity and/or the use of the product or
service; the decider is the one who decides whether to buy, what to buy, whento buy, from where
to buy, and how to buy; the buyer is the one who makes the actual purchase; and, the user is the
person (s) who use the product or service. These five roles may be played by one person or by
different persons. A person may assume one or more of these roles. This would depend on the
product or service in question.

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Example1:

A child goes to a kindergarten school. She comes back home and asks her parents to buy her a
set of color pencils and crayons. Now the roles played are:

1. Initiator: the child in nursery school

2. Influencer: a fellow classmate

3. Decider: the father or the mother

4. Buyer: the father or the mother

5. User: the child

Example2:

The lady of a house who is a housewife and spends her day at home doing household chores
watches TV in her free time. That is her only source of entertainment. The TV at home is giving
problem. She desires a new TV set, and says that she wants an LCD plasma TV. Now the roles
played are:

1. Initiator: the housewife (mother)

2. Influencer: a friend / neighbor

3. Decider: the husband or the son

4. Buyer: the husband or the son

5. User: the family

3. 2. 2. Organizational Markets And Buying Behavior

Organizational buying is the decision making process by which formal organizations establishes
the need for purchase products and services and identifies, evaluate and choose among
alternative brands and supplies. Although no two companies buy in the same way, the seller
hopes to identify clusters of business firms that buy in similar ways to permit marketing strategy.

The business market versus the consumer market

The business market consists of all the organizations that acquire goods and services used in the
production of other products or services that are sold, rented or supplied to others. The major
industries making up the business market are agricultural, forestry and fisheries, mining,
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manufacturing, construction, transportation, communication, public utilities, banking, finance
and insurance distribution and services.More birr and items are involved in sales to business
buyers than to consumers. Consider the process of producing and selling a simple pair of shoes.
Hide dealers must sell hides to tanners, who sell leather to shoe manufactures, who sell shoes to
wholesalers, who sell shoes to retailers, who finally sell them to consumers. Each party in the
supply chain also has to buy many other goods and services.

Characteristics of business market

Business markets have several characteristics that contrast sharply with consumer markets.

 Fewer buyers: the business marketer normally deals with far fewer buyers than
the consumer marketer does. For example Addis Tyre Share Company sales
largely depends on getting an order from very few and large government
transportation companies like 'Anbessa' City Bus service and Walya intercity bus
service enterprise.
 Large volume purchases:a few large buyers do most of the purchasing in such
industries as aircraft engines and defense weapons.
 Class supplier - Customer relationship: because of the smaller customer base and
the importance and power of the larger customers, suppliers are frequently
expected to customize their offerings to individual business customer needs.
Sometimes the buyers require the sellers to change their practices and
performance. Nowadays in modern business, relationships between customers and
suppliers have been changing from downright adversarial to close and chummy.
(Good Friendship).
 Geographically concentrated buyers: a very large group of business buyers in
Ethiopia are concentrated in major cities: Addis Ababa, Nazareth, Bahirdar, Dire
Dawa, Awassa, and Mekele. The geographical concentration of producers helps to
reduce selling costs. At the same time, business marketers need to monitor
regional shifts of certain industries.
 Derived demand: the demand for business goods is ultimately derived from the
demand for consumer goods. For this reason, the business marketer must closely
monitor the buying patterns of ultimate consumers.
 Inelastic demand: the total demand for many business goods and services is
inelastic that is, not much affected by price changes. Shoe manufacturers are not
going to buy much more leather if price of leather falls. Nor are they going to buy
much less leather if the price rises unless they can find satisfactory substitutes.
Demand is especially inelastic in the short run because producers cannot make
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 quick changes in production methods. Demand is also inelastic for business goods
that represent a small percentage of the item's total cost.
 Fluctuating demand: the demand for business goods and services tends to be
more volatile than the demand for consumer goods and services. A given
percentage increase in consumer demand can lead to a much larger percentage
increase in the demand for plant and equipment necessary to produce the
additional output. Researches indicate that sometimes a rise of about 10 percent in
consumer demand can cause as much as a 20 percent rise in business demand for
products in the next period.
 Professional Purchasing: business goods are purchased by trained purchasing
agents, who must follow the organization's purchasing policies, constraints, and
requirements. many of the buying instruments – for example – requests for
quotations, proposals and purchase contracts – are not typically found in
consumer buying.
 Several buying influence: more people typically influence business-buying
decisions. Buying committees consisting of technical experts and even senior
management are common in the purchase of major goods. Business marketers
have to send well-trained sales – representatives and often sales teams to deal
with the well – trained buyers.
 Multiple sales calls: because more people are involved in the selling process it
takes multiple sales calls to win most business orders and the sales cycle can take
years. A study showed that it takes more than four calls to close an average
industrial sale. In the case of capital equipment sales for large projects, it may
take multiple attempts to fund a project, and the sales cycle-between quoting a job
and delivering the product – is often measured in a number of days.
 Direct purchasing: business buyers often buy directly from manufacturers rather
than through intermediaries, especially items that are technically complex or
expensive (such as large computers or aircraft).
 Reciprocity: business buyers often select suppliers who also buy from them. An
example would be a paper manufacturer that buys chemicals from a chemical
company that buys a considerable amount of its paper.
 Leasing: many industrial buyers lease instead of buy heavy equipment like
machinery and trucks. The lessee gains a number of advantages: conserving
capital, getting the latest product, receiving better service and gaining some tax

40
 advantages. The lesser often ends up with a larger net income and the chance to
sell customers who could not afford outright purchase.

Buying situations in organizational buying

The business buyer faces many decisions in making a purchase. The number of decisions
depends on the type of buying situation. Robinson and others distinguish three types of buying
situations: the straight re-buy, modified re-buy, and new task.

Straight Re-buy

The straight re-buy is a buying situation in which the purchasing department re-orders on a
routing basis (e.g. office supplies, bulk chemicals). The buyer chooses from suppliers on an
"approved list". These suppliers make an effort to maintain product and service quality. They
often propose automatic reordering systems so that the purchasing agent will save reordering
time. The out-suppliers attempt to offer something new or to exploit dissatisfaction with a
current supplier. Out-suppliers try to get a small order and then enlarge their purchase share over
time.

Modified Re-buy

The modified re-buy is a situation in which the buyer wants to modify product specifications,
prices, delivery requirements or other related items. The modified re-buy usually involves
additional decision participant on both sides. The in-suppliers become nervous and have to
protect the account. The out-suppliers see an opportunity to propose a better offer to gain some
business.

New Task Buying

It is a buying situation in which a purchaser buys a product or service for the first time (example
could be office building, new security system). The greater the risk or the cost, the larger the
number of decision participants and the greater their information gathering and therefore the
longer the time to decision completion.New-task buying passes through several stages;
awareness, interest, evaluation, trial and adoption. Communication tools effectiveness varies at
each stage; sales people have their greatest impact at the interest stage; and technical sources are
the most important during the evaluation stage.

The business buyer makes the fewest decisions in the straight re-buy situation and the most in the
new task situation. In the modified re-buy, the buyer has to determine product specification,
price limits, delivery terms and times, service terms, payment terms, order quantities, acceptable
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suppliers and the selected suppliers. Different decision participants influence each decision and
the order varies in which these decisions are made. The new task situation is the marketers
greatest opportunity and challenge the marketer tries to reach as many key buying influencers as
possible and provide helpful information and assistance. Because of the complicated selling
involved in the new task, many companies use a missionary sales force consisting of their best
sales people.

System buying and selling

Many business buyers prefer to buy a total solution to their problem from one seller called
systems buying, this practice originated with government purchases of major weapons and
communication systems. The government would solicit bids from prime contractors, who would
assemble the package or system. The contractor who was awarded the contract would be
responsible for bidding out and assembling the system's subcomponents from second-tier
contractors. The prime contractor would thus provide a "turnkey solution", so called because the
buyer simply had to turn one key to get the job done.

Sellers have increasingly recognized that buyers like to purchase in this way, and many have
adopted systems selling as a marketing tool. System selling can take different forms. For
example, many auto parts manufacturers now sell whole systems, such as the seating system, the
banking system, or the door system. A variant on systems selling is systems contracting, where a
single supply source provides the buyer with his/her entire requirement of maintenance, repair,
and operating supplies. The customer benefits from reduced costs because the seller maintains
the inventory. Savings also result from reduced time spent on supplier selection and from price-
protection over the term of the contract. The seller benefits from lower operating costs because
of a steady demand an reduced paperwork.

Decision making process in organizational buying

Robinson and associates have identified eight stages of the industrial buying process and called
them buy phases. The eight steps for the typical new task-buying situation are as follows:
Stage 1 Problem Recognition
The buying process beings when someone in the company recognizes a problem or need that can
be met by acquiring a good or service. The recognition can be triggered by internal or external
stimuli. Internally, the most common events leading to problem recognition are the following:

 The company decides to develop a new product and needs new equipment and materials
 A machine breaks down and requires new parts

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  Purchased material turns out to be unsatisfactory, and the company searches for another
supplier.
 A purchasing manager senses an opportunity to obtain lower prices or better quality.
Externally, the buyer may get new ideas at a trade show, see advertising or receive a call from
sales representatives who offers a better product or a lower price. Business marketers can
stimulate problem recognition by direct mail; telemarketing and calling on prospects.

Stage 2 General Need Descriptions

Here the buyer determines the needed item‘s general characteristics and required quantity. For
standard items, this is not very involved process. For complex items, the buyer will work with
others-engineers, users and soonto define the needed characteristics. These may include
reliability, durability, price or other attributes. Business marketers can assist buyers by
describing how their products would meet the buyers needs.
Stage 3 Product Specification

The buying organization now develops the items technical specifications. Often, the company
will assign a product value-analysis (PVA) engineering team to the project.

 Product value analysis is an approach to cost reduction in which components are

carefully studied to determine if they can be redesigned or standardized or made by
cheaper methods of production.
Stage 4 Supplier Search
The buyer now tries to identify the most appropriate suppliers. The buyer can examine trade
directories, do a computer search, phone order companies for recommendations, watch trade
advertisements, and attend trade shows. However, these days the most likely place to look is on
the internet. For suppliers, this means that the playing field is leveled. Smaller suppliers have the
same advantages as larger ones and are listed in the same on-line catalogs for a nominal fee.

The supplier's task is to get listed in major on-line catalogs or services, develop a strong
advertising and promotion program, and build a good reputation in the market place. Suppliers
who lack the required production capacity or suffer from a poor reputation will be rejected.
Those who qualify may be visited by the buyer‘s agents, who will examine the suppliers
manufacturing facilities and meet their personnel. After evaluating each company, the buyer will
end up with a short list of qualified suppliers.

Stage 5 Proposal Solicitation

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The buyer will now invite qualified suppliers to submit proposals. Where the item is complex or
expensive the buyer will require a defiled written proposal from each qualified supplier. After
evaluating the proposals, the buyer will invite a few suppliers to make formal presentations.

Business marketers must thus be skilled in researching writing and presenting proposals. Their
written proposals should be marketing documents, not just technical documents. Their oral
presentations should inspire confidence, positioning their company‘s capabilities and resources
so that they stand out from the competition.

Stage 6 Supplier Selection

Before selecting a supplier, the buying center will specify desired supplier attributes and indicate
their relative importance. It will then rate suppliers on these attributes and identifies the most
active suppliers.

In practice, business buyers use a variety of methods to assess supplier value. Business marketers
need to do a better job of understanding how business buyers arrive at their valuations. Three
researchers who conduct a study of the main methods that business marketers use to assess
customer value found eight different customer value assessment methods. Companies tend to use
the simpler methods although the more sophisticated ones promise to produce a more accurate
picture of customer perceived value.

The choice and importance of different attributes varies with the type of buying situation.
Delivery reliability, price, and supplier reputation are highly important for routine order
products. For procedural-problem products, such as a copying machine, the three most important
attributes are technical service, supplier flexibility, and product reliability. For political problem
products that rivalries in the organization (such as the choice of a computer system), the most
important attributes are price, supplier reputation, product reliability, service reliability and
supplier flexibility.

The buying center may attempt to negotiate with its preferred suppliers for better prices and
terms before making the final selection. Despite moves toward strategic sourcing, partnering and
participation in cross-functional teams buyers still spend a large chunk of their time hanging with
suppliers on price.

Stage 7 Order-Routine Specification

After selecting the suppliers, the buyer negotiates the final order, listing the technical
specifications; the quality needed, the expected time of delivery, return policies, warranties and

44
so on. In the case of maintenance, repair and operating items, buyers are moving toward blanket
contracts rather than periodic purchase orders. A blanket contract establishes a long-term
relationship in which the supplier promises to resupply the buyer as needed at agreed-upon prices
over a specified period of time. Because the stock is held by the seller, blanket contracts are
sometimes called stock-less purchase plans. The buyer‘s computer automatically sends an order
to the seller when stock is needed. Blanket contracting leads to more single source buying and
ordering of more items from that single source. This system locks suppliers in tighter with the
buyer and makes it difficult for out-suppliers to break in unless the buyer becomes dissatisfied
with the in-supplier‘s price, quality, or service.

Stage 8 Performance Review

The buyer periodically reviews the performance of the chosen supplier(s). Three methods are
commonly used. The buyer may contact the end users and ask for their evaluations or the buyer
may rate the supplier on several criteria using a weighted score method. Or the buyer might
aggregate the cost of poor supplier performance to come up with adjusted costs of purchase,
including price. The performance review may lead the buyer to continue, modify or end the
relationship with the supplier. The supplier should monitor the same variables that are monitored
by the product buyers and end users.

Participants in the business buying process

Who does the buying of thousands of birr worth of goods and services needed by business
organizations? Purchasing agents are influential in straight re-buy and modified re-buy
situations, whereas other department personnel are more influential in new-buy situations.
Engineering personnel usually have major influence in selecting product components and
purchasing agents dominate in selecting suppliers.

The decision-making unit of a buying organization is called the buying center. The buying center
is composed of all those individuals and groups who participate in the purchasing decision
making process, who share some common goals and the risks arising from the decisions. The
buying center includes all members of the organization who play any of seven roles in the
purchase decision process.

 Initiators: those who request that something be purchased the may be users or others in the
organization.
 Users: those who will use the product or service. In many cases the users initiate the buying
proposal and help define the product requirements.

45
 Deciders: people who decide on product requirements or on suppliers.
 Approvers: people who authorize the proposed actions of deciders or buyers.
 Buyers: people who have formal authority to select the supplier and arrange the purchase
terms. Buyers may help shape product specifications, but they play their major role in
selecting vendors and negotiating. In more complex purchases, the buyer might include high
level managers participating in the negotiations.
 Gate keepers: people who have the power to prevent sellers or information from reaching
members of the buying center. For example, purchasing agents, receptionists, and telephone
operators may prevent sales persons from contacting users or deciders.

Influences on Organizational Buyers/Buying Decisions

Business buyers are subject to many influences when they make their buying decisions. Some
marketers assume that the major influences are economic. They think buyers will favor the
supplier who offers the lowest price or the best product or the most service. They concentrate on
offering strong economic benefits to buyers. However, business buyers actually respond to both
economic and personal factors. Far from being cold, calculating, and impersonal, business buyers
are human and social as well. They react to both reason and emotion.
Today, most business-to-business marketers recognize that emotion plays an important role in
business buying decisions. When suppliers' offers are very similar, business buyers have little
basis for strictly rational choice. Because they can meet organizational goals with any supplier,
buyers can allow personal factors to play a larger role in their decisions. However, when
competing products differ greatly, business buyers are more accountable for their choice and
tend to pay more attention to economic factors.

Figure lists various groups of influences on business buyers—environmental, organizational,

interpersonal, and individual.

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Major Influences on Business Buyers
• Environmental Factors
Business buyers are influenced heavily by factors in the current and expected economic
environment, such as the level of primary demand, the economic outlook, and the cost of money.
As economic uncertainty rises, business buyers cut back on new investments and attempt to
reduce their inventories.
An increasingly important environmental factor is shortages in key materials. Many companies
now are more willing to buy and hold larger inventories of scarce materials to ensure adequate
supply. Business buyers also are affected by technological, political, and competitive
developments in the environment. Culture and customs can strongly influence business buyer
reactions to the marketer's behavior and strategies, especially in the international marketing
environment. The business marketer must watch these factors, determine how they will affect the
buyer, and try to turn these challenges into opportunities.

• Organizational Factors
Each buying organization has its own objectives, policies, procedures, structure, and systems.
The business marketer must know these organizational factors as thoroughly as possible.
Questions such as these arise: How many people are involved in the buying decision? Who are
they? What are their evaluative criteria? What are the company's policies and limits on its
buyers?

Interpersonal Factors
The buying center usually includes many participants who influence each other. The business
marketer often finds it difficult to determine what kinds of interpersonal factors and group
dynamics enter into the buying process. Participants may have influence in the buying decision
because they control rewards and punishments, are well liked, have special expertise, or have a
special relationship with other important participants. Interpersonal factors are often very subtle.
Whenever possible, business marketers must try to understand these factors and design strategies
that take them into account.

Individual Factors
Each participant in the business buying decision process brings in personal motives, perceptions,
and preferences. These individual factors are affected by personal characteristics such as age,
income, education, professional identification, personality, and attitudes toward risk. Also,
buyers have different buying styles. Some may be technical types who make in-depth analyses of
competitive proposals before choosing a supplier. Other buyers may be intuitive negotiators who
are adept at pitting the sellers against one another for the best deal.

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CHAPTER FOUR
3. MARKET SEGMENTATION TARGETING AND POSITIONING
Chapter Objectives
 After reading this chapter, you should be able to:
 Define market segmentation and market targeting.
 List and discuss the primary bases for segmenting consumer and business markets.
 Explain how companies identify attractive market segments and choose a market-cover age
strategy.
 Explain how companies can position their products for maximum competitive advantage in the
marketplace.
Introduction
Organizations that sell to consumer and business markets recognize that they cannot appeal to all buyers
in those markets or at least not to all buyers in the same way. Buyers are too numerous, too widely
scattered and too varied in their needs and buying practices. Companies vary widely in their abilities to
serve different segments of the market. Rather than trying to compete in an entire market, sometimes
against superior competitors, each company must identify the parts of the market that it can serve best.
Segmentation is thus a compromise between mass marketing, which assumes everyone can be treated the
same, and the assumption that each person needs a dedicated marketing effort.
Few companies now use mass marketing. Instead, they practice target marketing - identifying market
segments, selecting one or more of them, and developing products and marketing mixes tailored to each.
In this way, sellers can develop the right product for each target market and adjust their prices,
distribution channels and advertising to reach the target market efficiently. Instead of scattering their
marketing efforts (the 'shotgun' approach), they can focus on the buyers who have greater purchase
interest (the 'rifle' approach).
4.1 Market Segmentation
A company cannot serve all customers in a broad market. The customers are too numerous and diverse in
their buying requirements. The company needs to identify the market segments that it can serve more
efficiently. Here sellers distinguish the major market segments, target one or more of these segments, and
develop products and marketing programs tailored to each segment.
Market Segmentation is the process of identifying and profiling distinct group of buyers who might
require separate products or marketing mixes. Market segmentation is the process that companies use to
divide large heterogeneous markets into small markets each of which tends to be homogenous in all
significant aspects that can be reached more efficiently and effectively with products and services that
match their unique needs. The objective of segmentation is an attempt to fit the product to the market
believing that each segment calls for a different product, promotional appeal, or other element in the
marketing mix. In short, the focus of segmentation is enhancing a separate program in a pin pointed
market.

Market Segmentation Procedure

Survey stage
The researcher conducts exploratory interviews and focus groups to gain insight into consumer
motivations, attitudes, and behavior. Then the researcher prepares a questionnaire and collects data on
attributes and their importance ratings; brand awareness and brand ratings; product usage patterns,

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attitudes toward the product category; and demographics, geographic, psychographics, and media
graphics of the respondents.
Analysis Stage
The research applies factor analysis to the data to remove highly correlated variables, and then applies
cluster analysis to create a specified number of maximally different segments.
Profiling Stage
Each cluster profiled in terms of its distinguishing attitudes, behavior, demographics, psychographics, and
media patterns. Each segment is given a name based on its Dominant Characteristic. The hierarchies of
attributes can several customer segments. Buyers who first decide on price are price dominant; those who
first decide on the type of car (eg. Sports, passengers, station wagons) are type dominant; these who first
decide on the car brand are brand dominant. Each segment may have distinct demographics,
psychographics, and media graphics
Levels of Market Segmentation
Market segmentation is an effort to increase a company‘s precision marketing. The starting point of any
segmentation discussion is mass marketing. In mass marketing, the seller engages in the mass production,
and mass promotion of one product for all buyers. The arguments of mass marketing is that it creates the
largest potential market, which leads to the lowest costs, which in turn can lead to lower prices or higher
margins.
Mass Marketing
Mass Marketing is a strategy that presumes there is one undifferentiated market and that one product will
appeal to all consumers in that market. In fact, for most of the twentieth century, major consumer-
products companies held fast to mass marketing-mass producing, mass distributing and mass promoting
about the same product in about the same way to all consumers. Advantages of mass marketing includes
Lower cost, One advertising campaign is needed, One marketing strategy is developed, Usually only one
standardized product is developed. But, It only works if all consumers have the same needs, wants,
desires, and the same background, education and experience
Segment Marketing
A market segment consists of a large identifiable group within a market with similar wants, purchasing
power, geographical location, buying attitudes, or buying habits. i.e. An auto company may identify four
broad segments: car buyers who are primarily seeking basic transportation or high performance or luxury
or safety. Thus, BMW has designed specific models for different income and age groups. In fact, it sells
models for segments with varied combinations of age and income: for instance, the short wheel base 3 for
young urban drivers. Hilton markets to a variety of segments-business travelers, families and others-with
packages adapted to their varying needs.
Niche Marketing
A niche is a more narrowly defined group, typically a small market whose needs are not well served.
Marketers usually identify niches by dividing a segment into sub segments or by defining a group seeking
a distinctive mix of benefits. i.e. the segments of heavy smokers includes these who are trying to stop
smoking and those who don‘t care. Whereas segments are fairly large and normally attract several
competitors, niches are fairly small and normally attract only one or two. Large companies lose pieces of
their market to niches.
Niche marketers presumably understand their customers‘ needs so well that the customers willingly pay a
premium.

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An attractive niche is characterized as the customers in the niche have a distinct set of needs; they will
pay a premium to the firms that best satisfies their needs; the niche is not likely to attract other
competitors; the nicher gains certain economies through specialization; and the niche has size, profit and
growth potential
Local Marketing
Target marketing is leading to marketing programs being tailored to the needs and wants of local
customer groups (trading areas, neighborhoods, even individual stores). Those favoring localizing a
company‘s marketing see national advertising as wasteful because it fails to address local needs. Those
against local marketing argue that it drives up manufacturing and marketing costs by reducing economies
of scale. Logistical problems become magnified when companies try to meet varying local segments. A
brand overall image might be diluted if the product and message differ in different localities.
Individual Marketing
The ultimate level of segmentation leads to ―Segments of One‖ customized marketing, ‗or‘ one-to-one
marketing. For countries, consumers were served as individuals: The tailor made the suit and the cobbler
designed shoes for the individual. Much business-to business marketing today is customized, in that a
manufacture's will customize the offer, logistics, communications, and financial terms for each major
accounts. New technologies computers, databases, robotic production, e-mail, and fax-permit companies
to return to customized marketing, or what is called ―Mass customization‖. Mass customization is the
ability to prepare on a mass basis individually designed products and communications to meet each
customer‘s requirements.
BASES FOR CONSUMER MARKET SEGMENTATION
The commonly used bases for segmenting the consumer market may be grouped into four major
categories: Geographic, Demographic, Psycho-graphic, and Behavioral characteristics.
Geographic Segmentation
Dividing an overall market into homogeneous groups on the basis of their locations such as nations, state,
regions, countries, cities, urban-suburban-rural, or climate depending on the notion that consumer needs
or responses vary geographically. The reason for this is simply that consumers wants and products usage
often are related to one or more of these subcategories.
Example:
Region Region 1 – 14
City  A.A. Dire dawa, Awassa, NathrethBahir Dar, Mekelleetc
Urban-Rural  Urban, Sub Urban, Rural
Climate  Hot, cold, sunny, rainy, cloudy
Demographic Segmentation
Demographic Segmentation involves dividing consumer groups according to characteristics such as age,
sex, family size, family life cycle, education, occupation, religion ethnic background, income and
nationality. Demographic variables have long been the most popular bases for distinguishing customer
needs and preferences for certain reasons. First customer wants preferences and usage rates are highly
associated with demographic variables. Second, they are easily quantifiable and accessible than most
other types of variables.

Examples of demographical bases of segmentation

Income under $1000, $1000-$2500, over $2500
Age under 5, 5-10, 10-19, 20-34, 35+
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Gender Male, Female- clothing, hairstyling, cosmetics
Family lifecycle Young, single, married, no children
Social class Upper class, middle class, lower class
Education High school, Diploma, Degree
Occupation Professional, managers, clerical employee
Religion Orthodox, Muslim, catholic, protestant, etc
Ethnic Background African, Asian, European

Psycho-graphic Segmentation
Divides a population into groups that have similar psychological characteristics, values, and lifestyles.
Lifestyle: Companies making cosmetics, alcoholic beverages and furniture are always seeking
opportunities in lifestyle segmentation. But lifestyle segmentation does not always work.
Personality: - Marketers have used personality variable to segments. They endow their products with
brand personalities that correspond to consumer‘s personalities. In the late 1950, Fords and Chevrolets
were promoted as having different personalities. Ford buyers were identified as independent, impulsive,
muscular, alert to change and self-confident.
Values: - Some marketers segment by core values, the belief systems that underlie consumer attitudes and
behavior. Core values go much deeper than behavior or attitude, and determine at a basic level, people‘s
choices and desires over the long term. Marketers that segment by values behave that by appealing to
people‘s inner selves it is possible to influence this outer selves their purchase behave
Behavioral Segmentation
Some organizations try to segment their consumer markets on the basis of consumer behavioral
characteristics related to the product. The behavioral variables include the consumer's knowledge,
attitude, use or response to an actual product or its attributes. Accordingly behavioral segmentation can be
done with respect to the following factors.
Purchase occasion with regard to time such as regular and special occasion. For example, air traveler for
vacation, family or business.
Benefits sought from the product in relation to individual interest such as low price, durability, general
product quality and so on. In using benefit segmentation, the task is to determine the major benefits that
consumers might be looking for in the product, the kinds of people who might be looking for each
benefit, and the existing brands that come close to delivering each benefit.
User status with respect to the existence and potentiality of customers such as non-users, ex-users,
potential and regular users of a product.
Usage rate with respect to the size of purchase such as light users, medium users or heavy users.
Readiness stage of the customers to buy a product depending on their information, interest, intention and
degree of awareness of a product. This is designed to determine the distribution of people in various
stages of readiness toward buying the product.
business market segmentation variables
Some of the bases used to segment the consumer markets are also useful bases for segmenting business
markets. For example, we can segment business markets on a geographic basis. Some industries are
geographically concentrated. For example, firms that process natural resources locate close to the source
to minimize shipping costs. Other industries, such as manufactures of recreational vehicles, are
geographically concentrated simply because newer firms choose to locate near the industry pioneers. Any
firm that sells to these industries could use geographic segmentation.

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Major Segmenting Variables for Business Market
Demographic variables
Industry: Which industries should we serve?
Company size: What size companies should we serve?
Location-What geographical areas should we serve?
Operating Variables
Technology. What customer technologies should we focus on?
User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?
Customer capabilities: Should we serve customers needing many or few services?
Purchasing Approaches
Purchasing-function organization: Should we serve companies with highly centralized or decentralized
purchasing organization?
Power structure: Should we serve companies that are engineering dominated, financially dominated, and
so on?
Nature of existing relationship: Should we serve companies with which we have strong relationship or
simply go after the most desirable companies?
General purchasing policies. Should we serve companies that prefer leasing? Service contract? Systems
purchases? Sealed bidding?
Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?
Situational Factors
Urgency: Should we serve companies that need quick and sudden delivery or service?
Specific application: Should we focus on certain application of our product rather than all applications?
Size of order: Should we focus on large or small orders?
Personal Characteristics
Buyer-seller similarity: Should we serve companies whose people and values are similar to ours?
Attitude toward risk: Should we serve risk-taking or risk-avoiding customers?
Loyalty: Should we serve companies that show high loyalty to their suppliers?
BENEFITS OF MARKET SEGMENTATION
Market segmentation is a customer - oriented philosophy and thus is consistent with the modern
marketing concept. Specifically the advantages of market segmentation can be listed as follows:
Channeling money and effort to a particularly most profitable market.
Designing and developing products, which really match with the market demand because it focuses on
selected target markets?
It helps to determine an appropriate promotional appeal for a firm.
Market segmentation enables small business organizations to have a better chance to compete with big
companies.
Flexibility of organizational resources and programs in the time of fierce competition can be done at a
lower cost.
Choosing the best promotional activity and channel of distribution at a relatively lower cost may be
easier.
Conditions for Effective Market Segmentation
There are many ways to segment a market but the segmentation should be in such a way that each
segment responds in a homogeneous fashion to a given marketing program. The following three
characteristics will help marketing to move to this goal.

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Measurability: The variables used to categorize customers must be measurable. For effective market
segmentation the degree to which the size and purchasing power of the resulting segments can readily be
measured, is important.
Accessibility: it is the degree to which the resulting segments can be effectively reached and served. The
market segment itself should be accessible through the existing marketing institutions-middlemen,
advertising media, company sales force and so on with a minimum cost and waste,
Profitability: Each segmented market should be large enough to be profitable and worth perusing. A
segment is the largest possible homogeneous group of buyers that it pays to go after with a specially
designed marketing program. In segmenting a consumer market, for example, a firm must not develop too
wide a variety of styles, colors, sizes and prices.
Actionable: It refers to the practicality of the plan for segmentation; whatever criteria used to segment a
market should be converted to reality.
3.2 market Targeting
Meaning of Market Targeting
Market Targeting is the process of selecting one or more market segments to enter. Once the firm has
identified its market-segment opportunities, it has to decide how many and which ones to target.
Marketers are increasingly combining several variables in an effort to identify smaller, better-defined
target groups. Thus, a bank may not only identify a group of wealthy retired adults, but within that group
distinguish several segments depending on current income, assets, savings, and risk preferences.
Evaluating and Selecting the Market Segments
In evaluating different market segments, the firm must look at two factors:
the segment's overall attractiveness and the company's objectives and resources. How well does a
potential segment score on the five criteria? Does a potential segment have characteristics that make it
generally attractive, such as size, growth, profitability, scale economies, and low risk? Does investing in
the segment make sense given the firm's objectives, competencies, and resources? Some attractive
segments may not mesh with the company's long-run objectives, or the company may lack one or more
necessary competencies to offer superior value. After evaluating different segments, the company can
consider five patterns of target market selection.

Patterns Of Target Market Selection

Single segment concentration
A single-segment (or concentration) strategy involves selecting one segment from within the total
market as the target market. For example, Volkswagen concentrates on the small car market and Porsche
on the sports car market. Through concentrated marketing, the firm gains a strong knowledge of the
segment's needs and achieves a strong market presence. Furthermore, the firm enjoys operating
economies through specializing its production, distribution, and promotion. If it captures segment
leadership, the firm can earn a high return on its investment. However, there are risks. A particular market
segment can turn sour or a competitor may invade the segment.

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P= product M=market

Selective specialization
A firm selects a number of segments, each objectively attractive and appropriate. There may be little or
no synergy among the segments, but each promises to be a moneymaker. This multi-segment strategy has
the advantage of diversifying the firm's risk. When Procter & Gamble launched Crest White strips, initial
target segments included newly engaged women and brides to-be as well as gay males.

Product specialization
The firm makes a certain product that it sells to several different market segments. An example would be
a microscope manufacturer who sells to university, government, and commercial laboratories. The firm
makes different microscopes for the different customer groups and builds a strong reputation in the
specific product area.

Market specialization
The firm concentrates on serving many needs of a particular customer group. An example would be a firm
that sells an assortment of products only to university laboratories. The firm gains a strong reputation in
serving this customer group and becomes a channel for additional products the customer group can use.

Full market coverage

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The firm attempts to serve all customer groups with all the products they might need. Only very large
firms such as IBM (computer market), General Motors (vehicle market), and coca-cola (nonalcoholic
beverage market) can undertake a full market coverage strategy. Large firms can cover a whole market in
two broad ways: through undifferentiated marketing or differentiated marketing.
In undifferentiated marketing, the firm ignores segment differences and goes after the whole market with
one offer. It designs a product and a marketing program that will appeal to the broadest number of buyers.
It relies on mass distribution and advertising. It aims to endow the product with a superior image.
Undifferentiated marketing is "the marketing counterpart to standardization and mass production in
manufacturing." In differentiated marketing, the firm operates in several market segments and designs
different products for each segment.

3.3 market positioning

Positioning is the act of designing the company's offering and image to occupy a distinctive place in the
mind of the target market. The goal is to locate the brand in the minds of consumers to maximize the
potential benefit to the firm. A good brand positioning helps guide marketing strategy by clarifying the
brand's essence, what goals it helps the consumer achieve, and how it does so in a unique way. The result
of positioning is the successful creation of a customer-focused value proposition, a cogent reason why the
target market should buy the product. Positioning starts with a product. But positioning is not what you do
to a product it is what you do to the mind of the prospect. That is, you position the product in the mind of
the prospect.
Understanding and applying the principles of positioning is essential for developing an efficient position
against the competitors, so the marketers must find answer to the following questions:
What is the company‘s image in the eyes of our current clients?
How is the company‘s offer perceived by the potential customers?
What are the elements that differentiate the company‘s offer against the bids of its main competitors?
Which are the necessary changes to be made in order to strengthen the competitive position within the
aimed market segment/segments?
TOOLS FOR COMPETITIVE DIFFERENTIATIONS
A company must try to identify the specific way it can differentiate its products to obtain a competitive
advantage. Differentiation is the act of designing a meaningful difference to distinguish the company‘s
offering from competitors offering. How exactly can a company differentiate its market offering from
competitors? Here we will examine how a market offering can be differentiated along time dimensions: -
product, services, personnel, channel or image.
Product Differentiation
Differentiation of physical products takes place along a continuous. At one extreme we find highly
standards products that allow little variation. At the other extreme are products capable of high
differentiation, such as automobiles, commercial holdings, and furniture. Here the seller faces an

55
abundance of design parameters. The main product differentiations are features, performance,
conformance, durability, reliability, reparability, style and design.
Features
Features are characteristics that supplement the products basic function. The starting point of feature
differentiation is a stripped down, or ―bare bones‖, version of the product. The company can create
additional version by adding extra features. Thus an automobile manufactures can offer optional features,
such as electric windows, air bags, automatic transmission, and air conditioning. Each feature has a
chance of capturing the fancy of additional buyers.
Performance quality
Most products are established initially at one of four performance levels, low, average, high and superior.
Performance quality refers to the level at which the products primary characteristics operate. The
important question here is: Does higher product performance produce higher profitability? Quality‘s link
to profitability does not mean that the firms should always design the highest performance level possible.
There are diminishing returns to level increasing performance, in that fewer buyers are willing to pay for
it. The manufacturer must design a performance level appropriate to the target market and competitor‘s
performance levels.
Conformance quality
Buyers expect products to have a high conformance quality. Conformance quality is the degree to which
all the produced units are identical and meet the promised target specifications. Suppose a Porsche 944 is
designed to accelerate to 60 miles an hour within 10 seconds. If every Porsche 944 coming off the
assembly line does this, the model is said to have high conformance quality. However, If 944s vary
greatly in their acceleration time, they have low conformance on this criterion. The problem with low
conformance is that the product will felt to deliver on its promises to many buyers.
Durability
Durability is a very important product attribute to most buyers. Durability is a measure of the product‘s
expected operating life under natural and/or stressful conditions. Buyers will generally pay more for
products that have more durability. However, this rule is subject to some qualifications. The extra price
must not be exclusive. Furthermore, the product must not be subject to technological obsolescence, in
which case the buyer may not pay more for longer-lined products.
Reliability
Buyers normally will pay a premium for product with more reliability. Reliability is a measure of the
probability that a product will not fail within a specified time period. Buyers want to avoid the high costs
of product breakdowns and repair time.
Reparability
Buyers prefer products that are easy to repair. Reparability is a measure of the ease of fixing a product
that manufactures or fails. Thus an automobile made with standard parts that are easily replaced has high
reparability. Ideal reparability would exist if users could fix the product themselves with little or no cost
or time lost. The buyer might simply remove the defective part and insist a replacement part.
Style
Buyers are normally willing to pay a premium for products that are attractively styled. Style describes the
product‘s looks and feel to the buyer. Many car buyers pay a premium for jaguar automobiles because of
this extraordinary look, even though Jaguar had in the past a poor record of reliability. Style has the
advantage of creating product distinctiveness that is difficult to copy. Under style differentiation, we must
include packaging as a shying weapon, especially in food products, cosmetics, toiletries, and small-

56
consumed appliances. The package provides the buyer‘s first encounter with the product and is capable of
turning the buyer on or off.
Design
As competitions intensify, design will offer one of the most patent ways to differentiate and position a
company‘s products and services. Design is the totality of features that affect how products look and
functions in terms of customer requirements. Design is particularity important in making and marketing
durable equipment, apparel, retail services and packaged goods. All of the qualities we‘ve discussed
under the meaning ―Product differentiation are design parameters. The design has to figure out how much
to invest in feature development, performance, conformance, reliability, reparability, style and so forth.
Service Differentiation
In addition to differentiating its physical products, a firm can also differentiate its services. When the
physical product cannot easily be differentiated, the key to competitive success often lies in adding more
value-adding service and improving their quality. The main service differentiation are ordering ease,
delivery, installation, customer training, customers consulting, maintenance and repair, and a few others.
Ordering Ease
Ordering ease refers to how easy it is for the customer to place an order with the company. For example,
some companies have eased the ordering process by supplying customers with computer terminals
through which they send orders directly to the seller. Many banks are now providing home banking
software to help customers get information and transact with the bank more efficiently.
Delivery
Delivery refers to how well the product or service is delivered to the customers. It includes the speed,
accuracy, and care attending the delivery process. Buyers will often choose the supplier with a better
reputation for on-time delivery.
Installation
Installation refers to the work done to make a product operational in its planned location. Buyers of heavy
equipment expect good installation service from the vendor. For examples, some companies deliver all
the purchased equipment to the site at the same time rather than sending in different components at
different times.
Customer Training
Customer training refers to training the customer‘s employees to use the vendor‘s equipment properly and
efficiently. Some companies are not only selling and installthese expensive equipment but also take on the
responsibility for training the uses of this equipment.
Customer Consulting
Customers consulting refer to data, information systems, and advising services that the seller offers free
or for a price to buyers. Some sellers consult their buyers in setting up accounting and inventory systems,
computer ordering systems and so forth.
Maintenance and Repair
Maintenance and repair describes the company‘s service program for helping customers keep this
purchased product in good working order. Automobile buyers are especially concerned with the quality of
repair service that they can expect from this dealer.

Miscellaneous Services

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Companies can find many other ways to add value by differentiating their customer services. They can
offer a better product warranty or maintenance contract than their competitors. They can establish
patronage awards, as the airlines have done with their frequent-flyer programs.
Personnel Differentiation
Companies can gain a strong competitive advantage through hiring and training better people than their
competitors do. Better-trained personnel exhibit six characteristics:
Competence –The employees possess the required skill and knowledge.
Courtesy –The employees are friendly, respectful and considerate.
Credibility –The employees are trust worthy.
Reliability –The employees perform the service consistently and accurately.
Responsiveness –The employees respond quickly to customer‘s requests and problems.
Communication –The employees make an effort to understand the customer and communicate clearly.
Channel Differentiations
Companies can achieve differentiation through the way they shape their distribution channel, particularly
these channels coverage, expertise, and performance. For example, caterpillar success in the construction
– equipment industry is based partly on its superior channel development. Its dealers are found in more
locations than competitor‘s dealers and caterpillars dealers are typically better trained and perform more
reliably.
Image Differentiations
Even when competing offers look the same buyers may respond differently to the company image or
brand image. Consider the success of Marlboro cigarette. The primary way to account of Marlboro‘s
extraordinary worldwide market share (around 3%) is that Marlboro‘s ―Macho Cowboy‖ image has struck
a responsive chord with much of the cigarette smoking public.
Identity versus Image
It is important to distinguish between identity and image. Identity comprises the ways that a company
aims to identify itself or positions its product. Image is the way the public perceives the company or its
products. The company designs an identity or positioning to shape the publics image, but other factors
may intervene to determine each person‘s resulting image.An effective image does three things for a
product. First, it conveys a singular message that establishes the product‘s character and value
propositions. Second, it conveys this message in a distinctive way so that it is not confused with similar
messages from competitors. Third, it delivers emotional power so that it stirs the hearts as well as the
minds of buyers.
Symbols
A strong image consists of one or more symbols that trigger company or brands recognition. The
company and brand logos should be designed for instant recognitions. The company might choose some
object as a lion, a famous person, companies may also choose a color identifiers such as blue or red.
Written and audiovisual media
The chosen symbol must be worked into advertisements that convey the company or brand personality.
The ads should convey a strong line, a mood, a performance level –Something distinctive. The messages
should be replicated in other publications, such as annual reports, brochures, and catalogs. The company‘s
stationery and business cards should reflect the same image that the company wants to convey.

