The study of consumer behavior

study of how individuals or groups buy, use and dispose f goods, services,
ideas to satisfy their needs and wants
CULTURE

fundamental determinant of a persons wants and behavior

blueprint for human behavior

subcultures include nationalities, religions, racial groups

multicultural marketing revealed that different ethnic and demographic

niches did not always respond favorably to mass marketing advertisements

social classes relatively homogenous and enduring divisions in society,

hierarchically ordered and with members who share similar values, interests and
behavior
SOCIAL GROUPS
reference groups all the groups that have a direct or indirect influence on their
attitudes or behavior

membership groups have a direct influence

primary groups membership group with whom the person interacts

fairly continuously and informally (family, friends, co workers)

secondary groups more formal groups which require more formal

interaction

aspirational groups groups which the person hopes to join

dissociative groups groups which a person does not belong and whose
values, norms or behavior an individual rejects

disclaimant groups groups to which a person belongs to but does not

accept its values and norms
Family

most important consumer buying organization in society

family members are most influential primary reference group

family of orientation: parents and siblings

family of procreation ones spouse and children

Roles and status

a person participates in many groups family, clubs and organisations

groups are often an important source of information and helps to define

norms of behavior

role consists of the activities a person is expected to perform

each role carries a status

THE INDIVIDUAL CONSUMER

buyers decisions are also influenced by personal characteristics:

age and stage in the life cycle

- our taste in food, clothes, recreation is often related to our age

o

occupation and economic circumstances

- spendable income, debts, savings and assets,

o

personality and self-concept

- personality set of distinguishing human psychological traits

- brand personality- specific mix of human traits that we can attribute to a
particular brand
- consumers often choose and use brands which have a brand personality
consistent with their own actual self-concept
-it can also be that they choose based on consumers ideal self-concept or even
on others self-concept
o

lifestyle and values

-lifestyle persons pattern of living in the world as expressed in activities,

interests and opinions
- money constrained or time constrained
- consumers decisions are also influenced by core values belief system that
underlies attitudes and behaviours guiding principle

Key psychological processes

MOTIVATION

a need becomes a motive when it is aroused to a sufficient level of

intensity to drive us to act in order to reach a desired goal

three best known theories for human motivation:

Freuds theory

- psychological forces shaping human behavior are largely unconscious

- person is not aware of its motivations
o

Maslow theory

- human needs are arranged in a hierarchy from most to least pressing:

1. physiological needs
2. safety needs
3. social needs
4. esteem needs
5. self actualization needs
o

Herzbergs theory

- two factor theory that distinguishes dissatisfiers form satisfiers

- the absence of disatisfiers does not make the purchase, satisfiers must also be
present
PERCEPTION

the process by which we select, organize and interpret information inputs

to create meaningful picture of the world

three conceptual processes:

Selective attention

- attention is on the allocation of processing capacity to some stimulus

- selective attention marketers must work hard to attract consumers notice
1. people are more likely to notice stimuli that relate to a current need
2. people are more likely to notice stimuli they anticipate
3. people are more likely to notice stimuli whose deviations are large in
relationship to the normal size of the stimuli
o

Selective distortion

- tendency to interpret information in a way that fits our preconceptions

- groups have different opinions despite tasting the exact same product
o

Selective retention

- we are likely to remember good points about the product we like and forget
good points about competing products
LEARNING

induces changes in our behavior arising from experience

most of human behavior is learned, although much learning is incidental

drive strong internal stimulus impelling action

cues minor stimuli that determine when where and how a person responds

generalization making suggestions based on previous experience

discrimination ability to notice even smallest differences between

products

buyers are more likely to transfer loyalty to similar brands

MEMORY

short term memory (STM) temporary and limited repository of

information

long term memory (LTM) more permanent essentially unlimited

repository

associative network memory model set of nodes and links

node stored information connected by links that vary in strength

brand associations consist of all brand-related thoughts, feelings,

perceptions, images, experiences that become linked to the brand node

Memory processes

o
memory encoding describes how and where information gets into
memory
o
it is easier for the customer to create an association to new information
when extensive relevant knowledge structures already exist in memory

Memory retrieval
the way information gets out of memory

o
memory can be reconstructive, consumers may remember an experience
with a brand differently after the fact due to intervening factors

5 stages of the buying decision process

1.

