5

Analyzing
Consumer Markets
 Chapter Questions
 How do consumer characteristics influence
buying behavior?
 What major psychological processes influence
consumer responses to the marketing
program?
 How do consumers make purchasing
decisions?
 In what ways do consumers stray from a
deliberate rational decision process?
Consumer Behavior

Consumer behavior is the study of

how individuals, groups, and
organizations select, buy, use, and
dispose of goods, services, ideas, or
experiences to satisfy their needs and
wants.
What Influences
Consumer Behavior?

Cultural Factors

Social Factors

Personal Factors
What Is Culture?

Culture is the fundamental determinant of a

person’s wants and behaviors acquired
through socialization processes with family
and other key institutions.

In the context of consumer behavior, culture is

defined as the sum total of learned beliefs, values,
and customs that serve to regulate the consumer
behavior of members of a particular society.
Culture & Consumer Behaviour
 Core values impacting consumer behaviour
 Achievement & success: social & moral

justification for acquisition of goods

 Activity: as in a busy or healthy lifestyle

 Efficiency/practicality

 Material comfort

 Individualism

 Freedom
 Subcultures

Each culture consists of smaller subcultures that

provide more specific identification and
socialization for their members.
Nationalities

Religions

Racial groups

Geographic regions
Social Classes
 Most human societies exhibit social stratification
 Resulting in social classes that are relatively
homogeneous, hierarchically ordered and with
members who share similar values, interests &
behaviour
 May show distinct product & brand preferences-
hence relevant to marketers
 Indian marketers use a socio economic classification
based on education & occupation of the chief wage
earner
 8 urban & 4 rural classifications of households
SEC Classification: Urban
Social Factors
 Reference groups have a direct or indirect influence
on attitudes & behaviour
 Expose individuals to new behaviours & lifestyles

 Influence attitudes & self concept

 Create pressures for conformity that may affect

product & brand choices

 People are also influenced by groups to which they
do not belong
 Aspirational groups

 Dissociative groups
Social Factors
 Family is the most important consumer buying
organisation in society
 Family members constitute the most important
primary reference group
 Family of orientation: Parents & siblings
 Family of procreation: Spouse & children
 Family of procreation has a more direct influence on
everyday buying behaviour
 Family of orientation shapes attitudes towards
religion, politics, economics, and personal ambition,
self worth & love
Personal Factors

 Our taste in food, clothes, furniture & recreation is

often related to our age
 Consumption also shaped by the family life cycle:
Young single – Young couple – Full Nest – Empty Nest – Older
single
 Psychological life cycle stages also result in
behaviour changes: Financial independence, finding
a partner, becoming a parent
 Critical life events: Marriage, childbirth, illness,
divorce, death of a spouse
Occupation and Economic
Circumstances
Marketers try to identify the
occupational groups that have above-
average interest in their products and
services.
Product and brand choice are also
affected by economic circumstances—
spendable income, savings and
assets, debts, borrowing power, and
attitudes toward spending and saving
Personality
 A set of distinguishing human psychological
traits that lead to relatively consistent and
enduring responses to environmental stimuli.
 Self confident; dominant; autonomous;
sociable; defensive; adaptable etc
 Personality can be a useful variable in
analyzing consumer brand choices- brands
have personalities too, and consumers are
likely to choose brands whose personalities
match their own
 Brand Personalities
 Sincerity (down to earth, honest, wholesome &
cheerful)
 Excitement (daring, spirited, imaginative & upto date)
 Competence (reliable, intelligent & successful)

 Sophistication (upper class & charming)

 Ruggedness (Outdoorsy & tough)
Lifestyle
 Pattern of living as expressed in activities,
interests & opinions
 How people ‘spend their time & money’
 Partly shaped by whether people are time
constrained or money constrained
 Walmart: EDLP
Core Values
 Belief systems that underlie attitudes &
behaviours
 Determine people’s choices & desires over
the long term
 Consumer preferences for ‘natural’ products
Stimulus- Response Model of
Consumer Behavior
Motivation
 Freud’s theory: Psychological forces shaping a
person’s behaviour are largely unconscious.
 A customer examining specific brands reacts to their
stated capabilities but also to less conscious cues
such as shape, size, weight, material, colour & brand
name
 Motivation researchers use projective techniques
such as word association, sentence completion,
picture interpretation to uncover deeper motives of
consumers
Maslow’s Hierarchy

