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CHAPTER 1

Consumer Behavior: Meeting Changes and Challenges

LEARNING OBJECTIVES

After studying this chapter students should be able:

1. To understand what consumer behavior is and the different types of consumers.2. To understand the relationship between consumer behavior and the marketing

concept, the societal marketing concept, as well as segmentation, targeting, and

positioning.3. To understand the relationship between consumer behavior and customer value,

satisfaction, trust and retention.

4. To understand how new technologies are enabling marketers to better satisfy theneeds and wants of consumers.

5. To understand how marketers are increasingly able to reach consumers whereverconsumers wish to be reached.

6. To understand how the worlds economic condition is leading to consumptioninstability and change.

7. To understand the makeup and composition of a model of consumer behavior.

SUMMARY

The study of consumer behavior enables marketers to understand and predict consumer

behavior in the marketplace; it is concerned not only with what consumers buy but also

with why, when, where, and how they buy it. Consumer research is the methodology used

to study consumer behavior; it takes place at every phase of the consumption process:before the purchase, during the purchase, and after the purchase.

The field of consumer behavior is rooted in the marketing concept, a business orientationthat evolved in the 1950s through several alternative approaches, referred to, respectively,

as the production concept, the product concept, and the selling concept. The three major

strategic tools of marketing are market segmentation, targeting, and positioning. Themarketing mix consists of a companys service and/or product offerings to consumers and

the pricing, promotion, and distribution methods needed to accomplish the exchange.

Consumer behavior is interdisciplinary; that is, it is based on concepts and theories about

people that have been developed by scientists in such diverse disciplines as psychology,

sociology, social psychology, cultural anthropology, and economics.

Skilled marketers make the customer the core of the companys organizational cultureand ensure that all employees view any exchange with a customer as part of a customer

relationship, not as a transaction. The three drivers of successful relationships between

marketers and customers are customer value, high levels of customer satisfaction, and

building a structure for customer retention.

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Digital technologies allow much greater customization of products, services, and

promotional messages than do older marketing tools. They enable marketers to adapt theelements of the marketing mix to consumers needs more quickly and efficiently, and to

build and maintain relationships with customers on a much greater scale. However, these

technologies also represent significant challenges to marketers and to business models

that have been used for decades.

Consumer behavior has become an integral part of strategic market planning. The belief

that ethics and social responsibility should also be integral components of everymarketing decision is embodied in a revised marketing conceptthe societal marketing

conceptthat calls on marketers to fulfill the needs of their target markets in ways that

improve society as a whole.

1. Consumer behavior is defined as the behavior that consumers display in searchingfor, purchasing, using, evaluating, and disposing of products and services that theyexpect will satisfy their needs.

a) Consumer behavior focuses on how individuals make decisions to spend theiravailable resources on consumption-related items.

b) As consumers, we play a vital role in the health of the economylocal, national,and international.

c) Marketers need to know everything they can about consumers.d) Marketers need to understand the personal and group influences that affect

consumer decisions and how these decisions are made.e) Marketers need to not only identify their target audiences, but they need to know

where and how to reach them.

2. The term consumer behavior is often used to describe two different kinds ofconsuming entities: the personal consumer and the organizational consumer.

a) The personal consumer buys goods and services for his or her own use, for theuse of the household, or as a gift for a friend.i) Products are bought for final use by individuals (referred to as end users or

ultimate consumers).

b) The organizational consumerincludes profit and not-for-profit businesses,

government agencies, and institutions, all of which must buy products,

equipment, and services in order to run their organizations6. Despite the

importance of both categories of consumers, individuals and organizations, thisbook will focus on the individual consumer, who purchases for his or her own

personal use or for household use.

ii) End-use consumption is perhaps the most pervasive of all types ofconsumer behavior.

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CONSUMER BEHAVIOR AND THE MARKETING CONCEPT

1. The strategic and applied field of consumer behavior is rooted in threephilosophically different business orientations that lead up to an extremely important

business orientation known as the marketing concept.

2. The production orientation focused on gearing up manufacturing skills in order toexpand production.a) An additional focus was on perfecting the production capabilities of the

company.

b) The production orientation extended from the 1850s to the late-1920s.c) During this time period, demand exceeded supply.

3. The sales orientation focus was to sell more of what the manufacturing departmentwas able to produce.

a) The orientation shifted from producing to selling.b)

At some point, supply increasingly reached a point where it was greater thandemand.

c) The sales orientation began in the 1930s and extended to the 1950s.4. In the mid-1950s there was a shift from the sales orientation to the marketing

orientation.

a) Businesses realized the importance of focusing on consumers and theirpreferences.

What Is The Marketing Concept

1. The field of consumer behavior is rooted in a marketing strategy that evolved in thelate 1950s.

2. Companies determined, that in order to be successful, they must determine the needsand wants of specific target markets and deliver the desired satisfactions better thanthe competition.

3. Instead of trying to persuade customers to buy what the firm had already produced,marketing-oriented firms found that it was a lot easier to produce only products theyhad first confirmed, through research, that consumers wanted.

