LECTURE NOTES
ON
CONSUMER BEHAVIOR
MBA III semester (Autonomous-R16)
Ms. K.LAKSHMI REVATHI
Assistant Professor
Master of Business Administration
INSTITUTE OF AERONAUTICAL ENGINEERING
(Autonomous)
DUNDIGAL, HYDERABAD - 500 043
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Consumer Behavior: Lecture Notes for MBA Students, Lecture notes of Marketing
Introduction: Consumer behavior is the study of how individual customers, groups or organizations select, buy, use, and dispose ideas, goods, and services to ...
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2022/2023
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LECTURE NOTES
ON
CONSUMER BEHAVIOR
MBA III semester (Autonomous-R16)
Ms. K.LAKSHMI REVATHI
Assistant Professor
Master of Business Administration
INSTITUTE OF AERONAUTICAL ENGINEERING
(Autonomous)
DUNDIGAL, HYDERABAD - 500 043
SYLLABUS
UNIT-I: UNDERSTANDING CONSUMER BEHAVIOR: Defining consumer behavior, why to study consumer behavior? understanding consumer through research process, consumer behavior in a world of economic instability, rural consumer behavior, consumer segmentation, targeting and positioning, segmentation and branding, rural markets. UNIT-II : ENVIRONMENTAL INFLUENCES ON CONSUMER BEHAVIOR: Influence of culture, sub culture, social class, social group, family and personality, cross cultural consumer behavior. UNIT-III : CONSUMER AS AN INDIVIDUAL: Personality and self concept, consumer motivation, consumer perception. Consumer attitudes and changing attitudes, consumer learning and information processing. UNIT-IV : CONSUMER DECISION MAKING PROCESSES: Problem recognition, search and evaluation, purchasing processes, post purchase behavior, models of consumer decision making, consumers and the diffusion of innovations. UNIT-V : CONSUMERISM AND ETHICS: Roots of consumerism, consumer safety, consumer information, consumer responsibilities, marketer responses to consumer issues, marketing ethics towards consumers
Nature of Consumer Behavior:
1. Influenced by various factors: a. Marketing factors such as product design, price, promotion, packaging, positioning and distribution. b. Personal factors such as age, gender, education and income level. c. Psychological factors such as buying motives, perception of the product and attitudes towards the product. d. Situational factors such as physical surroundings at the time of purchase, social surroundings and time factor. e. Social factors such as social status, reference groups and family. f. Cultural factors, such as religion, social class—caste and sub-castes. 2. Undergoes a constant change: Consumer behavior is not static. It undergoes a change over a period of time depending on the nature of products. For example, kids prefer colourful and fancy footwear, but as they grow up as teenagers and young adults, they prefer trendy footwear, and as middle-aged and senior citizens they prefer more sober footwear. The change in buying behavior may take place due to several other factors such as increase in income level, education level and marketing factors. 3. Varies from consumer to consumer: All consumers do not behave in the same manner. Different consumers behave differently. The differences in consumer behavior are due to individual factors such as the nature of the consumers, lifestyle and culture. For example, some consumers are technoholics. They go on a shopping and spend beyond their means. They borrow money from friends, relatives, banks, and at times even adopt unethical means to spend on shopping of advance technologies. But there are other consumers who, despite having surplus money, do not go even for the regular purchases and avoid use and purchase of advance technologies. 4. Varies from region to region and country to county: The consumer behavior varies across states, regions and countries. For example, the behavior of the urban consumers is different from that of the rural consumers. A good number of rural consumers are conservative in their buying behaviors. The rich rural consumers may think twice to spend on luxuries despite having sufficient funds, whereas the urban consumers may even take bank loans to buy luxury items such as cars and household appliances. The consumer behavior may also varies across the states, regions and countries. It may differ depending on the upbringing, lifestyles and level of development. 5. Information on consumer behavior is important to the marketers: Marketers need to have a good knowledge of the consumer behavior. They need to study the various factors that influence the consumer behavior of their target customers. The knowledge of consumer behavior enables them to take appropriate marketing decisions in respect of the following factors: a. Product design/model b. Pricing of the product c. Promotion of the product d. Packaging e. Positioning f. Place of distribution
