Definition of Consumer Behavior and Applications

As compared to ten or even twenty years ago, today, Consumers have so many choices to make. Today as always, business growth depends heavily on loyal customers who return because they are satisfied with the product and/or service they have received. But first companies have to bring consumers into the stores. The companies bring consumers into the store by marketing their product. Throughout in this book you would realize that Consumer is the end all and by all. He reins the market. It is necessary to discuss strategic market planning and marketing early in the course. A strategic market plan gives direction to a firm’s efforts and better enables it to understand the dimensions of marketing research, consumer analysis, and product, distribution, promotion, and price planning. The basic objectives of this unit are:

Strategic Marketing Planning

To understand the meaning of Strategic Marketing Planning and its implications

To have an insight into the various strategies

Segmentation, Targeting and Positioning of Products

To understand the importance of market segmentation and the basis on which it is done

To develop a target market strategy

To understand positioning of a product or service and its strategies

Re-positioning

Perceptual Mapping

To understand what is perceptual mapping and why is it important?

Marketing Communication

To understand the meaning and importance of communication in marketing.

To know the Model and Process of marketing communication

Promotion – a vital component in marketing communication

Pricing – status sign

Store Choice & Shopping Behavior

Consumer Outlet Selection

Consumer Shopping Behavior

Stages of the Consumer Buying Process

Purchase Timing Behavior

In-Store Stimuli, Store Image and Loyalty

In-store stimuli

Behavior Basis

Visual merchandising

Store loyalty

Consumerism

The meaning of consumerism

History

Consumerism in India

Consumer Rights

Consumer protection

The study of consumers helps firms and organizations improve their marketing strategies by understanding issues such as:

The psychology of consumers as to how they think, feel, reason, and select between different alternatives (e.g., brands, products);

The psychology of consumers as to how they are influenced by their environment (e.g., culture, family, signs, media);

The behavior of consumers while shopping or making other marketing decisions;

How limitations in consumer knowledge or information processing abilities influence decisions and marketing outcome;

How consumer motivation and decision strategies differ between products that differ in their level of importance or interest that they entail for the consumer; and

How marketers can adapt and improve their marketing campaigns and marketing strategies to reach the consumer more effectively.

Understanding these issues helps us adapt our strategies by taking the consumer into consideration. For example, by understanding that a number of different messages compete for our potential customers’ attention, we learn that to be effective, advertisements must usually be repeated extensively. We also learn that consumers will sometimes be persuaded more by logical arguments, but at other times will be persuaded more by emotional or symbolic appeals. By understanding the consumer, we will be able to make a more informed decision as to which strategy to employ.

There are four main applications of consumer behavior:

The most obvious is for marketing strategy—i.e., for making better marketing campaigns. For example, by understanding that consumers are more receptive to food advertising when they are hungry, we learn to schedule snack advertisements late in the afternoon. By understanding that new products are usually initially adopted by a few consumers and only spread later, and then only gradually, to the rest of the population, we learn that (1) companies that introduce new products must be well financed so that they can stay afloat until their products become a commercial success and (2) it is important to please initial customers, since they will in turn influence many subsequent customers’ brand choices.

A second application is public policy. In the 1980s, Acutance, a near miracle cure for acne, was introduced. Unfortunately, Acutance resulted in severe birth defects if taken by pregnant women. To get consumers’ attention, the Federal Drug Administration (FDA) took the step of requiring that very graphic pictures of deformed babies be shown on the medicine containers.

Social marketing involves getting ideas across to consumers rather than selling something.

As a final benefit, studying consumer behavior should make us better consumers.

What is a Market?

A market is: “An aggregate of people who, as individuals or organizations, have needs for products in a product class and who have the ability, willingness and authority to purchase such products (conditions needed for an exchange).”

Consumer Intend to consume or benefit, but not to make a profit.

Organizational/Business For:

Resale

Direct use in production

or general daily operations.

Market Segmentation

To get a product or service to the right customer, a marketer would firstly segment the market, then target a single segment or series of segments, and finally position within the segment’s.

