Consumer Behavior and Marketing Strategy

Chapter 1

Consumer behavior Definition

Consumer behavior is the study of individuals, groups, or organizations and the processes they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy needs and the impacts that these processes have on the consumer and society.

Key Aspects Regarding Consumer Behavior

1. Need extensive information about consumer behavior (i.e., organizations are regularly applying theories and information about consumer behavior)

2. Need to obtain information about specific consumers of interest (i.e., conduct research)

Key Aspects Regarding Consumer Behavior (continued)

3. Consumer behavior is complex and multidimensional (note: research increases the odds for success but is not a guarantee that you will succeed)

4. Marketing approaches that focus on modifying consumer behavior can involve ethical concerns (e.g., marketing Coca Cola can provide consumers with an enjoyable drink but also a lot of sugar consumption can have unhealthy effects such as cavities in teeth)

Applications of Consumer Behavior

• Marketing Strategy

• Regulatory Policy

• Social Marketing

• Informed Individuals

Marketing Strategy

• Marketing strategies and tactics are based on explicit or implicit beliefs about consumer behavior.

• Decisions based on explicit assumptions and sound theory and research are more likely to be successful than are decisions based solely on implicit intuition.

• Knowledge of consumer behavior can be an important competitive advantage and can greatly reduce the odds of bad decisions and market failures!

Regulatory Policy

• Various regulatory bodies exist to develop, interpret, and/or implement policies designed to protect and aid consumer [e.g., Food and Drug Administration, (FDA)].

• Effective regulation of many marketing practices requires an extensive knowledge of consumer behavior.

Social Marketing

• Social marketing is the application of marketing strategies and tactics to alter or create behaviors that have a positive effect on the targeted individuals or society as a whole.

• As is true for commercial marketing strategy, successful social marketing strategy requires a sound understanding of consumer behavior.

Informed Individuals

• Most economically developed societies are referred to as consumption societies. Most individuals in these societies spend more time engaged in consumption than any other activity, including work or sleep.

• Knowledge of consumer behavior can enhance our understanding of our environment and ourselves.

• Such an understanding is essential for sound citizenship, effective purchasing behavior, and reasoned business ethics.

Marketing Strategy and Consumer Behavior

• Customer value is the difference between all the benefits derived from a total product and all the costs of acquiring those benefits.

• It is important that one considers the customer’s perspective.

• Providing superior customer value requires the organization to do a better job of anticipating and reacting to customer needs than the competition does.

Marketing Strategy and Consumer Behavior

Market Analysis

Marketing strategy begins with an analysis of the market the organization is considering, requiring a detailed analysis of the:

• organization’s capabilities

• strengths and weaknesses of competitors

• economic and technological forces

• current and potential customers

Market Segmentation

• On the basis of the consumer analysis, the organization identifies groups of individuals, households, or firms with similar needs.

• These market segments are described in terms such as demographics, media preferences, geographic location, etc.

• Management then selects the segment(s) to target.

Marketing Strategy

• Marketing Strategy seeks to provide the customer with more value than the competition, while still producing a profit for the firm.

• Marketing strategy is formulated in terms of the marketing mix, which involves determining the product features, price, communications, distribution and services that will provide customers with superior value, resulting in the total product.

Consumer Decision Process

• The total product is presented to the target market, which is consistently engaged in processing information and making decisions designed to maintain or enhance its lifestyle or performance.

• Many firms are wrapping experiences around their traditional products and service in order to sell them better. For example, retailers have been moving to lifestyle centers in an effort create a more pleasing shopping experience.

Outcomes

• Society – the cumulative effect of the marketing process affects economic growth, pollution, social problems (e.g., illnesses caused by smoking and alcohol), social benefits (e.g., improved nutrition, increased education).

• Firm – reaction of the target market to the total product produces an image of the product/brand/organization, sales (or lack of sales), and some level of customer satisfaction among those who purchased. Note: sophisticated marketers seek to produce satisfied customers rather than mere sales because satisfied customers are more profitable in the long run.

• Individual – the process results in some level of need satisfaction, financial expenditure, attitude development/change, and/or behavioral changes.

Market Analysis Components

• The Consumers

• The Company

• The Competitors

• The Conditions

The Consumers

• It is not possible to anticipate and react to customers’ needs and desires without a complete understanding of consumer behavior.

• Discovering customers’ needs is a complex process, but it can often be accomplished by marketing research.

The Company

A firm must fully understand its own ability to meet customers needs. This involves evaluating all aspects of the firm including:

• financial condition• general managerial skills• production capabilities• research and development (R&D) capabilities• technological sophistication• reputation• marketing skillsNote: failure to properly understand a firm’s strengths can

lead to serious problems for the firm

The Competitors

• It is not possible to consistently do a better job of meeting customer needs than the competition without a thorough understanding of the competition’s capabilities and strategies.

• This requires the same level of knowledge of a firm’s key competitors that is required of one’s own firm.

The Conditions

• The state of the economy, the physical environment, government regulations, and technological developments affect consumer needs and expectations as well as company and competitor capabilities.

Market Segmentation

• Market segment: a portion of a larger market whose needs differ somewhat from the larger market.