6. Leads to purchase decision: A positive consumer behavior leads to a purchase decision. A consumer may take the decision of buying a product on the basis of different buying motives. The purchase decision leads to higher demand, and the sales of the marketers increase. Therefore, marketers need to influence consumer behavior to increase their purchases. 7. Varies from product to product: Consumer behavior is different for different products. There are some consumers who may buy more quantity of certain items and very low or no quantity of other items. For example, teenagers may spend heavily on products such as cell phones and branded wears for snob appeal, but may not spend on general and academic reading. A middle- aged person may spend less on clothing, but may invest money in savings, insurance schemes, pension schemes, and so on. 8. Improves standard of living: The buying behavior of the consumers may lead to higher standard of living. The more a person buys the goods and services, the higher is the standard of living. But if a person spends less on goods and services, despite having a good income, they deprives themselves of higher standard of living. 9. Reflects status: The consumer behavior is not only influenced by the status of a consumer, but it also reflects it. The consumers who own luxury cars, watches and other items are considered belonging to a higher status. The luxury items also give a sense of pride to the owners. Why it is important to understand consumer Behavior? Importance of consumer behavior to Marketers. It is important for marketers to study consumer behavior. It is important for them to know consumers as individual or groups opt for, purchase, consumer or dispose products and services and how they share their experience to satisfy their wants or needs
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 organisational efforts consumer-oriented. It ensures an exact use of resources for achieving maximum efficiency. Each unit of resources can contribute maximum to objectives. It is to be mentioned that the study of consumer behavior is not only important for the current sales, but also helps in capturing the future market. Consumer behavior assumes: Take care of consumer needs, the consumers, in return, will take care of your needs. Most of problems can be reasonably solved by the study of consumer behavior. Modern marketing practice is almost impossible without the study of consumer behavior.
Understanding consumer through research process:
What is the consumer research process? Consumer research plays a very important aspect, especially when a company decides to launch a new product into the market. ... After conducting various surveys and focus groups, companies analyze the consumer data and then make recommendations based on the results. Customer research process: A well-organised customer research process produces valid, accurate, reliable, timely and complete results. Carefully gathered research results that reflect your customers' opinions and needs will help you grow your sales and improve your operations. To get the results you need, set and follow recognised customer research processes. Set your objectives Consider your customer research goals and define a clear set of objectives that identify what you need to know and what you're going to do with the information. Make sure your objectives don't presume your outcome, and be SMART about setting them: S pecific - state clearly what you want to achieve M easurable - set tangible measures so you know when you've achieved your goals A chievable - set goals that are within your capacity and budget R elevant - set goals that will help you improve particular aspects of your business T ime-bound - set goals you can achieve within the time you need them. Plan your research Good planning allows you to use creative and logical approaches to gathering information. Your plan will be influenced by the type and complexity of information you require, your team's customer research skills, how soon you need the information and your budget. Identify your list of questions and decide on the research methods that will best achieve your objectives. Detail your research approach and give some initial thought to how you'll collate and analyse your data.