PROBLEM RECOGNITION

buying process starts when the buyer recognizes a problem or need

triggered by internal or external stimuli

internal stimuli (hunger, thirst) drive

external stimuli (a person may like his neighbours car, which triggers
him to buy a car as well)
2.

INFORMATION SEARCH

two levels of involvement with search

heightened attention a person becomes more receptive to information about

the product
active information search looking for, reading, going online, visiting shops

information sources: personal, commercial, public, experiential

search dynamics

- market partitioning identifying the hierarchy of attributes that guide consumer

decision making
- brand dominant, type dominant, nation dominant, price dominant.
3.

EVALUATION OF ALTERNATIVES

beliefs and attitudes:

- belief a descriptive thought a person holds about something

- attitudes a persons enduring favourable or unfavorable evaluations,
emotional feelings and action tendencies towards some object or idea

expectancy value model

- model in which a consumer evaluates products and services by combining

his/her brand beliefs (positives and negatives) according to importance
4.

PURCHASE DECISION

non-compensatory models of consumer choice

positive and negative attribute considerations dont necessarily net out

heuristics rules of thumb or mental short cuts in the decision process

- conjunctive heuristics the consumer sets a minimum acceptable cut-off level

for each attribute and chooses the first alternative that meets the minimum
standard for all attributes
- lexicographic heuristic the consumer chooses the best brand on the basis of
its perceived most important attribute
- elimination-by-aspects heuristic the consumer compares brands on an
attribute selected probabilistically where the probability of choosing an
attribute is positively related to its importance
o

consumers dont necessarily use only one type of choice rule

Intervening factors
o
two general factors can intervene between the purchase intention and the
purchase decision :
- attitude of others
- unanticipated situational factors (perceived risk: functional; physical; financial;
social; psychological; time risk)
5.

POST-PURCHASE BEHAVIOUR

post-purchase satisfaction

post-purchase action

post-purchase use and disposal

Customer perceived value

value is heavily influenced by buyers demand more for their money

whether the offer lives up to expectations affects customer satisfaction

and the probability that the customer will purchase the product again
BUILDING CUSTOMER SATISFACTION

customers can sense when companies are consistently more loyal to

investors, employees and regulators than to the people who buy their products
and services

loyalty the willingness and ability to see a difficult situation through to

success despite the cost and risk

good word of mouth more new customers

technology (Google, Apple) created online spaces where customers can

collaborate and interact on new features and technical problems

value proposition consists of the whole cluster of product and service

attributes the company promises to deliver

a brand must represent a promise about the total experience customers

can expect

whether the promise is kept depends on the companys value delivery

system
TOTAL CONSUMER SATISFACTION

if performance falls short of expectation = disappointed customer

if t matches the expectation = happy customer

if it exceeds the expectation = delighted customer

the company must operate on the philosophy of trying to deliver a high

level of customer satisfaction subject to delivering acceptable levels of
satisfaction to the other stakeholders, given its total resources

example: KIA launched low cost, high quality cars with 6 years warranties

CUSTOMER RELATIONSHIP MANAGEMENT

process of carefully managing detailed information about individual

customers and all customer touch points to maximize customer loyalty

customer touch point any occasion on which the customer encounters

the product or service

Competitive forces

FIVE FORCES OF PORTER

1.

THREAT OF INTENSE SEGMENT RIVALRY

o
a segment is unattractive if it already contains numerous strong or
aggressive competitors and if these competitors have high stakes in staying in
the segment
o
exit barriers keep companies competing in declining industries even
though they are earning subnormal returns on investment
o
for example, a company may have invested in expensive fixed assets that
may not be transferable to another segment
o
when exit barriers are high, giving up a specific segment will impose high
costs on company expensive competition (frequent price wars and advertising
battles)
2.

THREAT OF NEW ENTRANTS

o
the most attractive segment is the one in which the entry barriers are high
and exit barriers are low
o
few new firms can enter the industry, and poorly performing ones can
easily exit
o
when both entry and exit barriers are high profit potential is high
firms face more risk
o
when both entry and exit barriers are low firms easily enter and exit the
industry stable and low returns
o
worst case is when entry barriers are low and exit barriers are high
firms enter the industry during good times but find it hard to leave during bad
times chronic overcapacity and depressing earnings for all
(airline industries struggle during economic downturns)
3.

THREAT OF SUBSTITUTE PRODUCTS

o
a segment is unattractive when there are actual or potential substitutes
for the product
o

substitutes place a limit on prices and profits

o
if technology advances or competition increases in these substitute
industries, prices and profits are likely to fall
4.