Source: A. H. Maslow, Motivation and

Personality, 3rd ed. (Upper Saddle River, NJ:
Prentice Hall, 1987). Printed and electronically
reproduced by permission of Pearson
Education, Inc., Upper Saddle River, NJ.
Herzberg’s Theory
 2 factor theory that distinguishes dissatisfiers
from satisfiers
 The absence of dissatisfiers is not enough to
motivate a purchase; satisfiers must be
present
 A product warranty will not act as a satisfier,
but ease of use may
 Perception
 The process by which we select, organize & interpret information
 People may have very different perceptions of the same object
 Selective attention
 Average person exposed to hundreds of brand communications
every day
 Selective retention
 We’re likely to retain good points of brands that we like & tend to
forget good points of its competitors
 Selective distortion
 We interpret information in a way that fits our perceptions: blind
testing
 Subliminal perception
 Covert messages that we are unaware of, yet which affect our
behaviour
Learning

• Learning induces changes in our behavior arising from

our experience- through the interplay of drives, stimuli,
cues, responses & reinforcement
• Drive: A strong internal stimulus impelling action
• Cue: Minor stimuli that determine when, where, and
how a person responds. We tend to generalize our
response to such stimuli
• Discrimination: Learning to recognize differences in
sets of similar stimuli and adjusting our responses
accordingly
Emotions
 Consumer response is not all cognitive &
rational
 Brands may make consumers proud, excited
or confident- or create feelings of
amusement, wonder or even disgust
 Memory
 Short term memory: A temporary and limited repository of
information
 Long term memory: Information and experiences we encounter as
we go through life can end up in our long term memory
 Associative network memory model views LTM as a set of nodes
connected by links of varying strength
 Nodes: Stored information connected by links that vary in strength
 All types of information are stored in the memory network: verbal,
visual, abstract & contextual
 A spreading activation process from node to node determines how
much and what information we can actually recall in a given
situation
Memory Processes
 Encoding & Retrieval
 Encoding: How & where information gets into memory: We
remember bits & pieces & fill in the rest based on whatever we
know
 Generally the more attention we pay to the meaning of
information during encoding, the stronger the resulting
associations in memory
 Retrieval dependent on
 Other product information- ‘interference’
 Time between exposure to information & encoding
 Availability of cues for recall
Memory
 Consumer brand knowledge is a node with a
variety of linked associations
 Brand associations consist of thoughts,
feelings, images, perceptions, experiences,
beliefs, attitudes etc linked to the brand node
Figure 5.3 Hypothetical LIC Mental
Map
Consumer Buying Process
 Basic psychological processes that we have
reviewed play an important role in consumer
buying decisions
 What does the customer buy?
 Who influences the decision?
 When do customers buy?
 Where do they go to buy?
 How is a product perceived by customers?
 Why do customers buy a particular brand?
Figure 5.4 Consumer Buying Process

Problem Recognition

Information Search

Evaluation of alternatives

Purchase Decision

Postpurchase Behavior
Sources of Information
 Personal: Family, friends, neighbours
 Commercial: Advertising, websites,
salespersons, retailers, displays
 Public: Mass media, consumer rating
organisations
 Experential: Handling, examining, using the
product
Evaluation of alternatives
 Every consumer is trying to satisfy a need
 Consumers look for benefits from the product
solution
 Consumers see each product as a bundle of
attributes with varying abilities to deliver benefits
 Attributes of interest vary- by product, and by buyer
 Hotels: Location, cleanliness, atmosphere, price

 Mouthwash: Colour, effectiveness, taste/flavour,

price
 Tyres: Safety, tread life, quality, price
Figure 5.5 Successive Sets in
Decision Making
 Expectancy-Value Model

Suppose the consumer weights the attributes as below:

40% to memory capacity, 30% to graphics, 20% to size & weight & 10% to price
The perceived value for each laptop will be
Laptop A: 0.4(8) + 0.3(9) + 0.2(6) + 0.1(9) = 8
Laptop B: 0.4(7) + 0.3(7) + 0.2(7) + 0.1(7) = 7
Laptop C: 0.4(10)+ 0.3(4) +0.2(3) + 0.1(2) = 6
Laptop D: 0.4(5) + 0.3(3) + 0.2(8) + 0.1(5) = 5
Options for marketers
 Redesign the product
 Alter beliefs about the brand
 Alter beliefs about competitor brands
 Alter importance weights
 Call attention to neglected attributes
 Shift the buyer’s ideals
 Purchase Decision:
Non-Compensatory Models of Choice
 Instead of the ‘compensatory’ expectancy-value model,
consumers may use mental shortcuts called heuristics
 Conjunctive: Minimum acceptable cutoff level for each attribute-
and then choose the first alternative that meets this minimum
cutoff
 Lexicographic: Best performing brand on the most important
attribute to the customer is chosen
 Elimination-by-aspects : Consumer compares brands on an
attribute selected probabilistically (probability positively related to
attribute importance)- and eliminates brands that do not meet
minimum acceptable cutoffs
Figure 5.6 Steps Between
Alternative Evaluation
and Purchase
 Perceived Risk
 A customer’s decision to modify, postpone or avoid a
purchase decision heavily influenced by perceived risk
 Functional: product will not perform to expectations
 Physical: Threat to physical well being/health
 Financial: Not worth the price paid
 Social: Results in embarrassment in front of others
 Psychological: Affects mental well-being of the user
 Time: Opportunity cost of replacing a bad
product/finding another satisfactory or better product
Postpurchase Behaviour
 Postpurchase satisfaction: Function of expectations
and product’s perceived performance:
disappointment, satisfaction or delight
 Postpurchase actions: Repeat purchase,
recommendations, abandonment, return, seek
information that confirms its high value (reassurance)
 Postpurchase use & disposal: Marketers must
monitor this
: toothbrushes with colour indicators
: environmental aspects of product disposal
 Low-Involvement Decision Making
 Elaboration Likelihood Model
 Central Route: Diligent, rational

consideration of the most important product

information
 Peripheral route: Credible source, celebrity

endorsement or any object that generates

positive feelings
 Peripheral route used for low involvement

products and those without significant

product differences: salt for eg
Variety seeking buying behaviour
 In buying situations characterised by low
involvement but where significant differences
exist between brands
 Brand switching here may happen for the
sake of variety, not out of dissatisfaction
 Decision Heuristics

 As part of the purchase process, consumers forecast the likelihood

of future outcomes or events
 Availability heuristic: Consumers base predictions on the
quickness & ease with which they recall a particular outcome. A
recent product failure may lead to purchase of a product
warranty
 Representativeness heuristic: Consumers base predictions on
how representative or similar the outcome is to other examples
May explain why packaging for certain categories is so similar
 Anchoring and adjustment heuristic: Consumers arrive at an
initial first judgement and then adjust it based on further
information
Service marketers try to establish a favourable anchor
 Framing

Manner in which choices are presented to and

seen by a decision maker
Nabisco Oreo
Mental Accounting

 Refers to the way consumers code, categorise &

evaluate financial outcomes of purchase choices
 Assume you spend Rs 2,500 to buy a ticket for a

concert. As you arrive at the theatre, you realize

you’ve lost your ticket. You decide to buy a
replacement ticket
 Assume you decided to buy the ticket at the