Collect and collate your findings List your research steps, data needs and collection methods. This will help you keep track of your research processes and make sense of your findings. It will also allow you to check that your research accurately reflects your customers' and market's opinions. Create a table to record: consumer research activity the data needed your data collection method your data analysis steps. Remember, research is only valuable and usable when it is valid, accurate and reliable. Relying on flawed research is dangerous. It can leave you at risk of basing your important decisions on incorrect findings and lead to customer losses and decreased sales. Be careful not to turn one opinion into your research findings. It's important to make sure your data is: valid - well founded, logical, rigorous, sound and unbiased accurate - free from error and includes the required detail reliable - can be reproduced by other people researching in the same way timely - current and gathered within an appropriate time frame complete - includes all the data you need to support your business decisions. Learn about collecting and storing customer information. Analyse and understand your research Data analysis can range from simple, straightforward steps to technical and complex processes. Take a common sense approach, and choose your data analysis method based on the research you've undertaken. List and group your information Choose a spreadsheet that allows you to easily enter your data. If you don't have a large amount of data, you should be able to manage it using basic spreadsheet tools available in standard office software. If you have collected more comprehensive and complex data, you may need to consider using specific programs to manage it, such as a database system or customer relationship management (CRM) program. Choose a simple structure to record your data - for example, a table that allows you to list survey questions vertically in your table and record your responses as numbers categorised by age, gender, income, or other factors that are important to you. Review and interpret your information to draw conclusions Once you've gathered all your data, you can scan your information and interpret it to draw conclusions and make decisions. Review your data and then: identify major trends and themes, problems, opportunities and issues that you observe, and write a sentence about each record how frequently each major finding appears list your findings in order of most common to least common
Many consumers around the world had fears related to their financial and material safety. Besides reduced employment earnings, many household lost their lifetime savings due to failure in the banking system or sharp decline in the values of their houses and stocks. The social impacts of the financial crisis can be seen more obvious in the developing countries where the poor are being severely hurt during the crisis as demand for their labour falls, prices of essential commodities rise substantially and social services are cut. They find themselves forced to pull children out of schools and the food is being rationed among the family, with women the first to sacrifice their share. The general economic slowdown and rising unemployment forced household to increase working hours or send additional members to the labour force. As a consequence, household expenditure falls by as much as income. The consumers cannot prevent the fall in total expenditure; they tend to adjust the basket of goods purchased. For example the expenditure on food and necessities increases comparing to expenditure on clothes. The crisis caused markets to contract and major changes appeared in their structure. The buyers changed their buying behavior. They start to worry about their jobs and do not enjoy spending their money anymore. They postponed or reduced a big amount of purchases related to leisure and entertainment. People may start buying less quantities, or switch to larger size items to avoid repeated purchases. They also started to switch brands, and focus on price rather than quality and they also have started to intensify the search on the web looking for valuable bargains. The role of the government is rather important to protect consumers against inflation by controlling and preventing prices from further increasing to ensure that the purchasing power of consumers will not deteriorate causing serious problems such as long term unemployment and poverty. This research aims to study the impact of the Global financial crisis on Bahraini consumers, investigate their perception of this problem and whether their consumption behavior has changed as a result. The results of this research were based on the analysis of a questionnaire that was distributed to random consumers in Bahrain to have an overview of their knowledge about the Global Financial Crisis and some of its effects and to see if the financial crisis affected their consumption. The data was analyzed using SPSS package to test the hypotheses. In order to investigate the existence of the statistical significance between the variables in the hypothesis, we are going to apply the One Sample T-test method. However, the paper approaches some difficulties that faced consumers after the financial crisis and tries to suggest some solutions. One of the most important problems that consumers are suffering from is the accelerated prices of basic commodities such as food and housing. In order to form a clear framework and address the objectives of this research, the research can be divided into seven sections.
Rural consumer behavior:
Consumer segmentation: Definition for segmentation: Segmentation means to divide the marketplace into parts, or segments, which are definable, accessible, actionable, and profitable and have a growth potential. In other words, a company would find it impossible to target the entire market, because of time, cost and effort restrictions. It needs to have a 'definable' segment - a mass of people who can be identified and targeted with reasonable effort, cost and time. Once such a mass is identified, it has to be checked that this mass can actually be targeted with the resources at hand, or the segment should be accessible to the company. Beyond this, will the segment respond to marketing actions by the company (ads, prices, schemes, promos)
or, is it actionable by the company? After this check, even though the product and the target are clear, is it profitable to sell to them? Is the number and value of the segment going to grow, such that the product also grows in sales and profits?