THREAT OF BUYERS GROWING BARGAINING POWER

o
a segment is unattractive if buyers possess strong or growing bargaining
power
o
buyers bargaining power grows when they are concentrated or organized,
when the product is undifferentiated, when buyers switching costs are low, when
buyers are price sensitive because of low profits or when they can integrate
upstream

o
to protect themselves, sellers might select buyers with least power to
negotiate or switch suppliers
5.

THREAT OF SUPPLIERS GROWING BARGAINING POWER

o
a segment is unattractive if the companys suppliers are able to raise
prices or reduce quantity supplied
o
example: oil companies depend on oil reserves and actions of oil-supplying
cartels like OPEC
o
suppliers tend to be powerful when they are concentrated or organized,
when there are few substitutes, when the supplied product is an important input,
when the costs of switching suppliers are high or when they can integrate
downstream (integrate the marketing and sales-oriented activities directed to
customers)

Analyzing and selecting competitors

ANALYZING COMPETITORS

once a company identifies its primary competitors, it must ascertain their

strategies, objectives, strengths and weaknesses
Strategies

strategic group group of firms following the same strategy in a given

target market

the company develops the chart of strategic groups based on product

quality and level of vertical integration

the height of the entry barriers differ from group to group

if the company successfully enters a group, the members of that group

become its key competitors
Objectives

once a company has identified its main competitors and their strategies, it
must ask: what is each competitor seeking in the marketplace? What drives each
competitors behaviour?

factors which shape a competitors objectives: size, history, current

management and financial situation

it is useful to assume that competitors strive to maximize profits

another reliable assumption is that each competitor pursues some mix of

objectives: current profitability, market share growth, cash flow, technological
leadership and service leadership

a company must monitor competitors expansion plans

Strengths and weaknesses

a company should monitor three variables when analyzing competitors:

1. share of market the competitors share of the target market

2. share of mind the percentage of customers who named the competitor in
responding to the statement name the first company that comes to your mind in
this industry
3. share of heart the percentage of customers who named the competitor in
responding to the statement name the company from which you would prefer to
buy the product

companies that make steady gains in mind share and heart share will
inevitably make gains in market share and profitability
example: IKEA, Loreal, Philips make profit from providing emotional, experiential,
social and financial value to satisfy customers

to improve market share, many companies benchmark their most

successful competitors as well as other world-class performers
SELECTING COMPETITORS

after the company has conducted customer value analysis and examined
its competitors carefully it can focus its attacks on one of the following classes of
competitors: strong vs weak, close vs distant, good vs bad
Strong versus weak

most companies aim their shots at weak competitors, because this

requires fewer resources per share point gained

Close versus distant

most companies compete with the competitors that resemble them the
most
(GM competes with Ford, and not Ferrari)
Good versus bad

good competitors play the industrys rules (they set prices in reasonable
relationship to costs, they favour a healthy industry

bad competitors try to buy share rather than earn it, they take larger
risks, they invest in overcapacity, they upset industrial equilibrium

Selecting customers

a firm must evaluate its customer base and think about which customers it
is willing to loose and which it wants to retain

Competitive strategies for market leaders

having identified and analysed its competitors, a company will decide on a

competitive strategy

we get insight into competitive behavior by classifying firms by the roles

they play in the target market: leader, challenger, follower, nicher

market leader companies have the largest market share in the relevant
product market and usually lead the other firms in price changes, new product
introductions, distribution coverage and promotional intensity

Nokia lost trends, used to be a market leader

staying the number one firm calls for action on three fronts: expansion of
the market, protection of the current market, increasing the market share
EXPANDING THE TOTAL MARKET

New customers every product class has the potential to attract buyers
who are unaware of the product or who are resisting it because of price or lack of
certain features
- a company can search for new customers among three groups: those who
might use it but do not (market penetration strategy); those who have never
used it (new-market segment strategy); those who live elsewhere (geographicalexpansion strategy)

