Mkt243 Chapter 3

4-1

CHAPTER 3

FUNDAMENTAL OF MARKETINGMKT243

4-2

Consumer And Business

Decision Making

Chapter 3Chapter 3

McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

4-3

Chapter GoalsChapter Goals3.1 Importance of understanding of

consumer behavior3.2 Consumer buying behavior3.3 Consumer decision making process

3.4 Types of consumer buying decisions

3.5 Factor influencing consumer buying decisions

McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

4-4

3.1Importance of understanding of consumer behavior

The study of consumer behavior is the study of HOW individual make decision to SPEND their avaiable resources (money, time, effort) on the consumption of goods and services.

It includes the study of WHAT, WHY, HOW, WHEN and from WHOM they buy a product or a service

An analysis of consumers buying behavior can help markets produce and market products successfully because it FULFILS CONSUMER WANTS just the way they want and like it.

4-5

Customer Orientation

Mass CustomizationProduce products with variety and

uniqueness

RelationshipsCustomer Relationship Management

(CRM)

4-6

The Consumer Market

ULTIMATE CONSUMERSULTIMATE CONSUMERSULTIMATE CONSUMERSULTIMATE CONSUMERS

Buy goods and servicesBuy goods and services for their own personal or for their own personal or

household usehousehold use

Buy goods and servicesBuy goods and services for their own personal or for their own personal or

household usehousehold use

4-7

Geographic Distribution

4-8

Consumer Demographics

AgeAgeAgeAge

FamilyFamilyLife CycleLife CycleFamilyFamily

Life CycleLife Cycle

Education,Education,IncomeIncome

Education,Education,IncomeIncome

Race,Race, EthnicityEthnicity

Race,Race, EthnicityEthnicity

Much Income and financial assetsMuch Income and financial assets held by older groupheld by older group

Much Income and financial assetsMuch Income and financial assets held by older groupheld by older group

Majority are well-educated andMajority are well-educated and prosperous while 12% liveprosperous while 12% live

below povertybelow poverty

Majority are well-educated andMajority are well-educated and prosperous while 12% liveprosperous while 12% live

below povertybelow poverty

African Americans, Hispanics, AsiansAfrican Americans, Hispanics, AsiansAfrican Americans, Hispanics, AsiansAfrican Americans, Hispanics, Asians

Family form over time is a Family form over time is a major determinant of consumer major determinant of consumer

behavior behavior

Family form over time is a Family form over time is a major determinant of consumer major determinant of consumer

behavior behavior

4-9

Family Life Cycle Stages

Full Nest IFull Nest IFull Nest IFull Nest I

Single ParentsSingle ParentsSingle ParentsSingle Parents

Divorced and AloneDivorced and AloneDivorced and AloneDivorced and Alone

Middle-aged MarriedMiddle-aged MarriedMiddle-aged MarriedMiddle-aged Married

Full Nest IIFull Nest IIFull Nest IIFull Nest II

Empty NestEmpty NestEmpty NestEmpty Nest

Older SingleOlder SingleOlder SingleOlder Single

BachelorBachelorBachelorBachelor

Nine (9) stages with

different buying

behavior

Nine (9) stages with

different buying

behavior

Young MarriedYoung MarriedYoung MarriedYoung Married

4-10

3.2 CONSUMER BUYING BEHAVIOR

Consumer behavior can be defined as the behavior that

consumers display in searching for, purchasing, using,

evaluating, and disposing of products, services and ideas which they expect will satisfy

their needs and wants.

4-11

3.3 Consumer Buying-Decision Process

Need recognitionNeed recognition

Identification of Identification of alternativesalternatives

Evaluation ofEvaluation of alternativesalternatives

Purchase andPurchase and related decisionsrelated decisions

Postpurchase Postpurchase behaviorbehavior

Need recognitionNeed recognition

Identification of Identification of alternativesalternatives

Evaluation ofEvaluation of alternativesalternatives

Purchase andPurchase and related decisionsrelated decisions

Postpurchase Postpurchase behaviorbehavior

4-12

Consumer Buying-Decision Process

4-13

Consumer Buying-Decision Process

InvolvementInvolvementInvolvementInvolvement

ImpulseImpulseBuyingBuyingImpulseImpulseBuyingBuying

LoyaltyLoyaltyLoyaltyLoyalty

4-14

Information and Purchase Decisions

InformationInformation

CommercialCommercial sourcessources

Social sourcesSocial sources

InformationInformation

CommercialCommercial sourcessources

Social sourcesSocial sources

4-15

3.4 Types of consumer buying decisions

1. Routine response behavior

2. Limited decision making

3. Extensive decision making

4-16

ROUTINE RESPONSE BEHAVIOR

The simplest type of buying behavior which involves consumers buying frequently purchased, low-cost items that require

very little search and decision efforts. These items are sometime called LOW

INVOLVEMENT products, because customers spend less time and effort in searching, evaluating the product that

they are deciding to buy. EXAMPLE: Soap, toothpaste, ketchup,

sugar and rice that consumers consume daily.

4-17

LIMITED DECISION MAKING

is commonly used for products that are puchased occassionally, and the buyer needs to acquire information about an unfamiliar brand in a familiar product category.

EXAMPLE: a buyer may want to buy a VCD player, but does not know which brand to buy. This type of decision-making requires a MODERATE AMOUNT of time for information gathering and deliberation.

4-18

EXTENSIVE DECISION MAKING

Consumers reach its GREATEST COMPLEXITY as they need to decide buying an EXPENSIVE PRODUCT that they are NOT FAMILIAR and have NEVER PURCHASE BEFORE.

EXAMPLE: a buyer wants to buy a computer notebook. He can use many criteria for evaluating alternative brands and spend much time seeking for information before deciding on the purchase.