Atmosphere

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The physical space in which the organizations produces or delivers its products and services that looks
friendly must choose the right building design, interior design, layout, colors, materials and finishing‘s.
Events
A company can try an identity through the type of events it sponsors. The bottled water company came
into prominence by laying at exercise tracks and sponsoring health sports events.

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 CHAPTR FIVE
5. MANAGING PRODUCT
Chapter Objectives
After reading this chapter, you should be able to:
 Define the term product including the core, actual and augmented product.
 Explain the main classifications of consumer and industrial products.
 Outline the range of individual product decisions that marketers make.
 Explain the purpose of branding and identify the chief branding decisions.
 Explain the decisions that companies make when developing product lines and mixes.
 Explain how companies find and develop new-product ideas.
 List and define the steps in the new-product development process.
 Describe the stages of the product life-cycle
INTRODUCTION
Many people think that a product is a tangible offering, but a product can be more than that. A
product is anything that can be offered to a market for attention, acquisition, use or consumption
that might satisfy a need. It includes physical objects, services, persons, places, organizations and
ideas. Other names for a product would be the offer, value package, or benefit bundle. The
business education being given in our college is a product (service). A famous football player
like Maradona, is a product (person) bought by many countries and clubs.
Levels of product
In planning its market offering, the marketer needs to address three product levels, each level
adds more customer value.
The fundamental level is the core benefit: the service or benefit the customer is really buying.
When designing products, marketers must first design the core, problem solving benefits or
service that consumers seek. A hotel guest is buying "rest and sleep." The purchaser of a drill is
buying "holes." A woman buying lipstick buys more than lip color and people who buy a
blackberry are buying more than a mobile wireless phone, e-mail, and web browsing device.
They are buying freedom and on-the-go connectivity to people and resource.

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Figure 4.1 levels of product

5.2 Classification Of Products

Marketers have traditionally classified products on the basis of characteristics: durability,

tangibility, and use.
Durability and tangibility- Products can be classified into three groups, according to durability
and tangibility:
Non-durable goods- are tangible goods normally consumed in one or a few uses, like beer and
soap. Because these goods are consumed quickly and purchased frequently, the appropriate
strategy is to make them available in many locations, charge only a small markup, and advertise
heavily to induce trial and build preference.
Durable goods -are tangible goods that normally survive many uses: refrigerators, machine tools,
and clothing. Durable products normally require more personal selling and service, command a
higher margin, and require more seller guarantees.
Services- are intangible, inseparable, variable, and perishable products. As a result, they
normally require more quality control, supplier credibility, and adaptability.
Examples include haircuts, legal advice, and appliance repairs.

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Use-Products can be classified into two major categories depending on the intended use of the
product. These are consumer goods and industrial goods.
Consumer goods are products purchased by ultimate household consumers for ultimate use or
non-business purposes, usually for consumption or personal use. Industrial goods are products
intended to be sold primarily for use in producing other products or rendering services for
business purposes.
Classification of Consumer Goods
On the basis of consumer shopping habits consumer goods are classified into convenience,
shopping, specialty, and unsought goods.
Convenience Goods
Convenience goods are consumer goods that the consumer often buys frequently, immediately,
and with minimum shopping effort. Examples would include cigarette, soaps, matches, and
newspapers. The significant characteristics of consumer goods are:-the consumer has complete
knowledge of the particular product wanted, and the consumer is thus dominated by habit, they
are non-durable, usually inexpensive and bought by their brands, consumers exert minimum
shopping effort, they are available in a number of convenient locations.
Shopping Goods
Shopping goods are goods that the consumer selects and buys only after making comparisons
with respect to price, quality, suitability and style. Examples include household furniture and
clothing, used cars. In contrast to convenience goods, shopping goods are relatively expensive
and durable. Since there is no enough knowledge and information about the product, consumers
exert a maximum shopping effort and often face difficulty in buying decisions.
Specialty Goods
Specialty goods are consumer goods with unique characteristics or brand identification for which
a sufficient number of buyers are willing to make special purchasing effort. Expensive cars,
photographic equipment, and men's suits are examples of specialty goods. The consumer has
prior product knowledge and is reluctant to accept substitutes for it. Specialty goods do not
involve the buyer's making shopping comparison; the buyer only invests shopping time to reach
the required outlets. The store does not necessarily have to be established in a convenient place,
for the buyer is ready and willing to search for the outlet. Indirectly, since consumers insist on a
particular brand or product and are willing to expend considerable effort to find it, manufacturers
can afford to use fewer outlets. Both the manufacturer and the retailer advertise the product
extensively. They can be expensive or inexpensive.
Unsought Goods
These are goods that the consumer either does not know about or knows about but does not think
of buying them. New products until they are promoted through advertising, life insurance, and
encyclopedias are categorized under this group.
Classification of Industrial Goods
It is not useful to classify industrial goods according to the shopping habit of buyers as we did in
consumer goods classification, because producers do not shop in the same sense. Industrial
goods can be classified in terms of how they enter the production process and their relative
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costliness. We can distinguish three groups of industrial goods: materials and parts, capital items,
and supplies and business services.

Materials and parts- are goods that enter the manufacturer's product completely. They fall into
two classes: raw materials and manufactured materials and parts. Raw materials fall into two
major groups: farm products (e.g., wheat, cotton, livestock, fruits, and vegetables) and natural
products (e.g., fish, lumber, crude petroleum, iron ore). Manufactured materials and parts fall
into two categories: component materials (iron, yarn, cement, wires) and component parts (small
motors, tires, castings). Component materials are usually fabricated further—pig iron is made
into steel, and yarn is woven into cloth.

Capital items- are long-lasting goods that facilitate developing or managing the finished
product. They include two groups: installations and equipment. Installations consist of buildings
(factories, offices) and heavy equipment (generators, drill presses, mainframe computers,
elevators). Installations are major purchases.
Equipment comprises portable factory equipment and tools (hand tools, lift trucks) and office
equipment (personal computers, desks). These types of equipment do not become part of a
finished product. They have a shorter life than installations but a longer life than operating
supplies.
Supplies and business services- are short-term goods and services that facilitate developing or
managing the finished product. Supplies are of two kinds: maintenance and repair items (paint,
nails, brooms), and operating supplies (lubricants, coal, writing paper, pencils). Supplies are the
equivalent of convenience goods; they are usually purchased with minimum effort on a straight
re-buy basis.
Business services include maintenance and repair services (window cleaning, copier repair) and
business advisory services (legal, management consulting, and advertising).
5.3 New Product
A new product can be defined as innovative or improvements to the already existing products
that auto manufacturers introduce each autumn, or an item that is totally new to the market. Here,
we need not seek a very limited definition. Instead, we can recognize several possible categories
of new products. What is important, however, is that each separate category may require a quite
different marketing program to ensure a reasonable probability of market success.
Three recognizable categories of new products are as follows:
Products those are really innovative- truly unique. Examples would be a cancer cure-product for
which there is a real need but for which no existing substitutes are considered satisfactory. In this
category we can also include products that are quite different from existing products but satisfy
the same needs. Thus television to a great extent replaced radio and movies, plastic compete with
wood and metals, and solar power competes with other energy sources.
Replacements for existing products those are significantly different from the existing goods.

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Instant coffee replaced ground coffee and coffee beans in many markets; then freeze-dried
instant replaced instant coffee. Annual model changes in autos and new fashions in clothing
belong in this category.
Imitative products those are new to a particular company but not new to the market. The
company simply wants to capture part of an existing market with a "me-too" product.
Reasons for developing new product
The social and economic justification for the existence of a business is its ability to satisfy its
customers. A firm meets this basic social responsibility to society through its products or
services. And this is accomplished with the help of new product innovation. Product innovation
is essentially important for the following reasons.
The Justification of a Firms Existence
Organizations exist as far as they satisfy the needs of their consumers. It is unnecessary to
mention that consumer behavior is dynamic in that human needs are unlimited. Thus the firm
should cope with the emerging new needs of its customers. When the life cycle for a certain
product is to end customers develop a new need that calls for a new product innovation.
Product is a Basic Profit Determinant
New products are essential for sustaining a firm's expected rate of profit. As the product goes
through all five stages of its life cycle, the profit starts to decline in the late stages until it
becomes zero. Thus the introduction of a new product at the proper time will help to maintain the
firm's desired level of profits.
New Products are Essential for Growth
New products are designed not only to maintain the existing profit but also to increase their
profits and have greater market share.
5.3.1 New Product Development
As a new product is developed, it progresses from the idea stage to the product and marketing
stages. In general, the development process follows the steps outlined below. In each stage,
management must decide whether to move on to the next stage, abandon the product, or seek
additional information.

a. Generation of New Product Ideas

New product development starts with an idea. The search for product ideas should be systematic
that stimulates new ideas that should be acknowledged and reviewed promptly. The source of
product ideas can be internal to the organization, such as salesmen, marketing executives and
production personnel. A firm can also obtain new product ideas from external source, such as
customers, competitors, middlemen, private research organizations, inventor and trade
associations.
b. Screening of Ideas
The purpose of idea generation is to collect or create a number of good ideas. The purpose of
idea screening is to make a preliminary survey on the ideas. In this stage the generated ideas are
screened and evaluated to determine which ones warrant further study. Here great care should be

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taken not to accept wrong ideas and reject the right ideas. Otherwise we are aggravating the risk
of innovation.
c. Analysis of Ideas or Business Analysis
In business analysis, the company further goes to analyze and evaluate the right ideas. In this
stage management: evaluates the ideas with respect to company resources, identifies product
features, estimates market demand and the product's profitability and establishes program to
develop the product. These first three stages are referred to as concept testing. This is pre-testing
of the product idea, as contrasted to later pre-testing of the product itself and its market.
Product Development
At this stage the product idea is converted into actual physical product. The product is not
directly to be sent to the production department, rather pilot models or small quantities are
manufactured to designated specifications. Laboratory tests and other necessary technical
evaluations are made to determine the production feasibility of the article.

Market Testing
Market tests and commercial experiments are conducted in a limited geographic area to ascertain
the feasibility of full-scale production and marketing program. At this stage all necessary
adjustments are made after findings. Then management must take a final decision regarding
whether or not to market the product commercially.
Production and Marketing Stage or Commercialization
The product is sent to the production department for mass or full-scale production. Once the
product is born and enters its life cycle, the external competitive environment becomes a major
determinant of its destiny. The first three stages in the product development are simply idea or
concept stages; and the last three stages are concerned with the physical product. And the
concept stages are relatively inexpensive and important, for they are the bases for the product.
5.3.2 Product Life Cycle And Its Management
Products are created, they live and then they die. This link is called the product life cycle. The
length of duration in the product life cycle is not the same for all products. Factors, which affect
the length of a product life cycle, include customer preferences, seasons, technological changes,
competition, and the rate of acceptance of consumers for new ideas. Accordingly, a firm's
marketing success can be affected considerably by its ability to understand and manage the life
cycle of its products. Management is aware that each product will have a life-cycle, although the
exact shape and length is not known in advance.

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The above Figure shows a typical product life-cycle (PLC), the course that a product‘s sales and profits
take over its lifetime. The product life-cycle has five distinct stages:
Product development
Product development begins when the company finds and develops a new-product idea. During
product development, sales are zero and the company‘s investment costs mount.
Introduction Stage
It has gone through the embryonic stages of idea evaluation, pilot models, and market testing.
Operations in the introductory stage are characterized by slow sales growth, high cost, net losses,
limited distribution outlet and absence of competition. Product weaknesses and failures can be
identified and eliminated at this stage. Promotional activities emphasize on the type of product
rather than the brand.
Growth (Market Acceptance) Stage
Growth is marked by rapid sales and profit rise. The rise in sales and profit tempts to attract
competitors. As a result, distribution outlets are increased with expected price reduction. At this
stage manufacturing and distribution efficiency are the key elements for success. Selective
advertising is required emphasizing on its own brand's advantages. Profits may tend to decrease
at the end of the growth stage.

Maturity
During the first part of this period, sales continue to increase but at a decreasing rate. While sales
are leveling, profits are declining. It is marked by stiffening competition accompanied by
increased marketing expenses used to defend the product against fierce price competition.
Competitors heavily promote their brands using subtle differences because supply exceeds
demand making demand simulation essential.
Decline and Possible Abandonment
The market decline stage is marked by either the products gradual replacement by a new product
or by any evolving change in the consumer behavior. It is a period of highly aggravated sales
reduction, and profit declines more than ever. Consumers shift their attention to other newly
introduced products. A number of competitors withdraw from the market and promotional
expenditures drop off. Cost control becomes an important marketing tool. Introduction of a new
product is expected.

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5.4 Product Attributes
As parts and parcel of the product, product features/attributes combined together help a
prospective customer to perceive a product. The cost structure and the financial risk of a firm are
affected by the introduction or development of new product features. Being the first producer to
introduce a needed and valued new feature is one of the most effective ways to compete.
5.5 Product Mix Policies and Strategies
The Product mix is the total variety of products a firm sells. The product mix is a combination of
product lines and individual offerings that make up the product line. Some firms will sell just one
product, whilst others will sell a large number of different products. Although Borden Inc. is best
known for marketing dairy products, the firm's product mix also includes pasta, snack items,
niche grocery products (Campfire marshmallows and Rea Lemon juice), nonfood consumer
goods (Rain Dance car-care products, Elmer's glue, wallpaper), and specialty industrial
chemicals (adhesives, forest product resins, food-wrap items). Similarly, Samsung's product mix
includes mobile phones, tablets, televisions, fridges, microwaves, printers and memory cards.
A company’s product mix has a certain width, length, depth, and consistency.
The width of a product mix refers to how many different product lines the company carries.
The length of a product mix refers to the total number of items in the mix
The depth of a product mix refers to how many variants are offered of each product in the line.
If Tide comes in two scents (Mountain Spring and Regular), two formulations (liquid and
powder), and two additives (with or without bleach), Tide has a depth of eight because.
The consistency of the product mix refers to how closely relate the various product lines 'in end
use, production requirements, distribution channels, or some other way.
These four product-mix dimensions permit the company to expand its business in four ways. It
can add new product lines, thus widening its product mix. It can lengthen each product line. It
can add more product variants to each product and deepen its product mix. Finally, a company
can pursue more product-line consistency. To make these product and decisions, it is useful to
conduct product-line analysis.
Product Line
Firms may decide to split their product mix into groups known as product lines. A product line is
a number of products grouped together based on similar characteristics. The characteristic used
to split products, will depend on the firm and its product strategy. They include product price,
product quality, who the product is aimed at (target group), and product specification/features.
For example Samsung's mobile phones are divided into product lines based on the following
features; touch screens, slider/folders, QWERTY keyboards and bar phones. Bic's product lines
include disposable lighters, shavers, and pens. Product lines help firms manage their products as
product strategy can be designed around product lines. This is useful if the firm has a large
product mix as there is less need to concentrate on individual product type strategy.
5.6 Product Branding, Packaging 'and Labeling
Branding
According to the American Marketing Association,― A brand is name, term, sign, symbol, or a
combination of them, intended to identify the goods and services of one seller or group of sellers
and to differentiate them from those of competition. ‖According to William J Stanton, ―All
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trademarks are brands and thus include the word, letter or numbers which may be pronounced;
they may also include pictorial designs.‖ Branding is naming of a product like naming a baby.
Branding is an intrinsic aspect of product strategy, for it adds great value to a product. Brands
can include a number of elements
Brand name. A brand name is that part of the brand consisting of words or letters included in a
name used to identify and distinguish the firm's offerings from those of competitors. The brand
name is the part of the brand that can be vocalized.
Example:- Coca-Cola, Campbell's, Pepsi-Cola, AT&T, McDonald's, American Express,
Kellogg's, IBM, Levi's, and Sears.
Brand mark- The part of a brand which can be recognized but one cannot utter it. It can appear
in the form of a symbol, design, distinctive coloring or lettering. It usually is not spoken.
Trade mark:A brand or part of a brand that has been given legal protection so that the owner
has exclusive rights to its use.
Importance of a Brand
The seller's brand name and trademark provide legal protection of unique product features.
Branding gives the seller the opportunity to attract a loyal profitable set of customers and helps
to increase the control and share of the market.
Branding helps the seller to segment markets and expand the product mix.
Good brands help to build the corporate image because it advertises the quality and size of the
company.
Brands make it easy for customers to identify products or services.
Requirements of a Good Brand
Among the desirable qualities for a brand following are very important. A good brand should:
 be easy to pronounce, recognize and remember
 be distinctive
 suggest something about the product's benefits or characteristics
 Suggest about the product qualities such as action or use.
 Be large enough to be applicable to new products that may be added to the product line.
 Have a possibility of registration and legal protection.
Packaging
Packaging is a marketing process concerned with the design and production of the container or
wrapper for a product. The container or wrapper is called the package. In recent times packaging
has become a potential marketing tool because it can create convenience value for the consumer
and promotional value for the producer or seller. Packaging is closely related to labeling and
branding because label often appears on the package and the brand typically on the label.
Importance of Packaging
Packaging was production-oriented activity in most companies, performed mainly to obtain the
benefits of protection and convenience. Currently, however, the importance of packaging is
growing. Generally, there are three reasons for packaging.
Packaging serves several safety and utilitarian purposes. It protects a product on its route from
the producer to the final consumer, even while it is being stored by middlemen and used by the
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customer. For liquid, granular and other divisible products, packaging is needed to secure the
items in a given quantity and form. Compared with bulk items, packaged goods are generally
more convenient, cleaner, and less susceptible to losses such as evaporation, spilling and
spoilage. Furthermore, multiple packaging in large sizes encourages increased product usage
when packages are reusable.
Packaging may implement a company's marketing program. The package is an important method
of communication with the customer by identifying the brand and providing ingredients and
directions, which represent an image of the brand. Packaging may also serve as a promotional
tool; and the package is the final form of promotion the consumer sees prior to making a
purchase decision. The package differentiates a product from that of competitors by its design,
color, shape and materials. Therefore, packaging can act as a silent sales man.
Well-packaged products may increase profit possibilities in that it stimulates customers to pay
more just to get the special package. Besides, an increase in ease of handling or reduction in
damages or losses again increases profit by cutting marketing costs.
Labeling
Label is part of a package that carries verbal information about the product of the seller. The
essence of label is expository by nature because it expresses some features of the product such as
ingredients, weight measure, use, warning, performance, etc. Sometimes it also includes
advertising message. A label may be part of a package, or it may be a tag attached directly to the
product. Typically, there are three kinds of labels.
Brand label. Simply the brand alone applied to the product or to the package.
Grand label. A label which identifies the quality with a letter, number or word.
Descriptive label. It gives objective information about the use, construction, care, performance or
other features of the product. Sometimes it is called informative label.
Design
The marketing significance of design has been recognized for years in the field of consumer
products, starting form big items like automobiles and refrigerators to small products like
fountain pens. A good design of a product can improve its marketability in many ways. The
typical importance of a good design is the following
It can make the product easier to operate
It can upgrade the quality and durability of the product
It can improve product appearance and reduce manufacturing costs,
It can generate new uses for a product
Color
Marketing management has to consider the psychological and sociological aspects of color and
the impact of geographical environments on color. Color is often a determinant factor in a
customer's acceptance or rejection of a product, particularly products such as a dress and an
automobile because different people have different color interpretations. The impact of color on
a firm's activities depends on knowing the right color and when to change the color. The careful
use of color can increase sales and workers productivity.
Product Quality
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Product quality is the most important and probably the most difficult of all the image building
features to define. Quality can be expressed in many ways among which reliability and durability
are the most important. Reliability is the measure of assurance whether the intended performance
matches with the actual performance of a product and this can be expressed in terms of right or
wrong, not good or bad. Thus, reliability and product quality are directly proportional. As a
measure of quality, durability also refers to the measure of life span of a product and is expressed
in terms of calendar time or usage time of the product.
Product Warrant
Warrant refers to the compensation the seller promises to give to the buyer in case the product is
not found to perform up to a reasonable expectation. Warranty is often given either in the form of
expressed warranty or implied warranty in which the former refers to the warranty explicitly
stated in terms of written or spoken information. This seems that it mainly protects the seller
from the buyer's claims. Consequently, the scope of warranty is broadening to cover the concept
of implied warranty. It is the idea that warranty was intended, although not stated, by the seller if
the product is not found to perform up to a reasonable expectation. Warranties are closely related
with the product in such a way that not only retailers or wholesalers but also manufacturers are
liable for product caused injuries. Therefore warranty is part of the bundle satisfactions a buyer
receives when buying a product.
Product Service
Service policies are important elements of marketing programs for many industrial products such
as computers. It is necessary to provide installation and repair services and training for
customers' personnel. Appropriate service policies not only facilitate initial sales, but also help in
keeping products sold, stimulating repeat sales, and build customer goodwill.

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 CHAPTER SIX
PRICING DECISIONS
Chapter Objectives
After reading this chapter, you should be able to:
 Answer the question ―What is a price?‖ and discuss the importance of pricing in today‘s
fast-changing environment.
 Identify the three major pricing strategies and
 Discuss the importance of understanding customer-value perceptions, company costs, and
competitor strategies when setting prices
 Identify and define the other important external and internal factors affecting a firm‘s
pricing
decisions.
 Describe the major strategies for pricing new products
 Explain how companies find a set of prices that maximizes the profits from the total
product mix
 Discuss how companies adjust their prices to take into account different types of
customers
and situations
 Discuss the key issues related to initiating and responding to price changes.
Introduction
In the narrowest sense, price is the amount of money charged for a product or service. More
broadly, price is the sum of all the values that consumers exchange for the benefits of having or
using the product or service. Historically, prices were usually set by buyers and sellers
bargaining with each other. Sellers would ask for a higher price than they expected to get and
buyers would offer less than they expected to pay. Through bargaining, they would arrive at an
acceptable price. Individual buyers paid different prices for the same products, depending on
their needs and bargaining skills.
6.1 Meaning and significance of pricing
Meaning of pricing

Price goes by many names. We pay rent for apartment, tuition for education, fee to physician or
dentist, fare for transportation, interest for credit, premium for insurance retainer for legal
service, salary for executives, and commission for a sales person wage for a worker. Simply
defined, price is the amount of money charged for a product or service. Price is the sum of the
values consumers' exchange for the benefits of having or using a product or service. Pricing is
the only element that produces revenue in the marketing mix while the other elements produce
cost.
The Importance of pricing
Be it in monetary or non-monetary form price is the key element in any marketing transaction.
As one of the basic concepts of exchange transaction, the rise in the relative importance of price

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is attributable to rapid cost increases, greater price awareness on the part of consumers, and
shortages leading to high prices.

Price places a value on the combination of marketing variables offered to customers, such as
product attributes, store location and image. Customer service levels, prices charged to channel
members, and promotional costs one affected by price. An incorrect price mistakes the value of
a product or service and can adversely affect a firm‘s sales and profits. Thus price decisions
must be integrated with the other marketing activities of a firm.

The market price of a product influences wages, rent, interest and profit; that is the price of a
product influences the price paid for the factors of production – land, labor, capital, and
entrepreneurship. Price thus is the basic regulator of the economic system because it affects the
allocation of these scarce resources. As an allocate of scarce resources, price determines what
will be supplied or produced (supply) and who will get the goods and services that one produced
(demand).
6.2 Pricing Objectives
When companies fix/determine prices they have either of the following objectives.

Target return

Profit oriented

Maximize profit

Pricing
Objectives Sales Dollar or unit
Oriented sales growth

Growth in
Market share

Status quo Meeting competition

Oriented

Non–price
competition
Profit Oriented Objectives
Achieve Target Return on Investment
A target return on investment objective sets a specific level of profit as an objective. This pricing
objective is used by middlemen and manufacturers that are industry leaders because they can set
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prices independently of competition than the smaller firms in the industry. A target return
objective has administration advantage in a large company. Performance can be compared
against the target. Some companies drop/eliminate division or products that aren't yielding the
target rate of return. Some managers aim for only satisfactory returns. They just want returns that
ensure the firm's survival and convince stockholders they are doing a good job. Many private and
public non–profit organizations set a price level that will just recover costs, i.e., that target return
on investment is zero.

Maximize Current Profit

Many companies want to set a price that will maximize current profits. They estimate the
demand and costs associated with alternative prices and choose the price that will produce the
maximum current profit. A profit maximization objective seeks to get as much profit as possible.
It might be stated as a desire to earn a rapid return on investment. Some people believe that
anyone seeking a profit maximization objective will charge high prices – price that is not in the
public interest. However, this point of view is not correct. Pricing to achieve profit maximization
does not always lead to high prices. Demand and supply may bring extremely high prices if
competition can't offer good substitutes. But this happens if and only if demand is highly
inelastic. If demand is very elastic, profit maximizers may charge relatively low prices. Low
prices may expand the size of the market and result in greater sales and profits.

ii. Sales Oriented Pricing Objective

Maximum Sales Growth:
In this objective, the company wants to achieve maximum sales growth (unit sales, dollar sales
or share of market). In this case, companies believe that high sales volume will lead to lower unit
costs and higher long run profit. However, sales growth doesn't necessarily mean big profits.
This kind of thinking causes problems when a firm's costs are growing faster than sales or when
managers don't keep track of their costs. Usually, company's set the lowest price assuming that
the market is highly price sensitive and it is called penetration pricing.
This will be possible and effective
When the market is highly price sensitive and a low price stimulates more market growth.
Production and distribution costs fall with accumulated production experience.
A low price discourages actual and potential competition.
Market Share Objectives:
Many firms seek to gain a specified share of a market. A benefit of a market share objective is
that it forces a manager to pay attention to what competitors are doing in the market. In addition,
it's usually easier to measure a firm's market share than to determine if profits are being
maximized. If a company has a large market share, it may have better economies of scale than its
competitors. Therefore, it sells at about the same price as its competitors, it gets more profit from
each sale, or lower costs may allow it to sell at a lower price and still make a profit. A company
with a long–run view may decide that increasing market share is a sensible objective when the

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overall market is growing. The hope is that larger future volume will justify sacrificing some
profit in the short run.

iii. Status Quo Pricing Objective:

Managers satisfied with their current market share and profits sometimes adopt status quo
objectives–don't lock–the pricing boat objectives. Managers may say that they want to stabilize
prices, or meet competition, or even avoid competition. This doesn't rock–the boat thinking is
meet common when the total market is not growing.

Non–Price Competition: a status quo pricing objective may be part of an aggressive overall
marketing strategy focusing on non–price competition–aggressive action on one or more of the
Ps other than price.

This pricing style is also called stabilizing pricing, which avoids price competition by following
large firms that are price leaders and when the products are highly standardized. The major
reason to use this objective is to avert price war.

There is also other pricing objective, i.e., survival–companies set survival as their major
objective if they are suffering from over capacity, intense competition or changing consumer
preference. To keep the plant going and the inventories turning over, they will often cut prices.
As long as their prices covered variable costs and some fixed costs, they will continue to
business. However, survival is only a short run objective. In the long run the firm must find a
way to add value in the market or face extinction.

6.3. Factors Affecting Pricing Decision

A company's pricing decisions are affected both by internal company factors andby external
environmental factors (see Figure 6.1).

Fig 6.1 Factors affecting price decisions

Internal Factors Affecting Pricing Decisions
Internal factors affecting pricing include the company's marketing objectives,marketing-mix strategy,
costs and organization.
Marketing Objectives
Common objectives are survival, current profit maximization, market-share maximization and product-
quality leadership.
Survival
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Companies follow this if they are troubled by too much capacity, heavy competition or changing
consumer wants.
Current profit maximization
They estimate what demand and costs will be at different prices and choose the price that will
produce the maximum current profit, cash flow or return on investment.
In all cases, the company wants current financial results rather than long-run performance.
Market-share leadership
They believe that the company with the largest market share will enjoy the lowest costs and
highest long-run profit.
To become the market-share loader, these firms set prices as low as possible.
Product-quality leadership
It calls for charging a high price to cover such quality and the high cost of R&D.
Marketing-Mix Strategy
A shift in any one of the elements has an immediate effect on the other three-product, promotion
and distribution. Price decisions must be coordinated with product design, distribution and
promotion decisions to form consistent and effective marketing programmes.
Cost
Costs set the floor for the price that the company can charge for its product. The company wants
to charge a price that both covers all its costs for producing, distributing and selling the product,
and delivers a fair rate of return for its effort and risk.

Types of costs
A company's costs take two forms, fixed and variable. These are Fixed and Variable cost
Fixed Cost- Fixed costs (also known as overhead) are costs that do not vary with production or
sales level. For example, a company must pay each month's bills for rent, heat, interest and
executive salaries, whatever the company's output.
Variable cost-Variable costs vary directly with the level of production.Each personal computer
produced by Compaq involves a cost of computer chips, wires, plastic, packaging and other
inputs. These costs tend to be the same for each unit produced. They are called variable because
their total varies with the number of units produced. Total costs are the sum of the fixed and
variable costs for any given level of production
D. Organizational Considerations
Management must decide who within the organization should set prices. Pricing decisions occur
on two levels in the organization. Over all pricing strategy is dealt with by top executives. They
determine the basic ranges that the product falls into in terms of market segments. The actual
mechanics of pricing are dealt with at lower levels in the firm and focus on individual product
strategies. Usually, some combination of production and marketing specialists are involved in
choosing the price.
External Factors to be Considered in Setting Pricing Decision
External factors that affect pricing decisions include the nature of the market and demand,
competition and other environmental elements.
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The Market and Demand
The price-demand relationship varies for different types of market and how buyer perceptions of
price affect the pricing decision. Whereas costs set the lower limit of prices, the market and
demand set the upper limit. Pricing in different types or market, the seller's pricing freedom
varies with different types of market. Economists recognize four types of market, each
presenting a different pricing challenge.
Pure competition- Under pure competition, the market consists of many buyers and sellers
trading in a uniform commodity such as wheat, copper or financial securities. No single buyer or
seller has much effect on the going market price. A seller cannot charge more than the going
price because buyers can obtain as much as they need at the going price. Nor would sellers
charge less than the market price because they can sell all they want at this price. If price and
profits rise, new sellers can easily enter the market. In a purely competitive market, marketing
research, product development, pricing, advertising and sales promotion play little or no role.
Thus sellers in these markets do not spend much time on marketing strategy.
Monopolistic competition- Under monopolistic competition, the market consists of many
buyers and sellers that trade over a range of prices rather than a single market price. A range of
prices occurs because sellers can differentiate their offers to buyers. Either the physical product
can be varied in quality, features or style, or the accompanying services can be varied. Buyers
seek differences in sellers' products and will pay different prices for them. Sellers try to develop
differentiated offers for different customer segments and, in addition to price, freely use
branding, advertising and personal selling to set their offers apart. Because there are many
competitors, each firm is less affected by competitors' marketing strategies than in oligopolistic
markets.
Oligopolistic competition- Under oligopolistic competition, the market consists of a few sellers
that are highly sensitive to each other's pricing and marketing strategies. The product can be
uniform (steel, aluminum) or non-uniform (cars, computers). There are few sellers because it is
difficult for new sellers to enter the market. Each seller is alert to competitors' strategies and
moves. If a steel company slashes its price by 10 per cent, buyers will quickly switch to this
supplier. The other steel makers must respond by lowering their prices or increasing their
services. An oligopolistic is never sure that it will gain anything permanent through a price cut.
In contrast, if an oligopolistic raises its price, its competitors might not follow this (The
oligopolistic would then have to retract its price increase or risk losing customer‘s to
competitors."
Pure monopoly- In a pure monopoly, the market consists of one seller. The seller may be a
government monopoly (a Postal Service), a private regulated monopoly (a power company) or a
private non-regulated monopoly (Microsoft with DOS and Windows). Pricing is handled
differently in each ease, a government monopoly can pursue a variety of pricing objectives. It
might set a price below cost because the product is important to buyers who cannot afford to pay
full cost. Or the price might be set either to cover costs or to produce good revenue. It can even
be set quite high to slow down consumption. In a regulated monopoly, the government permits
the company to set rates that will yield a 'fair return', one that will let the company maintain and
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expand its operations as needed. Non-regulated monopolies are free to price at what the market
will bear. However, they do not always charge the full price for a number of reasons: for
example, a desire not to attract competition, a desire to penetrate the market faster with a low
price, or a fear of government regulation.
Demand:
Demand for the product is the total volume that is bought by a customer group(s) in a definite
time period, in a definite geographical area, in a particular marketing environment and with the
defined marketing mix. For a marketer it is necessary to understand the relationship between
price and the consumer perception. The relationship can be explained by two economic concepts
Law of Demand and Elasticity of Demand. The law of demand states that consumer usually
purchase more units at a low price than the high price. The price elasticity of demand shows the
sensitivity of buyers to price changes in terms of quantities they will purchase.
Elastic demand occurs if relatively small changes in price result in large changes in quantity
demanded total revenue goes up when prices are reduced or goes down. Price elasticity is more
than 1.
Inelastic demand takes place if considerable price changes have little impact on quantity
demanded. Price elasticity is less than one. Total revenue goes up when prices are raised.
Unitary demand exists when there is no impact of price on demand. Total sales revenue remains
constant. Price elastic is one.
Competitors' Costs, Prices and Offers
Costs and prices, and possible competitor reactions to the company's own pricing moves.

6.4. Basic methods of determining price

Most of the approaches used by many companies to establish base prices for their products are
variations of one of the following methods:
price based on total cost plus a desired profit
price based on a balance between estimates of market demand and supply (the costs of
production and marketing)
price based on competitive market conditions

Cost-plus pricing
With cost – plus pricing the marketer determines the price of unit of a product by computing the
unit‘s total cost plus the designed profit on the unit.

In general the steps for computing cost-plus pricing one to estimate the number of units to be
produced, calculate fixed and variable costs and add a predetermined profit to costs.
The formula for cost-plus pricing is

Price = Total fixed cost  Total variable cost  projected profit

Units produced

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As an illustration from the table, if three units one pressed and the firm desires a profit of 500, its per unit
selling price to retailers would be

Price = 1750  7800  500

3
= 3,350 Birr
Price Based on market demand and cost of production and marketing
Break-even Analysis
One way to use market demand and still consider costs in price determination is to conduct a
break-even analysis and determine break even points. A break-even point is the quantity of
output at which the sales revenue equals the total costs, assuming a certain selling price. Sales of
quantities above the break-even point result in a profit on each additional unit. Sales below the
break-even point result in a loss to the seller.

Price determined in relation to market alone

Cost- plus pricing is one extreme among pricing methods. At the other end of the scale is a
method where by a firm‘s prices are sets in relation only to the market price disregarding cost.
This method is used to meet competition or it may be set either above or below the market price.
Pricing above the market
This is based on charging prices that are higher than those of competitors. It may also be
referred to as skimming pricing when producers introduce a new product. The producer charges
a high price during the introductory stage, and later reduces it when the product is no longer a
novelty and competition heats up.
The price is set high relative to the cost, which results in high gross profit. Consequently, it
often attracts competitors. Companies, which adopt a skimming policy, try to cover their
development costs as quickly as possible through high initial prices.
Pricing below the market
Charging prices, which are below those of competitors, is called pricing below the market. It is
also called penetration pricing. Producer‘s charges a low price during the introductory stage and
plan to get back to the initial investment through big sales. It may be economical because
producing large quantities- production oriented approach-saves money. This policy is practiced
by a company coming in to a market in which competitors are well established.

Pricing with the market

Premium pricing is another name for pricing with the market. It is charging prices that match
with the market or those of competitors. By pricing with the market producers avoid tremendous
effort required to find out what the consumer would actually pay. This pricing also creates a
business climate in which all firms can avoid the unpleasantness of price competition.
Companies prefer to compete through brand differentiation rather than through price competition
although competitors gain a small profit per unit.

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6.5 Pricing procedures
The procedures to determine the price of a certain product are similar for a new and existing
products. In fact to set price for a new product is more difficult than for already established
products. The pricing procedures adapted by many firms are following.

Estimation of demand for a product

Demand estimation is an important step in pricing a product. It is easier to estimate the demand
for an established product than for a new one. Two steps in demand estimation are first, to
determine the expected prices. And second to estimate the sales volume at different prices.

The expected price for a product is the price at which consumers consciously or unconsciously
value it looking the expected price from the point of view of consumers. The expected price is
usually expressed as a range of prices, rather than as a specific amount. It is possible to set a
price too low but if the price is much lower than the market expects sales may be lost because
consumers may be suspicious about the quality of the product or their self-concepts will not let
them to buy such low-priced merchandise. To set appropriate expected price a firm has to use
the following sources:
approaching experienced middlemen
judgment of potential customers
approaching an engineer working with prospective products
Marketing the product in a limited area – the most effective but costly method.

Anticipate competitive reactions

Present and potential competition is an important influence in determining a base price. Even a
new product is distinctive for only a limited time, until the inevitable competition arrives. The
threat of potential competition is greater when the field is easy to enter and the profit prospects
are encouraging. Competition can also come from three other sources:
 Directly similar products – metal (aluminum and iron)
 Available Substitutes _ plastic Vs metal
 Unrelated products _ two different products with similar money value

Consider company marketing policies

In setting a price management should take into account the impact of different marketing policies
and considerations. The policies concerning the product and its attributes, the channels selected
and the types of middlemen used; and the promotional methods used, and the extent to which the
product is promoted by the manufacturer or middlemen are of significant impact on pricing.
6.6 Select pricing strategy to reach the market
The most dominant and basic pricing strategies are of three types: skimming, penetration, and
premium pricing strategies.
Skim the cream pricing
The cream skimming pricing involves setting a price that is high in the range of expected prices.
This strategy is particularly suitable for new products for the following reasons.
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In the early stages of a product life cycle, price is less important, competition is minimal and the
product‘s distinctiveness lends itself to effective marketing.
If the original price is too high and market does not respond, a firm can easily lower it. But it is
very difficult to raise a price that has proven too low to cover costs
High initial prices can keep demand within the limits of a firm‘s productive capacity, and
generate large profit at the beginning of the marketing stage
Penetration pricing
In penetration pricing, a low initial price is set to reach the mass market instantly. It is often
employed at the later stage of the product life cycle. Penetration pricing has an advantage over
skimming if the following conditions are fulfilled:
If the product has highly elastic demand
If substantial reductions in unit costs can be achieved through large scale operation, and
If the product is expected to face very strong competition soon after it is introduced to the market
Penetration pricing discourages other firms from entering the market because of anticipated low
margin, and helps to expand market share.
Premium pricing
Premium pricing is an extension of skimming pricing strategy. In this case firms develop equally
high prices with other competitors. Premium pricing should be accompanied by the following:
strong product in terms of quality
high promotional activities
high quality customer services
Select a specific price.
Based on an appropriate method(s) assumed by the firm, we select a specific price that best
matches the market and generates higher profit.
Pricing Policies and Strategies
New Product Pricing Strategies: Pricing strategies usually change as the product passes through
its life cycle. The introductory stage is especially challenging. Skimming or a penetration pricing
strategy.