4. Recently there has been an important modification to the marketing concept called thesocietal marketing concept.a) The concept suggests that consumers may respond to their immediate needs or

wants, while overlooking what is in their own long-run best interest, or the best

interest of their family and neighbors, the best interest of their country or region

or the entire planet.b) Enlightened marketers take it upon themselves to remind consumers as to what

is in the consumers long-run best interest; at the same time they set out what

their own company is doing in order to be a good corporate citizen.

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Embracing the Marketing Concept

1. It is often important for companies to continuously conduct marketing researchstudies to monitor consumers needs and preferences with respect to the products andservices that they currently market and what they might develop in the future.

2.

They discovered that consumers were highly complex individuals, subject to a varietyof psychological and social needs quite apart from their basic functional needs.

a) The needs and priorities of different consumer segments differed dramatically.b) The objectives of a company should be to target different products and services

to different market segments in order to better satisfy different needs.

c) In order to design new products and marketing strategies that would fulfillconsumer needs, they had to study consumers and their consumption behavior indepth.

3. The term consumer research represents the process and tools used to studyconsumer behavior.

Segmentation, Targeting, and Positioning

1. The focus of the marketing concept is to know consumers current needs, and tosecure, a picture of their likely future needs.

2. Market and consumer researchers seek to identify the many similarities anddifferences that exist among the peoples of the world.

3. The marketer must adapt the image of its product so that each market segmentperceives the product as better fulfilling its specific needs than competitive products.

a) The three elements of this strategic framework are: market segmentation,targeting, and positioning.

4. Market segmentation is the process of dividing a market into subsets of consumerswith common needs or characteristics.

5. Market targeting is the selection of one or more of the segments identified for thecompany to pursue.

6. Positioning refers to the development of a distinct image for the product or service inthe mind of the consumer, an image that will differentiate the offering from

competing ones and faithfully communicate to the target audience that the particular

product or service will fulfill their needs better than competing brands.a) Successful positioning centers around two key principles:

i) The first principle says that the marketer should communicate the

benefits that the product will provide rather than the products

features.

ii) The second principle states that because there are many similarproducts in almost any marketplace, an effective positioning strategy

must develop and communicate a unique selling propositiona

distinct benefit or point of differencefor the product or service.

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The Marketing Mix

1. The marketing mix consists of a companys service and/or product offerings toconsumers and the methods and tools it selects to accomplish the exchange.

2.

Four basic elements (known as the four Ps) include:a) The productfeatures, designs, brands, packaging, etc.b) The pricelist price (including discounts, allowances, and payment methods).c) The placedistribution of the product or service.d) Promotionadvertising, sales promotion, public relations, and sales efforts

designed to build awareness of and demand for the product or service.

CUSTOMER VALUE, SATISFACTION, TRUST, AND RETENTION

1. Since the 1950s many companies have successfully adopted the marketing concept.2. The marketplace is now increasingly competitive.3.

Savvy marketers today realize that in order to outperform competitors they mustachieve full profit potential from each and every consumer.

a) An exchange with a consumer is part of a customer relationship, not just atransaction.

4. Four drivers of successful relationships between marketers and consumers are:a) Customer value.b) High levels of customer satisfaction.c) A strong sense of customer trust.d) Building a structure of customer retention.

Providing Customer Value

1. Customer value is defined as the ratio between the customers perceived benefits(economic, functional, and psychological) and the resources (monetary, time, effort,

psychological) used to obtain those benefits.a) Perceived value is relative and subjective.b) Developing a value proposition is the core of successful positioning.c) Looking for the impact of emerging megatrends is a factor in attaining

successful positioning of a brand.

Ensuring Customer Satisfaction

1. Customer satisfaction is the individuals perception of the performance of theproduct or service in relation to his or her expectations.

2. The concept of customer satisfaction is a function of customer expectations.3. With respect to customer satisfaction there might be several types of customers:

a) Loyalistscompletely satisfied customers who keep purchasing.b) Apostlesthose whose experiences exceed their expectations and who provide

very positive word of mouth about the company to others.

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c) Defectorsthose who feel neutral or merely satisfied and are likely to stopdoing business with the company.

d) Terroriststhose who have had negative experiences with the company andwho spread negative word of mouth.

e) Hostagesunhappy customers who stay with the company because of no choice(or other reasons).f) Mercenariesvery satisfied customers but who have no real loyalty to thecompany and may defect.

Building Customer Trust

1. Closely related to the challenge of satisfying consumers is the challenge ofestablishing and maintaining consumer trust.

a) Trust is the foundation for maintaining a long-standing relationship withcustomers, and it helps to increase the chances that customers will remain loyal.

b) Efforts to provide true customer delight in the face of an event that hadextremely dissatisfied the customer can be turned around by the marketer, andpresent a positive win-win outcome for both the consumer and the marketer.

Securing Customer Retention

1. The overall objective of providing value to customers continuously and moreeffectively than the competition is to have and to retain highly satisfied customers.

2. This strategy ofcustomer retention makes it in the best interest of customers to staywith the company rather than switch to another company.