Consumer segmentation:
Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests and spending habits. Customer segmentation, also called consumer segmentation or client segmentation, procedures include: Deciding what data will be collected and how it will be gathered Collecting data and integrating data from various sources Developing methods of data analysis for segmentation Establishing effective communication among relevant business units (such as marketing and customer service) about the segmentation Implementing applications to effectively deal with the data and respond to the information it provides Companies employing customer segmentation operate under the fact that every customer is different and that their marketing efforts would be better served if they target specific, smaller groups with messages that those consumers would find relevant and lead them to buy something. Companies also hope to gain a deeper understanding of their customers' preferences and needs with the idea of discovering what each segment finds most valuable to more accurately tailor marketing materials toward that segment. Customer segmentation relies on identifying key differentiators that divide customers into groups that can be targeted. Information such as a customers' demographics (age, race, religion, gender, family size, ethnicity, income, education level), geography (where they live and work), psychographic (social class, lifestyle and personality characteristics) and behavioral (spending, consumption, usage and desired benefits) tendencies are taken into account when determining customer segmentation practices. By enabling companies to target specific groups of customers, a customer segmentation model allows for the effective allocation of marketing resources and the maximization of cross- and up-selling opportunities. When a group of customers is sent personalized messages as part of a marketing mix that is designed around their needs, it's easier for companies to send those customers special offers meant to encourage them to buy more products. Customer segmentation can also improve customer service and assist in customer loyalty and retention. As a by-product of its personalized nature, marketing materials sent out using customer segmentation tend to be more valued and appreciated by the customer who receives them as opposed to impersonal brand messaging that doesn't acknowledge purchase history or any kind of customer relationship. Other benefits of customer segmentation include staying a step ahead of competitors in specific sections of the market and identifying new products that existing or potential customers could be interested in or improving products to meet customer expectations. Not only do companies strive to divide their customers into measurable segments according to their needs, behaviors or demographics but they also aim to determine the profit potential of each segment by analyzing its revenue and cost impacts. Value-based segmentation evaluates groups of customers in terms of the revenue they generate and the costs of establishing and maintaining relationships with them. It also helps companies determine which segments are the most and least profitable so that they can adjust their marketing budgets accordingly.
particular groups. This may work when the product is a standard one where one competitor really can’t offer much that another one can’t. Usually, this is the case only for commodities. In the concentrated strategy, one firm chooses to focus on one of several segments that exist while leaving other segments to competitors. For example, Southwest Airlines focuses on price sensitive consumers who will forego meals and assigned seating for low prices. In contrast, most airlines follow the differentiated strategy: They offer high priced tickets to those who are inflexible in that they cannot tell in advance when they need to fly and find it impractical to stay over a Saturday. These travelers—usually business travelers—pay high fares but can only fill the planes up partially. The same airlines then sell some of the remaining seats to more price sensitive customers who can buy two weeks in advance and stay over. Note that segmentation calls for some tough choices. There may be a large number of variables that can be used to differentiate consumers of a given product category; yet, in practice, it becomes impossibly cumbersome to work with more than a few at a time. Thus, we need to determine which variables will be most useful in distinguishing different groups of consumers. We might thus decide, for example, that the variables that are most relevant in separating different kinds of soft drink consumers are (1) preference for taste vs. low calories, (2) preference for Cola vs. non-cola taste, (3) price sensitivity—willingness to pay for brand names; and (4) heavy vs. light consumers. We now put these variables together to arrive at various combinations. Several different kinds of variables can be used for segmentation. Demographic variables essentially refer to personal statistics such as income, gender, education, location (rural vs. urban, East vs. West), ethnicity, and family size. Campbell’s soup, for instance, has found that Western U.S. consumers on the average prefer spicier soups—thus, you get a different product in the same cans at the East and West coasts. Facing flat sales of guns in the traditional male dominated market, a manufacturer came out with the Lady Remmington, a more compact, handier gun more attractive to women. Taking this a step farther, it is also possible to segment on lifestyle and values .” Some consumers want to be seen as similar to others, while a different segment wants to stand apart from the crowd. Another basis for segmentation