Segmentation is essentially the identification of subsets of buyers within a market who share similar needs and who demonstrate similar buyer behavior. The world is made up from billions of buyers with their own sets of needs and behavior. Segmentation aims to match groups of purchasers with the same set of needs and buyer behavior. Such a group is known as a ‘segment’.

The requirements for successful segmentation are

Homogeneity within the segment

Heterogeneity between segments

Segments are measurable and identifiable

Segments are accessible and actionable

Segment is large enough to be profitable . . . . .

Eg. The market for Laptops can be segmented into – Students, Business Executives, IT professionals – both backend and front end.

Criteria Needed for Segmentation are:

Segments must have enough profit potential to justify developing and maintaining a Marketing Mix

Consumer must have heterogeneous (different) needs for the product.

Segmented consumer needs must be homogeneous (similar)

Company must be able to reach a segment with a Marketing Mix.

Have you seen children making choice for themselves or for the family? How do you think they know what they want? How do marketers reach children? Yes, today they are an important part of our market. They not only make decisions regarding their cloths, they actually help parents make decision regarding high priced products and services such as televisions, clubs and hotels, car, shoes etc.

The marketers use various tools to reach them- some of the media channels they focus on:-

Cartoons Network

Toon Disney

POGO

Nickelodeon

Cereal boxes

Sports illustrated for kids

Look at how media has changed recently due to changing demographics etc. and therefore the need of marketers to reach these groups. Media must respond because they are essentially financed by the marketers or at least heavily subsidized

Bases for Marketing Segmentation

Geographic variables - dividing the market into zones or geographical regions

Region of the world or country

Country size

Climate

Eg. MTR chilly or any of their items price their products region-wise. Within Karnataka ` 15 /100grams AND Outside Karnataka ` 18/100 grams

Demographic Variables - is a shorthand term for ‘population characteristics’. Demographics include race, age, income, mobility (in terms of travel time to work or number of vehicles available), educational attainment, home ownership, employment status, and even location. Distributions of values within a demographic variable, and across households, are both of interest, as well as trends over time. Demographics are primarily used in economic and marketing research.

Age

Gender

Sexual orientation

Family size

Family life cycle

Income

Occupation

Education

Socioeconomic status is the social science of the social and economic impacts of any product or service offering, market intervention or other event on an economy as a whole and on the companies, organizations and factors that influence how an intervention is likely to change a society will be unique to each situation, but generally may include, for example:

Prevailing economic conditions

Race or ethnicity

The level of economic development and the extent of disparities within a society

Political stability and the relationship between government and judiciary

Levels of education, literacy and familiarity with technology

Maturity and openness of markets

 Propensity for entrepreneurial activity

Strength of tradition in terms of beliefs and behaviors

Religion

Nationality/race

Eg.Spice Telecom has a special plan for the “Youth segment” called Spice youth, they have special benefits like 100 sms free, zero balance recharge.

Psychographic variables are any attributes relating to personality, values, attitudes, interests, or lifestyles. They are also called IAO variables (Interests, Attitudes, and Opinions). They can be contrasted with demographic variables (such as age and gender), and behavioral variables (such as usage rate or loyalty).

When a relatively complete assessment of a person or group’s psychographic make-up is constructed, this is called a psychographic profile. Psychographic profiles are used in market segmentation and advertising. It only relates to one form not two as geodemographic which would relate to the geographical spread of different age groups across the India for example. The variables are-

Personality

Life style

Value

Attitude

Behavioral variables – are any attributes relating to the behavior or pattern of use of a product by the consumers.

Benefit sought

Product usage rate

Brand loyalty

Product end use

Readiness-to-buy stage

Decision making unit

When numerous variables are combined to give an in-depth understanding of a segment, this is referred to as depth segmentation. When enough information is combined to create a clear picture of a typical member of a segment, this is referred to as a buyer profile. When the profile is limited to demographic variables it is called a demographic profile (typically shortened to “a demographic”). A statistical technique commonly used in determining a profile is cluster analysis.

Segmentation variables should be related to consumer needs for, and uses of, or behavior toward the product. Eg. Stereo; age not religion.

Segmentation variable must be measurable. No best way to segment the markets. Selecting inappropriate variable limits the chances of success.