3. In almost all business situations, it is more expensive to win new customers than tokeep existing ones.

4. Studies have shown that small reductions in customer defections produce significantincreases in profits because:

a. Loyal customers buy more products.b. Loyal customers are less price sensitive and pay less attention to competitors

advertising.c. Servicing existing customers, who are familiar with the firms offerings and

processes, is cheaper.

d. Loyal customers spread positive word-of-mouth and refer other customers.5. Sophisticated marketers build selective relationships with customers, based on where

customers rank in terms of profitability, rather than merely strive to to retain

customers.

6. Customer profitability-focused marketing tracks costs and revenues of individualcustomers and then categorizes them into tiers based on consumption behaviors thatare specific to a companys offerings.

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THE IMPACT OF DIGITAL TECHNOLOGIES ON

MARKETING STRATEGIES

1. Digital technologies have allowed marketers to customize their products, services,and promotional messages.

2.

They enable marketers to adapt the elements of the marketing mix to consumersneeds more quickly and efficiently, and to build and maintain relationships with

customers.3. Marketers are collecting and analyzing increasingly complex data on consumers

buying patterns and personal characteristics, and quickly analyzing and using this

information to target smaller and more focused groups of consumers.

4. Technology enables consumers to find more information.Consumers Have More Power Than Ever Before

1. Consumer can use intelligent agents to locate the best prices for products orservices, bid on various marketing offering, bypass distribution outlets andmiddlemen, and shop for goods around the globe and around the clock from the

convenience of their homes.2. Marketers must offer more competitively priced products, with more options.3. Through devices like TiVo, consumers have more power over what they see or hear

in the marketplace.4. Consumers have access to more information then ever before.5. Marketers have been reducing their advertising expenditures on major networks and

investing their advertising dollars in newer media.

Consumers Have More Access To Information Than Ever Before

1. Reviews of products are easily found.Marketers Can And Must Offer More Services And Products Than Ever Before

1. The digitization of information enables sellers to customize the products and servicesthey are selling and still sell them at reasonable prices.

2. Marketers can customize promotional messages.Increasing Instantaneous Exchanges Between Marketers and Customers

1. Digital or new media communication enables a two-way interactive exchange inwhich consumers can instantly react to the marketers message.

2. Marketers can quickly gauge the effectiveness of their promotional messages.

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Impact Reaches Beyond the PC-Based Connection Of The Web

1. While computer access to the Internet is extensive and growing, in the future we arelikely to see the mobile phone or PDA emerge as the preferred access too, as it brings

e-mail and text messaging to one particular device.

2.

The large numbers of highly mobile consumers are making a cell device a preferredcommunication tool.

THE EXPANDING MOBILE CONSUMER

1. Cellular service providers are increasingly seeing the cell phones screen as anopportunity to secure advertising revenue.

2. We can expect expanded use of wireless media messages as:a) The availability of flat-rate data traffic to consumers increases.b) With creation of enhanced screen image quality.c) Increased consumer-user experiences with improved Web-related applications.

CONSUMER BEHAVIOR IN A WORLD OF ECONOMIC INSTABILITY

1. This edition ofConsumer Behaviorwas written in a time of recession and widespreadeconomic downturn in consumer confidence.

2. Economic events will impact what and how much consumers are able to purchase.3. Some consumers really suffer in times of recession and widespread economic

downturn.

4. Much of the process of consumer decision making and the dynamics of consumerresearch and shopping will still go on, but it will be different.

CONSUMER BEHAVIOR AND DECISION MAKING ARE

INTERDISCIPLINARY

1. Consumer behavior was a relatively new field of study in the mid-to-late 1960s.2. Marketing theorists borrowed heavily from concepts developed in other scientific

disciplines:a) Psychologythe study of the individual.b) Sociologythe study of groups.c) Social psychologythe study of how an individual operates in groups.d) Anthropologythe influence of society on the individual.e) Economicsto form the basis of this new marketing discipline.

3. Many early theories concerning consumer behavior were based on economic theory,the idea that individuals act rationally to maximize their benefits (satisfactions) in thepurchase of goods and services.

4. Later research discovered that consumers are just as likely to purchase impulsively,and to be influenced not only by family, friends, advertisers and role models, but by

mood, situation, and emotion.

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A Model of Consumer Decision Making

1. The process of consumer decision making can be viewed as three distinct butinterlocking stages: the input stage, the process stage, and the output stage.

2. The input stage influences the consumers recognition of a product need and consistsof two major sources of information:a) The firms marketing efforts (the product itself, its price, promotion, and where

it is sold).b) The external sociological influences on the consumer (family, friends,

neighbors, other informal and noncommercial sources, social class, cultural and

subcultural memberships).

3. The process stage focuses on how consumers make decisions.a) The psychological factors inherent in each individual (motivation, perception,

learning, personality, attitude) affect how the external inputs influence the

consumers recognition of a need, prepurchase search for information, and

evaluation of alternatives.

b)

The experience gained through evaluation of alternatives, in turn, affects theconsumers existing psychological attributes.

4. The output stage of the consumer decision-making model consists of two closely-related post decision activities:

a) Purchase behavior, which can be a trial purchase or a repeat purchase.b) The postpurchase evaluation of the product feeds directly into the consumers

experience in the process stage of the model.