• Internet example of behavioral targeting where a consumer’s online activity is tracked and specific banner ads are delivered based on that activity

Steps for Market Segmentation

1. Identifying product-related need sets

2. Grouping customers with similar need sets

3. Describing each group

4. Selecting an attractive segment(s) to serve

Product-Related Need Sets

• Organizations approach market segmentation with a set of current and potential capabilities.

• The term need set is used to reflect the fact that most products in developed economies satisfy more than one need.

• Customer needs are not restricted to product features but also include types and sources of product information, outlets where the product is available, product price, the image of the product or firm, and even where and how the product is produced.

Product-Related Need Sets (continued)

Identifying need sets• Consumer research• Logic• Intuition

Need sets are often associated with other variables including age, gender, social class, race/ethnicity, and lifestyle.

Many start the segmentation process by focusing on one of the groups defined by these variables.

Customers with Similar Need Sets• These consumers can be grouped into one segment as

far as product features and perhaps even product image are concerned despite sharply different demographics.

Identifying similar need sets

• Focus groups

• Surveys

• Product concept tests

• (Possibly analysis of current consumption patterns)

Description of Each Group

• Once consumers with similar need nets are identified, they should be described in terms of demographics, lifestyles, and media usage.

• In order to design an effective marketing program, it is necessary to have a complete understanding of the potential customers.

• In order to effectively communicate with customers, it is essential to understand the context for how products are purchased and consumed, how products are thought about by customers, and the language used to describe the product.

Attractive Segment(s) to Serve

• Target market - segment(s) of the larger market on which we will focus our marketing effort.

• This decision is based on our ability to provide the selected segment(s) with superior customer value at a profit.

• Each market segment requires its own marketing strategy.

Marketing Strategy

Marketing Strategy is the answer to the question: How will we provide superior customer value to our target market?

This requires the formulation of a consistent marketing mix, which includes the– Product– Price– Communications– Distribution, and– Servicesthat are provided to the target market

Product

• A product is anything a consumer acquires or might acquire to meet a perceived need.

• Consumers are generally buying need satisfaction, not physical product attributes.

• Product refers to physical products (e.g., automobile) and primary or core services (e.g., transmission overhaul or ride in taxi).

Communications

• Marketing communications include advertising, the sales force, public relations, packaging, and any other signals that the firm provides about itself and its products.

Key Communications Questions

1. With whom, exactly, do we want to communicate?

2. What effect do we want our communications to have on the target audience?

3. What message will achieve the desired effect on our audience?

4. What means and media should we use to reach the target audience?

5. When should we communicate with the target audience?

Price

• Price is the amount of money one must pay to obtain the right to use the product.

• Price sometimes serves as a signal of quality

• Consumer cost is everything the consumer must surrender in order to receive the benefits of owning/using the product.

Distribution

• Distribution means having the product available where target customers can buy it. This is essential to the product’s success.

• Good channel decisions require a sound knowledge of where target customers shop for the product.

Service

• Service refers to auxiliary or peripheral activities that are performed to enhance the primary product or primary service.

• Auxiliary services cost money to provide, so it is essential that the firm furnish only those services that provide value to the target customers.

• Providing services that are not valued by customers can result in high costs and high prices without a corresponding increase in customer value.

Consumer Decisions

• The consumer decision process intervenes between the marketing strategy, as implemented in the marketing mix, and the outcomes.

• The firm can succeed only if consumers see a need that its product can solve, become aware of the product and its capabilities, decide that it is the best available solution, proceed to buy it, and become satisfied with the result of the purchase.

Outcomes

• Firm Outcomes

• Individual Outcomes

• Society Outcomes

Firm Outcomes

• The product position is the image of the product or brand in the consumer’s mind relative to competing products and brands.

• Sales are a critical outcome, as they produce the revenue necessary for the firm to continue in business.

• Customer satisfaction is a major concern for marketers. Retaining customers requires that they be satisfied with their purchase and use of the product.

Creating Satisfied Customers

Individual Outcomes

• Need satisfaction: The most obvious outcome of the consumption process for an individual, whether or not a purchase is made, is some level of satisfaction of the need that initiated the consumption process (whether none, negative, or complete).

• Injurious consumption: The dark side of consumer behavior, , occurs when individuals or groups make consumption decisions that have negative consequences for their long-run well-being.

Society Outcomes

• Economic Outcomes: The cumulative impact of consumers’ purchase decisions, including the decision to forgo consumption, is a major determinant of the state of a given country’s economy.

• Physical Environment Outcomes: Consumers make decisions that have a major impact on the physical environments of both their own and other societies.

• Social Welfare: Consumer decisions affect the general social welfare of a society, including having a major impact on the overall quality of life in a society.

External Influences

Major external influences:

• Culture

• Demographics and social stratification

• Racial/ethnic, religious, and regional subcultures

• Families and households

• Groups

Internal Influences

Major internal influences:• Perception • Learning • Memory• Motives• Personality• Emotions• Attitudes

Self-Concept and Lifestyle

• Self-concept is the totality of an individual’s thoughts and feelings about oneself.

• Lifestyle is how one lives, including the products one buys, how one uses them, what one thinks about them, and how one feels about them.

• Our decision-making process often considers these self-concept and lifestyle aspects.