Developing a Target Market Strategy

A Product will not sell by itself; It needs the best of strategies. After drawing a strong strategy plan, we need to develop a target market.Developing a target market strategy has three phases:

Analyzing consumer demand

Targeting the market(s)

Undifferentiated

Concentrated

Multi-segmented

Developing the marketing strategy

Selecting Target Markets by Analyzing Demand

Demand is the quantity of a good that consumers are not only willing to purchase but also have the capacity to buy at the given price. For example, a consumer may be willing to purchase 2 Kgs of potatoes if the price is ` 3 per kg. However, the same consumer may be willing to purchase only 1 Kg if the price is ` 5.00 per Kg. A demand schedule can be constructed that shows the quantity demanded at each given price. It can be represented on a graph as a line or curve by plotting the quantity demanded at each price. It can also be described mathematically by a demand equation. The main determinants of the quantity one is willing to purchase will typically be the price of the good, one’s level of income, personal tastes, the price of substitute goods, and the price of complementary goods.

The capacity to buy is sometimes used to characterise demand as being merely an alternate form of supply.

As marketers we need to aggregate consumers with similar needs. We need to identify demand patterns. Identification of demand could be done by asking the following questions and analyzing the same.

Do all potential customers have similar needs/desires or are there clusters? What are the demand patterns?

A marketer can normally identify three demand patterns, they are:

Homogeneous Demand-uniform, everyone demands the product for the same reason(s). eg. A prescribed textbook for a course

Clustered Demand-consumer demand classified in 2 or more identifiable clusters. Eg. Automobiles:

Luxury

Cheap

Sporty

Spacious

Diffused Demand-Product differentiation more costly and more difficult to communicate E.g. Cosmetic market; need to offer hundreds of shades of lipstick. Firms try to modify consumer demand to develop clusters of at least a moderate size.

Targeting the Market

After analyzing the demand pattern we as marketers, can identify how the consumers can be targeted. This would include 3 approaches in which a marketer can target its consumers.

Undifferentiated Approach (Total Market Approach) – This approach does not differentiate the market according to any variable. In this case a Single Marketing Mix for the entire market identified is laid out. All consumers have similar needs for a specific kind of product. Homogeneous market, or demand is so diffused it is not worthwhile to differentiate, try to make demand more homogeneous. Eg. Nirma Detergent soap – for any kind of stain, for any kind of person or cloth one soap.

Single Marketing Mix consists of:

1 Pricing strategy

1 Promotional program aimed at everybody

1 Type of product with little/no variation

1 Distribution system aimed at entire market

The elements of the marketing mix do not change for different consumers; all elements are developed for all consumers.

Examples include Staple foods-sugar and salt and farm produce. This approach is popular when large-scale production began. In today’s competitive market this approach is out-dated and could cause a product to fail, as the competition is very high and the availability of alternatives are very extensive.

If this approach is incorporated into an organization it must be able to develop and maintain a single marketing mix. In this case the major objective is to maximize sales.

Market Segmentation Approach

Indians are very price conscious people. They would like the best of products at a very economical price. Well there is another set of people who believe the higher the price better he quality of product. It can be understood that Individuals with diverse product needs have heterogeneous needs.

Market segmentation is the process of dividing a total heterogeneous market into market groups consisting of people who have relatively similar product needs, there are clusters of needs. The purpose is to design a Marketing Mix (s) that more precisely matches the needs of individuals in a selected market segment(s).

A market segment consists of individuals, groups or organizations with one or more characteristics that cause them to have relatively similar product needs.

There are two Market Segmentation Strategies (remember these are strategies and not the basis of segmentation).

Concentration Strategy

A firm that does targeting of only one segment with a unique marketing mix is referred as concentrated marketing strategy. It the company is small or new to the field, it may decide to go for concentrated strategy. Here the complete market is not considered as one, but instead one homogeneous segment is selected. Eg. RECOVA – a facial cream for women who are in the age of 30 and above.

PROS include

It allows a firm to specialize in one product/ one market group

can focus all energies on satisfying one group’s needs

A firm with limited resources can compete with larger organizations.

CONS include

Puts all eggs in one basket.