venue. As you arrive at the venue, you realize that

you’ve somehow lost Rs 2,500 on the way. You
decide to buy the ticket anyway
 Which are you more likely to do?
Mental accounting
 Consumers tend to:
 Segregate gains: Hence get consumers to evaluate
different product dimensions separately
 Integrate losses: Its easier to sell something if its cost can
be added on to another larger purchase
Eg: Accessories alongwith a car
 Integrate smaller losses with larger gains: We prefer
monthly tax deductions from the paycheck more easily than
having to make a large one time tax payment
 Segregate small gains from large losses: The ‘silver lining’
principle: Rebates on big ticket purchases such as cars
 For Review
 How do consumer characteristics influence
buying behavior?
 What major psychological processes influence
consumer responses to the marketing
program?
 How do consumers make purchasing
decisions?
 In what ways do consumers stray from a
deliberate rational decision process?
 6
Analyzing Business
Analysing Business
Markets
Markets
Chapter 6
 Chapter Questions
 What is the business market, and how does
it differ from the consumer market?
 What buying situations do organizational
buyers face?
 Who participates in the business-to-
business buying process?
 Chapter Questions
 How do business buyers make their
decisions?
 How can companies build strong
relationships with business customers?
 How do institutional buyers and government
agencies do their buying?
What Is Organizational Buying?

Organizational buying refers to the

decision-making process by which formal
organizations establish the need for
purchased products and services, and
identify, evaluate, and choose among
alternative brands and suppliers.
 Top Marketing Challenges
 Understanding customer needs in new ways;
 Identifying new opportunities for growth;
 Improving value management techniques
 Setting better marketing performance, productivity and
accountability metrics;
 Competing and growing in global markets
 Countering the threat of product and service
commoditization
 Convincing C-level executives to embrace the
marketing concept
Characteristics of
Business Markets
 Fewer buyers  Multiple sales calls
 Close supplier-  Derived demand
customer  Inelastic demand
relationships  Fluctuating demand
 Professional  Geographically
purchasing concentrated buyers
 Many buying  Direct purchasing
influences
Buying Situation
 Straight Rebuy: Typically for MRO items, office
supplies etc.
‘In’ suppliers try to maintain quality/service and may
propose automated reordering
‘Out’ suppliers attempt to offer something new or
exploit dissatisfaction with existing suppliers
Try to get at least a small share which can be built
over time
 Modified Rebuy: Buyer looking to change product
specs, prices, delivery requirements. Additional
participants required on both sides.
‘In’ suppliers nervous; ‘out’ suppliers see opportunity
Buying Situation
 New Task: Product or service being bought
for the first time
The greater the cost or risk, the larger the
number of participants and greater the
information gathering by the buyer
Buyer must determine product specs, price
limits, delivery terms & times, payment terms,
order quantities etc
New Task Buying represents the greatest
challenge & opportunity for a marketer
Systems Buying and Selling
 Many business buyers prefer to buy a total problem
solution from one seller – a turnkey solution
 Systems buying: eg defense purchases, where prime
contractors are responsible for sourcing and
assembling the system’s subcomponents from
second tier contractors
 Systems contracting: eg a single supplier may
provide the buyer with the entire requirement of
MRO supplies
 Ford: Pay per car painted
The Buying Center

All individuals & groups who participate in the purchase

decision making process

 Initiators  Approvers
 Users  Buyers
 Influencers  Gatekeepers
 Deciders
 Buying Center Influences
 Who are the major decision participants?
 What decisions do they influence?
 What is their level of influence?
 What evaluation criteria do they use?
 What are their personal motivations,
perceptions & preferences?
 May arise from age, income, education, job
position, personality, attitude towards risk &
culture
Targeting Firms & Buying Centers
 Marketers must decide
 Type of companies that they will focus on

 Who to concentrate on within the buying

centers in the target organisations: key

buying influencers or multi-level indepth
selling?
 Role of communications program vs

personal selling effort

 Calibre of salespeople
Stages in the Buying Process
Stage 1: Problem recognition
 Need recognition can be triggered by internal stimuli
 decision to develop a new product

 machine breaks down and requires new parts

 Purchased material is unsatisfactory and so the

company searches for another supplier

 Or by external stimuli
 New ideas at a trade show

 See an ad or receive a call from another supplier

Stages 2 & 3: General Need
Description & Product Specification
 Determination of the needed item’s general
characteristics & required quantity
 For complex items, the buyer will work with

multiple people in the orgn to define

charateristics such as durability, reliability
or price
 Technical specs are then made- often after

value analysis
Stage 4: Supplier Search
 Trade Directories
 Contacts with other companies
 Trade advertisements
 Trade Shows
 Internet
 B2B portals: alibaba.com