Market Skimming Pricing:

Many companies that invent new products initially set high prices to 'skim' revenues layer by
layer from the market. Ordinarily the price is high in relation to the target market's range of
expected prices. That is, the price is set at the highest possible level that the most interested
customers will pay for the new product. Market-skimming pricing has several purposes. Since it
should provide healthy profit margins, it is intended primarily to recover research and
development costs as quickly as possible. Further it provides the firm with flexibility, because it
is much easier to lower an initial price that meets with consumer resistance etc. with the
objectives of: Healthy profit margins, to recover R&D costs as quickly as possible.
Market Penetration Pricing:
The price is low in relation to the target market's range of expected prices. The primary aim of
this strategy is to penetrate the mass market immediately and, in so doing generate substantial
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sales volume and a large market share. At the same time it is intended to discourage other firms
from introducing competing products. Several conditions favor setting a low price. First, the
market must be highly price sensitive, so that a low price produces more market growth. Second,
production and distribution costs must fall as sales volume increases. Finally, the low price must
help keep out the competition - otherwise the price advantage may he only temporary.
Price Adjustment Strategies Companies usually adjust their basic prices to account for various
customer differences and changing situations. This includes discount and allowance pricing,
segmented pricing, psychological pricing, promotional pricing, -value pricing, etc.
Discount & Allowances:
Discount & allowances result in a deduction from a base (or list) price. The deduction may be in
the form of a reduced price or some other concession, such as free merchandise or advertising
allowances.
Quantity Discounts: Quantity discounts are deductions from a seller's list price intended to
encourage customers to buy in large amounts or to buy most of what they need from the seller
offering the deduction. Discounts are based on the size of the purchase, either in Birr or in units.
E.g. from 1-10 units none, 10-20 units -2%, discount 21-40 units-4% discounts etc.
Trade Discount: Trade discount sometimes called functional discounts, are reductions from the
list price offered to buyers in payment for marketing functions the buyers will perform -
functions such as storing, promoting and selling the product. A manufacturer may quote a retail
price of $400 with trade discount of 40% and 10%. The retailer pays the wholesaler $240($400
less 40%), and the wholesaler pays the manufacturer $216 ($240 less 10%). The wholesaler is
expected to keep the 10% to cover costs of the wholesaling functions and pass on the 40%
discount to retailers.
Cash discount: A Cash discount is a deduction granted to buyers for paying their bills within a
specified time. The discount is composed on the net amount due after first deducting trade and
quantity discounts from the base price. Every cash discount includes three elements.
The percentage discount
The period during which the discount may be taken &
The time when the bill becomes overdue
Let's say a buyer owes $360 after other discounts have been granted and is offered terms of 2/10,
n/30 on an invoice dated November 8. This means the buyer may deduct a discount of 2%
($7.20) if the bill is paid within 10 days of the invoice date - by November 18, otherwise the
entire (net) bill of $360 must be paid in 30 days - by December 8, etc.
Seasonal Discounts: This is based on the time that the purchase is made and designed to reduce
seasonal variation in sales. For example, the travel industry offers much lower off-season rates.
Such discounts do not have to be based on the time of the year; they also can be based on day of
the week or time of the day.
Allowances: Allowances are other types of reductions from the list price. For example, trade-in
allowances are price reductions given for turning in an old item when buying a new one. Trade-
in allowances are most common in the automobile industry and are also given for some other

81
durable goods. Promotional allowances are payments or price reductions to reward dealers for
participating in advertising and sales-support programs.
Discriminatory pricing: Segmented Pricing
Companies will often adjust their basic prices to allow for differences in customers, products and
locations. Discriminatory pricing companies often adjust their basic prices to allow for
differences in customers, products, and locations. In discriminatory pricing, the company sells a
product or service at two or more prices, even though the difference in prices is not based on
differences in costs. Discriminatory pricing takes several forms:
Customers- segment pricing- different customers pay different prices for the same product or
service. Museums, for example, often change a lower admission for students and senior citizens.
Product form pricing –different versions of the product are priced differently but not according to
differences in their costs.
Location pricing-different locations are priced differently even though the cost of offering each
location is the same. For instance, a theater varies its seat prices because of audience preferences
for certain locations.
Time pricing- prices are varied seasonally, by the month, by the day, and even by the hour.
Public utilities vary their prices to commercial users by time of day and weeded versus weekday.
The telephone company offers lower ―off-peak charges, and resorts give seasonal discounts.
Psychological pricing
In using psychological pricing, sellers consider the psychology of prices and not simply the
economics.
For example, some consumers will see the £399.95 as a price in the £300 range rather than the
£400 range. Whereas the £399.95 is more likely to be seen as a bargain price, the £400 price
suggests more quality. Complicated numbers, such as £347.41, also look less appealing than
rounded ones, such as £350.
Promotional Pricing
is a sales strategy in which brands temporarily reduce the price of a product or service to attract
prospects and customers.
With promotional pricing, companies will temporarily price their products below list price and
sometimes even below cost.

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 CHAPER SEVEN
7. PROMOTION DECISIONS
Chapter Objectives
Upon completion of this chapter you will be able to:
 Define the roles of advertising, sales promotion, personal selling, publicity, and direct
marketing.
 Outline the common communication platforms of advertising and describe the various
types of advertising.
 Identify the most important variables in setting the advertising objectives
 Outline the common communication platforms of sales promotion and discuss the
objectives of sales promotion.
 Outline the common communication platform of personal selling and describe the various
types of personal selling.
 Discuss the objectives of personal selling.
 Define direct marketing and outline the common communication platforms of direct
marketing.
Introduction
Modern marketing calls for more than just developing a good product, pricing it attractively, and
making it available to target customers. Companies must also communicate with their customers
and there should be controlled direction to those communications. Promotion provides the
primary communication function. As one of the four major elements of the marketing mix,
promotion uses advertising, sales promotion, public relations, direct marketing, and personal
selling to achieve the company's communication objectives.
7.1 Meaning and Significance of Promotion
Meaning of Promotion
Promotion is a technique of communication related to the selling effort in order to express the
merits of a product so as to enhance sales.
Promotion, also called marketing communication, is defined as the element of marketing mix
that assists and/or persuades a prospective customer to buy a product or to act favorably up on
and that has commercial significance to the seller.
It is a firm‘s marketing activity used to inform, persuade, or remind people about its products,
services, image, ideas, community involvement, or impact on society.

For new products customers must be informed about the items and their attributes to make them
develop favorable attitude toward them. For products that customers are aware of, the emphasis
of promotion is or persuasion the conversion of product knowledge to product liking. For well-
entrenched products the emphasis is on reminder promotion reinforcement of existing consumer
beliefs and attitudes.

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Marketing communication includes brand names, packaging, personal sales force, trading
stamps, and coupons, mass media (newspapers, television, radio, direct mail, billboards, and
magazines). It can be paid or non-paid, company sponsored or controlled by independent media.
The Importance Of Promotion
Promotion enables a firm to establish an image, interact with channel members, provide
customer service and complement other marketing activities. It also improves employment
opportunities. The major advantages of promotion can be listed as follows:
establishing a company or product / service image, such as, prestige, discount or innovative
creating awareness for new products keeping existing products popular repositioning the images
or uses of faltering products locating where products can be purchased justifying prices
providing after sales service for consumers
Placing the company and its products or services in a favorable light relative to competitors.
7.2 THE PROMOTIONAL MIX ELEMENTS
Basically, the promotional activity in marketing is an exercise in communication.
Communication involves a source (sender) sending a message through a channel to a receiver.
In carrying out its marketing communication process, a firm uses four major tools or elements,
namely, advertising, personal selling, sales promotion, and publicity.
7.2.1 Advertising
Advertising is any paid form of non-personal, oral and / or visual openly sponsor-identified
message concerning goods, services or ideas. The distinguishing features of advertising are that
the firm pays for its message, a set format is delivered to the entire audience through mass
media, the name of the sponsor is clearly presented, and the company controls the message. The
definition implies that advertising is a process – it is a series of activities necessary to prepare the
message and get it to the intended market. The message disseminated is called advertisement.
Objectives of advertising
Every advertising and advertising campaign should have clearly defined objectives that should
grow out of the firm‘s overall marketing strategy. The real goal of advertising is effective
communication. Stated another way, the ultimate effect of advertising is to modify the attitude
and/or behavior of people by selling a product, service or idea. Depending on the purpose of the
message the general advertising objectives can be informing, persuading, or reminding
something.
The objective of advertising can be informing for newly introduced products, such as telling the
market-about a new product informing the market of a price change explaining how the product
works
describing available services correcting false impressions
7.2.2 Personal Selling
Personal selling can be defined as a direct person-to person communication with one or more
prospective customers for the purpose of making sales. Promotion is communication with
potential customers and personal selling is often the best way to do it because face-to face

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communication with prospects and sales people can get more attention than an advertisement or
a display.
Personal selling consists of individual, personal communication, in contrast to the mass,
impersonal communication of advertising, sales promotion and other promotional tools.
Consequently, its great advantage over the other forms of promotion and the quality that makes it
so essential, is its flexibility. Salespeople can tailor their presentations to fit the needs and
behavior of customers-responding to questions, handling objections, foreseeing a customer‘s
particular problems, and making necessary adjustments on the spot. Also, it permits a minimum
of wasted effort because a company has an opportunity to pinpoint its target market far more
effectively than with any other promotional tool.

Personal selling makes the buyer feel under some obligation for having listened to sales talk and
the buyer has greater need to attend and respond. In most situations, it is personal selling that
result in the actual sale. Advertisements can attract attention and arouse desire, but they do not
arouse buying action or complete transfer of the title as in the case of personal selling.

Despite the above-mentioned qualities, personal selling has a major limitation that its cost is
high. It is true that the use of a sale force enables a business to reach its market with a minimum
of wasted effort. However, the cost of developing and operating sales force is high. Besides,
personal selling is often limited by a company‘s inability to get the caliber of people needed to
do the job.

7.2.3 Sales promotion

Sales promotions a set of incentive tools designed to stimulate interest, trial or purchase of a
particular product by final consumers or others in the channel. Advertising offers a reason to
buy whereas sales promotion offers an incentive to buy. Sales promotion covers a wide variety
of incentives, such as, samples, coupons, premiums, cash refund offers, prizes, patronage
rewards, free trials, warranties, demonstrations, contests, displays, shows and expositions, free
goods buying allowance, advertising allowances, and other various efforts. The major function
of sales promotion is to serve as a bridge between advertising and personal selling, i.e. to
supplement and coordinate efforts in these two areas.
Firms use these incentive type promotions to attract brand switchers that are primarily looking
for low price, good value, or premiums. Sales promotion tools are usually designed to be used in
markets of high brand similarity to break down brand loyalty and produce a high sales response
in the short run. Advertising, however, is sued to build up brand loyalty.
Generally sales promotion tools are designed to create a stronger and quicker response. They
can be used to dramatize product offers and boost slow sales.
They also have the following distinct characteristics.
they gain attention and usually provide information that may lead the consumer to the product
They incorporate some concession, inducement or contribution that gives value to the consumer.
They include a distinct invitation to engage in the transaction now.
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Sales promotion can be directed to five different groups: final consumers, industrial users,
wholesalers, retailers, and a firm‘s own sales-force. The specific objectives of sales promotion
are, thus, as follows:
to get consumers to try a new product or an improved model of an established product to attract
new customers to encourage present customers to use the product in greater quantities.
To combat a competitor‘s promotional activity.
To increase the amount of impulse buying by consumers.
To get greater cooperation from resellers (e.g. Training of salespeople of wholesalers and
retailers.)
Sales promotion has three major effects: positive effect, which involves permanent increment of
sales; neutral effect which involves no change of sales permanently; and negative effect, which
involves reduction in sales as compared to its original state.

7.2.4 Public Relation and Publicity

A company is dependent on many groups if it is to be successful. The marketing concept focuses
on customers and distributors but the needs and interests of other groups are also important, such
as employees, shareholders, the local community, the media, and government and other pressure
groups. Public relations are concerned with all of these groups and may be defined as the
management of communications and relationships to establish goodwill and mutual
understanding between an organization and its public.

Public relations are therefore more wide ranging than marketing, which focuses on markets,
distribution channels, and customers. By communicating to other groups, public relations create
an environment in which it is easier to conduct marketing. Public relations activities include
publicity, seminars- by arranging special events, such as, news conferences, seminars,
exhibitions, anniversaries, and so on, that will reach the intended audience; publications- such as
written materials to reach and influence the intended audience like annual reports, brochures,
articles, and company newsletters and magazines; and charitable donations- like contributing
money and time to good courses, financing special sport games, providing fund to charity
organizations in the cases of draught, or any emergency activities. It can accomplish many
objectives:

Prestige and reputation: it can foster prestige and reputation which can help companies to sell
products, attract and keep good employees, and promote favorable community and government
relations.
Promotion of products: the desire to buy a product can be helped by the unobtrusive things that
people read and see in press, radio, television. Awareness and interest in products and companies
can be generated.
Overcoming misconceptions: managing misconceptions about a company so that unfounded
opinions do not damage its operations.

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Publicity
Publicity is an important element in public relations. It can be defined as the communication
about a product or organization by the placing of news about it in the media without paying for
the time or space directly. It is any promotional communication regarding an organization and/or
its products where the message is not paid for by the organization benefiting from it. Usually,
publicity promotion is a non-personal news story appearing in a mass medium.

Publicity can be used for a wide variety of purposes in a company. It may be used as one means
of promoting the product of the company. A company may also publicize its new policies
(credit, price discounting etc.), its people (employee achievement, executive promotions, and
employee civic service), research and development successes, financial reports, or its progress on
pollution control. A company may use publicity to counteract an unfavorable image,
unfavorable reports in the media, or an unfavorable news release from other outside people.
Three key tasks of publicity
Responding to requests from the media. Although a passive service functions, it requires well-
organized information, and prompt response to media requests.
Supplying the media with information on events and occurrences relevant to the organization.
This requires general internal communication channels and knowledge of the media.
Stimulating the media to carry the information and view point of the organization. This requires
creative development of ideas, developing close relationships with media people and
understanding their needs and motivation.

Publicity can be affected through news and speeches. This can be implemented by finding and
creating favorable news about the company and/or its products or people so that the mass media
will print or orally report the information. A message that appears as news is more likely to be
read than the same message appears in a company advertisement. Publicity people can also
deliver speeches on trade associations or sales meetings.
7.2.5 Direct Marketing
On a simplistic note one can say that direct marketing is nothing but getting the message
through, directly. However, the direct marketing association (USA) defines it as ‗‘ an interactive
system of marketing which uses one or more advertising media to effect a measurable response
and /or transaction at any location.‘‘
From the definition:
Interactive: one to one communication or interaction between the marketer and the
prospect/customer.
One or More Advertising Media: a combination of media used to synergize, often more effective
than any single medium.
Measurable Response: possible to measure response, quite accurately.
Transaction at any Location: may take place by phone, at a kiosk, by mail or by personal visit.
Determination of promotional mix

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A company has to decide on what combination of the promotion tools to use for its effective
promotional program. Companies thus consider the factors described below in developing their
promotional mix.
Funds available
Regardless of what may be the most desirable promotional mix, the amount of money available
for promotion is the real determinant. A business with ample funds can make more effective use
of advertising than an enterprise with limited financial resources. Lack of money may even force
a company to use a less efficient promotional method.
Nature of the market
As is true in most problem areas in marketing decisions on the promotional mix will be
influenced by the nature of the market. This influence is felt in at least three ways.
Geographical scope of the market- personal selling may be adequate in a small local market,
but as the market broadens geographically, greater stress must be placed on advertising.

Type of customers – a promotional program aimed at industrial users and middlemen will
probably include more personal selling than a program designed to attract household consumers.
Concentration of the market – The fewer the potential buyers there are, the more effective
personal selling is, compared with advertising.
Composition of buyers – A market with a few types of customers will call for personal selling
than advertising; a market with many different customers will call for advertising than personal
selling. Personal selling would be prohibitively expensive in reaching many markets.
Nature of the product
In the field of industrial goods, the promotional strategy used to market installations usually
features heavy emphasis on personal selling. The promotional method used in consumer goods
is different from that of industrial goods. Even within the category of consumer goods, a
promotional mix is influenced by whether the goods are convenience, shopping, specialty and
unsought good

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 CHAPTER EIGHT
8. DISTRIBUTION
Chapter Objectives
Upon completion of this chapter you should be able to:
 Explain why companies use marketing channels and discuss the functions these channels
perform.
 Discuss the nature and importance of retailers, wholesalers and physical distribution.
 Identify the major channel alternatives open to a company and how companies select,
motivate and evaluate channel members.
Distribution consists of all major activities of the manufacturer and all of the intervening
institutions and operations that move the goods along toward the ultimate consumer or industrial
user. Distribution, as a part of marketing system, is required to give the kinds of goods and
services one wants when and where he/she wants them and at what price he/she is willing to pay.
In addition, it saves time both for the producer and the consumer. It is undertaken thought
marketing channels. Distribution channel is the path traced in the direct or indirect transfer of
the title of the product as it moves from producers to the ultimate users (consumer market and
business market).
8.1 Meaning and Importance of Distribution

Meaning of Distribution
Distribution consists of all major activities of the manufacturer and all of the intervening
institutions and operations that move the goods along toward the ultimate consumer or industrial
user. The basic functions in distribution are buying, selling, transporting, and warehousing.
Through these activities distribution adds place, time and possession utility to goods.
Distribution, as a part of marketing system, is required to give the kinds of goods and services
one wants when and where he/she wants them and at what price he/she is willing to pay. Also, it
saves time both for the producer and the consumer.

Importance of Distribution
Why do producers give some of the selling job to intermediaries? Few producers sell their goods
directly to the final users. Instead, most use third parties or intermediaries to bring their products
to market. They try to forge a marketing channel (or distribution channel) – a set of
interdependent organizations involved in the process of making a product or service available for
use or consumption by the consumer or business user.
After all, doing so means giving up some control over how and to whom the products are sold.
The use of intermediaries results from their greater efficiency in making goods available to target
markets. Through their contacts, experience, specialization and scale of operation, intermediaries
usually offer the firm more than it can achieve on its own.
8.2. Marketing Intermediaries And Their Functions

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People or institutions that specialize in performing operations or rendering services which are
involved directly in the transfer of goods from producers to users are known as marketing
intermediaries. Marketing intermediaries (also called middlemen) are classified into two major
categories; merchant and agent middlemen. Merchant middlemen include merchant wholesalers
and retailers who take title to and resell the goods. Agent middlemen include agents, brokers and
manufacturers‘ sales branches and offices who do not take title to the goods involved.
They rather negotiate purchases, sales or both.

Why are marketing intermediaries used?

Every business requires finance from the inception of a product up to its consumption. Thus
many producers lack the financial resources to embark on a programmer of direct marketing
because direct marketing requires a paramount of financial resource.

Those producers who have the required capital to develop their own channels can often earn a
greater return by increasing their investment in other parts of their business.
The other way round, the capital invested in direct marketing usually generates less return as
compared to the capital invested in some other aspects of the business.
Every producer would be required to become a middleman for the complementary products and
other items of other producers to achieve mass distribution efficiency. Practically, this is
impossible for any manufacturer to become a retailer for every item.

Middlemen simplify the marketing operations by concentration and dispersion process. They
have superior efficiency in making goods widely available and accessible to largest markets.
Marketing intermediaries, through their contacts, experience, specialization, and scale of
operation offer the firm more than it can usually achieve on its own.

The communication between the manufacturers and consumers will be simple and efficient.
For example, in the interaction among four producers and consumers, without a middleman each
of them may contact each other (that is 4 x 4 = 16). On the other hand, in the presence of the
middleman, the communication is decreased to eight (that is he/she receives the goods from the
four producers and distributes it to four consumers).
CHANNEL FUNCTIONS
A marketing channel is essentially a method of organizing the work that has to be done to move
goods from producers to consumers. The purpose of the work is to overcome various gaps that
separate the goods and services from those who would use them.
The following major marketing channel functions are involved in this work:
 Research- the gathering of information necessary for planning and facilitating exchange.
 Promotion- the development and dissemination of persuasive communications about a
product.
 Contact- searching out and communicating with prospect buyers.

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  Matching – the shaping and fitting of the offer to the buyer‘s requirements. It involves
such activities as grading, standardizing, packaging, assorting, and so on.
 Negotiation – the attempt to reach final agreement on price and other terms of the offer so
that transfers of ownership can be effected.
 Physical distribution – transportation and storing of the goods
 Risk taking – the assumption of risks in connection with carrying out the channel work.
 Customer services – this includes delivery, credit, in-home purchase, warranties, and
returns policies.
Major channels of distribution
Distribution channels for consumer goods
Producer -Consumer
Producer -retailer -Consumer
Producer _ wholesaler _ retailer _Consumer
Producer __ agent _ wholesaler _ retailer _Consumer

Distribution channels for industrial goods

Producer _________________________________________ Industrial user
Industrial
producer _______________________ distributor _________ Industrial user
producer ________ agent ____________________________Industrial user
Industrial
Producer ________ agent _________ distributor _________Industrial user
Manufactures Industrial
Producer ______ sales branch ______ distributor ________ Industrial user
Manufactures
Producer _______ sales branch _______________________ Industrial user

8.3 Channel Design And Management

In designing marketing channels, manufacturers struggle between what is ideal and what is
practical. A new firm with limited capital usually starts by selling in a limited market area.
Deciding on the best channel might not be a problem: The problem might simply be how to
convince one or a few good intermediaries to handle the line.
If successful, the new firm can branch out to new markets through existing intermediaries. In
smaller markets, the firm might sell directly to retailers; in larger markets, it might sell through
distributors. In one part of the country, it might grant exclusive franchises; in another, it might
sell through all available outlets. Then it might add a Web store that sells directly to hard-to-
reach customers. In this way, channel systems often evolve to meet market opportunities and
conditions. For maximum effectiveness, however, channel analysis and decision making should
be more purposeful.

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Marketing channel design calls for analyzing consumer needs, setting channel objectives,
identifying major channel alternatives, and evaluating those alternatives.
Once the company has reviewed its channel alternatives and determined the best channel design,
it must implement and manage the chosen channel.
Marketing channel management calls for selecting, managing, and motivating individual channel
members and evaluating their performance over time.

8.4. Factors Affecting Marketing Channel Decisions

Distribution channel decisions are determined by the market, the product, the middlemen and the
company itself. Basically, when selecting a channel, a firm should consider three important
elements: channel control, market coverage, and cost that are consistent with the desired level of
customer service.
Market considerations: A channel of distribution should be determined by customer buying
patterns because the nature of the market is the key factor influencing a firm‘s choice of
channels. The significant market variables are described below:

Number of potential customers. With relatively few potential buyers a manufacturer may use
its own sales force to sell directly to consumers or industrial users. For a large number of
customers, the manufacturer would more likely use marketing intermediaries. Besides,
consumer needs including store locations and hours, width of assortment, sales help, credit and
other services should be considered in channel decisions.
Geographic concentration of the market- A direct channel is most feasible if buyers are highly
concentrated in a few geographic areas. An indirect channel, use of middlemen, would be used
if there are many buyers dispersed in a wider area.

Order size- A food product manufacturer would sell directly to large groceries because the large
order size and total volume of business make this channel economically desirable. An indirect
channel would be used if there are many customers who spend little on each purchase.
Product Considerations
Four product attributes affect channel selection; these are unit value, perishability, complexity or
technical nature of the product, and bulk. Items with high unit value, like gold and jewelry art,
tend to utilize short channels; items with low unit value like ball point pens and matches, tend to
use longer channels. Products subject to physical and fashion perishability like milk and medical
products must be speeded through their short channels. Complex industrial products, like jet, air
craft, are often distributed directly to users; simpler items like alarm clocks and attach cases
require shorter channels. The producer‘s sales force must provide considerable presale and post-
sale service in selling products of high technical nature. Bulky merchandise, such as pianos and
refrigerators, use short channels in order to minimize the number of physical movements of the
items.

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Middlemen considerations
Distribution channels must also be studied to determine the alternatives, their services, their
availability, and their attitude toward manufacturers‘ policies. Each producer should select
middlemen that will provide those marketing services that the producer either is unable to
provide or cannot economically perform. The middlemen whom a firm desires should be
available and able to control the channel. Before producers choose a certain channel, they
should make sure that the middlemen are ready to accept and practice the manufacturers‘
policies.

Company considerations
Company considerations consist of financial resource, expertise, desire for channel control, and
services provided by the seller. A firm with limited resource and/or managerial expertise will
almost be required to use an indirect channel and rely on middlemen to carry out many
distribution activities, where as a firm with large resources may have the financial and
managerial ability to accomplish more activities on its own. By controlling the channel,
producers can achieve more aggressive promotion and better control the product‘s audience,
price and image. Thus firms may desire to control the distribution of their products even though
the cost of the more direct channel may be higher. Finally, products channel decisions are
influenced by the marketing services they can provide in relation to those demanded by
middlemen.

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 PART II : BASICS OF CONSUMER BEHAVIOR
CHAPTER ONE
1. INTRODUCTION TO CONSUMER BEHAVIOR
Chapter Objectives:
After studying this unit, you should be able to:
 Define the terms ―consumer behavior‖.
 Describe the importance of ‗consumer behavior‘
 Illustrate Model of consumer behavior.
Introduction
Consumer behavior has been always of great interest to marketers. The knowledge of consumer behavior
helps the marketer to understand how consumers think, feel and select from alternatives like products,
brands and the like and how the consumers are influenced by their environment, the reference groups,
family, and salespersons and so on. A consumer‘s buying behavior is influenced by cultural, social,
personal and psychological factors. Most of these factors are uncontrollable and beyond the hands of
marketers but they have to be considered while trying to understand the complex behavior of the
consumers.
A formal definition helps to focus on key points and concepts
Consumer behavior is the study of the behavior that consumers display during the processes of searching
for, purchasing, using, evaluating, and disposing of products and services that they expect will satisfy
their needs.
1.1 Definition and characteristics of consumer behavior

Consumer behavior is the study of how individual customers, groups or organizations select, buy, use,
and dispose ideas, goods, and services to satisfy their needs and wants.
It refers to the actions of the consumers in the marketplace and the underlying motives for those actions.
Consumer Behavior describes two kinds of consuming entities:
 The Personal Consumer and;
 The Organizational Consumer
Personal Consumer
Buys goods for his/her own use, for the use of household or as gift for friends/families
Organizational Consumer
Includes profit and not-for-profit businesses, government agencies and institutions
In the marketing context, the term „consumer ‟ refers not only to the act of purchase itself, but also to
patterns of aggregate buying which include pre-purchase and post-purchase activities. Pre-purchase
activity might consist of the growing awareness of a need or want, and a search for and evaluation of
information about the products and brands that might satisfy it. Post-purchase activities include the
evaluation of the purchased item in use and the reduction of any anxiety which accompanies the purchase
of expensive and infrequently-bought items.
Consumer Behavior reflects the totality of consumer decisions with respect to acquisition, consumption,
and disposition of goods, services, Activities, Experiences, People, time, and ideas by decision making
units over a time. Consumer Behavior Involves Goods, Services, Activities, Experiences, People, time

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and Ideas. Consumer Buying Behavior refers to the buying behavior of final consumers (individuals &
households) who buy goods and services for personal consumption.
Consumer Behavior focuses on how individuals make decisions to spend their available resources (time,
money, effort) on consumption related item. That includes:
 What they buy
 Why they buy it
 When they buy it
 Where they buy it
 How often they buy it
 How often they use it
 How they evaluate it after the purchase
 How they dispose of it
The impact of such evaluation on future purchases, and Consumer behavior means more than just the way
that a person buys tangible products such as bath soap and automobiles. It also includes consumers‘ use
of services, activities, experiences, and ideas such as going to the doctor, visiting a festival, signing up for
yoga classes, taking a trip, etc
Consumer Behavior is the mental, emotional, and physical activities that people engage in when selecting,
purchasing, using, and disposing of products and services so as to satisfy needs and desires.
The ―seven keys‖ to Consumer Behavior:
 CB is motivated
 CB includes many activities
 CB is a process
 CB varies in timing and complexity
 CB involves different roles
 CB is influenced by external factors
 CB differs for different people.
Motivation: CB occurs to satisfy needs and desires .CB is aimed at (the means of) achieving
particular goals (end).
CB activities: features such as thoughts, feelings, plans, decisions, purchases, and the experiences that
follow.
 CB as a process involves interrelated stages.
 CB differs in timing and complexity.
Timing: when the decision takes place and how long the entire process takes
Complexity: the number of activities involved in a decision and the difficulty of the decision itself.
1.2 Importance of Studying Consumer Behavior:
Role or importance of study of consumer behavior can be explained with reference to
the points stated as under:
1. Modern Philosophy: It concerns with modern marketing philosophy – identify consumers‘ needs and
satisfy them more effectively than competitors. It makes marketing consumer-oriented. It is the key to
succeed.
2. Achievement of Goals: The key to a company‘s survival, profitability, and growth in a
highly competitive marketing environment is its ability to identify and satisfy unfulfilled
consumer needs better and sooner than the competitors. Thus, consumer behavior helps in
achieving marketing goals.
3. Useful for Dealers and Salesmen: The study of consumer behavior is not useful for the
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company alone. Knowledge of consumer behavior is equally useful for middlemen and
salesmen to perform their tasks effectively in meeting consumers needs and wants
successfully. Consumer behavior, thus, improves performance of the entire distribution system.
4. More Relevant Marketing Programme: Marketing programme, consisting of product,
price, promotion, and distribution decisions, can be prepared more objectively. The
programme can be more relevant if it is based on the study of consumer behavior. Meaningful marketing
programme is instrumental in realizing marketing goals.
5. Adjusting Marketing Programme over Time: Consumer behavior studies the consumer
response pattern on a continuous basis. So, a marketer can easily come to know the changes taking place
in the market. Based on the current market trend, the marketer can make necessary changes in marketing
programme to adjust with the market.
6. Predicting Market Trend: Consumer behavior can also aid in projecting the future
market trends. Marketer finds enough time to prepare for exploiting the emerging
opportunities, and/or facing challenges and threats.
7. Consumer Differentiation: Market exhibits considerable differentiations. Each segment
needs and wants different products. For every segment, a separate marketing programme is needed.
Knowledge of consumer differentiation is a key to fit marking offers with different groups of buyers.
Consumer behavior study supplies the details about consumer differentiations.
8. Creation and Retention of Consumers: Marketers who base their offerings on recognition of consumer
needs find a ready market for their products. Company finds it easy to sell its products. In the same way,
the company, due to continuous study of consumer behavior and attempts to meet changing expectations
of the buyers, can retain its consumers for a long period.
9. Competition: Consumer behavior study assists in facing competition, too. Based on
consumers‘ expectations, more competitive advantages can be offered. It is useful in
improving competitive strengths of the company.
10. Developing New Products: New product is developed in respect of needs and wants of the target
market. In order to develop the best-fit product, a marketer must know adequately about the market. Thus,
the study of consumer behavior is the base for developing a new product successfully.
11. Dynamic Nature of Market: Consumer behavior focuses on dynamic nature of the market. It helps the
manager to be dynamic, alert, and active in satisfying consumers better and sooner than competitors.
Consumer behavior is indispensable to watch movements of the markets.
12. Effective Use of Productive Resources: The study of consumer behavior assists the manager to make
the organizational efforts consumer-oriented. It ensures an exact use of Resources for achieving
maximum efficiency.
Each unit of resources can contribute maximum to objectives.

1.2.1 Reasons for studying consumer behavior

The Study of Consumer Behavior has become essential. Study consumer behavior to answer: ―How do
consumers respond to marketing efforts the company might use?‖
Consumers are the kings of markets. Without consumers no business organization can run. All the
activities of the business concerns end with consumers and consumer satisfaction. Customer behavior
study is based on consumer buying behavior, with the customer playing the three distinct roles of user,
payer and buyer. Consumer buying behavior has become an integral part of strategic market planning.

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The most important reason for studying consumer behaviouris the role that it plays in our lives. We spend
a lot of time in shops and market places. We talk and discuss with friends about products and services and
get lot of information from T.V. This influences our daily lives.
Consumer decisions are affected by their behavior. Therefore, consumer behavior is said to be an applied
discipline. This leads to the micro-perspective and societal perspective.
Micro Perspective It involves understanding consumer for the purpose of helping a firm or organization to
achieve its objectives. All the Managers in different departments are keen to understand the consumer.
They may be Advertising Managers, Product Designers, Marketing and Sales Managers and so on.
Societal Perspective is on the macro level. Consumers collectively influenced economic and social
conditions within a society. Consumers strongly influence what will be product, what resources will be
used and it affects our standard of living.
1.2.2 Who Benefits from the Study of Consumer Behavior?
Why do people study consumer behavior? The reasons are as varied as the four different groups who use
consumer research: marketing managers, ethicists and advocates, public policy makers and regulators,
and consumers.
Marketing Managers
The study of consumer behavior provides critical information to marketing managers for developing
marketing strategies and tactics.
The American Marketing Association‘s definition of marketing shows why marketing managers need to
learn about consumer behavior:
Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and
exchanging offerings that have value for customers, clients, partners, and society at large.
As this definition makes clear, marketers need consumer behavior insights to understand what consumers
and clients value; only then can they develop, communicate, and deliver appropriate goods and services.
Ethicists and Advocacy Groups
Marketers‘ actions sometimes raise important ethical questions. Concerned consumers sometimes form
advocacy groups to create public awareness of inappropriate practices. They also influence other
consumers as well as the targeted companies through strategies such as media statements and boycotts.
For example, Mothers against Violence in America is one of several groups protesting video games that
feature physical violence. Despite such labeling, advocacy groups are concerned that younger teens can
easily acquire and play games intended for older consumers. Consumer behavior can be quite useful to
legislators, regulators, and government agencies in developing policies and rules to protect consumers
from unfair, unsafe, or inappropriate marketing practices. In turn, marketers‘ decisions are affected by
these public policy actions.
Academics
Consumer behavior is important in the academic world for two reasons. First, academics disseminate
knowledge about consumer behavior when they teach courses on the subject. Second, academics generate
knowledge about consumer behavior when they conduct research focusing on how consumers act, think,
and feel when acquiring, using, and disposing of offerings. In turn, such academic research is useful to
marketing managers, advocacy groups, regulators, and others who need to understand consumer behavior.
Consumers and Society understanding of consumer behavior can help make a better environment for
consumers.
Consumer
Why is it so important to satisfy the customer? Such satisfaction is important because a company‘s sales
come from two basic groups – new customers and repeat customers. It usually costs more to attract new
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customers than to retain current ones. Keeping current customers is therefore often more critical than
attracting new ones, and the best way to do this is to make current customers happy.
A satisfied customer buys a product again, talks favorably to others about the product, pays less attention
to competing brands and advertising, and buys other products from the company. Many marketers go
beyond merely meeting the expectations of customers – they aim to delight the
customer.
A delighted customer is even more likely to purchase again and to talk favorably about the product and
company. A dissatisfied consumer responds differently. Whereas, on average, a satisfied customer tells
three people about a good product experience, a dissatisfied customer gripes to 11 people.
CONSUMER INVOLVEMENT
Some consumers are characterized as being more involved in products and shopping than others. A
consumer who is highly involved with a product would be interested in knowing a lot about it before
purchasing. Hence he reads brochures thoroughly, compares brands and models available at different
outlets, asks questions, and looks for recommendations. Thus consumer involvement can be defined as
heightened state of awareness that motivates consumers to seek out, attend to, and think about product
information prior to purchase.
CAUSES OF CONSUMER INVOLVEMENT
The factors that influences consumer involvement include personal, product and situational.
Personal Factors
Self-concept, needs and values are the three personal factors that influence the extent of consumer
involvement in a product or service. The more product image, the value symbolism inherent in it and the
needs it serves are fitting together with the consumer self- image, values and needs, the more likely the
consumer is to feel involved in it. Celebrities for example share a certain self-image, certain values, and
certain needs. They tend to use products and services that reflect their life style. They get highly involved
in purchasing prestigious products like designer wear, imported cars, health care products etc.
Product Factors
The consumer involvement grows as the level of perceived risk in the purchase of a good or service
increases. It is likely that consumers will feel more involved in the purchase of their house than in the
purchase of tooth paste, it is a much riskier purchase.
Product differentiation affects involvement. The involvement increases as the number of alternatives that
they have to choose from increases. This may be due to the fact that consumers feel variety which means
greater risk.
The pleasure one gets by using a product or service can also influence involvement. Some products are a
greater source of pleasure to the consumer than others. Tea and coffee have a high level of hedonic
(pleasure) value compared to, say household cleaners. Hence the involvement is high.
Involvement increases when a product gains public attention. Any product that is socially visible or that is
consumed in public demands high involvement. For example, involvement in the purchase of car is more
than the purchase of household items.
Situational Factors
The situation in which the product is brought or used can generate emotional involvement. The reason for
purchase or purchase occasion affects involvement. For example, buying a pair of socks for you is far less
involved than buying a gift for a close friend.
Social pressure can significantly increase involvement. One is likely to be more self-conscious about the
products and brands one looks at when shopping with friends than when shopping alone.

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1.3 Model of consumer behavior

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 CHAPTER TWO
2. CONSUMER DECISION PROCESSES
Chapter Objectives
After studying this chapter, students will able to
 Define decision making
 Identify levels and types of consumer decision making
 Understand how each steps of consumer decision making Process works
Introduction
Consumer decision is a careful evaluation of the attributes of a set of products, brands, or
services and rationally selecting the one that solves a clearly recognized need for the least cost. If
you think back to a recent major purchase you have made, you may recall that it was a complex,
involved, extended, and perhaps an ongoing process. It begins with realizing ones need to
purchase followed by studying some catalogs, visiting various stores, talking to friends,
weighting alternatives,, and finally got tired of being indecisive and chose one, paid for it, and
bought it home.
Now you are eager to find out how it works out. Not it works fine; you will try to solve one
more problem. This Unit draws together many of the psychological, social, and cultural concepts
into a framework for understanding how consumers make decisions. It considers consumer‘s
decisions not as the end point rather as the beginning point of a consumption process.
The customer‘s decision to purchase a product or service is an important moment for most
marketers that can signify whether a marketing strategy has been wise, insightful, and effective,
or whether it was poorly planned and missed the market. This section gives you an introductory
idea about decision-making. It analyzes the roles of the decisions maker and the levels of
decision-making involvement.
2.1. What Is A Decision?
A decision is the selection of a potion form two or more alternative choices.
This definition implies that, for a person to make a decision, a choice of alternatives must be
available.
When a person has a choice between making a purchase and not making a purchase, a choice
between brand X and brand Y, or a choice of spending time doing A or B, that person is in a
position to make decision. Thus, there is almost always a choice that gives an opportunity for
consumers to make a decision. Customer decisions are choices that customers make in the
marketplace as buyers, and users. These decisions include whether to purchase, what to
purchase, when to purchase form whom to purchase, and how to pay for it.
Many consumer decisions focus not on brand attributes but rather on the emotions associated
with acquiring and using the brand, or with the environment in which the product is purchased
and used.
Individual consumption can occur in three places:
At home,
 In business organizations (at work, at school, and so on), and
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  In public places (restaurants, airplane, on the road, in the park, on the beach, and so on).
For products consumed at home, purchase decisions tend to be made in advance, substantially
ahead of time.
Consumption in organizational settings and in public places is much less separated in time from
the purchase decisions.

2.2. Levels of Consumer Decision-Making

All consumer decision-making situations do not require the same degree of information search.
Based on a continuum of effort that range from very high to very low level of involvement in
searching information, We can distinguish three levels of consumer decision making.
2.2.1. Habitual (Routinized) Response
At this level of problem solving, consumers have some experience with the product category and
a well-established set of criteria with which to evaluate the brands they are considering.
The problem is recognized and internal search or long-term memory provides the single most
solution. In other words, consumers simply review what they already know. Evaluation occurs
only not the brand files to perform as expected. A completely habitual decision does not even
include consideration of the ―do not purchase alternative,‖ pick it up without considering
alternative brands, its price, or other potentially relevant factors
Habitual decision-making can be broken drawn into two distinct categories:
Brand loyalty decisions whereby consumers have been highly involved in selecting a product
and used an expensive decision making process. Thus, they purchase it without further
consideration. Consumers are committed to that product because they believe that It best meet
their overall needs and formed and emotional attachment to it. Repeat purchase whereby
customers believe that all brands are the same and you may not attach much importance to the
product category or purchase. Having tried the product and found satisfactory, customers
purchase it using habitual decision-making. Consumers are repeat purchasers, but they are not
committed to it. Competitor can easily attract them.

2.2.2. Limited Problem Solving

This is an intermediate type of decision-making between habitual and extensive decision-
making. Consumers already have established the basic criteria for evaluating the product
category and already know the various brands in this category but unfamiliar with the exact
brand, style, and price options that are currently available. They have not fully established
preferences concerning a select group of brands. As result it places primary emphasis on
searching for a suitable alternative with less concern given to learning about the product itself.
They must gather additional brand information to discriminate among the various brands Limited
decision-making might involve in evaluating only the newest of the available alternative.
Consumers might evaluate their purchases based on the actual or anticipated behaviors of others.
For example, one might order wine with meal depending on the expected orders of his or her
companions. It also occurs in response to some emotional and environmental needs.