Small shift in the population or consumer tastes can greatly affect the firm.

May have trouble expanding into new markets (especially up-market).

In this strategy the objective is not to maximize sales, it is efficiency, attracting a large portion of one section while controlling costs.

Multi-segment strategy (or also called as differentiated marketing strategy

Here targeting is inclusive of many segments using individual marketing mixes is called differentiated marketing strategy. Here two or more segments are sought with a Marketing Mix for each segment, different marketing plan for each segment. This approach combines the best attributes of undifferentiated marketing and concentrated marketing. In this strategy, the firm will try to offer a product suitable for every purse, purpose and personality by adoption this strategy, it hopes to strengthen the overall identification of the company with the product category.

Example: Titan- watches ranging from ` 250 to more than a lakh, executive watches to sports watches, plastic to the hardest of metal, water proof. . . . etc.

Marriott International:          

Marriott Suites . . . Permanent vacationers

Fairfield Inn . . . Economy Lodging

Residence Inn . . . Extended Stay Courtyard

By Marriott . . . Business Travelers

PROS include

Shift excess production capacity.

Can achieve same market coverage as with mass marketing.

Price differentials among different brands can be maintained Contact Lens!!

Consumers in each segment may be willing to pay a premium for the tailor-made product.

Less risk, as the marketer is not relying on one market.

CONS include

Demands a greater number of production processes.

Costs and resources and increased marketing costs through selling through different channels and promoting more brands, using different packaging etc.

Must be careful to maintain the product distinctiveness in each consumer group and guard its overall image

Positioning

In marketing, positioning is the technique by which marketers try to create an image or identity in the minds of their target market for its product, brand, or organization. It is the ‘relative competitive comparison’ their product occupies in a given market as perceived by the target market. Positioning is something (perception) that is done in the minds of the target market.

A product’s position is how potential buyers see the product. Positioning is expressed relative to the position of competitors. The term was coined in 1969 by Al Ries and Jack Trout in the paper “Positioning” is a game people play in today’s me-too market place” in the publication Industrial Marketing.

Simply, positioning is how your target market defines you in relation to your competitors.

A good position is:

What makes you unique

This is considered a benefit by your target market

Both of these conditions are necessary for a good positioning. So what if you are the only red-haired singer who only knows how to play a G minor chord? Does your target market consider this a good thing?

Positioning is important because you are competing with all the noise out there competing for your potential fans attention. If you can stand out with a unique benefit, you have a chance at getting their attention.

It is important to understand your product from the customer’s point of view relative to the competition.

Product Positioning Strategy

The ability to spot a positioning opportunity is a sure test of a person’s marketing ability. Successful positioning strategies are usually rooted in a product’s sustainable competitive advantage. A company that is more profitable than its rivals is exploiting some form of competitive advantage. The benchmark for profitability is the company’s cost of capital. To consistently make profits in excess of its cost of capital - economic rent - the company must possess some form of sustainable competitive advantage (SCA) to derive firm specific distinctive strategic positioning.

The most common basis for constructing a product positioning strategy are:

Positioning on specific product features

Positioning on specific benefits, needs, or solutions

Positioning on specific use categories

Positioning on specific usage occasions

Positioning on a reason to choose an offering over the competition

Positioning against another product

Positioning through product class dissociation

Positioning by cultural symbols

Product Positioning Process

Generally, the product positioning process involves:

Defining the market in which the product or brand will compete (who the relevant buyers are)

Identifying the attributes (also called dimensions) that define the product ‘space’

Collecting information from a sample of customers about their perceptions of each product on the relevant attributes

Determine each products’ share of mind

Determine each products’ current location in the product space

Determine the target market’s preferred combination of attributes (referred to as an ideal vector)

Examine the fit between:

The position of your product

The position of the ideal vector

Finally, Position.

One of the main objectives of advertising and promotion is to establish what is called mind share (or share of mind). When people think of examples of a type or category of product, they think of a limited list (referred to as an evoked set). Any product included in an evoked set has mind share. For example, if you are considering purchasing a college education, you have several thousand colleges to choose from. However your evoked set, those that you will consider, will probably be limited to about ten. Of these ten, the colleges that you are most familiar with will have the greatest proportion of your mind share. Marketers try to maximize their product’s share. Mind share can be established to a greater or lesser degree depending on market segment.