is behavior. Some consumers are “brand loyal”—i.e., they tend to stick with their preferred brands even when a competing one is on sale. Some consumers are “heavy” users while others are “light” users. For example, research conducted by the wine industry shows that some 80% of the product is consumed by 20% of the consumers—presumably a rather intoxicated group. One can also segment on benefits sought , essentially bypassing demographic explanatory variables. Some consumers, for example, like scented soap (a segment likely to be attracted to brands such as Irish Spring), while others prefer the “clean” feeling of unscented soap (the “Ivory” segment). Some consumers use toothpaste primarily to promote oral health, while another segment is more interested in breath freshening. In the next step, we decide to target one or more segments. Our choice should generally depend on several factors. First, how well are existing segments served by other manufacturers? It will be more difficult to appeal to a segment that is already well served than to one whose needs are not currently being served well. Secondly, how large is the segment, and how can we expect it to grow? (Note that a downside to a large, rapidly growing segment is that it tends to attract competition). Thirdly, do we have strengths as a company that will help us appeal particularly to one group of consumers? Firms may already have an established reputation. While McDonald’s has a great reputation for fast, consistent quality, family friendly food, it would be difficult to convince consumers that McDonald’s
now offers gourmet food. Thus, McD’s would probably be better off targeting families in search of consistent quality food in nice, clean restaurants. It is possible using to target very specific customer groups based on magazine subscriptions, past purchases, and demographic variables. A number of list brokers will sell lists of names and addresses of homeowners in a particular area (information they get from county registrars) or the subscribers to various magazines. Firms will often sell lists of their customers to competitors since it is widely believed in the industry that more catalogs tend to result more in incremental sales than in losing share in fixed-size pie. One can also buy e- mail lists, but it is generally not legal to send solicitng e-mails to individuals with which one does not already have an established business relationship, and these are also likely to be discarded by "spam" filters. In the "merge-purge" process, lists from several sources are combined (since none contains every relevant individual by itself), after which duplicates are removed. Here is an illustration of what could be used by an online merchant of surf gear seeking to find additional potential customers: Positioning involves implementing our targeting. For example, Apple Computer has chosen to position itself as a maker of user-friendly computers. Thus, Apple has done a lot through its advertising to promote itself, through its unintimidating icons, as a computer for “non-geeks.” The Visual C software programming language, in contrast, is aimed a “techies.”
possible to attempt to “move” one’s brand in a more desirable direction by selectively promoting certain points. There are two main approaches to multi-dimensional scaling. In the priori approach, market researchers identify dimensions of interest and then ask consumers about their perceptions on each dimension for each brand. This is useful when (1) the market researcher knows which dimensions are of interest and (2) the customer’s perception on each dimension is relatively clear (as opposed to being “made up” on the spot to be able to give the researcher a desired answer). In the similarity rating approach, respondents are not asked about their perceptions of brands on any specific dimensions. Instead, subjects are asked to rate the extent of similarity of different pairs of products (e.g., How similar, on a scale of 1-7, is Snicker’s to Kitkat, and how similar is Toblerone to Three Musketeers?) Using computer algorithms, the computer then identifies positions of each brand on a map of a given number of dimensions. The computer does not reveal what each dimension means—that must be left to human interpretation based on what the variations in each dimension appears to reveal. This second method is more useful when no specific product dimensions have been identified as being of particular interest or when it is not clear what the variables of difference are for the product category. With high volumes of data created across multiple marketing channels, brands are challenged to organize and active the right data assets to maximize cross-channel performance. To better understand your target audience, drive more sales, and reduce marketing waste, you need to align your brand segmentation with digital activation and reporting. You must align the why they purchase with the who that buys (audience segmentation) to the what (experience) and how (digital activation) so that all your efforts are on the same page. The key reason for this alignment is to increase efficiencies and synchronize your efforts so that each element is working in correlation with the other. Knowing what audience to target determines what marketing initiatives you should use to engage them, which in turn directs you to the right insights to improve your segmentation. It’s a cycle that is interrelated and symbiotic. Segmentation directs your strategy: Segmentation is making sure the right message - > gets to the right buyer - > at the right time. It’s also a great deal more economically efficient than mass marketing. By segmenting high-performing users you will increase engagement with current users to drive more value from your audiences. Aligning your segmentation with the activation strategy is key. By gaining an understanding of consumer behavior you have the insights needed to increase conversions. Segmentation is the tool that helps you analyze aggregates of consumers that share common characteristics. By targeting the segments which have the highest propensity to engage, you can develop a more effective marketing strategy that better serves consumer needs and ultimately boosts conversions. 5 elements of the most effective segments should be