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2.2.3. Extensive Problems Solving
When consumers have no established criteria for evaluating a product category or specific brands
in that category or have not narrowed the number of brands they will consider to a small and
manageable size, their decision-making efforts can be classified as extensive problem solving. It
is needed in response to a very high level of purchase involvement.
Since it is the most involved decision, it requires much effort, takes a long time in gathering a
great deal of information to establish a set of criteria which to judge specific brands, and is
complex. Many consumers face this process when making their first purchase. They must learn
about important attributes and about which brands offer what benefits and at what cost.
They should develop their own criteria to evaluate which option is best for them. Thus,
extensive internal and external search for information followed by a complex evaluation of
multiple alternatives is very essential.
Types of buying decision behavior
Complex Buying Behavior
Consumers go through complex buying behavior when they perceive significant brand
differences and if products are expensive, highly self-expressive, risky and purchased
infrequently. Because of these factors, there is high involvement of consumers in the decision
process. Consumers first develop a belief, then attitude and then making a thoughtful purchase
choice. Marketers need to help buyers learn about product class attributes and their relative
importance.
Dissonance Reducing Buying Behavior
The situations observed in the complex buying behavior also appear in this type of buying
behavior with the exception of insignificant difference among different brands. Hence, buyers
may shop around to learn what is available but buy relatively quickly. They may respond
primarily to a good price or convenience. After purchase, buyers might experience
dissonance/discomfort when they notice certain disadvantages of the purchased product or hear
favorable things about brands not purchased. To relieve consumers from this dissonance,
marketers‘ after sales communication should provide evidence and support to help consumers
feel about the purchased brand.
Habitual Buying Behavior- low involvement of consumers
In habitual buying behavior, consumes‘ low involvement and little brand differences exist.
Consumers simply go to the store and reach for a brand especially for low cost and frequently
purchased products. Consumers passively read magazines and watch TV to receive information.
Advertising repetition creates brand familiarity rather than brand conviction. Simply low price
and sales promotion to stimulate product trial of consumers are expected from marketers because
buyers are not highly committed to any brand. In advertisement marketers need to use imagery
advertisements and visual symbols because they can be remembered easily and associated with
the brand. TV is more effective than print media.
Variety Seeking Buying Behavior- low involvement of consumers
Consumers choose the brand without much evaluation, or the evaluation of the product is during
consumption. The next time buyers seek another brand not because of dissatisfaction but simply

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to try something different. In such product categories the marketing strategy may differ for the
market leader and minor brands. The market leaders will try to encourage habitual buying
behavior by dominating shelf space-keeping shelves fully stocked and running frequent reminder
advertising. Challengers will encourage variety seeking by offering lower prices, coupons, free
samples and advertising that presents reasons for trying something new.
2.3. Consumer Decision Making Process
There are five essentials stages of the consumer decision process.
Problem recognition,
Information search,
Alternative evaluation,
Purchase decision, and Post purchase behavior or experience.
This section tries to discuss each stage of the consumer decision-making process in detail.
2.3.1. Problem Recognition
The decision process begins when a customer recognizes problem to be solved or a need to be
satisfied and becomes highly motivated to solve that problem. For example, when a customer
notices that he or she is hungry and needs to get some food, the light bulb has blown out and
needs replacement, the roof has began to leak and needs repairing, the office copier has run out
of paper, and errors in the report that requires redoing, illustrate the existence of a problems
Some of the problems of customers are physical in nature such as hanger and dirt and others are
psychological such as any state of deprivation, discomfort, or wanting felt by a person.
Thus, problems recognition is a realization by the customer that he or she needs to buy
something to get back to the normal state of physical and psychological comfort.
Problem recognition can also occur when the consumer perceives a gap between his or her
current state and desired state.
This discrepancy arises when one of the desired state or the current state changes.
Major Causes of Change in the DESIRED State
Culture, social class, and reference groups heavily influence the desired lifestyle such as
clothing, housing, food, transportation, etc
The number and age of children produces changes in consumer desires.
Changes in financial status can cause changes in consumer expectations. In periods of declining
earnings, many households are forced to cut back on extras such as entertainment and purchase
lower quality items.
New and circumstances: As we encounter changes in our daily lives, we often find that entirely
new categories of consumer needs arise.
Purchase of other products or previous decisions: Fore example, once having bought a compute,
consumers are likely to recognize opportunities for using certain software packages and other
accessories. Similarly, a purchase of car, home, tapes, cameras, etc. Triggers prospects for
problem recognition (a need to buy other items).
With increasing maturity or individual development, excitement and adventure appear to become
less desirable.

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The individual‘s current situation strongly influences the desired condition. An individual with
limited time may desire fast service while the same individual with more time desire friendly
service.
New product opportunities for purchase: Once the product has been explained to consumers
(through advertising or friends), consumers experience a substantial increase in their desired
state for it.
Major Causes of Change in Actual State
Past decisions and the performance of the existing product determines one‘s existing set of
problems
Depletion of resources or stock: This refers to running dawn the available supply of products
usually through consumption. It is the cause of most routine purchases or replacement decisions.
The normal process of individual development may alter our perceptions of our existing states.
Emotions can be important source of problem recognition.
With increasing concern for consumer welfare, consumer groups and many governmental
agencies attempt to cause a particular type of problem recognition among consumers.
The availability of products affects the actual state. The absence of particular products, lack of
awareness of products, or inability to afford certain products affects the existing state.
The current situation has a major impact on perceptions of the actual state. The presence of
others, physical conditions, temporal perspectives and antecedent stats are key elements of the
actual state. Usually hot weather may trigger problem recognition related to air conditioning and
depressed mood may initiate a clothing purchase.
Decrease in finances. When the funds run low, consumers will recognize problems that require a
reduction in spending. It leads to repair durable goods rather than replacing them.
Increase in finance through a new job, bonus, or gift, the consumer rethinks the desired state to
spend the money.
Once the problem is recognized, the remainder of the consumer decision process is devoted to
determine exactly how the consumer will go about satisfying the need.
2.3.2. Information Search
Once the need has been recognized, customers search for information about various alternative
ways of solving the problem. Consumers select brands by considering the following procedures:
The awareness set consisting of brands a customer is aware of an evoked set consists of the
brands in a product or service category that the customer remembers at the time of decision-
making Consideration set: of the brands in the evoked set, not all are deemed to fit your needs.
Non-marketer sources are those that are independent of the marketer‘s control. Non-marketer or
external sources of information include: Personal sources such as the opinions, attitudes, and
feeling of the family, friends, neighbors, relatives, and acquaintances with greater knowledge of
the product category. Consumers own past experience with the product.
Professional sources such as pamphlets, articles, books, organizations with relevant expertise,
and personal contacts.
Commercial sources presented tin advertisements and displays, salespersons, dealers, packages,
consumer reports or public sources, consumer-rating organizations.

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Independent sources such as consumer groups and government agencies.

2.3.3 Basic Types of Information Search

There are four primary modes of consumer information search.
Incidental learning: This refers to gaining information when we are not actually making a
consumer decision. Each of us engages in considerable information search each time we look
through shops at the mail. This form of information acquisition increases long-term memory for
use later when an appropriate purchase occasion might occur.
Directed search and evaluation: This refers to conscious search for information to make a
particular consumer purchase decision.
Systematic search: This is a comprehensive search and evaluation of alternatives. People search
information extensively, consult with a variety of sources, tend to shop with others, take a long
time, deliberate a lot, and are especially price comparison shoppers.
Heuristics: These are quick rule of thumb and shortcuts used to make decisions.
2.3.4. Alternative Evaluation
Consumers select one of the several alternatives (brands, dealers, and so on) available to them.
Researchers referred these specific processes and steps as choice models or evaluate criteria.
Evaluative criteria refer to product features or attributes associated with either benefits desired
by customers or the costs that customers incur.
2.3.5. Purchase decision
The stage of the buyer decision process in which the consumer actually buys the product, in the
evaluation stage, the consumer ranks brands and forms purchase intentions. Generally, the
consumer‘s purchase decision will be to buy the most preferred brand, but two factors, shown in
Figure can come between the purchase intention and the purchase decision.
Purchase intention is also influenced by unexpected situational factors. The consumer may form
a purchase intention based on factors such as expected family income, expected price and
expected benefits from the product. When the consumer is about to act, unexpected situational
factors may arise to change the purchase intention.
2.3.5. Post purchase behavior or experience
The stage of the buyer decision process, in which consumers take further action after purchase
based on their satisfaction or dissatisfaction.
The marketer‘s job does not end when the product is bought. After purchasing the product, the
consumer will be satisfied or dissatisfied and will engage in post purchase behavior of interest to
the marketer. What determines whether the buyer is satisfied or dissatisfied with a purchase? The
answer lies in the relationship between the consumer‘s expectations and the product‘s perceived
performance. If the product falls short of expectations, the consumer is disappointed; if it meets
expectations, the consumer is satisfied; if it exceeds expectations, the consumer is delighted.
Consumers base their expectations on messages they receive from sellers, friends and other
information sources. If the seller exaggerates the product‘s performance, consumer expectations
will not be met – a situation that leads to dissatisfaction. The larger gap between expectations
and performance, the greater the consumer‘s dissatisfaction. This fact suggests that the seller

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should make product claims that represent faithfully the product‘s performance so that buyers are
satisfied.

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 PART TWO
THE CONSUMER AS AN INDIVIDUAL
CHAPTER THREE
3. CONSUMER NEED AND MOTIVATION
Chapter Objectives
At the end of this chapter, you will be able to:
 Define Motivation and Types of motivation
 Identify theories of Motivation
3.1. Overview of consumer needs and Motivation
In consumer behavior, motivation plays an important part in making a decision. What is the
motive of buying? A motive is why an individual does a thing. Motivation is an inner feeling that
stimulates the action that is to be taken by an individual. It provides a specific direction or,
results in a response. A person can be motivated to buy a product for convenience, for style, for
prestige, for self-pride, or for being at par with others.
What is Motivation?
Motivation can be described as the driving force within individuals that impels them to action.
This driving force is produced by state of tension, which exists as a result of unfulfilled needs.
Individuals strive-both consciously and subconsciously to reduce this tension through behavior
that they anticipate will fulfill their needs and thus relieve them of the stress they feel.
Motivation is that internal force that activates some needs and Provides direction of behavior
towards fulfillment of these needs.
Model of the Motivation Process
Motivation Process starts when the consumer comes to know of a particular need.
If this need is not satisfied it creates a state of tension within the minds of the consumer.
This state will drive the consumer to adopt a behavior that will help reduce the tension. The type
& nature of the behavior people adopt depends on their learning, knowledge, perception, belief,
way of thinking, reasoning, etc.
Motivation in the context of consumers may be best understood with the help of following
concepts:
 Needs, Goals
 Positive & Negative goal
 Rational vs. Emotional Motivation
 Types of needs and Hierarchy of needs
Types of needs
A person has many needs at any given time. Needs are a state of felt deprivation.
Needs can be innate (physiological or biogenic, basic or primary needs) and acquired needs
(psychological or psychogenic or secondary needs). Some needs are biogenic; they arise from
physiological states of tension such as hunger, thirst, discomfort, clothing and shelter .Other
needs are psychogenic; they arise from psychological states of tension such as the need for
recognition, power and learning, esteem, or belonging. A need becomes a motive when it is

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aroused to a sufficient level of intensity. A motive is a need that is sufficiently pressing to drive
the person to act.
Each person has distinct motives for purchases, and these change by situation and over time.
Consumers often combine economic (price, durability) and emotional (social acceptance, self-
esteem) motives when making purchases. Example of motives: Hunger reduction, safety,
Sociability, social responsibility, achievement, and economy
Needs are essence of the marketing concept Fulfillment of consumers needs better and sooner is
the key to a company‘s survival, profitability, and growth. Marketers do not create needs. They
may make consumers aware of unfelt needs. Motivation begins with the presence of a stimulus
that spurs the recognition of a need. Need recognition occurs when a perceived discrepancy
exists between an actual and a desired state of being
Characteristics of Needs
Each of the preceding needs has several characteristics:
Needs are dynamic. Needs are never fully satisfied; satisfaction is only temporary. Clearly,
eating once will not satisfy our hunger forever. Also, as soon as one need is satisfied, new needs
emerge. After we have eaten a meal, we might next have the need to be with others (the need for
affiliation). Thus, needs are dynamic because daily life is a constant process of need fulfillment.
Needs exist in a hierarchy : Although several needs may be activated at any one time, some
assume more importance than others. You may experience a need to eat during an exam, but
your need for achievement may assume a higher priority so you stay to finish the test. Despite
this hierarchy, many needs may be activated simultaneously and influence your acquisition,
usage, and disposition behaviors. Thus, your decision to go out for dinner with friends may be
driven by a combination of needs for stimulation, food, and companionship.
Needs can be internally or externally aroused. Although many needs are internally activated,
some needs can be externally cued. Smelling pizza cooking in the apartment next door may, for
example, affect your perceived need for food.
Needs can conflict. A given behavior or outcome can be seen as both desirable and undesirable if
it satisfies some needs but fails to satisfy others.
Types of Goals
Goals are the sought-after results of motivated behavior. All behavior is goal oriented
Goals can be:
Generic: the general classes or categories of goals that consumers see as a way to fulfill their
needs (Eg. The need for a graduate degree)
Product-specific: specifically branded products and services that consumers select for goal
fulfillment ( BA degree in marketing from DDU)
Positive and negative goals
Needs, wants, or desires may create goals that can be positive or negative
Goal towards which behavior is directed is positive and known as approach object
Goal from which behavior is directed away is a negative goal and known as avoidance object
.E.g., husband and wife views of physical exercise:
Wife: physical exercise for health and fitness
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Husband: getting fat is a negative goal- avoidance of a flabby physique
A Positive Goal/Approach Object
A Positive Goal is one toward which behavior is directed.
Ex. Middle-aged woman may have a positive goal of fitness, so they join a health club to work
out regularly.
A Negative Goal/ Avoidance object. is one from which behavior is directed away.
Ex. Asmamaw may view getting fat as a negative goal, and so he joins a roadrunners club.
Rational Vs. Emotional Motives
Economist‘s view of rationality: consumers consider all alternatives and choose those that give
them the greatest utility.
Marketers view: consumers select goals based on totally objective criteria: size, weight, price,
etc.
Emotional motives imply the selection of goals according to personal or subjective criteria:
pride, fear, affection, or status.
The assumption underlying this distinction is that subjective or emotional criteria do not
maximize utility or satisfaction.
The Dynamic Nature of Motivation
Motivation is constantly changing construct in reaction to life experiences
Needs and goals change and grow in response to an individual‘s physical condition,
environment, interactions with others, and experiences
As individuals attain their goals, they develop new ones.
If they do not attain their goals, they continue to strive for old goals or they develop substitute
goals
Motivation is a highly dynamic construct that is constantly changing in reaction to life-
experiences.
3.2 Characteristics of Motivation
Needs and Goals are constantly changing
Needs and goals are constantly growing and changing in response to an individual‘s physical
condition, environment, interactions with others, and experiences. As individuals attain their
goals, they develop new ones. If they do not attain their goals, they continue to strive for old
goals, or they develop substitute goals. Some of the reasons why need-driven human activities
never cease include the following:
Existing needs are never completely satisfied; they continually impel activity designed to attain
or maintain satisfaction:
As needs become satisfied, new and higher- order needs emerge to be fulfilled; and
People who achieve their goals set new and higher goals for themselves.
Needs are Never fully satisfied
Most human needs are never satisfied fully or permanently satisfied. For example, at regular
intervals people experience hunger needs that must be satisfied.
Most people regularly seek companionship and approval from others to satisfy their social needs.
New Needs emerge as Old Needs are Satisfied
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Some Motivational theorists believe that a hierarchy of needs exists, and that new, higher order
needs emerge as lower-order needs are fulfilled. For example, a man has largely satisfied his
basic Physiological needs may turn his efforts to achieving acceptance among his new neighbors
by joining their political clubs and supporting their candidates.
Success and Failure Influence Goals
A number of researchers have explored the nature of the goals that individuals set for
themselves. In general, they have concluded that individuals who successfully achieve their goals
usually set new and higher goals for themselves; that is they raise their levels of aspiration and
this probably due to the fact they become more confident of their ability to reach higher goals.
Conversely, those who do not reach their goals sometimes lower their levels of aspiration. Thus,
goal selection is often a function of success and failure.

Substitute Goals
When, for one a reason or another, an individual cannot attain a specific goal that he or she
anticipates will satisfy certain needs, behavior may be directed to a substitute goal. Although the
substitute goal may not be as satisfactory as the primary goal, it may be sufficient to dispel
uncomfortable tension.
Frustration
Failure to achieve a goal often results in feelings of frustration. At one time or another, everyone
has experienced the frustration that comes from the inability to attain a goal. The barrier that
prevents attainment of a goal may be personal to the individual (e.g. Physical or financial
limitations), or it can be an obstacle in the physical or social environment. Regardless of the
cause, individuals react differently to frustrating situations. Some people are adaptive and
manage to cope by finding their way around the obstacle or, if that fails, y selecting a substitute
goal. Others are less adaptive and may regard their inability to achieve a goal as a personnel
failure and experiences feelings of anxiety.
3.3. Needs and Goals Vary among Individuals
One cannot accurately infer motives from behavior. People with different needs may seek
fulfillment through selection of the same goals, while people with the same needs may seek
fulfillment through different goals.
Arousal of needs
Most of an individual‘s specific needs are dormant much of the time. The arousal of any
particular set needs at a specific point in time may be caused by internal stimuli found in the
individual‘s physiological condition, notional or cognitive processes, or by stimuli in the outside
environment.
Causes for arousal:
Physiological Arousal: - bodily needs. E.g., stomach contraction trigger awareness of hunger
need.

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Bodily needs at any one specific moment in time are rooted in an individual‘s at that moment.
Secretion of sex hormones will awaken the sex need. A decrease in body temperature will induce
shivering, which makes the individuals aware of the need of warmth. Most of these physiological
cues are involuntary; however, they arouse related needs that cause uncomfortable tension until
they are satisfied.
Emotional arousal:-sometimes thinking or daydreaming results in the arousal or stimulation of
latent needs. People who are bored or frustrated in attempts to achieve their goals often engage in
daydreaming (autistic thinking) in which they imagine themselves in all sorts or desirable
situations. These thoughts tend to arouse dormant needs, which may produce Uncomfortable
tensions that ―Plush‖ them into goal- oriented behavior.
Environmental Arousal: The set of needs activated at a particular time are often determined by
specific cues in the environment. Without these cues, the sight or smell of bakery goods, fast –
food commercials on television all these may arouse the ―need‖ for food.
3.4. Theories of Motivation
Psychologists have developed theories of human motivation. Three of the best known, the
theories of Sigmund Freud, Abraham Maslow, and Frederik Herzberg carry quite different
implications for consumer analysis and marketing strategy.
Freud’s Theory of Motivation
Assumption: real psychological forces shaping people's behavior are largely unconscious. A
person cannot fully understand his/her own motivation.
A person reasons for buying laptop: to work more efficiently; at a deeper level- to impress
others; more deeper level- helps him feel smart and sophisticated
Brand choice: focus on stated capabilities and less conscious cues-shape, size, weight, material,
color, and brand name
Motivation researcher try to uncover deeper motives using different techniques
B) Maslow's Theory of Motivation
Abraham Maslow sought to explain why people are driven by particular needs at particular
times. Why does one person spend much time and energy on personal safety and another on
gaining the esteem of others? Maslow‘s answer is that human needs are arranged in a hierarchy,
from the most pressing to the least pressing.. It is based on Maslow‘s hierarchy of needs, which
states that a human being has a variety of needs and, these can be classified as primary and
secondary needs or, lower-order and higher-order needs.
Once a need is fulfilled, human beings, try to fulfil other needs. This is usually done in a
hierarchy, which can be classified as under:
Physiological: Food, water, sleep, clothing, shelter and sex. Products in this category include,
foods, health foods, medicines, drinks, house garments, etc.
Safety needs: Seeking physical safety and security. Safety of person, belongings, security of job,
etc. Products are locks, guns, insurance policies, burglar alarms, retirement investments, etc.
Social needs: The need to be approved in a society. To love and be loved, friendship, love
appreciation and group acceptance. Products are general grooming, entertainment, clothing,
cosmetics, jewellery, fashion garments.

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Esteem needs: Desire for status, for superiority, self-respect and prestige. Products are
furniture, clothing, liquor, hobbies, and fancy cars.
Self-actualization needs: The desire for self-fulfillment, the desire to become all that one is
capable of becoming. Products are educational, art, sports, vacations, garments, foods.
Maslow‘s hierarchy is a good guide to general behavior. The same consumption behavior can
fulfill more than one need.
Maslow‘s theory helps marketers understand how various products fit into the plans, goals, and
lives of consumers
Herzberg’s Theory- Frederick Herzberg developed a two-factor theory that distinguishes
dissatisfies (factors that cause dissatisfaction) and satisfiers (factors that cause satisfaction). The
absence of dissatisfies is not enough; satisfiers must be actively present to motivate a purchase.
For example, a computer that does not come with a warranty would be a dissatisfied. Yet the
presence of a product warranty would not act as a satisfier or motivator of a purchase, because it
is not a source of intrinsic satisfaction with the computer. Ease of use would be a satisfier.
Herzberg‘s theory has two implications. First, sellers should do their best to avoid dissatisfies
(for example, a poor training manual or a poor service policy).

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 CHAPTER FOUR
4. PERSONALITY AND CONSUMER BEHAVIOR
Chapter Objectives
Upon completion of this chapter you will be able to:
 Define personality
 Identify theory of Personality
4.1. What is personality?
While motivation is the energizing and directing force that makes CB purposeful and goal
directed, the personality of the consumer guides and directs the behavior chosen to accomplish
goals in different situations.
Personality is dual influence of heredity (looks) and early childhood (Experience)? Is it the
broader social and environmental influences? Personality is a whole or specific individual trait?
These are some of the considerations while trying to define the personality.
Personality may be defined as inner psychological characteristics that both determine and reflect
how a person responds to his/her environment.
Inner Characteristics are distinguishing characteristics of an individual. They may include:
Attributes, Traits and Mannerisms. Personality influences the individual‘s product choices and
brand choices.
By personality, we mean distinguishing psychological characteristics that lead to relatively
consistent and enduring responses to environment. Personality is usually described in terms of
such traits as self-confidence, dominance, autonomy, defensiveness, and adaptability. Personality
can be a useful variable in analyzing consumer behavior, provided that personality types can be
classified accurately and that strong correlations exist between certain personality types and
product or brand choices.
Personality and Consumer Behavior
Personality is likely to influence an individual‘s product choices. Identification of personality
characteristics associated with consumer behavior has proven to be highly useful in the
development of a firm‘s market segmentation strategies.
4.2. The Nature of Personality
Three distinct properties are of importance in the study of personality:
1. Personality reflects individual differences
2. Personality is consistent and enduring
3. Personality can change
1. Individual differences
Inner characteristics of an individual are unique, no two individuals are alike. Many individuals
may be similar in terms of a single personality characteristic but not in terms of others. Some
people may be high in venture someness (willing to accept the risk of doing something new).
Others may be low (afraid to buy recently introduced product). If each person were different in
terms of all personality traits it would be difficult to group consumers in segments.

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2. Personality is consistent and enduring
However, the consumption behavior varies because of psychological and environmental factors
Marketers cannot change the personality of consumers to conform to their products. If they know
which specific personality characteristic triggers specific consumer response, they can attempt to
appeal the relevant traits inherent in their target group of consumers. Even the personalities
remain consistent the consumer behavior varies because of the psychological, sociological and
situational factors that influence behavior.
3. Personality Can Change
An individual‘s personality may be altered by major life events e.g. an individual‘s personality
changes in response to major life events e.g. marriage, birth of a child, death of a parent, change
of job/or profession. Personality change may also be a gradual maturing process.
4.3. Theories of Personality
There are many theories of personality. Those theories that have played a significant role in the
study of the relationship b/n consumer behavior and personality include:
Freudian Theory
Social/Cultural /Neo-Freudian Theory
Self-Concept Theory
Trait Theory

1. Freudian Theory of Personality

Viennese Psychologist Sigmund Freud‘s Psycho-analytic Theory of Personality, built upon the
premise that unconscious needs or drives especially biological drives are at the heart of the
human motivation and personality.
Human personality consists of three interacting systems:
 Id
 Super Ego
 Ego
ID
ID is the warehouse of primitive and impulsive drives. It is concerned with the basic
physiological needs such as hunger, thirst, etc… for which individual seeks immediate
satisfaction without concern with the means of satisfaction.
It is the strong urge or desire which is at the heart of a consumer‘s motivation and personality.
The function of the Id is to discharge tension which it does by demanding instant gratification,
even at the cost of violating the norms of society.
It operates on the pleasure principle. Psychologically, id is the source of all desires and wishes
that exist in the form of unconscious images and fantasies. Since all wishes are not satisfied,
there is frustration and this may lead an individual to break norms and rules for his satisfaction. It
does not deal with objective reality and is subjective.
Super Ego
Super Ego is individual‘s internal expression of society‘s moral and ethical codes of conduct.
Super Ego‘s role is to see that the individual satisfies need in a socially acceptable manner.

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 It serves as a kind of break that inhibits or restrains the impulsive force of id.
Ego
Ego is an individual‘s conscious control. It serves as the internal monitor that balances the
impulsive demands of id and the Socio-cultural constraints of Super Ego.
This comes into existence because of the limitation of id. Ego operates on the Reality Principle.
It tries to achieve the demands of id in a realistic and possible way. The ego develops ways to
postpone the wishes of id. If id wants a product the ego restrains it because of financial
constraints. It controls impulsive behavior. Id engages in dreams and fantasies which exist as
pleasurable imaginations. Ego can distinguish between dreams and reality. Ego is an individual‘s
social control. It acts as an internal monitor and attempts to balance the demand of id.
Freudian Theory and consumer Personality a
Consumer Researchers who apply Freud‘s psychoanalytic theory to the study of consumer
personality believe that human drives are largely unconscious. Consumers are primarily unaware
of their true reasons for buying what they buy. These researchers tend to see that consumer
purchase and/or consumption situations as extension of consumer's personality. Consumer‘s
appearance and possessions – grooming, clothing, jewelry, etc reflect the individual‘s
personality.
2. Social-Psychological/Neo-Freudian Theory
Another group of theories focuses on social rather than biological explanations of personality,
proposing that individuals act in social situations to meet their needs.
The researcher Karen Horney, for instance, believed that behavior can be characterized by three
major orientations.
Compliant individuals: Are dependent on others or Move towards others for the need of love,
affection and approval; are conformists who prefer known brands, humble, trusting, and tied to a
group.
Aggressive individuals: Tend to move against others and are manipulative; feel a high need for
achievement, power, and success; prefer specific brands, so that they can be noticed.
Detached Individuals: Move away from others are outgoing, assertive, self-confident, and
tough-minded, feel a need for self -reliance, and freedom; are least aware of brands, need
power,
Detached individuals are independent and self-sufficient but suspicious and introverted. These
three orientations are measured by the CAD scale.
3. Self-Concept Theory
Individuals have a concept of self-based on who they think they are (the actual self) and a
concept of who they think they would like to be (the individual self).
Self-concept can be described simply as how one perceives himself and his behavior in the
market place. It is the attitude one holds towards himself. What one thinks of him? The self-
concept is not very realistic because an unconscious component is always present.
It can be divided into six types, as given below:
(i) Actual self: How a person actually perceives himself.
(ii) Ideal self: How a person would like to perceive himself.
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(iii) Social self: How a person thinks others perceive him.
(iv) Ideal social self: How a person would like others to perceive him.
(v) Expected self: An image of self somewhere in between the actual and ideal self.
(vi) Situational self: A person‘s self-image in a specific situation.
Self-concept is a social phenomenon. It is an attitude to the self. Consequently, the way we dress,
the products we use, the services we require, depend on how we want to perceive ourselves.
There is a relationship between the self-image of a person and the product one wants to buy.
Products act as symbols for consumers.
People like to use the products which match their personality. These include clothing, leisure
products, and personal care products. Marketer wants an idea of the self-concept and the image
of the brand.
4. Trait theory
Personality theory with a primarily empirical/quantitative orientation. It focuses upon the
measurement of personality in terms of specific psychological characteristics called traits.
Trait is a distinguished relatively enduring way in which one individual differs from another.
Trait theorists are concerned with construction of personality tests (or inventories) that enable
them to pinpoint individual differences in terms of specific traits.
Single Trait Personality Tests
Single Trait Personality Tests measure just one trait (such as Self-confidence) that is often
developed specifically for use in Consumer Behavior studies.
These tailor made personality tests measure such traits as:
Consumer Innovativeness: how receptive a person is to new ideas
Consumer Materialism: the degree of consumer‘s attachment to worldly possessions
Consumer Ethnocentrism: The consumer‘s likelihood to accept or reject foreign products
(Pakistan example)
There are a number of traits given by Cattell and they are sixteen in numbers:
1. Reserved vs. Outgoing 2. Dull vs. Bright
3. Docile vs. Aggressive 4. Serious vs. Happy go lucky
5. Unstable vs. Stable 6. Expedient vs. Conservative
7. Shy vs. Uninhibited 8. Tough-minded vs. Tender-minded
9. Trusting vs. Suspicious 10. Practical vs. Imaginative
11. Unpretentious vs. Polished 12. Self-assured vs. Self-respective
13. Conservative vs. Experimenting 14. Group-dependent vs. Self-sufficient
15. In disciplined vs. Controlled 16. Relaxed vs. Tense
Cattell believes that traits are acquired at an early age, or through learning, or are inherited. This
theory is representative of multi-personality theories (more than one trait influences behaviour).
Trait theory is based on certain assumptions, which are:
1. Traits are relatively stable characteristics
2. A limited number of traits are common to most people
3. The degree of traits possessed by an individual can be measured by using a rating
questionnaire in a continuum, on a 1 to 10 scale.
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  Personality and Understanding consumer diversity
 Consumer innovativeness
 Consumer innovators: those who are likely the first to try
The market response of such innovators is so important b/c it influences the eventual success or
failure of a new product or service. Personality trait that have been useful in differentiating
consumer innovators from non-innovator.
Consumer innovativeness
Level of consumer innovativeness can be measured.
Measures provide insights into the nature and boundaries of a consumer‘s willingness to
innovate
Dogmatism
Measures the degree of rigidity that individuals display toward the unfamiliar and toward
information that is contrary to their own established beliefs.
High dogmatic individuals Vs. Low dogmatic
High-dogmatic: approach the unfamiliar defensively; choose established products, .Receptive to
Ads for new products or services that contain an appeal from an authoritative figure
Low-dogmatic (open-minded): consider unfamiliar or opposing beliefs
Choose innovative products and Receive messages that stress factual differences, product
benefits, and other forms of product-usage information
Social characteristics
Focuses on the identification and classification of individuals into distinct socio-cultural types
It ranges in a continuum from inner directedness to other directedness
Inner directed Vs. other directed consumers
Inner directed:
Relay on their own inner values or standards in evaluating new products (likely to be consumer
innovators).
Prefer ads that stress product features and personal benefits
Other directed: Look to others for direction (less likely to be consumer innovators), Prefer ads
that feature an approving social environment or social acceptance
Need for uniqueness
Try to avoid conformity to others expectations or standards, either in appearance or in their
possessions, is something to be avoided
Optimum stimulation level (OSL)
The preference to simple, uncultured, and calm existence Vs environment crammed with novel,
complex, and unusual experiences.
Many different types of consumer variety seeking:
Exploratory purchase behavior: switching brands to experience new and possible better
alternatives
Vicarious exploration: securing information about a new or different alternatives and then
contemplating or even daydreaming about the option

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Use innovativeness: the use of adopted products in a new or novel ways. A trait relevant
particularly to technology products.
Cognitive personality factors
The two important cognitive personality traits:
Need for cognition
Measures a person‘s craving for or enjoyment of thinking
High need for cognition consumers: more likely to be responsive to the part of an Ad that is rich
in product related information
Low need for cognition consumers: to the background or peripheral aspects of an ad such as
attractive model and known celebrity
Need for cognition seem to play a role in an individual‘s use of the Internet.
Visualizers Vs. Verbalizers: Visualizers prefer visual image or messages; verbalizers prefer
written words as a means of securing information
2. Consumer materialism
Possessions as essential to their identities and their lives: Materialistic people: Value acquiring
and showing off possessions, Self centered and selfish
Seek lifestyles full of possessions; Possessions do not give them greater personal satisfaction
Extent of materialism is country specific (care while exporting Ethiopian marketing mix)
3. Consumer Ethnocentrism: response to foreign made products
Consumers receptive to foreign made products and those that are not
High ethnocentric: consider purchase of foreign products as in appropriate
Non-ethnocentric: tend to evaluate foreign made products
Orgs. targeting ethnocentric consumers use nationalistic themes (e.g., made in Ethiopia)
4.5. Brand Personality
Consumers attribute d/t personality like traits or characteristics to different brands in a wide
variety of product categories
E.g., Volvo as representing safety (functional).Nike as the athletes (symbolic)
Brand personification: recast consumers‘ perception of the attributes of a product or service into
a human like character
e.g., dishwashing liquid linked to high energy people
Product personality is linked to gender, geography, and color
E.g., coca-cola-red connote excitement

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 CHAPTER FIVE
5. CONSUMER PERCEPTION
Chapters Objective
Upon completion of this chapter you will be able to:
 Define the perception
 Identify the process of perception
5.1 What is Perception?
A motivated person is ready to act. How the person acts is influenced by his or her own
Perception of the situation. All of us learn by the flow of information through our five senses:
sight, hearing, smell, touch, and taste. However, each of us receives, organizes, and interprets
this sensory information in an individual way.
Perception is the process by which people select, organize, and interpret information to form a
meaningful picture of the world.
Perception is ―how we see the world around us‖
People have different perception for the same stimuli.
People can form different perceptions of the same stimulus because of three
perceptual processes.
 Selective attention
 Selective distortion
 Selective retention.
People are exposed to a great amount of stimuli every day. For example, the average person may
be exposed to more than 1,500 ads in a single day. It is impossible for a person to pay attention
to all these stimuli.
Selective attention-the tendency for people to screen out most of the information to which they
are exposed—means that marketers have to work especially hard to attract the consumer's
attention. Even noted stimuli do not always come across in the intended way. Each person fits
incoming information into an existing mind-set.
Selective distortion-is the tendency of people to interpret information in a way that will support
what they already believe. For example, if the society distrusts a company, it might perceive
even honest advertisements from the company as questionable.
In selective distortion, marketers must try to understand the mind sets of consumers and how
they will affect interpretations of advertising and sales promotion. Because of these factors
marketers have to work hard to get their messages to their market.
Selective retention-is the tendency of people to retain information that supports their attitudes.
Consumers are likely to remember good points made about a brand they favor and to forget good
points made about competing brands. Marketers in order to get their message through perceptual
processes communicate it dramatically.
5.2. Dynamics of Perception
Major principles of perception:

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Raw sensory input by itself doesn‘t produce or explain the coherent picture of the world that
most adults process
Perception is the study of what we subconsciously add to or subtract from raw sensory inputs to
produce our own picture of the world
Principle: intensive stimulation ―bounces off‖ most individuals, who subconsciously block (i.e.,
adapt to) the receipt of a heavy bombardment of stimuli.
Perception is not a function of sensory input alone. Two kinds of inputs that interact to form the
personal pictures of perception:
Physical stimuli (the outside envt.)
Individuals (in terms of their predispositions based on their previous experiences)
Combinations of the two produces very personal picture of the world
Each person is a unique individual with unique experiences, needs, wants, desires, and
expectations
5.3. Perception Process
Perception is a three stage process:
Selection: exposure and attention
Organization
Interpretation
INature of the stimulus
There are enormous number of variables that affect the consumers perception such as the nature
of the product, its physical attributes, the package design, the brand name and the ads
In general, contrast is one of the most attention-compelling attributes of a stimulus
An ad has to contrast with the envt; packaging- every aspect of the package (name, shape, color,
label) provide sufficient sensor stimulation
Expectations
Consumers perceive products and product attributes according to their own expectations
E.g., a teenager who attended a horror movie that has been billed as terrifying will probably find
it so
Stimuli that contradict with expectation receive more attention
Motives
Influence selection of stimuli for further processing
Consumers are more likely to attend to stimuli that are related to their current needs
Such need specific attention is called conceptual vigilance
Perceptual selection: 4 main concepts
A) Selective exposure: actively seek out message that they find pleasant
b) Selective attention: have heightened awareness of stimuli that meet their needs and interests
c) Perceptual defense: screen out stimuli that they found psychologically threatening, even
though exposure has already taken place; distort information that is not consistent with their
needs, values, and beliefs
d) Perceptual blocking: protect themselves from being bombarded with stimuli
II. Perceptual Organization

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People do not experience the numerous stimuli they select from the environment as separate and
discrete sensations; rather they tend to organize them into groups and perceive then as unified
whole
Principles underlying perceptual organization: Gestalt psychology (means pattern or
configuration)
III. Perceptual Interpretation
Interpretation is subjective b/c it is based on consumers prior experience, on the number of
consumers plausible explanations they can envision, and on their motives and interests at the
time of perception
Stimuli are often highly ambiguous:
Some are weak b/c of such factors as poor visibility, brief exposure, high noise level, or constant
fluctuation
Strong ones also fluctuate due to d/t angles of viewing
closeness of a person‘s interpretation to reality depends on: clarity of the stimulus, past
experience, motives and interests at the time of perception
 Perceptual distortion: factors that distort perception:
 Physical appearance: attractive models
Stereotypes: ads reflecting individualism
First impression: The perceiver is trying to determine which stimuli are relevant, important, or
predictive
Jumping to conclusions: before examining all the relevant evidence; indicate the need to give the
most persuasive arguments first; e.g., the influence of the shape of food packaging on
consumer‘s perception of content volume.

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 CHAPTER-6
6. LEARNING AND CONSUMER INVOLVEMENT
Chapters Objective
Upon completion of this chapter you will be able to:
 Define the Learning
 Identify the Learning Theories

Definition and Elements of Consumer Learning

Marketers are concerned with how individuals learn because they want to teach them in their
roles as consumers about products; product attributes how to maintain products, what are
products‘ potential benefits, where to buy them, how to buy them, how to maintain them and
how to dispose of them.
Marketers‘ vital interest lies in teaching consumers effectively to prefer their brands and
differentiate their products from the competitive offerings.
Marketing strategies are based on communicating with consumers:
Directly :through advertisements
Indirectly: through product appearance and packaging, product distribution channels and, pricing
Marketers want their communication to be noted, believed, remembered and recalled by the
target potential consumers segments.
Not all theorists agree on how learning takes place it is difficult to come up with a generally
accepted definition of learning, however, Consumer Learning can be thought of as: The process
by which individuals acquire the purchase and consumption knowledge and experience that they
apply to future related behavior.
Consumer learning is a process that continually evolves, and changes. The change is because of
the newly acquired knowledge (gained from reading, discussion, observation and thinking or
factual experience). Newly acquired knowledge and personal experience serve as feedback.
Feedback provides basis for the future behavior in similar situations.
Experience: intentional and incidental learning
Intentional and Incidental Learning
Intentional-Learning is acquired as the result of careful search for information. Incidental
Learning is acquired by accident without much effort. For example some ads may induce
learning e.g. new products under familiar brand names, even the consumers attention may be on
a magazine article rather than advertisement on the facing page.
Other ads are sought out and carefully read by consumers contemplating a major purchase
decision.
Range of Learning
The term learning encompasses the total range of learning from simple almost reflexive
responses to learning abstract concepts and complex problem solving. All theorists agree that for
learning to occur certain basic elements must be present. These include:

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  Motivation  Response
 Cues  Reinforcement
1. Motivation
It is the drive that impels and individual to action. Motivation is based on needs and goals. It acts
as spur of learning.
2. Cues
If motives serve to stimulate learning, cues are the stimuli that give direction to these motives.
An exotic trip that includes bike riding may serve as a cue for bike riders who may suddenly
recognize that they need a vacation. The ad is the cue or stimulus that suggests a specific way to
satisfy a salient motive. In the market styling, packaging and store display all serve as cues to
help consumers to fulfill their needs in product specific ways.
3. Responses
How individuals react to a drive or a cue – how they behave- constitute their response is
important. Equally important, however, is that learning can occur even when responses are not
overt.
Need or motive may evoke a whole variety of responses. Cues provide some direction but there
are so many cues competing for the consumer‘s attention. Which response the consumer makes
depends heavily upon previous learning that in turn depends upon how the previous response has
been reinforced.
4. Reinforcement
Reinforcement increases the likelihood that a particular response will occur in the future as the
result of particular cues or stimuli. A product that fulfills the basic need will reinforce the
purchase behavior and the consumer will most likely purchase it again.