A similar concept is top of mind. The more easily you remember a brand, the closer it is to your top of mind. This implies that you have not forgotten or buried the information.

The process is similar for positioning your company’s services. Services, however, don’t have the physical attributes of products - that is, we can’t feel them or touch them or show nice product pictures. So you need to ask first your customers and then yourself, what value do clients get from my services? How are they better off from doing business with me? Also ask: is there a characteristic that makes my services different? Write out the value customers derive and the attributes your services offer to create the first draft of your positioning. Test it on people who don’t really know what you do or what you sell, watch their facial expressions and listen for their response. When they want to know more because you’ve piqued their interest and started a conversation, you’ll know you’re on the right track.

Six-Step Template For Successful Positioning

What position do you currently own?

What position do you want to own?

Whom you have to defeat to own the position you want.

Do you have the resources to do it?

Can you persist until you get there?

Are your tactics supporting the positioning objective you set?

Re-positioning involves changing the identity of a product, relative to the identity of competing products, in the collective minds of the target market.

De-positioning involves attempting to change the identity of competing products, relative to the identity of your own product, in the collective minds of the target market.

Perceptual Mapping

Perceptual mapping is a graphics technique used by marketers that attempts to visually display the perceptions of customers or potential customers. Typically the position of a product, product line, brand, or company is displayed relative to their competition.

Perceptual maps can have any number of dimensions but the most common is two dimensions. Any more is a challenge to draw and confusing to interpret. The first perceptual map below shows consumer perceptions of various automobiles on the two dimensions of sportiness/conservative and classy/affordable. This sample of consumers felt Porsche was the sportiest and classiest of the cars in the study (top right corner). They felt Plymouth was most practical and conservative (bottom left corner).

Perceptual Map of Competing Products

Cars that are positioned close to each other are seen as similar on the relevant dimensions by the consumer. For example consumers see Buick, Chrysler, and Oldsmobile as similar. They are close competitors and form a competitive grouping. A company considering the introduction of a new model will look for an area on the map free from competitors. Some perceptual maps use different size circles to indicate the sales volume or market share of the various competing products.

Displaying consumers’ perceptions of related products is only half the story. Many perceptual maps also display consumers’ ideal points. These points reflect ideal combinations of the two dimensions as seen by a consumer. The next diagram shows a study of consumers’ ideal points in the alcohol/spirits product space. Each dot represents one respondents ideal combination of the two dimensions. Areas where there is a cluster of ideal points (such as A) indicates a market segment. Areas without ideal points are sometimes referred to as demand voids.                                                                                                                              

Perceptual Map of Ideal Points and Clusters

A company considering introducing a new product will look for areas with a high density of ideal points. They will also look for areas without competitive rivals. This is best done by placing both the ideal points and the competing products on the same map.

Some maps plot ideal vectors instead of ideal points. The map below, displays various aspirin products as seen on the dimensions of effectiveness and gentleness. It also shows two ideal vectors. The slope of the ideal vector indicates the preferred ratio of the two dimensions by those consumers within that segment. This study indicates there is one segment that is more concerned with effectiveness than harshness, and another segment that is more interested in gentleness than strength.

Perceptual maps need not come from a detailed study. There are also intuitive maps (also called judgmental maps or consensus maps) that are created by marketers based on their understanding of their industry. Management uses its best judgement. It is questionable how valuable this type of map is. Often they just give the appearance of credibility to management’s preconceptions.

When detailed marketing research studies are done methodological problems can arise, but at least the information is coming directly from the consumer. There is an assortment of statistical procedures that can be used to convert the raw data collected in a survey into a perceptual map. Preference regression, Multi dimensional scaling will produce either ideal points or competitor positions. Factor analysis, discriminant analysis, cluster analysis, and logit analysis can also be used. Some techniques are constructed from perceived differences between products; others are constructed from perceived similarities. Still others are constructed from cross price elasticity of demand1 data from electronic scanners.