More usage marketers can try to increase the amount, level or frequency
of consumption
- the amount of consumption can sometimes be increased through packaging or
product redesign
- increasing frequency of consumption requires either identifying additional
opportunities to use the brand in the same basic way or identifying a completely
new and different ways to use the brand
DEFENDING MARKET SHARE

one of the ways of defending the market share is continuous innovation

the leader should lead the industry in developing new products and
customer services, distribution effectiveness and cost cutting

satisfying customer needs responsive marketing, creative marketing,

anticipative marketing

responsive marketer finds a stated need and fills it

anticipative marketer looks ahead into what needs may a customer have in the
future
creative marketer discovers and produces solutions customers did not ask for but
to which they enthusiastically respond


position defence occupying a positive and superior standing in
consumers minds, including for example high-brand equity, customer
satisfaction, customer loyalty

flank defence market leader should also erect outposts to protect a weak
front or possibly serve as an invasion base for counterattack
- introducing new products or brands, repositioning existing products r launching
promotional activities

pre-emptive defence attacking before the enemy has started its offence

- hitting one competitor here, another there keeping everyone off balance
- releasing streams of new products deliberate preannouncements

counteroffensive defence when attacked, most market leaders will

respond with a counterattack
- the leader can meet the attacker frontally or hit its flank or launch a pincer
movement
- an effective counterattack is to invade the attackers main territory so that it
pulls back to protect it

mobile defence the leader stretches its domain over new territories that
can serve as future centres for defence and offence through market broadening
and market diversification
- market broadening shifts focus from the current product to the underlying
generic need
- market diversification shifts into unrelated industries

contraction defence large companies must sometimes recognize that

they can no longer defend all their territory
- planned contraction giving up weak territories and reassigning resources to
stronger territories

expanding market share a company should consider four factors before

pursuing increased share:
1. the possibility of provoking action from competition authorities
2. economic cost
3. pursuing the wrong marketing activities
4. the effect of increased market share on actual and perceived quality

Market challenger strategies

DEFINING THE STRATEGIC OBJECTIVE AND OPPONENTS

a market challenger must first define its strategic objective

most aim to increase market share

the challenger must decide whom to attack:

- it can attack the market leader (high risk and high-pay-off strategy; makes
sense if the market leader is not serving the market well)
- it can attack firms of its own size that are not doing the job and are
underfinanced (these firms have ageing products, are charging excessive
prices)
- it can attack small local and regional firms
CHOOSING A GENERAL ATTACK STRATEGY
Frontal attack

the attacker matches its opponents product, advertising, price and

distribution

the side with greater resources will win

Flank attack

an enemys weak spots are natural targets

two strategic dimensions: geographic and segmental

in geographic attack the challenger spots areas where the opponent is

underperforming

in segment attack the challenger spots the segment in which the

opponent is underperforming
Encirclement attack

an attempt to capture a wide slice of the enemys territory through a blitz

launching a grand offensive on several fronts

Bypass attack

attacking easier markets to broaden the firms resource base

three lines of approach:

- diversifying into unrelated products

- diversifying into new geographical markets
- leapfrogging into new technologies to supplant existing products
Guerrilla warfare

waging small, intermittent attacks to harass and demoralize the opponent

and eventually secure permanent footholds

conventional and unconventional means of attack (selective price cuts,

occasional legal action, intense promotional blitzes)
CHOOSING A SPECIFIC ATTACK STRATEGY

Market-follower strategies

product imitation and product innovation

the innovator bears the expense of developing the new product, getting it
into distribution, and informing and educating the market results in market
leadership

another firm can come along and copy or improve the new product
results in high profits and did not have to bear innovation expense

many companies prefer to follow than challenge the market leader

a market follower must know how to hold current customers and win a fair
share of new ones

follower is usually a major target for market challengers so it must keep its
manufacturing cost low and the product quality high

follower must also define a growth path 4 broad strategies:

- counterfeiter duplicates the leaders product and packages and sells it on the
black market or through disreputable dealers
- cloner emulates the leaders products, name and packaging, with slight
variations
- imitator copies some things from the leader but maintains differentiation in
terms of packaging, advertising, pricing and location
- adapter takes the leaders products and adapts or improves them
Market-nicher strategies

smaller firms avoid competing with larger firms by targeting small markets
of little or no interest to the larger firms

firms with low share of the total market can become highly profitable
through smart niching

such companies tend to offer high value, charge a premium price, achieve
lower manufacturing costs, and shape a strong corporate culture and vision

niching is profitable because market nicher end up knowing the target

customers so well, it meets their needs better than other firms selling to ths
niche casually

the nicher achieves high margin

nichers have three tasks: creating niches, expanding them and protecting
them

niches can weaken, so the firm must always create new ones

firms entering a market should initially aim at a niche rather than the
whole market