6.2. Learning Theories

6.2.1. Behavioral School
Behavior Learning Theories are sometimes referred to as ―Stimulus Response Theories‖. These
are based upon the premise that observable responses to specific external stimuli signal learning.
A child who relaxes at the image of his uncle has learnt the attachment with uncle. Behavior
theories are concerned with inputs and outputs of learning. There are two types of behavioral
learning theories popular with the marketers.
Types of Behavioral Learning Theories
Generally, there are two types of behavioral learning theories:
Classical Conditioning
Instrumental (Operant Conditioning)
Conditioning means response to a situation built up through repeated exposure.
Classical Conditioning
Consider organisms as passive entities that could be taught certain behaviors through repetition
Ivan Pavlov a Russian Psychologist was the first to describe conditioning and to propose it as a
general model of how learning occurs.
The proponent, Ivan Pavlov, conclusion: stimulus paired with another stimulus that elicits a
known response serves to produce the same response when used alone

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Three Strategic Applications of Classical Conditioning
Three strategic applications of Classical conditioning include:
Repetition
Stimulus Generalization
Stimulus Discrimination
1. Repetition
Repetition increases the strength of association between a conditioned stimulus and a
conditioned response. Researchers suggest there is a limit to repetition to aid retention. Some
scholars believe that just three exposures to an advertisement are needed. This is called, Three
Hit Theory
The three exposures to an advertisement pertain to:
1. Make consumer aware of the product
2. Show consumer the relevance of the products
3. Remind them of product benefits
Effectiveness of repetition may also be dependent upon the competitive advertising to which
consumer is exposed. The higher the level of competitive advertising, greater is the likelihood
that Interference will take place, causing consumers to forget previous information.
2. Stimulus Generalization
Classical conditioning theorists believe that learning also depends upon Stimulus Generalization
that means making the same response to somewhat similar stimuli as the conditioned stimulus
Dog could learn to salivate not only to the conditioned stimulus of bell but also to the jangling of
keys
Implications for Marketers
Me-Too products are the cheap copies of some established brand of a product. Sometimes Me-
too products succeed because of the stimulus generalization. Consumers confuse them with
original products they have seen before. Many Cola drinkers can‘t differentiate between different
brands

3. Stimulus Discrimination
Stimulus Discrimination is the opposite of Stimulus Generalization and results in the selection of
specific stimulus from amongst the similar stimuli. The consumers‘ ability to choose from
amongst the similar stimuli is the basis of positioning.
2. Instrumental (Operant) Conditioning
Instrumental Conditioning theorists hold that stimulus that is linked to the most satisfactory
response will be learnt. A behavioral theory of learning based on a trial-and-error process, with
habits forced as the result of positive experiences (reinforcement) resulting from certain
responses or behaviors.
They believe that learning occurs through a trial and error process with habits formed as a result
of rewards received for certain responses or behaviors. B.F.Skinner (a learning theorist) believed
that most learning takes place in a controlled environment in which individuals are ―rewarded‖
for choosing an appropriate behavior.
Behavior reinforcements
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Two types of Behavior reinforcements are discriminated in Instrumental Conditioning:
Positive Reinforcement- consists of the events that increase the likelihood of a specific response.
An individual may purchase cosmetics to achieve a desired impact in physical appearance.
Negative Reinforcement- an unpleasant or negative outcome that serves to encourage a specific
behavior. An individual may purchase Life insurance policy to avoid mishaps in the future.
6.3.2. Cognitive Learning Theory
Holds that the kind of learning most characteristic of human beings is problem solving, which
enables individuals to gain some control over their environment. Which enables an individual‘s
to gain some control over their environment. Learning involves complex mental processing of
information.
Information Processing
Information processing relates to consumer‘s cognitive ability and complexity of information.
Consumers process product information related in terms of a product‘s attributes, brand,
comparisons between brands and a Combination of these factors. The more experience a
consumer has with a product category, the greater his/her ability to make use of product
information. Greater familiarity with product also increases cognitive ability and learning during
a new purchase decision, particularly with regards to technical information.
Imagery
Imagery is ability to form mental images. Individual differences in imagery may measure with
the help of specific tests. Some of these tests are: Imagery Vividness, Processing Style and
Daydream (fantasy) content and frequency.
How Consumers Store, Retain, and Retrieve Information
It is important for Cognitive Psychologists to understand how people store, retain and retrieve
information.
Following concepts are used to understand the information processing:
 Sensory Store  Short Term Store
 Long Term Store
1. Sensory Store
All data comes to us through our five senses. Senses do not transmit whole images. Each sense
receives a fragmented piece of information and transmits it to the brain. In brain perceptions of a
single instant are synchronized and perceived as single image in a single moment of time. The
image of a sensory input just lasts for a second or two in the mind‘s sensory store. If it is not
stored it is lost forever.
Implications for Marketers
We are constantly bombarded with stimuli from the environment and we subconsciously block a
lot of information that we don‘t need or cannot use. For marketers it means that although it is
relatively easy to get information into the consumer‘s sensory store it is difficult to make a
lasting impression
Brain automatically and subconsciously tags all perceptions with a value either ―positive‖ or
―negative‖. This evaluation added to the initial perception in the first micro second of cognition
tends to remain unless further information is processed. This would explain why our first

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impressions tend to last and why it is hazardous for a marketer to introduce a product
prematurely into the market
2. Short term Store
Short Term Store is known as working memory. The stage of real memory in which the
information is processed and held just for a brief period of time. Information in the short term
store undergoes the process of rehearsal.
Rehearsal is the silent mental repetition of the information. It is then referred to the long term
store.
The transfer from short term to long term store takes about 2-10 seconds. If the information is
not stored or rehearsed it is lost in about 30 seconds or less. The amount of information that can
be held in short term storage is limited to about 4 or 5 items.
3. Long Term Store
Long-term store retains information for relatively extended periods of time. It is possible to
forget something within a few minutes after the information has reached in the long term store. It
is more common for data in long term storage to last for days, weeks, months or even years.
Almost all of us can remember the name of our first grade teacher.
Rehearsal:
The amount of information available from Short Term and Long Term Memory Storage depends
upon how much rehearsal it is given. Rehearsal is done by repeating the information or
associating it with something else. Information can also be lost because of competition for
attention. If the short term store receives a great number of inputs simultaneously from the
sensory store its capacity may be reduced to only 2 or 3 pieces of information.
Encoding is the process by which we select a word or a visual image to present a perceived
object. Marketers help consumers encode brands by using brand symbols such as role model
cricketers or cartoons.
Retention
Information does not just sit in the long term memory store waiting to be retrieved. Information
is constantly organized and reorganized as new links between chunks of information are forged.
Information Overload
When the consumers are presented with too much information this is called Information
Overload. Consumers may encounter difficulty in encoding and storing it all. Consumers can
become cognitively overloaded when they are given too much information in a short span of
time.
Activation
Information processing theorists believe that long term memory store is a network consisting of
nodes (concepts) with links between and among them. As individuals gain more knowledge
about a subject they expand their network of relationships and sometimes seek more information.
This process is known as activation. Consumers‘ memory for the name of a product may also be
activated by relating it to the spokesperson used in its advertising.
The total package of associations brought to mind when a cue is activated is called a schema.
Retrieval

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Retrieval is the process by which we recover information from the long term storage. When we
are unable to remember something with which we are familiar we are experiencing a failure of
retrieval system.
Marketers maintain that consumers tend to remember the products benefits than its attributes.
Advertising messages are most effective when they link the product's attributes with the benefits
that consumers seek from the product.
Interference Effect
The greater the number of competitive ads in a product category, the lower the recall of brand
claims in a specific advertisement. This is called interference effect. Interference effects are
caused by confusions by competing ads and make retrieval difficult. Ads can also act as retrieval
cues for competitive brands. Advertising that creates a distinct image can assist in retention and
retrieval of message contents
2) Involvement Theory
Men and women who want to take up bicycle riding for fitness and recreation are motivated to
learn all they can about bike riding and practice often. Conversely individuals who are not
interested in bike riding are likely to ignore all information about bike riding. The degree of
relevance or Involvement determines consumer‘s level of motivation to search for knowledge
and or information about the product or service. This is called the Involvement Theory.
Implications for Marketers
Uncovering the consumer motivation is one of the prime tasks of marketers, who try to teach
motivated consumer segments why and how their products will fulfill consumer needs
Developed from a stream of research known as hemispherical lateralization or split brain theory
Left brain for cognitive activities; right brain for non-verbal and pictorial information or image
picture
Involvement theory and media strategy:
Individuals passively process and store right-brain information and left brain process cognitive
information TV is a low-involvement medium; print ads and interactive media (Internet) high
involvement media.

Issues in involvement theory:

 Consumer Relevance
 Central and Peripheral Routes to Persuasion
 Measure of Involvement
 Involvement Theory and Consumer Relevance:
 High-and-low involvement consumers and high-low involvement purchases
 Consumers level of involvement depends on the degree of personal relevance that the
product holds for that consumer
E.g., Automobile and dandruff shampoo: high involvement purchases because of high
perceived financial and social risks respectively
 Low-involvement purchases are not very important to the consumer. Little relevance,
little perceived risk, and provoke very limited information processing
 Highly involved consumers are narrow categorizers: find fewer brands acceptable
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Low-involved consumers are broad categorizers-consider more brands
Measures of Consumer Learning
For many marketers, dual goals of consumer learning are increased market share and brand-loyal
consumers. The goals are also interdependent. Hence, it is important for marketers to measure
how effectively consumers have learned the message. The 3 measures:
 Recognition and recall measures
 Cognitive measures
Attitudinal and behavioral measures of brand loyalty
Recognition and recall measures: determine whether consumers remember seeing an ad, the
extent to which they have read it or see it and can recall its content , their resulting attitudes
toward the product and the brand, and their purchase intentions
Cognitive response to advertising: measure the degree to which consumers accurately
comprehended the intended advertising message.
Attitudinal and Behavioral Measures of Brand Loyalty: brand loyalty consists of both attitudinal
and behavioral measures:
Attitudinal Measures- Concerned with consumers overall feeling about the product and their
purchase intension
Behavioral measures- observable responses to promotional stimuli

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 CHAPTER SEVEN
THE NATURE OF CONSUMER ATTITUDE
Chaptres Objectives
At the end of this chpter, student will be able to
 Define Attitude
 Identify functions of Attitude
 Distinguish characteristics Attitude
7.1 Definition of Attitude
An attitude is an enduring organization of motivational, emotional, perceptual, and cognitive
process with respect to some aspect of our environment. It is a learned predisposition to respond
in a consistently favorable or unfavorable manner with respect to a given object. Thus, an
attitude is the way we think, feel, and act toward some aspect of our environment such as a retail
store, television program, or product.
In another words, an attitude is how positive or negative, favorable or unfavorable, or pro or con
a person feels toward an object.

7.2 Attitude Function

Attitudes serve four key functions for individuals: Knowledge function: some attitudes serve
primarily as a means of organizing beliefs about objects or activities such as brands and
shopping. These attitudes may be accurate or inaccurate with respect to ―objective‖ reality, but
the attitude will often determine subsequent behaviors rather than ―reality‖.
Value-expressive function: Other attitudes are formed and serve to express an individual‘s
central values and self-concept. Thus, consumers who value nature and the environment are
likely to develop attitudes about products and activities that are consistent with that value. These
consumers are likely to express support for environment protection initiatives, to recycle, and to
purchase and use ―green products.
Utilitarian function: This function is based on operant conditioning.
We tend to form favorable attitudes toward objects and activities that are rewarding and negative
attitudes toward those that are not. Marketers frequently promise rewards in advertising and
conduct extensive product testing to be sure the products are indeed rewarding.
Ego-defensive function: Attitudes are often formed and used to defend our egos and images
against threats and shortcomings. Products promoted as very macho may be viewed favorably by
men who are insecure in their masculinity.

7.3 Characteristics of Attitude

Attitudes have several important characteristics or properties; namely, they have an object;
direction, intensity, and degree; have structure, and are learned.
Attitudes Have an Object: By definition, attitudes must have an object.
That is, they must have a focal point whether it is an abstract concept, such as ―ethical behavior‖.
Or a tangible item, such as a motorcycle. The object can be a physical thing, such as a product,

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or it can be an action, such as buying a refuse bin. In addition, the object can be either one item,
such as a person, or a collection of items such as a social group; it also can be either specific.
Attitudes Have Direction, Degree and Intensity: An attitude expresses how a person feels toward
an object. It expresses direction-the person is either favorable or unfavorable toward, or for or
against the object; degree- how much the person either likes or dislikes the object; and intensity-
the level of sureness or confidence of expression about the object, or how strongly a person feels
about his or her conviction.
The direction, degree, and intensity of a person‘s attitude toward a product have been said to
provide marketers with an estimate of his or her readiness to act toward, or purchase, the
product.
Attitude Have Structure: Attitudes display organization, which means that they have internal
consistency and possess inter-attitudinal centrality. They also tend to be stale, to have varying
degrees of salience, and to be generalizable.
The structure of human attitudes may be viewed as a complex set erected in a type of circular
pattern.
At the center of this structure are the individual‘s important values and self-concept. Attitudes
close to the hub of this system are said to have a high degree of centrality. Other attitudes located
farther out in the structure possess less centrality.
Attitudes do not stand in isolation.
Attitudes tend to be generalizable. That is, a person‘s attitude toward a specific object tends to
generalize toward a class of objects.
Attitude Are Learned: They develop from our personal experiences with reality, as well as from
information from friends, salespeople, and news media. They are also derived from both direct
and indirect experiences in life. Thus, it is important to recognize that learning precedes attitude
formation and change, and that principles of learning can aid marketers in developing and
changing consumer attitudes.
7.4 Sources of Attitude Development
All attitudes ultimately develop from human needs and the values people place upon objects that
satisfy those perceived needs.
Personal Experience: People come into contact with objects in their everyday environment.
Some are familiar, while others are new. We evaluate the new and reevaluate the old, and this
evaluation process assists in developing attitudes toward objects.
Our direct experiences with sales representatives, products, services, and stores help to create
and shape our attitudes toward those market objects. However, several factors influence how we
will evaluate such direct contacts:
Needs: Because needs differ and also vary over time, people can develop different attitudes
toward the same object at different points in their life.
Selective perception: We have seen that people operate on their personal interpretation of reality.
Therefore, the way people interpret information about products, stores, and so on, affects their
attitudes toward them.

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Personality: Personality is another factor influencing how people process their direct experiences
with objects. How aggressive-passive, introverted-extroverted, and so on, that people are will
affect the attitudes they form.
Group Associations: All people are influenced to one degree or another by other members in
the groups to which they belong. Attitudes are one target for this influence. Our attitudes toward
products, ethics, warfare, and a multitude of other subjects are influenced strongly by groups that
we value and with which we do or wish to associate. Several groups, including family, work and
peer groups, and cultural and sub cultural groups, are important in affecting a person‘s attitude
development
Influential Others: A consumer‘s attitude can be formed and changed through personal contact
with influential persons such as respected friends, relatives, and experts. Opinion leaders are
examples of people who are respected by their followers, who may strongly influence the
attitudes and purchase behavior of followers.

7.5 Structure Models of Attitudes

The following section examines several important attitude models: the tri-component attitude
models, and the multi-attribute attitude models.
Each of these models provides a somewhat different perspective on the number of component
parts of an attitude and how parts are arranged or interrelated.
Tri-component Attitude Model
According to the tri-component attitude model, attitudes consist of three major components: a
cognitive component, an affective component, and a co-native component.
The Cognitive Component: The first part of the tri-component attitude model consists of a
person‘s cognitions that is, the knowledge of perceptions that are acquired by a combination of
direct experience with the attitude object and related information from various sources. This
knowledge and resulting perceptions commonly take the form of beliefs; that is, the consumer
believers that the attitude object possesses various attributes and that specific behavior will lead
to specific outcomes.
The Affective Component: A consumer‘s emotions or feelings about a particular product or
brand constitute the affective component of an attitude. These emotions and feelings are
frequently treated by consumer researchers as primarily evaluative in nature; that is, they capture
an individual‘s direct or global assessment of the attitude object (i.e. the extent to which the
individual‘ rates the attitude object as ―favorable‖ or ―unfavorable,‖ ―good‖ or ―bad‖).
The Co-native Component: Conation, the final component of the tri-component attitude model, is
concerned with the likelihood or tendency that an individual will undertake a specific action or
behave in a particular way with regard to the attitude object. According to some interpretations,
the co-native component may include the actual behavior itself.
In marketing and consumer research, the co-native component is frequently treated as an
expression of the consumer‘s intension to buy. Buyer intention scales are used to assess the
likelihood of a consumer purchasing a product or behaving in a certain way.
Multi-Attribute Attitude Models

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Multi-attribute attitude models portray consumer‘s attitudes with regard to an attitude object (e.g.
a product, a service, or a cause or an issue) as a function of consumers‘ perception and
assessment of the key attributes or beliefs held with regard to the particular attitude object. The
components of this type of attitude model include: the attitude-toward object model, the attitude-
toward-behavior model, and the theory-of reasoned- action model.
The Attitude toward object: According to this model, the consumer‘s attitude toward a product or
specific brands of a product is a function of the presence (or absence) and evaluation of certain
product-specific beliefs and/or attributes.
In other words, consumers generally have favorable attitudes toward those brands that they
believe have an adequate level of attributes that they evaluate as positive, and they have
unfavorable attitudes toward those brands they feel do not have an adequate level of desired
attributes or have too many negative or undesired attributes.
The Attitude-Toward-Behavior Model: The attitude-toward-behavior model is the individual‘s
attitude toward acting with respect to an object rather than the attitude toward the object itself.
The appeal of the attitude-toward-behavior model is that is seems to correspond somewhat more
closely to actual behavior than does the attitude –toward object model.
Theory of Reasoned Action Model: The theory of reasoned action represents a comprehensive
integration of attitude components into a structure that is designed to lead to both better
explanation and better predictions of behavior. Like the basic tri-component attitude model, the
theory-of-reasoned –action model incorporates a cognitive component, an affective component,
and a co-native component: however, there are arranged in a pattern different from that of the tri-
component model.
7.6 Strategies for Changing Attitudes and Intentions
Some strategies for influencing changes in consumers‘ attitudes toward certain behaviors have
already been identified. Various change strategies are discussed collectively below. Although
many factors can influence the consumer‘s choice among these alternatives, one fundamental
consideration should be the degree of involvement that consumers are experiencing with the
product.
Low-Involvement Strategies: Under low-involvement conditions consumers are not likely to
make brand choices on the basis of attitudes established through developing clearly formulated
beliefs about the product or service. In essence, their interest is to low to spend time thinking
about products and evaluating them in a rational and deliberative fashion.
Some of the low involvement strategies include to: Link the product or service to an involving
issue; Link the product to a presently involving personal situation; Develop high involvement
advertisements; Change the importance of product benefits; and Reveal or introduce important
product characteristics.
High-Involvement Strategies: Potentially, a variety of strategies are available for changing
consumer attitudes under high-involvement conditions. Before implementing such strategies,
however, the marketer must be clear on whether the attempt is to change consumer attitudes
about the brand, or whether it is to change attitudes about behaving toward the brand.

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 CHAPTER EIGHT
8. INDIVIDUAL DIFFERENCES IN INNOVATIVENESS
Learning Objectives
Upon completion of this chapter the student will be able to:
 Define diffusion process
 Identify and describe the process of the diffusion process
 Explain the adoption process
 Describe the innovation Decision process
 Explain A profile of the consumer innovator
8.1. The Diffusion of Innovation
The diffusion process is concerned with how innovations spread, that is, how they are
assimilated within a market. More precisely, diffusion is the process by which the acceptance of
an innovation (a new product, new service, new idea, or new practice) is spread by
communication (mass media, salespeople, or informal conversations) to members of a social
system (a target market) over a period of time. This definition includes the four basic elements of
the diffusion process:
The innovation, channels of communication, social system, and Time.
The Innovation
No universally accepted definition of the terms ―product innovation‖ or ―new product‖ exists.
Instead, various approaches have been taken to define a new product or a new service; these can
be classified as: firm-oriented, product-oriented and Consumer-oriented definitions of
innovations.
Firm-Oriented Definitions
A firm-oriented approach treats the newness of a product from the perspective of the company
producing or marketing it when the product is actually new to the marketplace (i.e. to
competitors or consumers). Consistent with this view, copies or modifications of a competitor‘s
product would qualify as new. Although this definition has considerable merit when the
objective is to examine the impact that a ―new‖ product has on the firm, it is not very useful
when the goal is to understand consumer acceptance of a new product.
Product-Oriented Definitions
In contrast to firm-oriented, approach focuses on the features inherent in the product itself and on
the effects these features are likely to have on consumers‘ established usage patterns.
One product-oriented framework considers the extent to which a new product is likely to disrupt
established behavior patterns.
It defines the following three types of product innovations.
A continuous innovation has at least disruptive influence on established patterns. It involves the
introduction of a modified product, rather than a totally new product.
A dynamically continuous innovation is somewhat more disruptive than a continuous innovation
but still does not alter established behavior patterns. It may involve the creation of a new
product or the modification of an existing product. Examples include 8-mm camcorders, compact
disc players, erasable-ink pens, and disposable diapers.
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A discontinuous innovation requires consumers to adopt new behavior patterns. Examples
include fax machines, cellular telephones, home computers, videocassette recorders, medical
self-test kits, and the Internet.
Five product characteristics that seem to influence consumer acceptance of new products:
 Relative advantage
 Compatibility
 Complexity
 Trialability
 observability
Relative Advantage
The degree to which potential customers perceive a new product as superior to existing
substitutes is its relative advantage for a product to gain acceptance, it must demonstrate its
relative advantage over existing alternatives marketing practitioners, and it has received little
systematic research attention.
B) Compatibility
The degree to which potential consumers feel a new product is consistent with their present
needs, values, and practices is a measure of its compatibility. A product must also be compatible
with local customs and habits. A freezer would not find a ready market in Asia, where people
prefer fresh food.
In Asia, and such European countries like France and Italy, people like to sweep and mop floors
daily, and thus there is no market for carpet or vacuum cleaners.
c) Complexity
The degree to which a new product is difficult to understand use, affects product acceptance.
Clearly, the easier it is to understand and use a product, the more likely it to be accepted.
For example, the acceptance of such convenience foods as frozen French fires, instant puddings,
and microwave dinners is generally due to their ease of preparation and use.
The issue of complexity is especially important when attempting to gain market acceptance for
high-tech consumer products. Four types of ―technological fear‖:
Act as barriers to new product acceptance, Fear of technical complexity, Fear of rapid
obsolescence, and Fear of physical harm.
d) Trial ability
Refers to the degree to which a new product is capable of being tried on a limited basis.
The greater the opportunity to try a new product, the easier it is for consumers to evaluate it and
ultimately adopt it. In general, frequently purchased household products tend to have qualities
that make trial relatively easy. For instance, for many supermarket products, consumers can
make a trial purchase of a new brand in a smaller quantity than they might usually purchase.
Observe ability (Or Communicability)
The ease with which a product‘s benefits or attributes can be observed, imagined, or described to
potential consumers. Products that have a high degree of social visibility, such as fashion items,
are more easily diffused than product that is used in private, such as a new type of toothbrush.
Similarly, a tangible product is promoted more easily than an intangible product (i.e., a service).

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It is important to recognize that each of these product attributes-relative advantage,
compatibility, complexity, trial ability, and absorbability-depends on consumer perception.
Consumer-Oriented Definitions
Although each of the three approaches described above have been useful to consumer
researchers in their study of the diffusion of innovations, some researchers have favored a
consumer-oriented approach in defining an innovation.
In this context, a ―new‖ product is any product that a potential consumer judges to be new. In
other words, newness is based on the consumer‘s perception of the product, rather than on
physical features or market realities.
Although the consumer-oriented approach has been endorsed by some advertising and marketing
practitioners, it has received little systematic research attention.
Market-Oriented Definitions
A market-oriented approach judges the newness of a product in terms of how much exposure
consumers have to the new product.
Two market-oriented definitions of product innovation have been used extensively in consumer
studies:
-A product is considered new if it has been purchased by a relatively small (fixed) percentage of
the potential market.
-A product is considered new if it has been on the market for a relatively short (specified) period
of time.
I The Channels of Communication
How quickly an innovation spreads through a market depends to a great extent on
communications between the marketer and consumers, as well as communication among
consumers (e.g., word-of-mouth communication).Of central concern is the uncovering of the
relative influence of impersonal sources (e.g., advertising and editorial matter) and interpersonal
sources (salespeople and informal opinion leaders).
II The Social System
The diffusion of a product usually takes place in a social setting frequently referred to as a social
system. In the context of consumer behavior, the terms market segment and target market are
synonymous with the term social system used in diffusion research.
A social system is a physical, social, or cultural environment to which people belong and within
which they function.
III) Time
Time is the backbone of the diffusion process. It pervades the study of diffusion in three distinct
but interrelated ways:
1. The amount of purchase time, 2.the identification of adopter categories, and 3. the rate of
adoption.
1. The amount of Purchase Time
Purchase time refers to the amount of time that elapses between consumers‘ initial awareness of
a new product or service and the point at which they purchase or reject it.

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Purchase time is an important concept because the average time a consumer takes to adopt a new
product is a predictor of the overall length of times it will take for the new product to achieve
widespread adoption.
2) The Adopter Categories
The concept of adopter categories involves a classification scheme that indicates where a
consumer stands in relation to other consumers in terms of time (i.e., when he or she adopts a
new product).
Adopters can be classified into five groups based on the time when they adopt:
 Innovators:-The first 2.5 per cent to adopt innovation.
 Early adopters: - The next 13.5 per cent to adopt.
 Early majority: - The next 34 per cent to adopt.
 Late majority: - The next 34 per cent to adopt.
 Laggards: - The final 16 per cent to adopt.
Innovators (2.5%)
Innovators are venturing some risk takers. They are younger, more educated and socially mobile.
They have the capacity to absorb risk associated with the new product. They are cosmopolitan in
outlook, are aware and make use of commercial media, and eager to learn about new products,
are progressive, ready to use new products.
Early adopters (13.5%)
They take a calculated risk before investing and using new innovations. They are opinion leaders
and provide information to groups, but they are also concerned about failure. Therefore, they
weigh advantages and disadvantages of the product before plunging in for a purchase.
Early majority (34%)
They tend to be more continuous and use the product after the innovators and early adopters
seem to be satisfied with it. They are elders, well- educated and less socially mobile. They rely
heavily on inter-personal source of information. They constitute 34 per cent of the consumers.
Late majority (34%)
They are doubtful and skeptical about the innovation of new products. They tend to use the
product not so much because of innovation, but because of other pressures—non-availability of
the product and social pressures. They have less social status, and are less socially mobile than
previous group. They are average in age, education, social status, income. They make little use of
media (Magazine etc.). They rely heavily on informal sources of information.
Laggards (16% of a Market)
They are more traditional. They possess limited social interaction and are oriented to the past.
They adopt the innovations with great reluctance. They have the least education, lowest social
status and income. They possess no opinion leadership and are in touch with other laggards and
do not subscribe to many magazines.
3. The Rate of Adoption
The rate of adoption is concerned with how long it takes a new product or service to be adopted
by members of a social system; that is, how quickly it takes a new product to be accepted by
those who will ultimately adopt it. The general view is that the rate of adoption for new products
is getting faster or shorter .Fashion adoption is a form of diffusion, one in which the rate of
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adoption is important. Cyclical fashion trends or ―fads‖ are extremely ―fast,‖ whereas ―fashion
classics‖ may be extremely slow or ―long‖ cycles.
8.2. The Adoption Process
The second major process in the diffusion of innovation is adoption. The focus of this process is
the stages through which an individual consumer passes while arriving at a decision to try or to
continue using or discontinue using a new product. (The adoption process should not be
confused with adopter categories.)
8.2.1. Stages in the Adoption Process
The stages in the adoption process can be described as follows:
Awareness-During the first stage of the adoption process, consumers is exposed to the product
innovation. This exposure is somewhat neutral, for they are not yet sufficiently interested enough
to search for additional product information.
Interest-When consumers develop an interest in the product of product category they search for
information about how the innovation can benefit them.
Evaluation- Based on their information, consumers draw conclusions about the innovation or
determine whether further information is necessary. The evaluation stage represents a kind of
―metal trial‖ of the product innovation. When the metal trial is unsatisfactory, the product will be
rejected.
Trial- At this stage, consumers use the product on a limited basis. Their experience with the
product provides them the critical information that they need to adopt or reject.
Adoption (Rejection)-Based on their trials and/or favorable evaluation, consumers decide to use
the product on a full, rather than limited basis, or they decide to reject it.
The adoption process starts with awareness (stag 1), which leads to interest (stage 2) and
evaluation (stage 3), the product can then be rejected or tried (stage 4) before or after purchase,
the trial provides direct experience (stage 6), leading to subsequent rejection or adoption
(stage7).

8.3. Adoption and Diffusion through Marketing Strategy

Marketers have been trying to influence consumers to adopt new innovations. This is done
through free samples and price promotions. Advertising is done extensively when the results are
not found positive by distribution of free samples and promotions. Sometimes price promotions
and free samples are backed by advertising techniques. Sometimes change agents are used to
overcome resistance to adoption. For medical products, hospitals, clinics and physicians of
repute are used as change agents.
The rate of diffusion can be low or high. Marketers have 2 options that can influence the rate of
diffusion.
Skimming Strategy-This strategy used for major innovations and when the product is in great
demand. Prices are set high and it has slow rate of diffusion. The strategy aims at skimming the
cream of the market i.e., to take advantage and get the profits in abundance. The segment is
small and specific. The segment is price insensitive. It has its own lifestyles and demographic

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characteristics, awareness and information advertising is used in this case. The distribution is
done from selective outlets.
Penetration Strategy-In this, there is rapid and widespread diffusion as the product is of low
value and is within the reach of many. The product is sold to a General Market by an intensive
campaign. The distribution is extensive and the product used is general. It is used in new
products which are not major innovations like cold drink, health drinks, coffee etc. The
advertising is widespread and other means of promotion are also used.

8.4. The Adoption Process and Information Sources

The adoption process provides a framework for determining which types of information sources
consumers find most important at specific decision stages.
For example, early subscribers to a computer-linked data service, such as CompuServe, might
first become aware of the service via mass-media sours (magazines and radio publicity).
Then, these early subscribes‘ final pretrial information might be an outcome of informal
discussions with personal sources.
The key point is that impersonal mass-media sources tend to be most valuable for creating initial
product awareness; as the purchase decision progresses, however, the relative importance of
these sources declines while the relative importance of interpersonal sources (friends,
salespeople, and others) increases.
8.5. A Profile of the Consumer Innovator
Who is the consumer innovator?
What characteristics set the innovator apart from later adopters and from those who never
purchase?
How can the marketer reach and influence the innovator?
These are key questions for the marketing practitioner about to introduce a new product or
service.
8.5.1. Defining the Consumer Innovator
Consumer innovators can be defined as the relatively small group of consumers who are the
earliest purchasers of a new product.
The problem with this definition, however, concerns the concept ―earliest,‖ which is, after all
relative term.
The Innovator Is an Opinion Leader
When discussing the characteristics of the opinion leader, we indicated a strong tendency for
consumer opinion leaders to be innovators.

Personality Traits
We examined the personality traits that distinguish the consumer innovator from the Non -
innovator. In this section, we will briefly highlight what researchers have learned about the
personality of the consumer innovator.
First, consumer innovators generally are less dogmatic than no innovators. They tend to
approach new or unfamiliar products with considerable openness and little anxiety. In contrast,
non-innovators seem to find new products threatening, to the point where they prefer to delay

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purchase until the product‘s success had been clearly established. Consistent with their open-
mindedness, consumer innovators are also inner-directed; that is, they rely on their own values or
standards when making a decision about a new product.
Variety-seeking consumers tend to be brand switchers and purchasers of innovative products and
services. They also possess the following innovator-related personality traits: they are open-
minded (i.e., low in dogmatism), extroverts, liberal, low in authoritarianism, able to deal with
complex or ambiguous stimuli, and creative. Consumer innovators are more likely to react
favorably to informative or fact-oriented advertising in the product category that appeals to their
strong interest and to readily evaluate the merits of a new product on the basis of their own
personal standards.
Perceived Risk
The degree of uncertainty or fear about the consequences of a purchase that a consumer feels
when considering the purchase of a new product. For example, consumers experience uncertainty
when they are concerned that a new product will not work properly or as well as other
alternatives. Research on perceived risk and the trial of new products overwhelmingly indicates
that the consumer innovator is a low-risk perceiver; that is, they experience little fear of trying
new products are much likely to make innovative purchases than consumers who perceive a great
deal of risk. In other words, high-risk perception limits in innovativeness.
Venture-sameness - A broad-based measure of a consumer‘s willingness to accept the risk of
purchasing new products. Measures of venture-someness have been used to evaluate a person‘s
general values or attitudes toward trying new products. A typical measurement scale might
include such items as:
I prefer to (try toothpaste when it first comes out) wait and learn how good it is before trying it).
When I am shopping and see a brand of paper towels I know about but have never used, I am
(very anxious or willing to try it),
I like to be among the first people to buy and use new products that are on the market (measured
on a five-point ―agreement‖ scale) able to move or be moved freely or easily.

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 PART THREE: THE CONSUMER AS A GROUP
CHAPTER NINE
9. THE INFLUENCE OF CULTURE AND SOCIAL CLASS ON CONSUMER
BEHAVIOR
Learning Objectives
Upon completion of this chapter the student will be able to:
 Define Culture
 Identify Social class
Introduction
Everybody in this world is a consumer. Every day of our life we are buying and consuming an
incredible variety of goods and services.
CULTURE - Meaning
For the purpose of studying consumer behavior, culture can be defined as the sum total of
learned beliefs, values and customs that serve to guide and direct the consumer behavior of all
members of that society.
Howard and Sheth have defined culture as ―A selective, manmade way of responding to
experience, a set of behavioral pattern‖. Thus, culture consists of traditional ideas and in
particular the values, which are attached to these ideas. It includes knowledge, belief, art, morale,
law, customs and all other habits acquired by man as a member of society. An accepted concept
about culture is that includes a set of learned beliefs, values, attitudes, habits and forms of
behavior that are shared by a society and are transmitted from generation to generation within
that society.
Culture is learned through the following three ways:
1. Formal learning: Parents and elders teach children the proper way to behave. For instance,
you have been taught that you need to study to be successful and happy in life. This learning
may influence your response both as a student and individual towards education.
2. Informal learning: We learn by imitating the behavior of our parents, friends, or by watching
TV and film actors in action.
3. Technical learning: Instructions are given about the specific method by which certain things
to done such as painting, dancing, singing etc.
Characteristics of Culture
➢ Culture is learned.
➢ Culture regulates society–norms, standards of behavior, rewards and punishments.
➢ Culture makes life more efficient
➢ All members follow same norms.
➢ Culture is adaptive.
➢ Culture is environmental.
➢ Multiple cultures are nested hierarchically.

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Culture also determines what is acceptable with product advertising. Culture determines what
people wear, eat, reside and travel. Cultural values in India are good health, education, respect
for age and seniority. But in our culture today, time scarcity is a growing problem, which implies
a change in meals. Some changes in our culture:
1. Convenience: As more and more women are joining the work force there is an increasing
demand for products that help lighten and relieve the daily household chores, and make life more
convenient. This is reflected in the soaring sale of washing machines, microwaves, pressure
cookers, mixer-grinders, food processors, frozen food etc.
2. Education: People in our society today wish to acquire relevant education and skills that
would help improve their career prospects.This is evident from the fact that so many
professional, career oriented educational centers are coming up, and still they cannot seem to
meet the demand. As a specific instance count the number of institutions offering courses and
training in computers that has opened in your city.
3. Physical appearance: Today, physical fitness, good health and smart appearance are on
premium today. Slimming centers and beauty parlours are mushrooming in all major cities of the
country. Cosmetics for both women and men are being sold in increasing numbers. Even
exclusive shops are retailing designer clothes.
4. Materialism: There is a very definite shift in the people‘s cultural value from spiritualism
towards materialism. We are spending more money than ever before on acquiring products such
as airconditioners, cars CD players etc, which adds to our physical comfort as well as status.
Types of Culture
National culture
The culture prevalent in a nation, common to everyone
Popular culture
The culture of the masses with norms of mass appeal
Subculture
The culture of a group within the larger society
Group identification based on nationality of origin, race, region, age, religion, gender, etc.
Corporate culture :- The company‘s values, rituals, customs, myths and heroes
For a marketer, it is very crucial to take all these things into consideration while analyzing or
observing a consumer‘s behavior as they play a vital role in his behavior, perception and
expectations.
For example, if we observe the taste and preferences, people in southern India prefers rice to roti
whereas north Indian people prefer roti than rice.
Social Class
Social class is more of a continuum, i.e., a range of social positions, on which each member of
society can be place. But, social researchers have divided this continuum into a small number of
specific classes. Thus, we go by this framework, social class is used to assign individuals or
families to a social-class category.
Social class can be defined as ‗The division of members of a society into a hierarchy of distinct
status classes, so that members of each class have relatively the same status and the members of
all other classes have either more or less status.‘
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Characteristics of Social Classes
The main characteristics of social class
1. Persons within a given social class tend to behave more alike
2. Social class is hierarchical
3. Social class is not measured by a single variable but is measured as a
weighted function of one‘s occupation, income, wealth, education,
status, prestige, etc.
4. Social class is continuous rather than concrete, with individuals
able to move into a higher social class or drop into a lower class.

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 CHAPTER TEN
10. REFERENCE GROUP AND FAMILY INFLUENCES
Learning Objectives
Upon completion of this chapter the student will be able to:
 Define and identify types Reference Group
 Identify Factors Affecting Reference Group Influence
 Understand family influences
A group may be defined as two or more people who interact with each other to accomplish
individual or mutual goals e.g. group of two neighbors, the local cricket club, the boys‘ hockey
team of a colony, group of friends from college, group of cousins
10.1 Types of Groups
Mainly three types of groups may be differentiated:
1. Membership Group
A group to which either a person belongs or would qualify for membership is called a
membership group. The group of men with whom a young executive plays chess every week is
his membership group.
2. Symbolic Group
Group in which an individual is not likely to receive membership despite acting like member by
adopting the group‘s values, attitudes and behaviors is called a Symbolic Group. Professional
cricket players may constitute a symbolic group for an amateur who identifies with certain
players by imitating their behavior, e.g. by buying a certain brand of racket or wearing a certain
kind if T-Shirt but he will never get the membership as a professional player.
3. Reference Group
Social influence is exerted by individuals such as opinion leaders as well as by specific groups of
people.
A reference group is a set of people with whom individuals compare themselves for guidance in
developing their own attitudes, knowledge, and/or behaviors.
Any group or a person that serves as a point of comparison (reference) for an individual in
forming either general or specific values, attitudes or a specific guide for behavior.
Reference Group provides valuable perspective for understanding the impact of other people on
individual‘s consumption beliefs, values, attitudes and behavior. Also provides insights into the
methods marketers use to affect desired changes in the Consumer Behavior. Reference groups
serve as frames of reference for individuals in their purchase or consumption decisions.

Selected Consumer Reference Groups

Friendship Groups are classified as informal groups because they are unstructured and lack
authority structure.

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Friends are only second to one‘s family in influencing. Seeking and maintaining friendship is a
basic need/drive for most people. Friends provide comfort, love and companionship. Most of all
they provide opportunity o discuss things that one can‘t discuss with relatives or family.
The opinions and preferences of friends are important influences in determining the brands a
Consumer ultimately selects Workgroups.

10.2. Types of Reference Groups

Three types of Reference Groups may be identified:
• Normative Reference Group
• Comparative Reference Group
• Indirect Reference Group
Normative Reference Group
Reference groups that influence general or broadly defined values or behavior are called
Normative Reference Groups. Child‘s normative reference group is his immediate family, which
is likely to play important role in modeling the child‘s general consumer values and behavior
(such as which foods to select, what clothes to wear, etc...) Normative Reference group influence
the development of a basic code of behavior.
Comparative Reference Group
Reference groups that serve as benchmarks for specific narrowly defined attitudes or behavior
are called Comparative Reference Groups. Example: A neighboring family whose lifestyle
appears to be admirable and worthy of imitation (the way they maintain their home, their choice
of furniture, cars, their taste in clothing).
Comparative groups influence the expression of specific consumer attitudes and behaviors. It is
likely that the specific influences of comparative reference groups to some measure depend upon
the basic values and behavior patterns established early in a person's development by normative
reference groups.
Indirect Reference Group
The meaning of reference groups has changed over the years. Originally reference groups were
narrowly defined to include only the groups with which a person interacted. IRC consists of
those groups or individuals with whom a person does not have direct face to face contact such as
movie stars, sports heroes, political leaders, etc..
10.3. Factors Affecting Reference Group Influence
Following factors affect the influence of the Reference Groups
Information and Experience
First hand experience with a product or service, or can easily obtain first hand information about
it, is less likely to be influenced by the advice or influence of the others. Person who has little or
no experience with a product or service is more likely to seek out the advice or example of others
Credibility, Attractiveness and Power
A reference group considered as credible, attractive and powerful may induce consumer attitude
and behavior change. Consumers who seek accurate information are likely to be persuaded by
whom they consider trustworthy or knowledgeable- that is more likely to be persuaded by
sources that are credible.