- Measurable – based on size, purchasing power, and segment profile
- Substantial – of a critical mass that is profitable
- Accessible – one that can easily be reached
- Differential – is distinctive from others
- Actionable – that enables effective programs/campaigns to be developed
To segment markets properly, you need to divide them into distinct groups with specific needs, characteristics, or behaviors which require separate products or marketing mixes. It’s key to activate the audience segments you have identified across the entire digital ecosystem. Your target segmentation should be made on the basis of Which consumers will best respond to your brand(s) What most addresses a buyer’s needs and motivations Where consumers are in the buying cycle Quantifiable characteristics which link to KPIs such as size and market share Ease of persona (profile) identification Feasibility in targeting (based on fiscal, resource, and practical considerations) and the consistent growth potential of the segment You need to understand the buying behaviors of each segment and develop consumer profile (via surveys and tracking of data rich websites). You need to start with a brand DNA study to evaluate the strengths/weaknesses of the brand Segment to identify the target groups to focus on Identify primary and secondary targets Establish the brand positioning Activate the target to interact with the brand in a meaningful way Once you’ve segmented your target audience, you should be looking for the influencers, brand ambassadors, evangelists, and advocates. Using these individuals or groups, you can maximize the efficiency of brand activation and increase response rates. Segmentation drives efficient activation To optimize brand management efficiency and achieve/retain your competitive advantage and increase conversions, you have to align brand segmentation, messaging, and activation. Successfully segmenting your brand and aligning it with activation increases: Top of mind awareness Brand likeability Brand purchase Making use your CRM and third-party data sources, you can segment your audiences and help plan activation. By identifying your best customers, you can focus on the best media to reach them and the best message to engage them. When you’re planning your marketing activities you have to keep segmentation in mind so you can determine which elements to include in your marketing mix. The right mix of marketing activities and vehicles is closely linked to the behaviors of the target audience. Market segmentation and building a differentiated value proposition are two of marketing’s most powerful tools for guiding a marketing strategy. It clearly identifies which consumer targets will generate the highest return in conversions and provides a better view of how to best reach and engage them. Once you’ve figured out segmentation, you can align it with activation. Brand activation involves bringing a brand to life in the marketplace. It’s about delivering brand
wheelers, small cars, television sets, refrigerators, air-conditioners and household appliances in rural India. Definitions: “Rural marketing is a process of developing, pricing, promoting, and distributing rural specific goods and services leading to desired exchange with rural customers to satisfy their needs and wants, and also to achieve organizational objectives.” Concept of Rural Marketing: The concept of Rural Marketing in India Economy has always played an influential role in the lives of people. In India, leaving out a few metropolitan cities, all the districts and industrial townships are connected with rural markets. The rural market in India generates bigger revenues in the country as the rural regions comprise of the maximum consumers in this country. The rural market in Indian economy generates almost more than half of the country’s income. Rural marketing in Indian economy can be classified under two broad categories. ----OOO----
UNIT-II ENVIRONMENTAL INFLUENCES ON CONSUMER BEHAVIOR UNIT-II : ENVIRONMENTAL INFLUENCES ON CONSUMER BEHAVIOR: Influence of culture, sub culture, social class, social group, family and personality, cross cultural consumer behavior. ENVIRONMENTAL INFLUENCES ON CONSUMER BEHAVIOR: Consumers don't exist in a vacuum. Their behavior is influenced by the environment in which they live, and this behavior includes their buying behavior. This environment includes families and friends, lifestyle and lifecycle, and the culture and beliefs of their social class. When marketers understand how these influences work, they can often tap into them as they develop marketing strategies. In this topic you will learn to discuss the impact of cultural beliefs, values and customs in regulating consumer behavior explain how social class linked attitudes and values influence consumer behavior discuss the impact of groups on consumer buying processes describe the influence of the family on the consumption behavior of family members explain different buyer needs as determined by life cycle changes explain how lifestyle influences consumer behavior identify the implications of group membership, family, culture, lifestyle and social class for a marketing strategy development