 Catalog sites: indiamart.com

 Auction Sites: rbauction.com

Lead Generation
 Supplier’s task is to ensure that it is
considered when customers are in the
market: a ‘lead’
 Marketing & Sales work together to identify
good leads & convert them- using sales calls,
trade shows, online activities, PR, events,
direct mail, referrals etc
Stage 5: Proposal Solicitation
 The buyer next invites qualified suppliers to
submit proposals
 Depending on value & complexity of the
purchase, the buyer may ask for detailed
written proposals and presentations
 For the seller, these are precious
opportunities to showcase company
capabilities & differentiation from competitors
 Team effort required from the supplier
Stage 6: Supplier Selection
 The buying center may go through a formal evaluation model
Attributes Rating Scale
Importance Poor Fair Good Excellent
Weights (1) (2) (3) (4)
Price 0.3 x
Supplier reputation 0.2 x
Product reliability 0.3 x
Service reliability 0.1 x
Supplier flexibility 0.1 x
Total Score= 0.3(4) + 0.2(3) + 0.3(4) + 0.1(2) + 0.1(3) = 3.5

 Choice of attributes & their relative importance will vary with the
buying situation
Overcoming price pressures
 Buyers WILL always pressure suppliers on price
 Countering price pressure
 Show that total cost of ownership (life cycle cost)

is lower than competition

 Ensure value of services are recognised

 Supplier’s know how and ability to get full value from

purchase & improve efficiency of customer processes:
solution selling
 Risk & gain sharing contracts
 Agree lower price but set restrictive conditions
 Limited quantities, no refunds, no adjustments, no
services
Order Routine Specification
 Negotiation of final order with selected
supplier
 Technical specs, quantity, delivery period,

return policies, warranty, service etc

 Blanket contracts for MRO items

 Vendor managed inventories & continuous

replenishment
Performance Review
 Supplier Performance Reviews
 End user evaluation

 Supplier rating on multiple criteria using a

weighted score
 Aggregate cost of poor performance to

calculate adjusted costs of purchase,

including price
 Stages in the Purchasing Process
and the Buygrid
Buyclasses
New Modified Straight
Task Rebuy Rebuy
Problem recognition Yes Maybe No
General need description Yes Maybe No
Product specification Yes Yes Yes
Buyphases

Supplier search Yes Maybe No

Proposal solicitation Yes Maybe No
Supplier selection Yes Maybe No
Order-routine specification Yes Maybe No
Performance review Yes Yes Yes
Categories of Buyer-Seller
Relationships
 Transactional approaches: Minimal levels of information
exchange & cooperation
 Relationship approaches: True partnership with mutual trust &
commitment

Transactional Relationship

 Influencing factors: Availability of alternatives, importance of

supply, complexity of supply & supply market dynamism
 Risk (specific investments & switching costs) & opportunism
Institutional Markets
 Schools, college and university hostels, hospitals
and nursing homes, and other institutions that
provide goods and services to people in their care.
 Often characterized by low budgets and captive
clienteles
 Buying objectives may neither be profit nor cost
minimisation: a minimum quality standard at low
prices
 Firms often set up a separate cell for institutional
markets because of their special needs &
characteristics
Government Markets
 Major buyer of goods & services
 Typically require suppliers to submit bids- and award
contract to the lowest bidder
 Rate contracts are common: DGS&D, CSD
 Elaborate procedures, considerable paperwork,
multiple influencers
 Typically takes a long time & may involve several
rounds of negotiations
 Potential for channel conflicts & price erosion in retail
markets
 For Review
 What is the business market, and how does
it differ from the consumer market?
 What buying situations do organizational
buyers face?
 Who participates in the business-to-business
buying process?
 For Review
 How do business buyers make their
decisions?
 How can companies build strong relationships
with business customers?
 How do institutional buyers and government
agencies do their buying?