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 Consumers Concern with Approval
Consumers are primarily concerned with acceptance or approval of others whom they like or
with whom they identify, or those who offer them status or other benefits. T heyare likely to
adopt their product, brand or other behavioral characteristics.
Concern with Power
When consumers are primarily concerned with power that a person or group can exert over them
they might chose a product that confirm to the norms of that person or group in order to avoid
punishment or ridicule
Conspicuousness of the Product
Influence of reference group on purchase decision varies with reference to how conspicuous the
product is to others .Visually conspicuous product is the one that stands out and gets noticed e.g.
a luxury item or novelty product.
Targeting Conformity
To influence conformity, a reference group must accomplish the following:
• Inform or make the individual aware of a specific product or brand
• Provide individual with the opportunity to compare his/her own thinking with the attitudes and
behaviors of others
• Influence the individual to adopt the attitudes that are consistent with the norms of the group
• Legitimize the decision to use the same products as groups
New Brand Marketing
One may wish to elect a strategy that asks consumers to strike out and be different and not just
follow the crowd when making a purchase decision. In reality the non-conformity appeal can be
thought of as a request to shift one‘s reference (attitude or behavior) from one grouping to
another reference.
10.4 Characteristics of Reference Groups
Reference groups can be described according to the degree of contact, formality, and similarity
among members; group attractiveness, as well as their density, degree of identification, and
strength of the ties connecting members.
Degree of Contact
Reference groups vary in their degree of contact. We may have direct and extensive contact with
some reference groups like our immediate circle of friends or family but may have less contact
with others like gangster rappers. Reference groups with which we have considerable contact
tend to exert the greatest influence. A group with which we have face-to-face interaction, such as
family, peers, and professors, is a primary reference group. In contrast, a secondary reference
group is one that may influence us even though we have no personal contact with most of its
members.
Formality
Reference groups also vary in formality. Groups like fraternities, athletic teams, clubs, and
classes are formally structured, with rules outlining the criteria for group membership and the
expected behavior of members.
Homophily:- The Similarity among Group Members
Homophily -The overall similarity among members in the social system.
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Groups vary in their homophily, the similarity among the members. When groups are
homophilous, reference-group influence is likely to be strong because similar people tend to see
things in the same way, interact frequently, and develop strong social ties.
Group Attractiveness
The attractiveness of a particular peer group can affect how much consumers conform to the
group. When members perceive a group as being very attractive, they have stronger intentions to
conform to what the group does—even its illicit consumption behavior. This situation implies
that making substance abusers seem less attractive may help U.S. children and teens resist illicit
activities.
Density
Dense groups are those in which group members all know one another. For example, an
extended family that gets together every Sunday operates as a dense social network.
Degree of Identification
Some characteristics of an individual within a group contribute to the ways in which groups vary.
One is the degree of identification that a consumer has with a group. Just because people are
members of a group does not mean that they use it as a reference group.
Tie-Strength
Another characteristic describing individuals within a group is tie-strength. A strong tie means
that two people are connected by a close, intimate relationship often characterized by frequent
interpersonal contact. A weak tie means that the people have a more distant, non-intimate
relationship with limited interpersonal contact.
10.5. Reference Groups Affect Consumer Socialization
One way that reference groups influence consumer behavior is through socialization, the process
by which individuals acquire the skills, knowledge, values, and attitudes that are relevant for
functioning in a given domain.
Consumer socialization can occur in many ways, as the following sections show.
People as Socializing Agents
Reference groups like family and friends play an important role as socializing agents. Parents
may, for example, instill values of thriftiness by directly teaching their children the importance
of saving money, letting the children observe them being thrifty, or rewarding children for being
thrifty.
What is a Family?
A family is a group of two or more persons related by blood, marriage, or adoption who reside
together. The nuclear family is the immediate group of father, mother, and child(ren) living
together. The extended family is the nuclear family, plus other relatives, such as grandparents,
uncles and aunts,
cousins, and parents-in-law. The family into which one is born is called the family of orientation,
whereas the one established by marriage is the family of procreation. In a more dynamic sense,
the individuals who constitute a family might be described as members of the most basic social
group who live together and interact to satisfy their personal and mutual needs.
What is a Household?

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The term household is used to describe all person, both related and unrelated, who occupy a
housing unit. There are significant differences between the terms household and family even
though they are sometimes used interchangeably.
Structural Variables Affecting Families and Households
Structural variables include the age of the head of household or family, marital status, presence
of children, and employment status. For example, consumer analysts have enormous interest in
whether families have children and how many they have. Children increase family demand for
clothing, food, furniture, homes, medical care, and education, while they decrease demand for
many discretionary items, including travel, higher-riced restaurants, and adult clothing.
Three sociological variables that help explain how family‘s function includes cohesion,
adaptability, and communication.
➢ Cohesion is the emotional bonding between family members.
It measures how close to each other family members feel on an emotional level. Cohesion
reflects a sense of connectedness to or separateness from other family members.
➢ Adaptability measures the ability of a family to change its power structure, role relationships,
and relationship rules in response to situational and developmental stress. The degree of
adaptability
shows how well a family can meet the challenges presented by changing situations.
➢ Communication is a facilitating dimension, critical to movement on the other two
dimensions. Positive communication skills (such as empathy, reflective listening, and supportive
comments) enable
family members to share their changing needs as they relate to cohesion and adaptability.
Negative communication skills (such as double messages, double binds, criticism) minimize the
ability to share feelings, thereby restricting movement in the dimensions of cohesion and
adaptability.
Functions of The Family
Four basic functions provided by the family are particularly relevant
to a discussion of consumer behavior. These include (1) Economic wellbeing, (2) Emotional
support, (3) Suitable family lifestyles, and (4) Familymember socialization.
Intergenerational influence—information, beliefs, and resources being transmitted from one
generation (parents) to the next (children)—affects consumers‘ acquisition and use of certain
product categories and preferred brands .

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 PART III: MARKETING RESEARCH
CHAPTER ONE
1. THE NATURE AND SCOPE OF MARKETING RESEARCH

Chapter Objectives
After you study this Chapter, you will be able to explain:
 what marketing research is
 types of marketing research
 characteristics of good marketing research
 ethical consideration in marketing research

1.1. Definition of Marketing Research

What is Research? Different scholars may define research differently.
Research is literally derived from the word search preceded by the prefix re (re-search) means to
search again (Zikmund, 2000).
Research in common parlance refers to a search for knowledge. Once can also define research as
a scientific and systematic search for pertinent information on a specific topic.
Redman and Mory define research as a ―systematized effort to gain new knowledge. Some
people consider research as a movement, a movement from the known to the unknown. It is
actually a voyage of discovery.
The American marketing Association (AMA) has defined the term marketing research as:
―Marketing research is the systematic gathering, recording, and analyzing of all facts about
problems relating to the marketing of goods and services.
According to Clifford Woody, research comprises defining and redefining problems, formulating
hypothesis or suggested solutions; collecting, organizing and evaluating data; making deductions
and reaching conclusions; and at last carefully testing the conclusions to determine whether they
fit the formulating hypothesis.
According to Philip Kotler
Marketing research is a systematic problem analysis, mode building and fact-finding for the
purposes of improved decision making and control in the marketing of goods and services.
The marketing research society, the leading British professional body defined as:
―Market research is the means used by those who provide goods and services to keep
themselves in touch with the needs and wants of those who buy and use those goods and
services”
Important Points in this definition:
Research is a process: It comprises a series of steps designed and executed, with the goal of
finding answers to the issues that are of concern to the manager in the work environment.
Research is systematic: research is based on logical relationships and not just beliefs
Research is objective: data to be collected and analyzed need to be accurate, and the business
research must be objective
Research is purposeful: its purpose is to facilitate the rational decision-making

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Business research can also be defined as ―an organized, systematic, data-based, critical,
objective, scientific inquiry or investigation into a specific problem, undertaken with the purpose
of finding answers or solutions to it‖. In essence, research provides the needed information that
guides managers to make informed decisions to successfully deal with problems (Sakaran, 2003).
Types of research
Based on the purpose of research and the methodology employed; the following are the common
types of research
Applied vs. Fundamental
Research can be classified according to the outcome of the research – whether the expected
outcome is the solution to a particular problem or a more general contribution to knowledge. In
this regard, research can either be applied (or action) research or fundamental (to basic or pure)
research. Applied research aims at finding a solution for an immediate problem facing a society
or an industrial/business organization. This research deals with real life situations. Example:
―Why have sales decreased during the last quarter‖? Market research is an example of applied
research. Research aimed at certain conclusions (say, a solution) facing a concrete social or
business problem is an example of applied research.
Research to identify social, economic or political trends that may affect a particular institution
are examples of applied research. Thus, the central aim of applied research is to discover a
solution for some pressing practical problem, whereas, fundamental research is mainly
concerned with generalizations and with the formulation of a theory; ―Gathering knowledge for
knowledge‘s sake is termed ‗pure‘ or ‗basic‘ research.‖ It is not directly involved with practical
problems. It does not have any commercial potential. There is no intention to apply this research
in practice. For instance, research studies, concerning human behavior carried on with a view to
make generalizations about human behavior, and basic research is directed towards finding
information that has a broad base of applications and thus, adds to the already existing organized
body of scientific knowledge.
Descriptive vs. explanatory research
Research can be classified according to the purpose of the research – the reason why it was
conducted. Based on the purpose of the study we can classify research as Descriptive and
explanatory research. The major purpose of descriptive research is description of the state of
affairs, as it exists at present. The main characteristic of this method is that the researcher has no
control over the variables; he can only report what has happened or what is happening.
Therefore, it does not establish a cause and effect relationship. A descriptive study tries to
discover answers to the questions who, what, when, where, and, sometimes, how. A descriptive
study, however, does not explain why an event has occurred or why the variables interact the
way they do. In this type of Research, the researcher seeks to measure such items as, for
example, frequency of shopping, preferences of people, or similar data. For example, trends in
the consumption of soft drink with respect to socio-economic characteristics such as age, family,
income, education level etc.
Explanatory research: Explanatory research is deeper in the sense that it describes phenomena
and attempts to explain why behavior is the way it is. In other words, it enables us to understand

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the very nature of what we are actually looking at. An explanatory study goes beyond description
and attempts to explain the reasons for the phenomenon that the descriptive study only observed.

Quantitative vs. Qualitative

Based on process of the research – the way in which the data were collected, measured, and
analyzed research can be quantitative and qualitative research. Quantitative research is based on
the measurement of quantity or amount. It is applicable to phenomena that can be expressed in
terms of quantity. Qualitative research, on the other hand, is concerned with qualitative
phenomenon, i.e., phenomena relating to or involving quality or kind: For instance, when we are
interested in investigating the reasons for human behavior (i.e., why people think or do certain
things). This type of research aims at discovering the underlying motives and desires, using in
depth interviews for the purpose.
Some Other Types of Research
All other types of research are variations of one or more of the above stated approaches, based on
either the purpose of research, or the time required to accomplish research, on the environment in
which research is done, or based on some other similar factor. On the basis of the time required
to complete the research, research can be: One –time research: it is a research limited to a single
time period. Longitudinal research: Such research is also called on-going research.
Research can be field-setting research or laboratory research or simulation research. Research
can be field-setting research or laboratory research or simulation research, depending upon the
environment in which it is to be carried out. Field research: it is a research carried out in the
field. Such research is common in agricultural science, history, and archeology. Laboratory
research: it is a research carried out in the laboratory. These are commonly experimental
research. Such researches are common in medical science, and in general in natural sciences. In
such a research, the researcher must first provide himself with a working hypothesis or guess as
to the probable results. He then works to get enough facts (data) to prove or disprove his
hypothesis.
In such a research, the researcher must first provide himself with a working hypothesis or guess
as to the probable results. He then works to get enough facts (data) to prove or disprove his
hypothesis. He then sets up experimental designs, which he thinks will manipulate the persons or
the materials concerned to bring forth the desired information. Such research is thus
characterized by the experimenter‘s control over the variables under study and his deliberate
manipulation of one of them to study its effects
The research may be exploratory or it may be formalized. Exploratory Research: it is also called
preliminary research. As its name implied, such research is aimed at discovering, identifying,
and formulating a research problem and hypothesis. When there are few or no studies that can
be referred such research is needed. Initial research conducted to clarify and define the nature of
a problem. It does not provide conclusive evidence, Subsequent research expected.
The objective of exploratory research is the development of hypotheses rather than their testing,
whereas formalized research studies are those with substantial structure and with specific
hypotheses to be tested. Historical research is that which utilizes historical sources like

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documents, remains, etc. to study events or ideas of the past, including the philosophy of persons
and groups at any remote point of time.
1.2. Roles and Objectives Research
Objectives of Research
The purpose of research is to discover answers to questions through the application of scientific
procedures. The main aim of research is to find out the truth which is hidden and which has not
been discovered yet. Though each research study has its own specific purpose, we may think of
research objectives as falling into a number of following broad groupings:
To gain familiarity with a phenomena or to achieve new insights into it (studies with this object
in view are termed as exploratory research studies);
To portray accurately the characteristics of a particular individual, situation or a group (studies
with this object in view are known as descriptive research studies);
To determine the frequency with which something occurs or with which it is associated with
something else (studies with this object in view are known as diagnostic research studies);
To test a hypothesis of a causal relationship between variables (such studies are known as
hypothesis-testing research studies)

Significance of Research
―All progress is born of inquiry. Doubt is often better than overconfidence, for it leads to inquiry,
and inquiry leads to invention‖ is a famous Hudson Maxim in context of which the significance
of research can well be understood. Increased amounts of research make progress possible.
Research inculcates scientific and inductive thinking and it promotes the development of logical
habits of thinking and organization. The role of research in several fields of applied economics,
whether related to business or to the economy as a whole, has greatly increased in modern times.
The increasingly complex nature of business and government has focused attention on the use of
research in solving operational problems. Research, as an aid to economic policy, has gained
added importance, both for government and business.
Research provides the basis for nearly all government policies in our economic system. For
instance, government‘s budgets rest in part on an analysis of the needs and desires of the people
and on the availability of revenues to meet these needs. The cost of needs has to be equated to
probable revenues and this is a field where research is most needed. Through research we can
devise alternative policies and can as well examine the consequences of each of these
alternatives.
Research provides the intellectual satisfaction of knowing things for the sake of knowledge and
has practical utility for the social scientist to know for the sake of being able to do something
better or in a more efficient manner. Research in business is concerned both with knowledge for
its own sake and with knowledge for what it can contribute to practical concerns.
Research has its special significance in solving various operational and planning problems
of business and industry. Operations research and market research, along with motivational
research, are considered crucial and their results assist, in more than one way, in taking business
decisions. Market research is the investigation of the structure and development of a market for
the purpose of formulating efficient policies for purchasing, production and sales.
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1.3. Scientific Methods Of Research
We defined research as an organized, systematic, data based, and critical, objective, scientific
inquiry into a specific problem that needs a solution. Decisions based on the results of a well-
done scientific study tend to yield the desired results. It is necessary to understand what the term
scientific means. Scientific research focuses on solving problems and pursues a systematic,
logical, organized, and rigorous method to identify the problems, gather data, analyze them, and
draw valid conclusions there from. Thus, scientific research is not based on hunches or intuition
(though these may play a part in final decision-making), but is purposive and rigorous. Because
of the rigorous way in which it is done, scientific research enables all those who are interested in
researching and knowing about the same or similar issues to come up with comparable findings
when the data are analyzed.
Scientific research also helps researchers to state their findings with accuracy and confidence.
This helps various other organizations to apply those solutions when they encounter similar
problems. Furthermore, scientific investigation tends to be more objective than subjective, and
helps managers to highlight the most critical factors at the workplace that need specific attention
so as to avoid, minimize, or solve problems. Scientific investigation and managerial decision-
making are integral aspects of effective problem solving.
The term scientific research applies to both basic and applied research. Applied research may or
may not be generalizable to other organizations, depending on the extent to which differences
exist in such factors as size, nature of work, characteristics of the employees, and structure of the
organization. Nevertheless, applied research also has to be an organized and systematic process
where problems are carefully identified, data scientifically gathered and analyzed, and
conclusions drawn in an objective manner for effective problem solving.
The hallmarks of scientific research
The hallmarks or main distinguishing characteristics of scientific research may be listed as
follows:
 Purposiveness  Precision and Confidence
 Rigor  Objectivity
 Testability  Generalizability
 Explicability  Parsimony
Each of these characteristics can be explained in the context of a concrete example. Let us
consider the case of a manager who is interested in investigating how employees ‗commitment to
the organization can be increased. We shall examine how the eight hallmarks of science apply to
this investigation so that it may be considered ―scientific.
Purposiveness
The manager has started the research with a definite aim or purpose. The focus is on increasing
the commitment of employees to the organization, as this will be beneficial in many ways. An
increase in employee commitment will translate into fewer turnovers, less absenteeism, and
probably increased performance levels, all of which would definitely benefit the organization.
The research thus has a purposive focus.
Rigor
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A good theoretical base and a sound methodological design would add rigor to a purposive
study. Rigor connotes carefulness, conscientiousness, and the degree of accuracy in research
investigations. In the case of our example, let us say the manager of an organization asks 10 to
12 of its employees to indicate what would increase their level of commitment to it. If, solely
based on their responses, the manager reaches several conclusions on how employee
commitment can be increased; the whole approach to the investigation would be unscientific.
Testability
If, after talking to a random selection of employees of the organization and study
of the previous research done in the area of organizational commitment, the manager or
researcher develops certain hypotheses on how employee commitment can be enhanced, then
these can be tested by applying certain statistical tests to the data collected for the purpose.
Replicability
Let us suppose that the manager/researcher, based on the results of the study,
concludes that participation in decision-making is one of the most important factors that
influence the commitment of employees to the organization. We will place more faith and
credence in these findings and conclusion if similar findings emerge based on data collected by
other organizations employing the same methods. To put it differently, the results of the tests of
hypotheses should be supported again and yet again when the same type of research is repeated
in other similar circumstances. To the extent that this does happen (i.e., the results are replicated
or repeated), we will gain confidence in the scientific nature of our research. In other words, our
hypotheses would not have been supported merely by chance, but are reflective of the true state
of affairs in the population. Replicability is thus another hallmark of scientific research.
Precision and Confidence
In management research, we seldom have the luxury of being able to draw ―definitive‖
conclusions based on the results of data analysis. This is because we are unable to study the
universe of items, events, or population we are interested in, and have to base our findings on a
sample that we draw from the universe.
In all probability, the sample in question may not reflect the exact characteristics of the
phenomenon we try to study. Measurement errors and other problems are also bound to
introduce an element of bias or error in our findings. However, we would like to design the
research in a manner that ensures that our findings are as close to reality (i.e., the true state of
affairs in the universe) as possible, so that we can place reliance or confidence in the results.
Precision refers to the closeness of the findings to ―reality‖ based on a sample.
In other words, precision reflects the degree of accuracy or correctness of the results based on the
sample, to what really exists in the universe. For example, if I estimated the number of
production days lost during the year due to absenteeism at between 30 and 40, as against the
actual of 35, the precision of my estimation compares more favorably than if I had indicated that
the loss of production days was somewhere between 20 and 50. You may recall the term
confidence interval in statistics, which is what is referred to here as precision.
Confidence refers to the probability that our estimations are correct. That is, it is not merely
enough to be precise, but it is also important that we can confidently claim that 95% of the time,

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our results would be true and there is only a 5% chance of our being wrong. This is also known
as confidence level.
The narrower the limits within which we can estimate the range of our predictions (i.e., the more
precise our findings) and the greater the confidence we have in our research results, the more
useful and scientific the findings become.
In social science research, a 95% confidence level—which implies that there is only a 5%
probability that the findings may not be correct—is accepted as conventional, and is usually
referred to as a significance level of .05 (p = .05). Thus, precision and confidence are important
aspects of research, which are attained through appropriate scientific sampling design. The
greater the precision and confidence we aim at in our research, the more scientific is the
investigation and the more useful are the results.

Objectivity
The conclusions drawn through the interpretation of the results of data analysis should be
objective; that is, they should be based on the facts of the findings derived from actual data, and
not on our own subjective or emotional values. For instance, if we had a hypothesis that stated
that greater participation in decision-making would increase organizational commitment, and this
was not supported by the results, it makes no sense if the researcher continues to argue that
increased opportunities for employee participation would still help! Such an argument would be
based, not on the factual, data based research findings, but on the subjective opinion of the
researcher. If this was the researcher‗s conviction all along, then there was no need to do the
research in the first place! Much damage can be sustained by organizations that implement non-
data based or misleading conclusions drawn from research. For example, if the hypothesis
relating to organizational commitment in our previous example was not supported, considerable
time and effort would be wasted in finding ways to create opportunities for employee
participation in decision making. The more objective the interpretation of the data, the more
scientific the research investigation becomes. Though managers or researchers might start with
some initial subjective values and beliefs, their interpretation of the data should be stripped of
personal values and bias. If managers attempt to do their own research, they should be
particularly sensitive to this aspect. Objectivity is thus another hallmark of scientific
investigation.

Generalizability
Generalizability refers to the scope of applicability of the research findings in one organizational
setting to other settings. Obviously, the wider the range of applicability of the solutions
generated by research, the more useful the research is to the users. For instance, if a researcher‗s
findings that participation in decision making enhances organizational commitment are found to
be true in a variety of manufacturing, industrial, and service organizations, and not merely in the
particular organization studied by the researcher, then the generalizability of the findings to other
organizational settings is enhanced. The more generalizable the research, the greater its

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usefulness and value; However, not many research findings can be generalized to all other
settings, situations, or organizations.
For wider generalizability, the research sampling design has to be logically developed and a
number of other details in the data-collection methods need to be meticulously followed.
However, a more elaborate sampling design, which would doubtless increase the generalizability
of the results, would also increase the costs of research. Most applied research is generally
confined to research within the particular organization where the problem arises, and the results,
at best, are generalizable only to other identical situations and settings. Though such limited
applicability does not necessarily decrease its scientific value (subject to proper research), its
generalizability is restricted.
Parsimony
Simplicity in explaining the phenomena or problems that occur, and in generating solutions for
the problems, is always preferred to complex research frame works that consider an
unmanageable number of factors. For instance, if two or three specific variables in the work
situation were identified, which when changed would raise the organizational commitment of the
employees by 45%, that would be more useful and valuable to the manager than if it were
recommended that he should change 10 different variables to increase organizational
commitment by 48%. Such an unmanageable number of variables might well be totally beyond
the manager‗s control to change.

1.4. Characteristics of a Good Research

Good research generates dependable data that are derived by professionally conducted practices
and that can be used reliably for decision-making. In contrast, poor research is carelessly planned
and conducted, resulting in data that a manager cannot use to reduce his or her decision-making
risks. Good research follows the standards of the scientific method: systematic, empirically based
procedures for generating replicable research. We list several defining characteristics of the
scientific method and discuss below the managerial dimensions of each.
Purpose clearly defined. The purpose of the business research—the problem involved or the
decision to be made—should be clearly defined and sharply delineated in terms as unambiguous
as possible.
Research process detailed. The research procedures used should be described in sufficient
detail to permit another researcher to repeat the research. This includes the steps to acquire
participants, informed consent, sampling methods and representativeness, and data gathering
procedures. Except when secrecy is imposed, research reports should reveal with candor the
sources of data and the means by which they were obtained. Omission of significant procedural
details makes it difficult or impossible to estimate the validity and reliability of the data and
justifiably weakens the confidence of the reader in the research itself as well as any
recommendations based on the research.
Research design thoroughly planned. The procedural design of the research, and its choice
among competing designs, should be clearly described and carefully planned to yield results that
are as objective as possible. A survey of opinions or recollections ought not to be used when

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more reliable evidence is available from documentary sources or by direct observation.
Bibliographic searches should be as thorough and complete as possible. Experiments should
have satisfactory controls, reducing threats to internal validity and enhancing the probability of
external validity (generalizability). Direct observations should be recorded as soon as possible
after the event. Efforts should be made to minimize the influence of personal bias in selecting
and recording data
High ethical standards applied. Researchers often work independently and have significant
latitude in designing and executing projects. A research design that includes safeguards against
causing mental or physical harm to participants and makes data integrity a first priority should be
highly valued. Ethical issues in research reflect important moral concerns about the practice of
responsible behavior in society.
Limitations frankly revealed. The researcher should report, with complete frankness. There are
very few perfect research designs. Some of the imperfections may have little effect on the
validity and reliability of the data; others may invalidate them entirely. A competent researcher
should be sensitive to the effects of imperfect design. The researcher‘s experience in analyzing
data should provide a basis for estimating the influence of design flaws. As a decision maker,
you should question the value of research about which no limitations are reported.
Adequate analysis for decision maker’s needs. Analysis of the data should be extensive
enough to reveal its significance, what managers call insights. The methods of analysis used
should be appropriate. The extent to which this criterion is met is frequently a good measure of
the competence of the researcher. Adequate analysis of the data is the most difficult phase of
research for the novice. The validity and reliability of data should be checked carefully.
Findings presented unambiguously. Some evidence of the competence and integrity of the
researcher may be found in the report itself. For example, language that is restrained, clear, and
precise; assertions that are carefully drawn and hedged with appropriate reservations; and an
apparent effort to achieve maximum objectivity tend to leave a favorable impressionof the
researcher with the decision maker.
Conclusions justified. Conclusions should be limited to those for which the data provide an
adequate basis. Researchers are often tempted to broaden the basis of induction by including
personal experiences and their interpretations—data not subject to the controls under which the
research was conducted. Equally undesirable is the all-too-frequent practice of drawing
conclusions from a study of a limited population and applying them universally.

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 CHAPTER TWO
2. THE RESEARCH PROCESS
Chapter Objectives
After you study this Chapter, you will be able to :
 Define the concept of research
 Discuss the processes of research
 Define the problem
 Discuss research design
 Discuss information types and sources
 Determine methods of accessing data
 Discuss on designing data collection forms
Before embarking on the details of research methodology and techniques, it seems appropriate to
present a brief overview of the research process. Research process consists of series of actions or
steps necessary to effectively carry out research and the desired sequencing of these steps.
The following order concerning various steps provides a useful procedural guideline regarding
the research process: 1. Establish the need for research, 2. Define the problem 3. Establish
research objectives 4. Determine research design 5. Identify information types and sources 6.
Determine methods of accessing data 7. Design data collection forms 8. Determine sample plan
and size 9. Collect data 10. Analyze data 11. Prepare and present the final research report
2. 1 Establishing The Need For Research
Research is an investigation of finding solutions to scientific and social problems through
objective and systematic analysis.
It is a process of intellectual discovery, which has the potential to transform our knowledge and
understanding of the world around us.
It is a systematic attempt to obtain answers to meaningful questions about phenomena or events
through the application of scientific procedures. Scientific research follows a set of protocols and
established structures & has a goal and ultimate aim, repeated and refined study gradually
reaching an answer.
Research is a systematic, controlled, empirical and critical method consisting of enumerating the
problem, formulating a hypothesis, collecting the facts or data, analyzing the facts and reaching
certain conclusions either in the form of solutions toward the concerned problem or in certain
generalizations for some theoretical formulation.
2.2 Define the problem
Any question that you want answered and any assumption or assertion that you want to challenge
or investigate can become a research problem or a research topic for your study. However, it is
important to remember that not all questions can be transformed in to research problems and
some may prove to be extremely difficult to study.
A problem might be defined as the issue that exists in the literature, theory, or practice that leads
to a need for the study.
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A research problem refers to some difficulty which a researcher experiences in the context of
either a theoretical or practical situation and wants to obtain a solution for the same.
Generally speaking a research problem is a situation that needs a solution and for which there are
possible solutions. If a situation has no possible solutions then it makes little or no sense
expending resources researching it.
A research problem may be described as an incongruence; a discrepancy between what is and
what ought to be. It may be also described as the gap in knowledge that needs to be filled.
2.3 Establish research objectives
The purpose of research is to discover answers to questions through the application of scientific
procedures.
 Objectives are goals you set out to attain in your study.
 It inform the readers what you want to attain through the study.
 It is extremely important to word them clearly and specifically.
Objectives should be listed under two headings:
a) Main or general objective
b) Specific or sub-objectives.
 These objectives explain the purpose of the research in measurable terms & defined
standards what the research should accomplish.
 In addition to stating the reasons for initiating the research project, outlining
objectives helps to ensure that the project will be manageable in size.
 The main objective is an overall statement directly related to your research tittle.
 The sub-objectives are the specific aspects of the topic that you want to investigate
within the main framework of your study.

2.4 Determine research design

Research design is defined as a blueprint or detailed plan for how a research study is to be
completed, operationalizing variables so they can be measured, selecting a sample of interest to
study, collecting data to be used as a basis for testing hypothesis and analyzing the results.
It is the complete scheme or program of the research.
A research design should include the following:
 The study design
 The logistical arrangements that you propose to undertake
 The measurement procedures
 The sampling strategy
 The frame of analysis
 Time frame
2.5 Identify information types and sources
Collection of data refers to a purposive gathering of information relevant to the subject matter of
the study from the units under investigation.
Sources of Data
There are two types of data to be used in research endeavors. These are:
 Secondary data  Primary data
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Secondary Sources of Data
Secondary data means data that are already available i.e., they refer to the data which have
already been collected and analyzed by some one else.
Secondary data are collected by others and used by others.
Any data that has been collected earlier for some other purpose are secondary data in the hands
of an individual who is using them.
Collection of Secondary Data
 Secondary data may either be published or unpublished data.
 Usually published data are available in:
 Various publications of the central, state, or local government
 Various publications of international bodies or their subsidiaries or foreign governments
 Technical or trade journals
 Books, magazines and news papers
 Reports and publications of various organizations
 Reports of research scholars in different fields
 Public records and statistics
 Historical documents and other sources of published information.
Advantages of Secondary Data
 Economical
 Saves Time
 Improves an understanding of the problem
 Used as a basis for comparison with the primary data that have been collected.
 Familiarity with secondary data indicates gaps in knowledge.
Limitations of Secondary Data
 The unit in which secondary data are expressed may not be the same as is required in the
proposed study.
 Class boundaries may be different from those desired.
 One does not always know how accurate the secondary data are.
 A severe limitation in the use of secondary data is that they may be somewhat out of date.
Primary Data
Primary data are original observations collected by the researcher or his agents for the first time.
Advantages of Primary Data
 Greater details.
 More accurate. As it involves definitions of terms and units used, it enhances the
investigators‘ understanding of the meaning of units in which data are recorded.
It indicates schedule, the procedure used in selecting the sample and size of the sample.
Methods of Primary Data Collection
There are several methods of collecting primary data
 Important ones are:
 Questionnaires

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  Schedules
 Interview method
 Observation method
 Others
2.6. Determining Methods of Accessing Data
The next step requires gathering primary research and performing a formal research project. The
purpose is for the research to identify what customers think about some topic or behavior
patterns. Questioning can be qualitative or quantitative.
A. Qualitative research: Utilizes open-ended questions to obtain in-depth answers. It uses an
inductive method, that is, data relevant to some topics are collected and grouped into appropriate
meaningful categories. The two main methods for collecting qualitative data are
I. Direct Collection Method-When the data is collected directly, it makes use of disguised
method. This method makes use of-
Focus Groups – known as group interviews or group discussions aimed at understanding
the attitude and behavior of the audience. Research will probe into specific areas that are of
interest to the company commissioning the research.
Depth Interview – a small sample is used and one to one personal interviews are also
conducted. Elaborate data concerning the respondents opinions, values, motivation, expression,
feeling etc are obtained which takes a long time. Good rapport yields success in this method.
Case Study - individual cases are studied in depth so that it leads to detailed analysis but
with lot of time consumption.
II. Indirect Collection-Method
Projective Techniques - have been developed by the psychologists, which are indirect and
unstructured methods of investigation. These are useful in giving respondents opportunities to
express their attitudes without personal embarrassment especially in researches or in attitude
surveys.
B. Quantitative Research: Quantifies the data and generalizes the results from the sample to
the population. Data can be collected by two methods
Survey Method - is the technique of gathering data by asking questions to people who are
thought to have desired information. A list of questions are prepared and asked. The data
obtained is relatively simple to analyze, quote and interrelate.
2.7 Design data collection forms
Collecting the data
In dealing with any real life problem it is often found that data at hand are inadequate, and
hence, it becomes necessary to collect data that are appropriate. There are several ways of
collecting the appropriate data which differ considerably in context of money costs, time and
other resources at the disposal of the researcher. Primary data can be collected either through
experiment or through survey. If the researcher conducts an experiment, he observes some
quantitative measurements, or the data, with the help of which he examines the truth contained in
his hypothesis. But in the case of a survey, data can be collected by any one or more of the
following ways:

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 (i) By observation: This method implies the collection of information by way of investigator‘s
own observation, without interviewing the respondents. The information obtained relates to what
is currently happening and is not complicated by either the past behaviour or future intentions or
attitudes of respondents. This method is no doubt an expensive method and the information
provided by this method is also very limited. As such this method is not suitable in inquiries
where large samples are concerned.
(ii) Through personal interview: The investigator follows a rigid procedure and seeks answers
to a set of pre-conceived questions through personal interviews. This method of collecting data is
usually carried out in a structured way where output depends upon the ability of the interviewer
to a large extent.
(iii) Through telephone interviews: This method of collecting information involves contacting
the respondents on telephone itself. This is not a very widely used method but it plays an
important role in industrial surveys in developed regions, particularly, when the survey has to be
accomplished in a very limited time.
(iv) By mailing of questionnaires: The researcher and the respondents do come in contact with
each other if this method of survey is adopted. Questionnaires are mailed to the respondents with
a request to return after completing the same. It is the most extensively used method in various
economic and business surveys. Before applying this method, usually a Pilot Study for testing
the questionnaire is conduced which reveals the weaknesses, if any, of the questionnaire.
Questionnaire to be used must be prepared very carefully so that it may prove to be effective in
collecting the relevant information.
(v) Through schedules: Under this method the enumerators are appointed and given training.
They are provided with schedules containing relevant questions. These enumerators go to
respondents with these schedules. Data are collected by filling up the schedules by enumerators
on the basis of replies given by respondents. Much depends upon the capability of enumerators
so far as this method is concerned. Some occasional field checks on the work of the enumerators
may ensure sincere work. The researcher should select one of these methods of collecting the
data taking into consideration the nature of investigation, objective and scope of the inquiry,
finanical resources, available time and the desired degree of accuracy. Though he should pay
attention to all these factors but much depends upon the ability and experience of the researcher.
In this context Dr A.L. Bowley very aptly remarks that in collection of statistical data
commonsense is the chief requisite and experience the chief teacher
2.8. Collect data
There are several ways of collecting the appropriate data which differ considerably in context of
money (costs), time and other resources at the disposal of the researcher.
Primary data can be collected either through experiments or through survey.
In the case of a survey, data can be collected by any one of the following specific ways:
 Observation
 Interview
 Questionnaire etc.

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 2.9. Analyze data
After the data have been collected, the researcher turns to the task of analysing them. The
analysis of data requires a number of closely related operations such as establishment of
categories, the application of these categories to raw data through coding, tabulation and then
drawing statistical inferences. The unwieldy data should necessarily be condensed into a few
manageable groups and tables for further analysis. Thus, researcher should classify the raw data
into some purposeful and usable categories.
Coding operation is usually done at this stage through which the categories of data are
transformed into symbols that may be tabulated and counted. Editing is the procedure that
improves the quality of the data for coding. With coding the stage is ready for tabulation.
Tabulation is a part of the technical procedure wherein the classified data are put in the form of
tables. The mechanical devices can be made use of at this juncture. A great deal of data, specially
in large inquiries, is tabulated by computers. Computers not only save time but also make it
possible to study large number of variables affecting a problem simultaneously. Analysis work
after tabulation is generally based on the computation of various percentages, coefficients, etc.,
by applying various well defined statistical formulae. In the process of analysis, relationships or
differences supporting or conflicting with original or new hypotheses should be subjected to tests
of significance to determine with what validity data can be said to indicate any conclusion(s). For
instance, if there are two samples of weekly wages, each sample being drawn from factories in
different parts of the same city, giving two different mean values, then our problem may be
whether the two mean values are significantly different or the difference is just a matter of
chance. Through the use of statistical tests we can establish whether such a difference is a real
one or is the result of random fluctuations. If the difference happens to be real, the inference will
be that the two samples come from different universes and if the difference is due to chance, the
conclusion would be that the two samples belong to the same universe. Similarly, the technique
of analysis of variance can help us in analysing whether three or more varieties of seeds grown
on certain fields yield significantly different results or not. In brief, the researcher can analyse
the collected data with the help of various statistical measures.
2.10. Analyze Data
Data processing involves the transformation of the raw data into some processed form to
facilitate analysis.
• Data processing includes editing, coding, classification and tabulation.
Editing:
• Is a process of examining/inspecting the collected raw data to identify errors and
omission (extreme values) and to correct those problems.
• It involves a careful inspection of completed/filled questionnaires.
Coding:
Refers to the process of assigning numerical or other symbols to answers.
For Example: Closed end question
1 [ ] Yes
2 [ ] No
Classification:
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  Most research studies result is large in volume of raw data, which must be
reduced into homogeneous group.
 Which means to classify the raw data or arranging data in-groups or classes on the
basis of common characteristics.
 Data Classification implies the processes of arranging data in groups or classes
on the basis of common characteristics.
Tabulation
Tabulation involves the orderly and systematic presentation of numerical data in a form
designed to explain the research problem.

2.11 Prepare And Present The Final Research Report

Finally, the researcher has to prepare the report of what has been done by him. Writing of report
must be done with great care keeping in view the following:
1. The layout of the report should be as follows:
 the preliminary pages;
 the main text,
 the end matter.
In its preliminary pages the report should carry title and date followed by acknowledgements and
foreword. Then there should be a table of contents followed by a list of tables and list of graphs
and charts, if any, given in the report.
The main text of the report should have the following parts:
(a) Introduction: It should contain a clear statement of the objective of the research and an
explanation of the methodology adopted in accomplishing the research. The scope of the study
along with various limitations should as well be stated in this part.
(b) Summary of findings: After introduction there would appear a statement of findings and
recommendations in non-technical language. If the findings are extensive, they should be
summarised.
(c) Main report: The main body of the report should be presented in logical sequence and
broken-down into readily identifiable sections.
(d) Conclusion: Towards the end of the main text, researcher should again put down the results
of his research clearly and precisely. In fact, it is the final summing up. At the end of the report,
appendices should be enlisted in respect of all technical data. Bibliography, i.e., list of books,
journals, reports, etc., consulted, should also be given in the end. Index should also be given
specially in a published research report.
2. Report should be written in a concise and objective style in simple language avoiding vague
expressions such as ‗it seems,‘ ‗there may be‘, and the like.
3. Charts and illustrations in the main report should be used only if they present the information
more clearly and forcibly.
4. Calculated ‗confidence limits‘ must be mentioned and the various constraints experienced in
conducting research operations may as well be stated.

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 CHAPTER THREE
3. RESEARCH PROPOSAL

3.1. The Value Of Proposals

A research proposal is a useful document to you, your advisor, your funders, and the broader
research community. For you, the student, it is helpful in that it outlines your thinking about
what you will be investigating - the focus, the limits, the logical development of your
investigation and the methods you will be using to investigate the topic. The better you are
planning, the better your research undertaking will be organized. For your advisor, a proposal is
an indication of whether you have done adequate thinking about the topic and sufficient
preparation for the study. It also gives your advisor an indication of your ability to put your ideas
into clear and logical writing.
Research proposal is valuable to both the researcher and the sponsor. The specific values of
proposals to both clients and researchers are described below.
Value to the sponsor
All research has a sponsor and or advisor in one form or another. The student researcher is
responsible to the advisor. University, government, or corporate-sponsored (grant) research uses
grant committees to evaluate the work. A research proposal allows the sponsor to assess the
sincerity of your purpose, the clarity of your design, the extent of your background material, and
your fitness for undertaking the project. The proposal demonstrates your discipline, organization,
and logic. A poorly planned, poorly written, or poorly organized proposal damages your
reputation more than the decision to submit one. Second, the proposal provides a basis for the
sponsor to evaluate the results of a research project. The third benefit of the proposal is the
discipline it brings to the sponsor. It serves as a catalyst for discussion between the researcher
and the managers.
Value to the researcher
A proposal is more beneficial for the beginning researcher to have a tentative work plan that
charts the logical steps to accomplish the stated objectives. The specific benefits of proposals to
the researcher include the following. It allows the researcher to plan and review the project‘s
steps. Literature review enables the researcher to assess the various approaches to the problem
and revise the plan accordingly. It enables the researcher to critically think through each stage of
the research process. After acceptance, the research proposal serves as a guide for the researcher
throughout the investigation. Progress can be monitored and milestones noted. A final benefit,
particularly for the young researcher is that the proposal forces time and budget estimates.

3.2. Types of Research Proposal

• Research proposals can be generally classified into student research proposal , internal
research proposal and external research proposal.

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Student research proposals range between term paper and senior essay that are least complex
to MA. thesis and Ph.D.
• Term papers are meant for teaching students as to how to do research where as senior
essay, thesis or dissertation are supposed to develop students‘ knowledge on a specialized
field.
Research proposals are internal it is prepared by individual or a team of researchers who are part
of the organization.
External research proposals are either solicited or unsolicited. Solicited research proposals are
when the customer asks for a proposal.
• In case of unsolicited, researchers present their research proposal without invitation from
one organization to get financial support or sponsorship.
3.3 Structure Of The Research Proposal
Component of a research proposal varies from one type of research proposal to the other. In
addition, for practical reasons many research-funding agencies prefer their own research
proposal format and many universities, colleges or departments may have their own formats. For
instance, wolaita sodo University department of management has its own research proposal
guideline developed by the research committee and the members of the department.The most
common elements of a large-scale research proposal are hereunder: Each of the following
elements is also flexible internally so that its content and length may be adapted to specific
needs. An outline of the major components a research proposal
Preliminaries/Prefatory
i) Title page
 Title of the Research
 (A Case Study of ……..)
 Purpose why the Research is conducted
 Name and ID No of the investigator
 Advisor name
 Name of the university
 Month and Place where the proposal is written
ii) Abstract
iii) Table of contents
iv) Acronyms and abbreviations alphabetically arranged)
v) List of tables
vi) List of figures

Title of the study

It should be researchable and should give a clear indication of the variables or the content of the
study. It should use the fewest possible words that adequately describe the content of the paper.
It should not be too long or too short and at all levels of research. In selecting a title for
investigation, the researcher should consider the following points:

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A. The title should not be too lengthy: It should be specific to the area of study. For example,
the following topic appears to be long. ―A study of academic achievement of children in
pastoral regions whose parents had participated literacy classes against those whose parents
didn‘t‖
B. The title should not be too brief or too short: The following sentence is too short ―Marketing
in Japan‖ or ―Unemployment in Ethiopia‖
For example, the research topic on ―Determinants of export performance in Ethiopia‖ is good
because it is concise and at the same time contains the three basic elements of a topic: the thing
that is going to be explained, the thing that explains, and a geographical scope. The thing that is
going to be explained in the aforementioned topic is export performance because your research is
expected to draw conclusions pertaining to export performance. The thing that explains export
performance is the word determinants. The actual factors that determine export performance are
not stated in the topic because it has to be very concise. Hence, the key word ―determinants‖ is
used. And finally,‖ Ethiopia‖ the phraseputs a geographical delimitation of the proposed
research.
Generally the title of a research study must be as short and clear as possible, but sufficiently
descriptive of the nature of the work:
 Have a concise and focused title.
 Be short and clear preferably not more than one line.
 Avoid unnecessary punctuation (commas, colons, semi-colons).

Following the title page is the abstract, which should synthesize the body of the proposal. It
allows a busy manager, sponsor, or advisor to understand quickly the thrust of the proposal. It
should give readers the chance to grasp the essentials of the proposals without having to read the
details. A reviewer who must read a large number of proposals obtains initial information by
reading the abstract, thereby making the abstract a significant aspect of the review process.
While limiting the number of words to that allotted by the sponsor (250 to 300 words), the
proposal writer should clearly and concisely state the nature of the problem to be researched, the
measurable objectives, the procedures for implementation of the project, the anticipated results,
their significance, and their beneficiaries. If the project has a unique component such as its
research or methodology, this should be indicated in the abstract. The text of the abstract must be
single spaced, italic, only in one paragraph. It should summarize the main idea of the given title
in the form of;
 Statement of the problem
 Objectives
 Methodology
 Expected output
Table of Contents with List of Tables and/or Illustrations
It should locate each section and major subdivision of the proposal. In most circumstances, the
table of contents should remain simple; no division beyond the first Following the title page is
the abstract, which should synthesize the body of the proposal. It allows a busy manager,
sponsor, or advisor to understand quickly the thrust of the proposal. It should give readers the
chance to grasp the essentials of the proposals without having to read the details. A reviewer

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who must read a large number of proposals obtains initial information by reading the abstract,
thereby making the abstract a significant aspect of the review process. While limiting the number
of words to that allotted by the sponsor (250 to 300 words), the proposal writer should clearly
and concisely state the nature of the problem to be researched, the measurable objectives, the
procedures for implementation of the project, the anticipated results, their significance, and their
beneficiaries. If the project has a unique component such as its research or methodology, this
should be indicated in the abstract. The text of the abstract must be single spaced, italic, only in
one paragraph. It should summarize the main idea of the given title in the form of;
 Statement of the problem
 Objectives
 Methodology
 Expected output
Table of Contents with List of Tables and/or Illustrations
It should locate each section and major subdivision of the proposal. In most circumstances, the
table of contents should remain simple; no division beyond the first subheading is needed. If
several illustrations or tables appear in the body of the proposal, they, too, should appear in the
list of tables/illustrations, which is incorporated into or follows the table of contents.
Acronyms and abbreviations; alphabetically arranged

There is a great deal of overlap between abbreviations and acronyms. Every acronym is an
abbreviation because the acronym is a shortened form of a word or phrase. However, not every
abbreviation is an acronym, since some abbreviations - those made from words - are not new
words formed from the first few letters of a series of words.
Abbreviation
An abbreviation is a shortened form of a word or phrase, as N.Y. for New York. There are
millions of common abbreviations used every day. When you write out your address, most
people write "St. or Ave." instead of "street" or "avenue." When you write the date, you may
abbreviate both the day of the week (Mon, Tues., Wed., Thurs., Fri., Sat., and Sun.) and the
month of the year (Jan., Feb., Aug., Sept., Oct., Nov., Dec.). There are also tons of industry
specific abbreviations that you may be unaware of unless you are in the industry, such as medical
abbreviations or dental abbreviations. Shortening the word "Avenue" to "Ave." is an
abbreviation, because it is the shortened version of the word. However, it is not an acronym since
the word AVE is not a new word comprised of the first few letters of a phrase.
Acronym
Acronyms: A word formed from the initial letters of the several words in the name. Example
―AIDS is an acronym for acquired immune deficiency syndrome―. An acronym, technically,
must spell out another word. NY is the acronym for New York. Since this acronym is a
shortened version of the phrase, by definition the acronym is also an abbreviation. Like
abbreviations, acronyms are used daily, and most people can interpret the meaning of common
acronyms without much thought. For example, you go to the ATM instead of to the automatic
teller machine you give your time zone as EST, CST or PST instead of as Eastern Standard

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Time, Central Standard Time or Pacific Standard Time. All of these new acronyms are also
abbreviations because they are all shortened versions of phrases that are using frequently.
Abbreviations and acronyms are shortened versions of words and phrases to speed up our
communication. Be sure to use them correctly - since, a misuse can lead to a big
miscommunication.

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 CHAPTER FOUR
4. DEFINING THE PROBLEM AND THE RESEARCH OBJECTIVES
Chapter Objectives
After you study this Chapter, you will be able to explain:
 What research problem is?
 Tthe steps in formulating a research problem/topic
 Technique involved in defining a problem
 The criteria of a good research problem
 how to formulating and stating the problem
4.1 Define manager’s problems
The activities involved in this step tend to bring the researcher and the manager together because
the manager needs the researcher to help in his decision making. Performance problems are one
of the main challenges managers face. If your team isn't performing to a high standard, it could
cause many problems, including: a rise in competitor sales. damaged relationships between team
members. Usually before the researcher undertakes this consultancy work, the manager has to
state what he believes to be the main issue surrounding the problem. At this point, the researcher
would make sure that the manager understands the actual problem. The researcher then helps the
manager to look at the problem objectively, and justify whether it is really a problem or it is only
a symptom to a problem. It is important for the manager and the researcher to agree on the
problem to be researched so that the research processes would provide information which is
relevant to the problem.

4.2 Define Research Problems

A research problem is any significant, perplexing and challenging situation, real or

artificial, the solution of which requires reflective thinking. It is the difficulty experienced
by the researcher in a theoretical or practical situation. A research problem is the situation
that causes the researcher to feel apprehensive, confused and ill at ease. It is the
determination of a problem area within a certain context involving the, who, what, where,
when and the why of the problem situation.

Elements of a research problem: the elements of research problems are

1. Aim or purpose of the problem for investigation. This answers the question ‗why‘ why is
there an investigation, inquiry to study.

2. The subject matter or topic to be investigated. This answers the question what.

3. The place/local where the research is to be conducted. This answers the question where?
Where the study to be conducted?

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 4. The period or time of the study during which the data are to be gathered. This answers the
question when.

5. Population/universe from whom the data are to be collected. Answers the question who
or from whom.

4.3. Develop The Research Objectives

Research objectives describe what your research is trying to achieve and explain why you are
pursuing it. They summarize the approach and purpose of your project and help to focus your
research.

Your objectives should appear in the introduction of your research paper, at the end of your
problem statement. They should:

 Establish the scope and depth of your project

 Contribute to your research design
 Indicate how your project will contribute to existing knowledge

What is a research objective?

Research objectives describe what your research project intends to accomplish. They should
guide every step of the research process, including how you collect data, build your argument,
and develop your conclusions.

Your research objectives may evolve slightly as your research progresses, but they should always
line up with the research carried out and the actual content of your paper.

Research aims

A distinction is often made between research objectives and research aims.

A research aim typically refers to a broad statement indicating the general purpose of your
research project. It should appear at the end of your problem statement, before your research
objectives.

Your research objectives are more specific than your research aim and indicate the particular
focus and approach of your project. Though you will only have one research aim, you will likely
have several research objectives.

How to write research aims and objectives

Once you‘ve established a research problem you want to address, you need to decide how you
will address it. This is where your research aim and objectives come in.

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Step 1: Decide on a general Objective

Your research aim should reflect your research problem and should be relatively broad.

Step 2: Decide on specific objectives

Break down your aim into a limited number of steps that will help you resolve your research
problem. What specific aspects of the problem do you want to examine or understand?

Step 3: Formulate your aims and objectives

Once you‘ve established your research aim and objectives, you need to explain them clearly and
concisely to the reader.

You‘ll lay out your aims and objectives at the end of your problem statement, which appears in
your introduction. Frame them as clear declarative statements, and use appropriate verbs to
accurately characterize the work that you will carry out.

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 CHAPTER FIVE
5. RESEARCH DESIGN
Chapter Objectives
After you study this Chapter, you will be able to explain:
 meaning of research design
 the significant of research design
 types of research design
5.1 Meaning of Research Design
Research design is the plan, structure and strategy of investigation conceived so as to obtain
answers to research questions and to control variance. It includes an outline of everything the
researcher will do including what observations to make, how to make them, and what type of
statistical analysis to use. A research design, in a way, is a set of instructions to the researcher on
how to arrange the conditions for collection and analysis of data in a manner that will achieve the
objectives of the study. In a sense, it can be taken as a control mechanism.
The formidable problem that follows the task of defining the research problem is the preparation
of the design of the research project, popularly known as the ―research design‖. Decisions
regarding what, where, when, how much, by what means concerning an inquiry or a research
study constitute a research design. ―A research design is the arrangement of conditions for
collection and analysis of data in a manner that aims to combine relevance to the research
purpose with economy in procedure.‖ In fact, the research design is the conceptual structure
within which research is conducted; it constitutes the blueprint for the collection, measurement
and analysis of data. As such the design includes an outline of what the researcher will do from
writing the hypothesis and its operational implications to the final analysis of data. Moreover,
research design is a set of advance decisions that make up the master plan specifying the
methods and procedures for collecting and analyzing the needed information.
5.2 The Significant of Research Design
There are reasons to justify the significant played upon research design. First, although every
research problem may seem totally unique, there are usually enough similarities among research
problems to allow us to make some decisions, in advance, as to the best plan to use to resolve the
problem. Thus, it facilitates the smooth sailing of the various research operations, thereby
making research as efficient as possible yielding maximal information with minimal expenditure
of effort, time and money. Second, there are some basic business research designs that can be
successfully matched to given research problems. In this way, they serve the researcher much
like the blue print serves the builder. In this regard, research design stands for advance planning
of the methods to be adopted for collecting the relevant data and the techniques to be used in
their analysis, keeping in view the objective of the research and the availability of staff, time and
money.
The main purpose of a research design is to enable the researcher to answer research questions as
validly, objectively, accurately and economically as possible. In more specific terms, a research
design sets up the framework for adequate tests of relationships among variables. In a sense, it
indicates what observations to make, how to make them, and how to analyze the data obtained
from observations. Moreover, a design specifies what type of statistical analysis to use and can
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even suggest the possible conclusions to be drawn from the analysis. Any research plan is
deliberately and specifically conceived and executed to bring empirical evidence to bear on the
research problem.

5.3 Types of Research Design

The choice of the most appropriate design depends largely upon the objective of the research.
Exploratory study
An exploratory study is undertaken when not much is known about the situation at hand, or no
information is available on how similar problems or research issues have been solved in the past.
Exploratory studies tend to be loosely structured with an objective of learning what the major
research tasks are to be. In fact, the immediate purpose of exploration is usually to develop
hypotheses or questions for further research.
The objectives of exploration may be accomplished with different techniques like secondary data
analysis, experience surveys and focus groups. The first step in an exploratory study is a search
of the secondary literature. Studies made by others for their own purposes represent secondary
data. It is inefficient to discover anew through the collection of primary data or original research
what has already been done and reported at a level sufficient for management to make a decision.
In such cases, extensive preliminary work needs to be done to gain familiarity with the
phenomena in the situation, and understand what is occurring, before we develop a model and set
up a rigorous design for comprehensive investigation. In essence, exploratory studies are
undertaken to better comprehend the nature of the problem since very few studies might have
been conducted in that area. The other is experience survey when we interview persons in an
experience survey, we should seek their ideas about important issues or aspects of the subject
and discover what is important across the subject‘s range of knowledge. The investigative format
we use should be flexible enough so that we can explore various avenues that emerge during the
interview. Extensive interviews with many people might have to be undertaken to get a handle
on the situation and understand the phenomena. More rigorous research could then proceed. The
last one is focus group discussion. Focus group is a group of people (typically 7 to 10
participants), led by a trained moderator. The facilitator or moderator uses group dynamics
principles to focus or guide the group in an exchange of ideas, feelings, and experiences on a
specific topic
In sum, exploratory studies are important for obtaining a good grasp of the phenomena of interest
and advancing knowledge through subsequent theory building and hypothesis testing.
Descriptive study
If the research is concerned with finding out who, what, where, when, or how much, then the
study is descriptive. A descriptive study is undertaken in order to ascertain and be able to
describe the characteristics of the variables of interest in a situation. Quite frequently, descriptive
studies are undertaken in organizations to learn about and describe the characteristics of a group
of employees, as for example, the age, educational level, job status, and length of service.
Descriptive studies are also undertaken to understand the characteristics of organizations that
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follow certain common practices. The goal of a descriptive study, hence, is to offer to the
researcher a profile or to describe relevant aspects of the phenomena of interest from an
individual, organizational, industry-oriented, or other perspective. For example, research on
crime is descriptive when it measures the types of crime committed, how often, when, where,
and by whom.
Whereas qualitative data obtained by interviewing individuals may help to understand the
phenomena, quantitative data in terms of frequencies, or mean and standard deviations, become
necessary for descriptive studies.
hypotheses testing
Studies that engage in hypotheses testing usually explain the nature of certain relationships, or
establish the differences among groups or the independence of two or more factors in a situation.
In hypotheses testing, the researcher goes beyond mere description of the variables in a situation
to an understanding of the relationships among factors of interest. Hypothesis-testing research
studies are those where the researcher tests the hypotheses of causal relationships between
variables. Such studies require procedures that will not only reduce bias and increase reliability,
but will permit drawing inferences about causality. Usually experiments meet this requirement.
Hypothesis testing is undertaken to explain the variance in the dependent variable or to predict
organizational outcomes.
The independence between two variables can be established through hypothesis testing. Consider
the hypothesis: Working the night shift (as opposed to the day shift) is related to whether or not
one is married.
Case Study
The case study design is a very popular form of qualitative analysis and involves a careful and
complete observation of a social unit, be that unit a person, a family, an institution, a cultural
group or even the entire community. It is a study design in depth rather than breadth. The case
study places more emphasis on the full analysis of a limited number of events or conditions and
their interrelations. Case studies that are qualitative in nature are, however, useful in applying
solutions to current problems based on past problem-solving experiences. They are also useful in
understanding certain phenomena, and generating further theories for empirical testing. In brief,
we can say that case study method is a form of qualitative analysis where in careful and complete
observation of an individual or a situation or an institution is done; efforts are made to study each
and every aspect of the concerning unit in minute details and then from case data generalizations
and inferences are drawn.
Type of investigation
A researcher should determine whether a causal or a correlational study is needed to find an
answer to the issue at hand. In a causal study, the researcher wants to define the cause of one or
more problems. The essential element of causation is that A ―produces‖ B or A ―forces‖ B to
occur. Causal study is necessary to establish a definitive cause-and-effect relationship. However,
if all that the researcher wants is a mere identification of the important factors ―associated with
the problem, then a correlational study is called for. When the researcher is interested in
delineating the important variables associated with the problem, the study is called a

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correlational study. In case of causal study, the researcher is keen on delineating one or more
factors that are undoubtedly causing the problem. In other words, the intention of the researcher
conducting a causal study is to be able to state that variable X cause‘s variable Y. So, when
variable X is removed or altered in some way, problem Y is solved. Quite often, however, it is
not just one or more variables that cause a problem in organizations. Given the fact that most of
the time there are multiple factors that influence one another and the researcher might be asked
to identify the crucial factors associated with the problem, rather than establish a cause-and-
effect relationship.
Whether a study is a causal or a correlational one thus depends on the type of research questions
asked and how the problem is defined. The following example will illustrate the difference. A
causal study question: Does smoking cause cancer? A correlational study question: Are smoking
and cancer related? Alternatively, are smoking, drinking, and tobacco associated with cancer? If
so, which of these contributes most to the variance in the dependent variable?

The Time Dimension

A study can be done in which data are gathered just once, perhaps over a period of days or weeks
or months, in order to answer a research question. Such studies are called one-time or cross-
sectional studies. Cross-sectional studies are carried out once and represent a "snapshot" of one
point in time; others are repeated over an extended period of time. The latter have come to be
known as longitudinal studies. In longitudinal studies, the researcher might want to study people
or phenomena at more than one point in time in order to answer the research question.
Using this design, some of the benefits of a longitudinal study can be assured by skillful
questioning about past attitudes, history, and future expectations.
The Research Environment / study setting
Designs also differ as to whether they occur under actual environmental conditions (field
conditions) or manipulated conditions (laboratory conditions) or we can classify the study setting
into natural environment where work proceeds normally (that is, in non-contrived settings) or in
artificial, contrived settings. These are called field and laboratory studies, respectively. The main
distinction hinges on whether the study is of subjects under normal conditions for the problem
being studied. Correlational studies are conducted in non-contrived settings, whereas most
rigorous causal studies are done in contrived lab settings. Correlational studies done in
organizations are called field studies.
Unit of analysis: Population to be Studied
The unit of analysis refers to the level of aggregation of the data collected during the subsequent
data analysis stage. If, for instance, the problem statement focuses on how to raise the
motivational levels of employees in general, then we are interested in individual employees in
the organization and would have to find out what we can do to raise their motivation. Here the
unit of analysis is the individual.
It is argued that there is no single best research design. As such, the researcher often has several
alternatives that can accomplish the stated research objectives. The ability to select the most
appropriate research design develops with experience.

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 CHAPTER SIX
6. QUALITATIVE RESEARCH METHODS
Chapter Objectives
After you study this Chapter, you will be able to explain:
 Define what qualitative research is?
 Identify Observation techniques
6.1 Qualitative research
Qualitative research and focus groups are often used as synonyms by marketing research
practitioners. Popular writings are full of examples of researchers referring to qualitative
research in one breath and focus groups in the next even though, as discussed earlier, focus
groups are only one type of qualitative research. The overwhelming popularity of the technique
has virtually overshadowed other qualitative tools.

Qualitative approach to research is concerned with subjective assessment of attitudes, opinions,

motivations and behaviour. Research in such a situation is a function of researcher‘s insights and
impressions. Such an approach to research generates results either in non-quantitative form or in
the form which are not subjected to rigorous quantitative analysis. Generally, the techniques of
focus group interviews, projective techniques and depth interviews are used.

Qualitative research and focus groups are often used as synonyms by marketing research
practitioners. Popular writings are full of examples of researchers referring to qualitative
research in one breath and focus groups in the next even though, as discussed earlier, focus
groups are only one type of qualitative research. The overwhelming popularity of the technique
has virtually overshadowed other qualitative tools.

Types of Focus Groups

Bobby Calder, a noted scholar on qualitative research, has classified focus groups into three
major groups: exploratory, clinical and experiencing.

Exploratory Groups

Exploratory focus groups are commonly used at the exploratory phase of the market research
process to aid in the precise definition of the problem. They also can be viewed as pilot testing.
Groups may be employed to test wording on a questionnaire or product placement instructions.
Exploratory groups may have a loftier goal of attempting to generate hypotheses for testing or
concepts for further research.

Clinical Focus Groups

Clinical focus groups are qualitative research in its purest form. The research is conducted as a
scientific endeavor, based upon the premise that a person‘s true motivation and feelings are

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subconscious in nature. What consumer says cannot be taken at a face value. Instead, the
research must probe beneath the level of consciousness.

Obviously clinical groups require a moderate with expertise in psychology and sociology. It is
assumed that a person‘s real motives must be in covered using clinical judgment. Thus, the focus
group becomes the data input source for clinical judgment. The moderator must be highly skilled
to entire participate into revealing inner feelings and thoughts.

Because of the difficulty of validating findings from clinical groups and in skilled moderators
attempting to conduct clinical groups, their popularity has markedly diminished.

3. Experiencing Focus Groups

A researcher who speaks of ―doing a few groups‖ usually is referring to experiencing focus
groups. Experiencing focus groups are those focus groups that enable a client to observe and
listen to how consumers think and feel about products.

Thus, an experiencing approach represents an opportunity to ―experience‖ a flesh and blood

consumer. It allows the researcher to experience the emotional framework in which the product
is being used. In a sense, the researcher can go into a person‘s life and relive with him or her all
the satisfaction, dissatisfactions, rewards, and frustrations experienced when the product is taken
home.

Conducting Focus Groups

There are certain steps involved in conducting a focus group. The details of which is as
illustrated below:

All marketing managers want to know how well their promotional programs are working. This
information is critical to planning for the next period, since program adjustments and/or
maintenance are based on evaluation of current strategies.

The issues involved in measuring the effects of advertising includes reasons for testing, reasons
companies do not test, and the review and evaluation of various research methodologies. We
arrived at a number of conclusions: (1) advertising research to measure effectiveness is important

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to the promotional program, (2) not enough companies test their ads, and (3) problems exist with
current research methodologies.

Problems often result when measures taken to determine such effects are inaccurate or
improperly used. This unit demonstrated that testing must meet a number of criteria (defined by
PACT) to be successful. These evaluations should occur both before and after the campaigns are
implemented.

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 CHAPTER SEVEN
7. QUANTITATIVE RESEARCH METHODS
Chapter Objectives
After you study this Chapter, you will be able to explain:
 Meaning of quantitative research methods
 Alternative data collection modes
 Determining factors of survey method
Introduction

Quantitative research is regarded as the organized inquiry about phenomenon through collection
of numerical data and execution of statistical, mathematical or computational techniques. The
source of quantitative research is positivism paradigm that advocates for approaches embedded
in statistical breakdown that involves other strategies like inferential statistics, testing of
hypothesis, mathematical exposition, experimental and quasi-experimental design
randomization, blinding, structured protocols, and questionnaires with restricted variety of
prearranged answers (Lee, as cited in Slevitch, 2011). Quantitative Research:-

 On the other hand Quantitative Research is the systematic and scientific investigation of
quantitative properties and phenomena and their relationships.
 The objective of quantitative research is to develop and employ mathematical models,
theories and hypotheses pertaining to natural phenomena.
 The process of measurement is central to quantitative research.
 Quantitative research involves surveys and experiments
Quantitative approach typically concentrates on measuring or counting and involves collecting
and analyzing numerical data and applying statistical tests.

7.1. Alternative data collection modes

Alternative Methods of Data Collection

We‘ve described a few of the most prominent methods of analysis for the social sciences in
previous chapters. But interviews and surveys aren‘t the only way to collect data. In this chapter
we‘ll describe a few other ways of collecting and using data. These tools might be useful as you
develop your own research projects. The first type discussed, experiments, is considered the gold
standard for science and is often harder to construct than a survey or interview. The other two
methods or data types described don‘t involve human interaction, and that significantly lowers
the costs of your research project and means you may be able to begin on your research
immediately. However, there are other limitations created by those methods.

A. Experiments

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A. Experiments are far more common in the natural sciences than the social ones. That‘s not
because social scientists don‘t like experiments, but because humans don‘t like being
experimented on.

The advantage of using an experiment is control. As the researcher you get to create the setting
and the conditions for an experiment. With an experiment you‘re not just seeing what people
think (―what percentage of people support clean energy policies?‖) but testing the impact of a
treatment that you‘ve identified (―does seeing that a politician of the same party supports clean
energy make voters more likely to voice support‖).

The core idea of an experiment is that you have two groups: the treatment and the control group.
The two groups should be similar on any demographics or characteristics that would affect your
outcome of interest. For instance, you‘d want a mix of women and men, liberals and
conservatives, young and old, in your two groups. That way, you can eliminate or minimize the
impact of those things when you look at the results. Because the treatment and control group are
similar on other characteristics, you can assume that the only meaningful difference between
them is the treatment you give them, so any difference in the outcome is the result of that
treatment.

B. Natural experiments

Because of those barriers and others, political science and public policy often rely on something
called natural experiments. Could a political scientist convince a dozen cities to change the
rules of their elections from year to year and join a treatment group, while another set of cities
leaves everything the same? No. But sometimes cities or states choose to take an activity which
allows the researcher to approximate an experiment in a natural setting. While that won‘t provide
the researcher as much control as they would want in a lab, they can still potentially identify the
impact of the changes.

C. Textual Analysis

Experiments involve a lot of money and contact with the humans involved. Other methods of
data collection can reduce those costs.

Just as we‘ve already discussed using words as data in the case of interviews, we can use an
entire body of written text as well. Sometimes we can use it in the same way as the types of
words we gather from interviews, but it often also allows us different opportunities.

Textual analysis is also a great technique to use when attempting to triangulate information.
Triangulation is a scientific approach to overcome weaknesses in a study by using different
approaches to measure similar characteristics. In the qualitative chapter we discussed mixed-

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methods approaches, whereby we might use surveys and interviews in the same study. That‘s an
attempt at triangulation (as well as answering additional questions).

Say you‘re studying stress levels in college students, and your survey shows that students self-
report that they are very stressed and are getting more stressed as they move through college.
That‘s interesting for your research, but it comes with the caveat that asking someone whether
they‘re stressed doesn‘t prove they‘re stressed, they might be wrong or lying or just having a
really bad day. But your survey becomes stronger if you can triangulate it with external data.
You might be able to review blog posts by students to show that the language they used during
their time at college indicates they are getting more stressed. In the same way you want to hear
similar things from multiple people during interviews to trust it, you want to see similar signs f

D. Archival Data

We described quantitative analysis earlier as being done primarily with survey data, and that‘s
sometimes true. But often, a researcher doesn‘t need to do the survey themselves. Similarly to
finding text that is freely available, there are a large number of surveys and other quantitative
data that are available online for use for free. These are called archival data because it is
archived somewhere by someone. If you collect your own data that‘s called primary data, but
when you get the data second hand it‘s called archival. It doesn‘t refer to it being stored in some
libraries dusty archive, it just means that it exists externally of you. The list of sites below is
going to be fairly partial to begin. Hopefully future editions of this textbook will have a larger
and more complete list of what‘s available. My goal is just to give people an of all the interesting
data that already exists.

7.2 Factors determining the choice of a particular survey method

Keeping these in mind will help ensure that you collect high quality data that you can act
on with confidence.

 Your Mode of Data Collection. ...

 Impact of Survey Fatigue. ...
 The Effect of Survey Question Wording. ...
 How You Order Your Questions. ...
 Different Survey Question Formats. ...
 Accuracy of the Answers You Receive.

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 CHAPTER EIGHT
8. MEASUREMENTS IN RESEARCH

Chapter Objectives
After you study this Chapter, you will be able to explain:
 Define what Measurements in Research
 Identify Levles of MEASUREMENT SCALES
8.1 Basic concepts in measurement
In our daily life we are said to measure when we use some yardstick to determine weight, height,
or some other feature of a physical object. We also measure when we judge how well we like a
song, a painting or the personalities of our friends. We, thus, measure physical objects as well as
abstract concepts. Measurement is a relatively complex and demanding task, specially so when it
concerns qualitative or abstract phenomena. By measurement we mean the process of assigning
numbers to objects or observations, the level of measurement being a function of the rules under
which the numbers are assigned. For instance, measuring such things as social conformity,
intelligence, or marital adjustment is much less obvious and requires much closer attention than
measuring physical weight, biological age or a person‘s financial assets. We can as well record
―Yes or No‖ answers to a question as ―0‖ and ―1‖ (or as 1 and 2 or perhaps as 59 and 60). In this
artificial or nominal way, categorical data (qualitative or descriptive) can be made into numerical
data and if we thus code the various categories, we refer to the numbers we record as nominal
data. Nominal data are numerical in name only, because they do not share any of the properties
of the numbers we deal in ordinary arithmetic. For instance if we record marital status as 1, 2, 3,
or 4 as stated above, we cannot write 4 > 2 or 3 < 4 and we cannot write 3 – 1 = 4 – 2, 1 + 3 = 4
or 4 ÷ 2 = 2. In those situations when we cannot do anything except set up inequalities, we refer
to the data as ordinal data. For instance, if one mineral can scratch another, it receives a higher
hardness number and on Mohs‘ scale the numbers from 1 to 10 are assigned respectively to talc,
gypsum, calcite, fluorite, apatite, feldspar, quartz, topaz, sapphire and diamond. With these
numbers we can write 5 > 2 or 6 < 9 as apatite is harder than gypsum and feldspar is softer than
sapphire, but we cannot write for example 10 – 9 = 5 – 4, because the difference in hardness
between diamond and sapphire is actually much greater than that between apatite and fluorite. It
would also be meaningless to say that topaz is twice as hard as fluorite simply because their
respective hardness numbers on Mohs‘ scale are 8 and 4. The greater than symbol (i.e., >) in
connection with ordinal data may be used to designate ―happier than‖ ―preferred to‖ and so on.
When in addition to setting up inequalities we can also form differences, we refer to the data as
interval data. Suppose we are given the following temperature readings (in degrees Fahrenheit):
58°, 63°, 70°, 95°, 110°, 126° and 135°. In this case, we can write 100° > 70° or 95° < 135°
which simply means that 110° is warmer than 70° and that 95° is cooler than 135°. We can also
write for example 95° – 70° = 135° – 110°, since equal temperature differences are equal in the

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sense that the same amount of heat is required to raise the temperature of an object from 70° to
95° or from 110° to 135°. On the other hand, it would not mean much if we said that 126° is
twice as hot as 63°, even though 126° ÷ 63° = 2. To show the reason, we have only to change to
the centigrade scale, where the first temperature becomes 5/9 (126 – 32) = 52°, the second
temperature becomes 5/9 (63 – 32) = 17° and the first figure is now more than three times the
second. This difficulty arises from the fact that Fahrenheit and Centigrade scales both have
artificial origins (zeros) i.e., the number 0 of neither scale is indicative of the absence of
whatever quantity we are trying to measure.

8.2 Levles of MEASUREMENT SCALES

From what has been stated above, we can write that scales of measurement can be considered in
terms of their mathematical properties. The most widely used classification of measurement
scales are: (a) nominal scale; (b) ordinal scale; (c) interval scale; and (d) ratio scale. (a)
Nominal scale:
Nominal scale is simply a system of assigning number symbols to events in order to label them.
The usual example of this is the assignment of numbers of basketball players in order to identify
them. Such numbers cannot be considered to be associated with an ordered scale for their order
is of no consequence; the numbers are just convenient labels for the particular class of events and
as such have no quantitative value. Nominal scales provide convenient ways of keeping track of
people, objects and events. One cannot do much with the numbers involved. For example, one
cannot usefully average the numbers on the back of a group of football players and come up with
a meaningful value
Nominal scale is the least powerful level of measurement. It indicates no order or distance
relationship and has no arithmetic origin. A nominal scale simply describes differences between
things by assigning them to categories. Nominal data are, thus, counted data. The scale wastes
any information that we may have about varying degrees of attitude, skills, understandings, etc.
In spite of all this, nominal scales are still very useful and are widely used in surveys and other
ex-post-facto research when data are being classified by major sub-groups of the population.
(b) Ordinal scale: The lowest level of the ordered scale that is commonly used is the ordinal
scale. The ordinal scale places events in order, but there is no attempt to make the intervals of the
scale equal in terms of some rule. Rank orders represent ordinal scales and are frequently used in
research relating to qualitative phenomena. A student‘s rank in his graduation class involves the
use of an ordinal scale. One has to be very careful in making statement about scores based on
ordinal scales. For instance, if Ram‘s position in his class is 10 and Mohan‘s position is 40, it
cannot be said that Ram‘s position is four times as good as that of Mohan. The statement would
make no sense at all. Ordinal scales only permit the ranking of items from highest to lowest.
Ordinal measures have no absolute values, and the real differences between adjacent ranks may
not be equal.

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(c) Interval scale: In the case of interval scale, the intervals are adjusted in terms of some rule
that has been established as a basis for making the units equal. The units are equal only in so far
as one accepts the assumptions on which the rule is based. Interval scales can have an arbitrary
zero, but it is not possible to determine for them what may be called an absolute zero or the
unique origin. The primary limitation of the interval scale is the lack of a true zero; it does not
have the capacity to measure the complete absence of a trait or characteristic. The Fahrenheit
scale is an example of an interval scale and shows similarities in what one can and cannot do
with it. One can say that an increase in temperature from 30° to 40° involves the same increase in
temperature as an increase from 60° to 70°, but one cannot say that the temperature of 60° is
twice as warm as the temperature of 30° because both numbers are dependent on the fact that the
zero on the scale is set arbitrarily at the temperature of the freezing point of water. The ratio of
the two temperatures, 30° and 60°, means nothing because zero is an arbitrary point. Interval
scales provide more powerful measurement than ordinal scales for interval scale also
incorporates the concept of equality of interval.
Ratio scale represents the actual amounts of variables. Measures of physical dimensions such as
weight, height, distance, etc. are examples. Generally, all statistical techniques are usable with
ratio scales and all manipulations that one can carry out with real numbers can also be carried out
with ratio scale values. Multiplication and division can be used with this scale but not with other
scales mentioned above. Geometric and harmonic means can be used as measures of central
tendency and coefficients of variation may also be calculated.
Sources of Error in Measurement
Measurement should be precise and unambiguous in an ideal research study. This objective,
however, is often not met with in entirety. As such the researcher must be aware about the
sources of error in measurement. The following are the possible sources of error in measurement.
(a) Respondent: At times the respondent may be reluctant to express strong negative feelings or
it is just possible that he may have very little knowledge but may not admit his ignorance. All
this reluctance is likely to result in an interview of ‗guesses.‘ Transient factors like fatigue,
boredom, anxiety, etc. may limit the ability of the respondent to respond accurately and fully. (b)
Situation: Situational factors may also come in the way of correct measurement. Any condition
which places a strain on interview can have serious effects on the interviewer-respondent
rapport. For instance, if someone else is present, he can distort responses by joining in or merely
by being present. If the respondent feels that anonymity is not assured, he may be reluctant to
express certain feelings. (c) Measurer: The interviewer can distort responses by rewording or
reordering questions. His behaviour, style and looks may encourage or discourage certain replies
from respondents. Careless mechanical processing may distort the findings. Errors may also
creep in because of incorrect coding, faulty tabulation and/or statistical calculations, particularly
in the data-analysis stage. (d) Instrument:
8.4 Tests of Sound Measurement
Sound measurement must meet the tests of validity, reliability and practicality. In fact, these are
the three major considerations one should use in evaluating a measurement tool. ―Validity refers
to the extent to which a test measures what we actually wish to measure. Reliability has to do

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with the accuracy and precision of a measurement procedure ... Practicality is concerned with a
wide range of factors of economy, convenience, and interpretability ...‖1 We briefly take up the
relevant details concerning these tests of sound measurement.
1. Test of Validity:Validity is the most critical criterion and indicates the degree to which an
instrument measures what it is supposed to measure. Validity can also be thought of as utility. In
other words, validity is the extent to which differences found with a measuring instrument reflect
true differences among those being tested. But the question arises: how can one determine
validity without direct confirming knowledge? The answer may be that we seek other relevant
evidence that confirms the answers we have found with our measuring tool. What is relevant,
evidence often depends upon the nature of the research problem and the judgement of the
researcher. But one can certainly consider three types of validity in this connection:
I) Content validity; (ii) Criterion-related validity and
(iii) Construct validity.
(i) Content validity is the extent to which a measuring instrument provides adequate coverage of
the topic under study. If the instrument contains a representative sample of the universe, the
content validity is good. Its determination is primarily judgemental and intuitive. It can also be
determined by using a panel of persons who shall judge how well the measuring instrument
meets the standards, but there is no numerical way to express it.
(ii) Criterion-related validity relates to our ability to predict some outcome or estimate the
existence of some current condition. This form of validity reflects the success of measures used
for some empirical estimating purpose. The concerned criterion must possess the following
qualities: Relevance: (A criterion is relevant if it is defined in terms we judge to be the proper
measure.) Freedom from bias: (Freedom from bias is attained when the criterion gives each
subject an equal opportunity to score well.) Reliability: (A reliable criterion is stable or
reproducible.) Availability: (The information specified by the criterion must be available.) In
fact, a Criterion-related validity is a broad term that actually refers to (i) Predictive validity and
(ii) Concurrent validity.
The former refers to the usefulness of a test in predicting some future performance whereas the
latter refers to the usefulness of a test in closely relating to other measures of known validity.
Criterion-related validity is expressed as the coefficient of correlation between test scores and
some measure of future performance or between test scores and scores on another measure of
known validity.
(iii) Construct validity is the most complex and abstract. A measure is said to possess construct
validity to the degree that it confirms to predicted correlations with other theoretical
propositions. Construct validity is the degree to which scores on a test can be accounted for by
the explanatory constructs of a sound theory. For determining construct validity, we associate a
set of other propositions with the results received from using our measurement instrument. If
measurements on our devised scale correlate in a predicted way with these other propositions, we
can conclude that there is some construct validity. If the above stated criteria and tests are met
with, we may state that our measuring instrument is valid and will result in correct measurement;
otherwise we shall have to look for more information and/or resort to exercise of judgement.

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2. Test of Reliability
The test of reliability is another important test of sound measurement. A measuring instrument is
reliable if it provides consistent results. Reliable measuring instrument does contribute to
validity, but a reliable instrument need not be a valid instrument. For instance, a scale that
consistently overweighs objects by five kgs., is a reliable scale, but it does not give a valid
measure of weight. But the other way is not true i.e., a valid instrument is always reliable.
Accordingly reliability is not as valuable as validity, but it is easier to assess reliability in
comparison to validity. If the quality of reliability is satisfied by an instrument, then while using
it we can be confident that the transient and situational factors are not interfering.
Two aspects of reliability viz., stability and equivalence deserve special mention. This will
improve equivalence aspect.
3. Test of Practicality :The practicality characteristic of a measuring instrument can be judged
in terms of economy, convenience and interpretability. From the operational point of view, the
measuring instrument ought to be practical i.e., it should be economical, convenient and
interpretable. Economy consideration suggests that some trade-off is needed between the ideal
research project and that which the budget can afford. The length of measuring instrument is an
important area where economic pressures are quickly felt. Although more items give greater
reliability as stated earlier, but in the interest of limiting the interview or observation time, we
have to take only few items for our study purpose.
Technique Of Developing Measurement Tools
The technique of developing measurement tools involves a four-stage process, consisting of the
following: (a) Concept development; (b) Specification of concept dimensions; (c) Selection of
indicators; and (d) Formation of index. The first and foremost step is that of concept
development which means that the researcher should arrive at an understanding of the major
concepts pertaining to his study.
8.3 Scaled response question forms
Each of these categories has a numeric value used to measure respondents‘ attitudes and
opinions.

The number of responses depends on how in-depth and diverse the data you want to collect for
your research.

Agreement:

Three-point Likert scale example for agreement

 Agree
 Neither agree nor disagree
 Disagree

Four-point Likert scale example for agreement

 Strongly agree
 Agree
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  Disagree
 Strongly disagree

Five-point Likert scale example for agreement

 Strongly agree
 Agree
 Neither agree nor disagree
 Disagree
 Strongly disagree

Seven-point Likert scale example for agreement

 Strongly agree
 Agree
 Somewhat agree
 Neither agree nor disagree
 Somewhat disagree
 Disagree
 Strongly disagree

Satisfaction:

Four-point Likert scale example for satisfaction:

 Very satisfied
 Satisfied
 Dissatisfied
 Very dissatisfied

Five-point Likert scale example for satisfaction

 Highly satisfied
 Satisfied
 Neutral
 Dissatisfied
 Highly dissatisfied

Seven-point Likert scale example for satisfaction:

 Completely satisfied
 Mostly satisfied
 Somewhat satisfied
 Neither satisfied nor dissatisfied
 Somewhat satisfied
 Mostly dissatisfied
 Completely dissatisfied

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Frequency:

Four Point Likert Scale Example for Frequency

 Never
 Rarely
 Often
 Every Time

Five-point Likert scale for frequency

 Never
 Rarely
 Sometimes
 Often
 Every time

Likelihood:

Four-point Likert scale example for likelihood

 Very unlikely
 Unlikely
 Likely
 Very likely

Five-point Likert scale example for likelihood

 Very unlikely
 Unlikely
 Neither likely nor unlikely
 Likely
 Very likely

There are several other examples, such as scales with 2, or 6 point Likert scales. Likert scales
with two answers are most often used to measure agreement and offer the answers agree and
disagree.

Such scales that measure opposite forces like the 2-point Likert scale are called bipolar scales.
The other Likert rankings with more solutions can help you in collecting more diverse data.
These ranking scales are called unipolar because they offer more answer options that rank from
very satisfied to very unsatisfied.

The Likert scale is excellent for accurate data collection because it requires respondents to think
more about their answers versus questions that offer only yes / no solutions.

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 CHAPTER NINE
9. DETERMINING THE SAMPLE PLAN AND SIZE
Chapter objectives
After you study this Chapter, you will be able to explain:
 Types Of Questionnaires
 Questionnaire Development Process
9.1 The Functions Of A Questionnaire
A questionnaire is simply a formalized schedule to obtain and record specified and relevant
information with tolerable accuracy and completeness. In other words, it directs the questioning
process and promotes clear and proper recording.

That can be spelled out in five functions of questionnaires relating to the respondent (person
interviewed):

1. Give the respondent clear comprehension of the questions.

2. Induce the respondent to want to cooperate and to trust that answers will be treated
confidentially.

3. Stimulate responses through greater introspection plumbing of memory, or reference to

records.

4. Give instruction on what is wanted and the manner of responding.

5. Identify what needs to be known to classify and verify the interview.

Questionnaire also should be designed to facilitate interviewers‘ administering them.

Questionnaire design also should anticipate the requirement of efficient data processing.

9.2 The Questionnaire Development Process

Designing a questionnaire involves a logical series of steps. The steps may vary slightly from
researcher to researcher, but all researchers tend to follow the some general sequence committees
and line of authority can complicate the questionnaire design process. It is often wise to clear
each step of the design process with the individual who has the ultimate project authority.

The design process itself, such as question wording and format, can raise additional issues of
unanswered question. This, in turn can send the researcher back to step one a clearer delineation
of information sought.

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The steps involved in questionnaire development are as illustrated below:

1. Determine survey objectives, resources and constraints

2. Determine Data collection method(s)

3. Determine question response format

4. Decide question wording

5. Establish questionnaire flow and layout

6. Evaluate the questionnaire and layout

7. Obtain appraisal from all relevant parties

8. Pretest and Revise

9. Prepare final copy

10. Implementation

9.3 Developing Questions

It is likely that at some point during your degree you will be required to create your own research
question. The research question states the specific issue or problem that your assignment will
focus on. It also outlines the task that you will need to complete.

There is no universal set of criteria for a good research question. Different disciplines have
different priorities and requirements. A good research question for a history paper will differ
from a good research question for a biology paper. In general, however, a good research question
should be:

 Clear and focused. In other words, the question should clearly state what the writer
needs to do.
 Not too broad and not too narrow. The question should have an appropriate scope. If
the question is too broad it will not be possible to answer it thoroughly within the word
limit. If it is too narrow you will not have enough to write about and you will struggle to
develop a strong argument (see the activity below for examples).
 Not too easy to answer. For example, the question should require more than a simple yes
or no answer.
 Not too difficult to answer. You must be able to answer the question thoroughly within
the given timeframe and word limit.

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  Researchable. You must have access to a suitable amount of quality research materials,
such as academic books and refereed journal articles.
 Analytical rather than descriptive. In other words, your research question should allow
you to produce an analysis of an issue or problem rather than a simple description of it
(more on this below).

9.4 Pre Coding The Questionnaire

The pre-coding method means a format to ask questions based on predetermined categories in
the questionnaire form. It is also called a closed-ended question method.

The Survey on Time Use and Leisure Activities conducted by the Statistics Bureau has adopted
this method since the start of the survey in 1976 with regard to survey items to grasp the
distribution of time use during 24 hours.

Questionnaire A for the 2011 survey uses a form on which the kinds of activities (20 categories)
have already been printed. Each household member is requested to classify his/her own
activities, and draw a line in the column for the relevant activity parallel to the time division axis
(see the example shown below).

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 CHAPTER TEN
10. DETERMINING THE SAMPLE PLAN AND SIZE
Chapters Objectives
After you study this Chapter, you will be able to explain:
 Define sampling
 sample size determination
 factors determining the sample size
 sampling Methods
10.1.1. Basic concepts in sampling
Surveys are useful and powerful in finding answers to research questions through data collection
and subsequent analyses, but they can do more harm than good if the population is not correctly
targeted. That is, if data were not collected from the people, events, or objects that can provide
the correct answers to solve the problem, the survey would be in vain. The process of selecting
the right individuals, objects, or events for study is known as sampling, which we will examine
in some detail in this chapter. A sample design is a definite plan for obtaining a sample from a
given population. It refers to the technique or the procedure the researcher would adopt in
selecting items for the sample. Sample design may as well lay down the number of items to be
included in the sample i.e., the size of the sample. Sample design is determined before data are
collected. There are many sample designs from which a researcher can choose. Some designs are
relatively more precise and easier to apply than others are. Researcher must select/prepare a
sample design, which should be reliable and appropriate for his research study.
Some Fundamental Definitions and Concepts
Population
Population refers to the entire group of people, events, or things of interest that the researcher
wishes to investigate. Population refers to the entire group of interest, be it the totality of people,
animals or inanimate objects under consideration. If a banker is interested in investigating the
savings habits of civil servants in the Sodo city, then all civil servants in Sodo city will form the
population. If an organizational consultant is interested in studying the effects of job satisfaction
on employees‘ performance, all the workers in this particular company then will make up the
population. A study on the entire population of interest is called a census or complete
enumeration. However, is rarely done since in most situations the population of interest may be
very large that is impractical or impossible to study.
Census and sample survey
All items in any field of inquiry constitute a ‗Universe‘ or ‗Population.‘ A complete enumeration
of all items in the ‗population‘ is known as a census inquiry. It can be presumed that in such an
inquiry, when all items are covered, no element of chance is left and highest accuracy is
obtained. However, in practice this may not be true. Even the slightest element of bias in such an
inquiry will get larger and larger as the number of observation increases. Moreover, there is no
way of checking the element of bias or its extent except through a resurvey or use of sample
checks. Besides, this type of inquiry involves a great deal of time, money, and energy. Therefore,

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when the field of inquiry is large, this method becomes difficult to adopt because of the
resources involved. At times, this inquiry is practically beyond the reach of ordinary researchers.
Perhaps, government is the only institution (if it too large), which can get the complete
enumeration carried out. There are times and requirements where governments have to indulge in
census survey even if it is time consuming and very expensive as it needs to formulate policies
and welfare programs for the population. For example, when a government has to count heads of
the population, it cannot conduct a sample survey to count the number of people in the country.
Even the government adopts this in very rare cases such as population census conducted once in
a decade. Further, many a time it is not possible to examine every item in the population, and
sometimes it is possible to obtain sufficiently accurate results by studying only a part of total
population. In such cases, there is no utility of census studies.
However, it needs to be emphasized that when the universe is a small one, it is no use resorting
to a sample survey. When field studies are undertaken in practical life, considerations of time
and cost almost invariably lead to a selection of respondents i.e., selection of only a few items.
Therefore, when data is to be collected only from some members of the population, it is known
as sample survey. The respondents selected should be as representative of the total population as
possible. The selected respondents constitute what is technically called a ‗sample‘ and the
selection process is called ‗sampling.‘ The survey so conducted is known as ‗sample survey‘.
Algebraically, let the population size be N and if a part of size n (which is < N) of this population
is selected according to some rule for studying some characteristic of the population, the group
consisting of these n units is known as ‗sample‘. Researcher must prepare a sample design for his
study i.e., he must plan how a sample should be selected and of what size such a sample would
be.
Sampling
The basic idea of sampling is that by selecting some of the elements in a population, we may
draw conclusions about the entire population. Sampling is the process of selecting a sufficient
number of elements from the population, so that a study of the sample and an understanding of
its properties or characteristics would make it possible for us to generalize such properties or
Characteristics to the population elements.
Reasons for Sampling
The reasons for using a sample, rather than collecting data from the entire population, are self-
evident. In research investigations involving several hundreds and even thousands of elements, it
would be practically impossible to collect data from, or test, or examine every element. Even if it
were possible, it would be prohibitive in terms of time, cost, and other human resources. Study of
a sample rather than the entire population is also sometimes likely to produce more reliable and
accurate results. This is mostly because fatigue is reduced and fewer errors will therefore result
in collecting data, especially when a large number of elements are involved. In a few cases, it
would also be impossible to use the entire population to gain knowledge about, or test something
because a census would mean destruction. Consider, for instance, the case of electric bulbs. In
testing the life of a batch of bulbs, if we were to burn every bulb produced, there would be none
left to sell! This is known as destructive sampling. Sampling is also the only process possible if

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the population is infinite. Generally, sample survey/ sampling would be preferred over census
because of its efficiency, practicality, accuracy, and timeliness in large population.
The advantages of sampling over census studies are less convincing when the population is small
and the variability within the population is high. Two conditions are appropriate for a census
study: a census is (1) feasible when the population is small and (2) necessary when the elements
are quite different from each other. When the population is small and variable, any sample we
draw may not be representative of the population from which it is drawn. The resulting values
we calculate from the sample are incorrect as estimates of the population values
Element
An element is a single member of the population. If 1,000 blue-collar workers in a particular
organization happen to be the population to a researcher, each blue-collar worker there in is an
element. If 500 pieces of machinery were to be approved after inspecting a few, there would be
500 elements in this population. Incidentally, the census is a count of all elements in the human
population.
Population Frame /Sampling frame
The population frame is a listing of all the elements in the population from which the sample is
drawn. The payroll of an organization would serve as the population frame if its members were
to be studied. Likewise, the university registry containing a listing of all students, faculty,
administrators, and support staff in the university during a particular academic year or semester
could serve as the population frame for a study of the university population. A roster of class
students could be the population frame for the study of students in a class. The telephone
directory is also frequently used as a population frame for some types of studies, even though it
has an inherent bias inasmuch as some numbers are unlisted and certain others may have become
obsolete.
Sample
A sample is a subset of the population. It comprises some members selected from it. In other
words, some, but not all, elements of the population would form the sample. If 200 members are
drawn from a population of 1,000 blue-collar workers, these 200 members form the sample for
the study. That is, from a study of these 200 members, the researcher would draw conclusions
about the entire population of the 1,000 blue-collar workers. Likewise, if there are 145 in-
patients in a hospital and 40 of them are to be surveyed by the hospital administrator to assess
their level of satisfaction with the treatment received, then these 40 members will be the sample.
A sample is thus a subgroup or subset of the population. By studying the sample, the researcher
should be able to draw conclusions that would be generalizable to the population of interest.
Subject
A subject is a single member of the sample, just as an element is a single member of the
population. If 200 members from the total population of 1,000 blue-collar workers formed the
sample for the study, then each blue-collar worker in the sample is a subject. As another
example, if a sample of 50 machines from a total of 500 machines is to be inspected, then every
one of the 50 machines is a subject, just as every single machine in the total population of 500
machines is an element.

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Stages in Sampling Design
There are several questions to be answered in securing a sample. Each requires unique
information. While the questions presented here are sequential, an answer to one question often
forces a revision to an earlier one.
 What is the target population?
 What is the sampling frame?
 What size sample is needed?
 What is the appropriate sampling method?
While developing a sampling design, the researcher must pay attention to the following points:
Determine the target population/ universe: The first step in developing any sample design is to
clearly define the set of objects, technically called the universe, to be studied. The universe can
be finite or infinite. In finite universe the number of items is certain, but in case of an infinite
universe the number of items is infinite, i.e., we cannot have any idea about the total number of
items. The population of a city, the number of workers in a factory and the like are examples of
finite universes, whereas the number of stars in the sky, listeners of a specific radio programme,
throwing of a dice etc. are examples of infinite universes.
Sampling unit: A decision has to be taken concerning a sampling unit before selecting sample.
During the actual sampling process, the elements of the population must be selected according to
a certain procedure. The sampling unit is a single element or group of elements subject to
selection in the sample. Sampling unit may be a geographical one such as state, district, village,
etc., or a construction unit such as house, etc., or it may be a social unit such as family, club,
school, etc., or it may be an individual. The researcher will have to decide one or more of such
units that he has to select for his study
Source list: It is also known as ‗sampling frame‘ from which sample is to be drawn. It contains
the names of all items of a universe (in case of finite universe only). If source list is not
available, researcher has to prepare it. Such a list should be comprehensive, correct, reliable and
appropriate. It is extremely important for the source list to be as representative of the population
as possible.
Size of sample: This refers to the number of items to be selected from the universe to constitute a
sample. Student researchers often ask ―How big should my sample be?‖ The first answer is ―use
as large a sample as possible.‖ The reason is obvious: the larger the sample, the better it
represents the population. However, if the sample size is too large, then the value of sampling —
reducing time and cost of the study — is negligible. The size of sample should be neither
excessively large, nor too small. The more common problem, however, is having too few
subjects, not too many. Therefore, the more important question is, ―What‘s the minimum number
of subjects I need?‖ The question is still difficult to answer. Here are some of the factors, which
relate to proper sample size; efficiency, representativeness, reliability, and flexibility. It should
be optimum. An optimum sample is one, which fulfils the requirements of efficiency,
representativeness, reliability, and flexibility. While deciding the size of sample, researcher must
determine the desired precision as also an acceptable confidence level for the estimate. The size
of population variance needs to be considered as in case of larger variance usually a bigger

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sample is needed. The size of population must be kept in view for this also limits the sample size.
The parameters of interest in a research study must be kept in view, while deciding the size of
the sample. Costs to dictate the size of sample that we can draw. As such, budgetary constraint
must invariably be taken into consideration when we decide the sample size
Choosing of sampling types or techniques probability or none probability: as we shall see later
in the next page these two broad sampling design types further classified into several sampling
techniques out of which the researcher must choose the appropriate one for his study.
Budgetary constraint: cost considerations, from practical point of view, have a major impact
upon decisions relating to not only the size of the sampling but also to the type of sample. This
fact can even lead to the use of a non-probability sample.
As we mentioned earlier the researcher must decide the type of sampling he will use i.e., he must
decide about the technique to be used in selecting the items for the sample. In fact, this technique
or procedure stands for the sample design itself. Several sampling techniques are there thus the
researcher must select the design that consider a given sample size, for a given cost, has a
smaller sampling error.
Criteria of selecting a sampling procedure
In this context, one must remember that two costs are involved in a sampling procedure viz., the
cost of collecting the data and the cost of an incorrect inference resulting from the data.
Researcher must keep in view the two causes of incorrect inferences viz., systematic bias, and
sampling error.
Systematic bias results from errors in the sampling procedures, and it cannot be reduced or
eliminated by increasing the sample size. Systematic (no sampling) errors result from no
sampling factors, primarily the nature of a study‘s design and the correctness of execution. At
best the causes responsible for these errors can be detected and corrected. Usually a systematic
bias is the result of one or more of the following factors:
Inappropriate sampling frame: If the sampling frame is inappropriate i.e., a biased
representation of the universe, it will result in a systematic bias
Defective measuring device: If the measuring device is constantly in error, it will result in
systematic bias. In survey work, systematic bias can result if the questionnaire or the interviewer
is biased. Similarly, if the physical measuring device is defective there will be systematic bias in
the data collected through such a measuring device.
Non-respondents: If we are unable to sample all the individuals initially included in the sample,
there may arise a systematic bias. The reason is that in such a situation the likelihood of
establishing contact or receiving a response from an individual is often correlated with the
measure of what is to be estimated.
Indeterminacy principle: Sometimes we find that individuals act differently when kept under
observation than what they do when kept in non-observed situations. For instance, if workers are
aware that somebody is observing them in course of a work study on the basis of which the
average length of time to complete a task will be determined and accordingly the quota will be
set for piece work, they generally tend to work slowly in comparison to the speed with which

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they work if kept unobserved. Thus, the indeterminacy principle may also be a cause of a
systematic bias.
Random sampling error is the difference between the sample result and the result of a census
conducted using identical procedures. Sampling errors are the random variations in the sample
estimates around the true population parameters. Sampling error decreases with the increase in
the size of the sample, and it happens to be of a smaller magnitude in case of homogeneous
population. The measurement of sampling error is usually called the ‗precision of the sampling
plan‘. If we increase the sample size, the precision can be improved.
In brief, while selecting a sampling procedure, researcher must ensure that the procedure causes
a relatively small sampling error and helps to control the systematic bias in a better way
Characteristics of a Good Sample Design
The ultimate test of a sample design is how well it represents the characteristics of the population
it purports to represent. From what has been stated above, we can list down the characteristics of
a good sample design as under:
Sample design must result in a truly representative sample.
Sample design must be such which results in a small sampling error.
Sample design must be viable in the context of funds available for the research study.
Sample design must be such so that systematic bias can be controlled in a better way.
Sample should be such that the results of the sample study can be applied, in general, for the
universe with a reasonable level of confidence.
10.2 Basic sampling methods
There are two major types of sampling designs: probability and non probability sampling. In
probability sampling, the elements in the population have some known chance or probability of
being selected as sample subjects. In non probability sampling, the elements do not have a
known or predetermined chance of being selected as subjects. Probability sampling designs are
used when the representativeness of the sample is importance in the interests of wider
generalizability. When time or other factors, rather than generalizability, become critical, non
probability sampling is generally used. Each of these two major designs has different sampling
techniques. Depending on the extent of generalizability desired, the demands of time and other
resources, and the purpose of the study, different types of probability and non-probability
sampling techniques are chosen. Key to the difference between non probability and probability
samples is the term random. In the dictionary, random is defined as ―without pattern‖ or as
―haphazard.‖ In sampling, random means something else entirely. These are discussed next.
Probability Sampling
When elements in the population have a known chance of being chosen as subjects in the
sample, we choice to a probability sampling design. Probability sampling is also known as
random sampling. Every element in the population has a known, nonzero probability of
selection. Here it is blind chance alone that determines whether one item or the other is selected.
The results obtained from probability or random sampling can be assured in terms of probability
i.e., we can measure the errors of estimation or the significance of results obtained from a
random sample, and this fact brings out the superiority of random sampling design over the

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deliberate sampling design. Random sampling ensures the law of statistical regularity, which
states that if on an average the sample chosen is a random one, the sample will have the same
composition and characteristics as the universe. This is the reason why random sampling is
considered as the best technique of selecting a representative sample.
Simple Random Sampling
Simple random sampling is a probability sampling procedure that gives every element in the
target population, and each possible sample of a given size, an equal chance of being selected.As
such, it is an equal probability selection method (EPSEM). Let us say there are 1,000 elements in
the population, and we need a sample of 100. Suppose we were to drop pieces of paper in a hat,
each bearing the name of one of the elements, and draw 100 of those from the hat with our eyes
closed. We know that the first piece drawn will have a 1/1,000 chance of being drawn, the next
one a 1/999 chance of being drawn, and so on. In other words, we know that the probability of
any one of them being chosen is 1 in the number of the population, and we also know that each
single element in the hat has the same or equal probability of being chosen.
There are two types of simple random sampling: sampling with replacement and sampling
without replacement. In sampling with replacement, after an element has been selected from the
sampling frame, it is returned to the frame and is eligible to be selected again. In sampling
without replacement, after an element is selected from the sampling frame, it is removed from
the population and is not returned to the sampling frame. Sampling without replacement tends to
be more efficient than sampling with replacement in producing representative samples. It does
not allow the same population element to enter the sample more than once. Sampling without
replacement is more common than sampling with replacement.
What are the steps in selecting a simple? There are four major steps in selecting a simple random
sample:
Define the target population.
Identify an existing sampling frame of the target population or develop a new one.
Assign a unique number to each element in the frame.
Randomly select the targeted number of population elements.
With regard to the question of how to take a random sample in actual practice, we could, in
simple cases. The technique typically used in carrying out step 4 is the lottery method. A lottery
method in which individual units are picked up from the whole group not deliberately but by
some mechanical process. In using the lottery method (also referred to as the ―blind draw
method‖ and the ―hat model‖), the numbers representing each element in the target population
are placed on chips (i.e., cards, paper, or some other objects).The chips are then placed in a
container and thoroughly mixed. Next, blindly select chips from the container until the desired
sample size has been obtained.
Examples include drawing names from a hat and selecting the winning raffle ticket from a large
drum. If the names or raffle tickets are thoroughly stirred, each person or ticket should have an
equal chance of being selected.
This sampling design, known as simple random sampling, has the least bias and offers the most
generalizability. However, this sampling process could become cumbersome and expensive; in

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addition, an entirely updated listing of the population may not always be available. For these and
other reasons, other probability sampling designs are often chosen instead.
Systematic Sampling
The systematic sampling design involves drawing every Kth element in the population starting
with a randomly chosen element between 1 and K. Systematic sampling (or interval random
sampling) is a probability sampling procedure in which a random selection is made of the first
element for the sample, and then subsequent elements are selected using a fixed or systematic
interval until the desired sample size is reached. Elements of randomness are introduced into this
kind of sampling by using random numbers to pick up the unit with which to start. The steps in
this sampling technique could be define population; develop sampling frame; decide the sample
size; determine what k, then first unit select by random numbers then every nth unit selected (e.g.
every 25th).Thus, in systematic sampling, only the first unit is selected randomly and the
remaining units of the sample are selected at fixed intervals. Although a systematic sample is not
a random sample in the strict sense of the term, but it is often considered reasonable to treat
systematic sample as if it were a random sample. The procedure is exemplified below. If we
want a sample of 35 households from a total population of 245 houses in a particular locality,
then we could sample every seventh house starting from a random number from one to seven. In
this case k can be calculated as follows K=N/n= 245/35= 7. Then after you determine K, the next
step is selecting the starting point from 1 to K (1to7). Let us say that the random number is
seven, then houses numbered 7, 14, 21, 28, and so on, would be sampled until the 35 houses are
selected at fixed interval seven.
Systematic sampling has certain plus points. It can be taken as an improvement over a simple
random sample in as much as the systematic sample is spread more evenly over the entire
population. It is an easier and less costly method of sampling and can be conveniently used even
in case of large populations. However, there are certain dangers too in using this type of
sampling. If there is a hidden periodicity in the population, systematic sampling will prove to be
an inefficient method of sampling. For instance, every 25th item produced by a certain
production process is defective. If we were to select a 4% sample of the items of this process in a
systematic manner, we would get either all defective items or all good items in our sample
depending upon the random starting position.
Stratified Random Sampling
If a population from which a sample is to be drawn does not constitute a homogeneous group,
stratified sampling technique is generally applied in order to obtain a representative sample.
Under stratified sampling the population is divided into several sub-populations that are
individually more homogeneous than the total population, (the different sub-populations are
called ‗strata‘) and then we select items from each stratum to constitute a sample. Stratified
random sampling, as its name implies, involves a process of stratification or segregation,
followed by random selection of subjects from each stratum. The population is first divided into
mutually exclusive groups that are relevant, appropriate, and meaningful in the context of the
study.

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For instance, if an organization employs 10 top managers, 30 middle managers, 50 lower-level
managers, 100 supervisors, 500 clerks, and 20 secretaries, and a stratified sample of about 140
people is needed for some specific survey, the researcher might decide to include in the sample
20% of members from each stratum. That is, members represented in the sample from each
stratum will be proportionate to the total number of elements in the respective strata. This would
mean that 2 from the top, 6 from the middle, and 10 from the lower levels of management will be
included in the sample. This type of sampling is called a proportionate stratified random
sampling design. It has be determined by using this formula ni where, Ni= total population
of strata i, ni= sample from strata I, n = sample from the total population, N total population

Table 6.1: Proportionate stratified random sampling

Job level Total Number of element from Proportionate Sampling

each strata(Ni) ni

Top level management 10 2

Middle level management 30 6
Lower level management 50 10
Supervisor 100 20
Clerks 500 100
Secretaries 20 4
Total N=710 n=142
A researcher might decide to use a disproportionate stratified random sampling procedure instead
of using proportionate stratified random sampling. Disproportionate sampling decisions are made
when either some stratum or strata are too small or too large, or when there is more variability
suspected within a particular stratum. As variability increases, sample size must increase to
provide accurate estimates. Especially it is considered as reasonable to take larger samples from
the more variable strata and smaller samples from the less variable strata, we can then account
for both (differences in stratum size and differences in stratum variability) by using
disproportionate sampling design.
Disproportionate stratified sampling can be done though equal allocation (equal sample sizes or
optimal allocation therefore, for our purpose we are going to see the most commonly used
method i.e. optimal allocation (Neyman allocation). It can be performed by requiring.

Where Q1, Q2…. and Qk denote the standard deviation of i strata, N1, N2…… Ni, denote the
size of i strata and n1, n2 … ni denote the sample of i strata. This is called ‗optimum allocation‘
in the context of disproportionate sampling. The allocation in such a situation results in the
following formula for determining the sample sizes different strata:
For i = 1, 2….. and k.

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We may illustrate the use of this by an example. A total of 10000 population is stratified in the
following strata; A population is divided into three strata so that N1 = 5000, N2 = 2000 and N3 =
3000. Respective standard deviations are: σ1, σ2, σ3 =15, 18, and 5 respectively.
How should a sample of size n = 84 be allocated to the three strata, if we want optimum
allocation using disproportionate sampling design? Solution: Using the disproportionate
sampling design for optimum allocation, the sample sizes of different strata will be determined
as under:
Sample size for strata with N1 = 5000
( )( )
6300000/126000 = 50
Sample size for strata with N2 = 2000
( )( )
=302400/126000 = 24
Sample size for strata with N3 = 3000
( )( )
=1260000/126000 = 10

Disproportionate stratified sampling, more specifically, optimum allocation, may be more

appropriate for a study than proportionate stratified sampling when the strata differ in terms of
data collection costs and the variability of the variables of interest. Optimum allocation may be
applied focusing on cost only, precision only, or both cost and precision jointly.
In summary, stratified random sampling involves stratifying the elements along meaningful
levels and taking proportionate or disproportionate samples from the strata. This sampling design
is more efficient than the simple random sampling design because, for the same sample size,
each important segment of the population is better represented, and more valuable and
differentiated information is obtained with respect to each group
Cluster Sampling
Cluster sampling is a probability sampling procedure in which elements of the population are
randomly selected in naturally occurring groupings (clusters). Groups of elements that, ideally,
would have heterogeneity among the members within each group are chosen for study in cluster
sampling. Cluster samples offer more heterogeneity within groups and more homogeneity among
group—the reverse of what we find in stratified random sampling, where there is homogeneity
within each group and heterogeneity across groups. It is useful when a list of elements of the
population is not available but it is easy to obtain a list of clusters. If only a sample of elements is
taken from each selected cluster, the method is known as two-stage sampling. A two-stage
cluster sample is obtained by first selecting a sample of clusters, and then selecting a sample of
elements from each sampled cluster. Often a hierarchy of clusters is used: First some large
clusters are selected, next some smaller clusters are drawn within the selected large clusters, and
so on until finally elements are selected within the final-stage clusters.
The unit costs of cluster sampling are much lower than those of other probability sampling
designs of simple or stratified random sampling or systematic sampling. However, cluster
sampling exposes itself to greater biases and is the least generalizable of all the probability
sampling designs, because most naturally occurring clusters in the organizational context do not

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contain heterogeneous elements. In other words, the conditions of intra-cluster heterogeneity and
inter-cluster homogeneity are often not met. For these reasons, cluster-sampling technique is not
very common in organizational research.
No probability Sampling
In non probability sampling, the elements do not have a known or predetermined chance of being
selected as subjects. In non probability sampling, the probability of any particular member of the
population being chosen is unknown. The selection of sampling units in non probability
sampling is quite arbitrary, as researchers rely heavily on personal judgment. Under non-
probability sampling, the organizers of the inquiry purposively choose the particular units of the
universe for constituting a sample on the basis that, the small mass that they so select out of a
huge one will be typical or representative of the whole. For instance, if economic conditions of
people living in a state are to be studied, a few towns and villages may be purposively selected
for intensive study on the principle that they can be representative of the entire state. Thus, the
judgment of the organizers of the study plays an important part in this sampling design.
In such a design, personal element has a great chance of entering into the selection of the sample.
Thus, there is always the danger of bias entering into this type of sampling technique. Sampling
error in this type of sampling cannot be estimated and the element of bias, great or small, is
always there. This sampling design may be adopted because of the relative advantage of time and
money inherent in this method of sampling.
Convenience Sampling
As the name suggests, convenience sampling refers to sampling by obtaining people or units that
are conveniently available. Researchers generally use convenience samples to obtain a large
number of completed questionnaires quickly and economically, or when obtaining a sample
through other means is impractical. The user of research based on a convenience sample should
remember that projecting the results beyond the specific sample is inappropriate. Convenience
samples are best used for exploratory research when additional research will subsequently be
conducted with a probability sample.
Judgment Sampling
Instead of obtaining information from those who are most readily or conveniently available, it
might sometimes become necessary to obtain information from specific target groups. Judgment
(purposive) sampling is a non probability sampling technique in which an experienced individual
selects the sample based on his or her judgment about some appropriate characteristics required
of the sample member. Researchers select samples that satisfy their specific purposes, even if
they are not fully representative.
Quota sampling
Under quota sampling, the researcher is simply given quotas to be filled from the different strata.
In other words, the actual selection of the items for the sample is left to the researcher‘s
discretion. This type of sampling is very convenient and is relatively inexpensive. However, the
samples so selected certainly do not possess the characteristic of random samples. Quota
sampling can be considered as a form of proportionate stratified sampling, in which a
predetermined proportion of people are sampled from different groups, but on a convenience

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basis. Quota samples are essentially judgment samples and inferences drawn on their basis are
not amenable to statistical treatment in a formal way.
Snowball Sampling
Snowball Sampling is a non-probability sampling technique that begins by identifying someone
who meets the criteria for inclusion in your study. You then ask them to recommend others who
they may know who also meet the criteria. This is a technique of identifying an initial selection
of respondents and then obtaining additional respondents through information provided by the
initial respondents. This technique is used to locate members of populations as referrals. It is a
process of referral process of referral- using existing subjects as a means of making contact with
others.
For example, you may want to study the topic on ―role of family income on female dropouts in
Wolaita Sodo University‖. Using snowball sampling you can ask one female dropout and ask her
to recommend you another dropout she knew and soon.
7.4 Central limit Theorem and Sampling Theory
When sampling is from a normal population, the means of samples drawn from such a
population are themselves normally distributed. However, when sampling is not from a normal
population, the size of the ample plays a critical role. When n is small, the shape of the
distribution will depend largely on the shape of the parent population, but as n gets large (n >
30), the shape of the sampling distribution will become more and more like a normal
distribution, irrespective of the shape of the parent population. The theorem, which explains this
sort of relationship between the shape of the population distribution and the sampling
distribution of the mean, is known as the central limit theorem. This theorem is by far the most
important theorem in statistical inference. It assures that the sampling distribution of the mean
approaches normal distribution as the sample size increases. In formal terms, we may say that the
central limit theorem states that ―the distribution of means of random samples taken from a
population having mean µ and finite variance σ2 approaches the normal distribution with mean
µ and variance σ2 /n as n goes to infinity.‖ ―The significance of the central limit theorem lies in
the fact that it permits us to use sample statistics to make inferences about population parameters
without knowing anything about the shape of the frequency distribution of that population other
than what we can get from the sample.
Sampling theory
Sampling theory is a study of relationships existing between a population and samples drawn
from the population. Sampling theory is applicable only to random samples. For this purpose, the
population or a universe may be defined as an aggregate of items possessing a common trait or
traits. In other words, a universe is the complete group of items about which knowledge is
sought. Finite universe is one, which has a definite and certain number of items. The term sample
refers to that part of the universe, which is selected for the purpose of investigation. The theory
of sampling studies the relationships that exist between the universe and the sample or samples
drawn from it.
The main problem of sampling theory is the problem of relationship between a parameter and a
statistic. The theory of sampling is concerned with estimating the properties of the population

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from those of the sample and also with gauging the precision of the estimate. This sort of
movement from particular (sample) towards general (universe) is what is known as statistical
induction or statistical inference. In clearer terms ―from the sample we attempt to draw inference
concerning the universe. In order to be able to follow this inductive method, we first follow a
deductive argument, which is that we imagine a population or universe (finite or infinite) and
investigate the behavior of the samples drawn from this universe applying the laws of
probability. The methodology dealing with all this is known as sampling theory. Sampling theory
is designed to attain one or more of the following objectives:
Statistical estimation: Sampling theory helps in estimating unknown population parameters from
a knowledge of statistical measures based on sample studies. In other words, to obtain an
estimate of parameter from statistic is the main objective of the sampling theory.
Testing of hypotheses: The second objective of sampling theory is to enable us to decide
whether to accept or reject hypothesis; the sampling theory helps in determining whether
observed differences are actually due to chance or whether they are significant.
Statistical inference: Sampling theory helps in making generalization about the
population/universe from the studies based on samples drawn from it. It also helps in
determining the accuracy of such generalizations.

10.3 Methods of determining sample size

We are now in a position to deal with the size of samples. If cost and other practical limitations
do not enter into the decision about the sample size, there is no difficulty in determining the
desired size. Recall the formula for the standard error of the mean:
s
S.E = n
It is the standard deviation of the variable under study in the population. Inverting, we then have
s2
n = S .E 
2

In order to calculate the sample size, n, the researcher has to have some idea of the standard
deviation in the population and must also decide how big a standard error can be tolerated.
If for example, a random sample is to be drawn from a population consisting of 10,000 sampling
units; and s2 = .20 and the desired S.E - .016, the estimated sample size is
.20
 781.25
n = .000256
If the sample size is too large relative to the population, the finite population correction is added.
In such cases, the final sample size is calculated by
n
n 
n
1  
N
Where N is the population size, in our example, if N = 10,000, then

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 781.25
n   725
781.25
1
10,000
In practice, decision concerning the sample size is more complicated. The first difficult relates to
the precision regard. Researcher must decide how precise they want their sample results to be,
that is, how large a standard error they can tolerate. Second, the decision on a sample size also
depends on the way the results are analyzed. Third, if more than one variable is to be studied, a
sample that is adequate for one variable may be unsatisfactory for another.

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 CHAPTER ELEVEN
11. DATA PREPARATION AND ANALYSIS
After studying this unit, you will be able to explain:

 Tto learn how survey are tabulated and cross tabulated

 To understand Stages in data analysing
 To understand the data entry process and data entry alternatives

Introduction
From a managerial perspective, information can be viewed as recorded experience useful for
making decisions. Responses on measurement instruments convey little information as such.
These raw data must be compiled, analyzed, and interpreted carefully before their complete
meanings and implications can be understood.
11.1 Stages in data analysing
Data analysis occurs in three main stages:
1. Data preparation
2. Checking the suitability of the data.
3. Testing the research questions or hypotheses.
Stage I: Data Preparation
a. Logging/Recording the Data
 For the incoming data from different sources you need to set up a procedure for logging
the information and keeping track of it.
 To do so, in most cases, researchers set up a database that enables to assess at any time
what data is already in and what is still outstanding.
 This can be done with any standard computerized database program (e.g., Microsoft
Access, Claris Filemaker).
 Or you can accomplish these using standard statistical programs (e.g., SPSS, SAS,
Minitab, Data desk).
b. Checking the Data for Accuracy/ Editing
 Editing of data is a process of examining the raw collected data to detect errors and
omissions and to correct these when possible.
 Editing is done to assure that the data are accurate, consistent with other facts
gathered, uniformly entered, as complete as possible and have been well arranged to
facilitate coding and tabulation.
 There are several questions you should ask as part of this initial data screening:
 Are the responses legible/ readable?
 Are all important questions answered?
 Are the responses complete?
 Is all relevant contextual information included (e.g., data, time, place, researcher)?
 With regard to points or stages at which editing should be done, one can talk of field
editing and central editing. Field editing consists in the review of the reporting forms by

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 the investigator for completing (translating or rewriting) what the latter has written in
abbreviated and/or in illegible form at the time of recording the respondents‘ responses.
This type of editing is necessary in view of the fact that individual writing styles often
can be difficult for others to decipher.This sort of editing should be done as soon as
possible after the interview, preferably on the very day or on the next day. While doing
field editing, the investigator must restrain himself and must not correct errors of
omission by simply guessing what the informant would have said if the question had been
asked.
 Central editing should take place when all forms or schedules have been completed and
returned to the office. This type of editing implies that all forms should get a thorough
editing by a single editor in a small study and by a team of editors in case of a large
inquiry. Editor(s) may correct the obvious errors such as an entry in the wrong place,
entry recorded in months when it should have been recorded in weeks, and the like.
 Missing Value Imputation: Virtually all databases have some number of missing values.
Unfortunately, statistical analysis of data sets with missing values can result in biased
results and incorrect inferences.
A few of the more widely used imputation techniques include the following
 Hot deck imputation: In this imputation technique, the researcher matches
participants on certain variables to identify potential donors. Missing values are then
replaced with values taken from matching respondents (i.e., respondents who are
matched on a set of relevant factors).
 Predicted mean imputation: Imputed values are predicted using certain statistical
procedures (i.e., linear regression for continuous data and discriminant function for
dichotomous or categorical data).
 Last value carried forward: Imputed values are based on previously observed
values. This method can be used only for longitudinal variables, for which
participants have values from previous data collection points.
 Group means: Imputed variables are determined by calculating the variable‘s group
mean (or mode, in the case of categorical data).
 All the wrong replies, which are quite obvious, must be dropped from the final
results, especially in the context of mail surveys.
Editors must keep in view several points while performing their work:
(a) They should be familiar with instructions given to the interviewers and coders as well as with
the editing instructions supplied to them for the purpose.
(b) While crossing out an original entry for one reason or another, they should just draw a single
line on it so that the same may remain legible.
(c) They must make entries (if any) on the form in some distinctive color and that too in a
standardized form.
(d) They should initial all answers which they change or supply.
(e) Editor‘s initials and the date of editing should be placed on each completed form or schedule.
Tabulation

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  Is the process of summarizing raw data and displaying the same in compact form (i.e., in
the form of statistical tables) for further analysis.
 Is an orderly arrangement of data in columns and rows.
Stage II: Checking Suitability of the Data
 Initial data analyses are performed in order to test for assumptions underlying the data, to
gain descriptive data and to help determine the property of the measures.
 Thus, this stage of data analysis consists of initial or preliminary data analyses, to
describe the sample, check for data errors, check the reliability of measures for the
sample, construct scale scores, and check if the data have the properties that will allow
the intended techniques of analysis to be used.
In general, the steps involved in analyzing the data are summarized as follow:
 Step 1 Report information about the number of members of the sample who did and did
not return the survey. A table with numbers and percentages describing respondents and
non- respondents is a useful tool to present this information.
 Step 2 Provide a descriptive analysis of data for all independent and dependent variables
in the study. This analysis should indicate the means, standard deviations, and range of
scores for these variables.
 Step 3 If the study contains an instrument with scales, identify the statistical procedure
(i.e., factor analysis) for ensuring the quality of the data collected./ Also check the
reliability of the responses collected for the internal consistency of the scales (i.e., the
Cronbach alpha statistic).
Stage III: Tests Research Questions/ Hypotheses
This involves identifying the statistics and the statistical computer program for testing the major
questions or hypotheses in the study. This choice of statistical test is based on
a. The nature of the research question (e.g., relating variables or comparing groups as the
most popular),
b. The number of independent and dependent variables, and the number of covariates.
c. The measurement of the variables (as continuous or categorical)
d. The type of distribution of scores (normal, non normal).

THE END!!!

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