4-19

3.5Factor influencing consumer buying

decisions

4 FACTORS1.CULTURAL FACTORS – Culture, Sub-

culture & Social class2.SOCIAL FACTORS – Reference Groups,

Family & Opinion Leader3.INDIVIDUAL FACTORS – Gender, Age &

family life cycle state and Personality4.PSYCHOLOGICAL FACTORS – Motivation, Perception, Learning and Beliefs & Attitudes

4-20

1. CULTURAL

CultureCulture

SubculturesSubcultures

Social classSocial class

CultureCulture

SubculturesSubcultures

Social classSocial class

4-21

Cont… Culture

Culture may be defined as the set of basic values, perceptions, wants and behaviors learned by a member of society from family and other important institutions. (Kotler – 1996)

Much of human behavior is culturally DETERMINED. As marketers, we must be aware of the cultural influences on the buying of product and services and the changes on culture that have significant marketing.

EXAMPLE: restaurant owners in Malaysia would be more successful in selling a ‘HALAL FOOD’ suitable for all races that just be one race only.

4-22

Cont… Sub-Culture

Each culture contains SMALLER GROUPS or SUB-CULTURE that are based upon such factors as race, nationality, religions, geographic locations, urban-rural distribution and ect.

A sub-culture is a HOMOGENEOUS GROUP of people who SHARE ELEMENTS OF THE OVERALL CULTURE as well as UNIQUE ELEMENTS of their own group – Lamb 2002.

Marketers needs to understand that a sub-culture tend to affect individuals attitudes and behaviors in their buying behaviors. They may be careful and sensitive in what they buy.

4-23

Cont… Social Class

Social classes are society’s relatively PERMANENT and ORDERED DIVISIONS, whose members SHARED SIMILAR VALUES, INTEREST AND BEHAVIOR – Kotler 1996.

Social class is DETERMINED by various factors which include income, education, occupation, wealth and age. There are commonly 3 levels of social class, comprise of the UPPER CLASS, MIDDLE CLASS & LOWER CLASS

4-24

Cont… Social Class

UPPER CLASS – is made up of group of people who are in the upper level manager level, professionals, owner of businesses, are educated and earn twice the national average income.

MIDDLE CLASS are groups who are middle level WHITE COLLAR WORKERS with good education background and EARN above the national average income

LOWER CLASS – comprise of people who are LOW PAID, below mainstream in their way of living and may be above or below poverty line. Those who fall under below poverty line living standard may not have regular jobs and have little education background.

4-25

2. SOCIAL

Reference groupsReference groups

Families Families

Opinion LeaderOpinion Leader

Reference groupsReference groups

Families Families

Opinion LeaderOpinion Leader

4-26

Cont… Reference Groups

Groups that serve as a frame of reference for individuals in their purchase decision. Can be further sub-divided into.

PRIMARY MEMBERSHIP group – which influence general values or behavior – family, friends and colleagues at work SECONDARY MEMBERSHIP group – which influences specific attitude – clubs, professional groups, and religious groups ASPIRATIONAL reference group – these are important people that individual would like to join e.g celebrities, political figures, social classes & the common man) eg. Some ladies want to be like Datuk Siti Nurhaliza because of her enterprenuership involvement , public figure, popular NON-ASPIRATIONAL reference group - these are people who does want to associate and will avoid buying some types of clothing, products or cars just to avoid being associated with ‘a group’

4-27

Cont… Reference Groups

1. Reference grouping can influence a person in many ways such as:

1. Exposing him/her to new behavior and life style

2. Influence a person’s attitude and self-concept

3. Increasing brand awareness and reduced perceived risks.

4-28

Cont… Family

The members of the family assume specific roles and tasks in their everyday marketing activity.

Role in the decision process played among the family member include:1. Initiator2. Influencer3. Decision maker4. Puchaser5. Consumer

4-29

Cont… Family

INITIATOR – the one to SUGGEST or INITIATE the idea to buy a product. Eg. The eldest brother may recommend the family to get a an i-Phone for their grand mother’s birdthday.

INFLUENCER – any family member whose opinion is seek and valued e.g the parent will support and check to ensure it is relevant and purchase within the price range

DECISION MAKER – the person who actually make the decision whether to buy or not to buy. Eg. Sibiling may be the one who will decide whether the family is getting the right model and friendly user. The father may help them in choosing the most suitable model.

PURCHSER – the one who pays for the product. Eg. the sibling collect and contribute cash to buy the product

CONSUMER – the one who uses the product. In this case their grand mother.

4-30

Cont… Opinion Leader

Is an individual whose opinion can INFLUENCE OTHERS. They are usually the 1st to try new products or services out of curiosity and being daring, self indulgent and bold.

Marketers may use movie stars, sports figures and other celebriters to promote products with the intention of attracting customers to use the product.

Example: Datuk Lee Chung Wei appear in 100 Plus advertisement.

4-31

3. INDIVIDUAL

GenderGender

Age & Age & Family Life Cycle StageFamily Life Cycle Stage

PersonalityPersonality

GenderGender

Age & Age & Family Life Cycle StageFamily Life Cycle Stage


4-32

Cont… Gender

Women and men have different SETS OF NEEDS and WANTS.

WOMEN are known to ENJOY SHOPPING and SPEND MORE TIME in browsing through before making their purchases

MEN only go shopping WHEN NECESSARY and DOES SIMPLE SHOPPING in CONVENIENT PLACE where it is easy to get most of the tings they want. As such shopping through the INTERNET will APPEAL more to MEN than women.

Knowing this characteristics enable marketers to target each group better.

4-33

Cont… Age and Family Life Cycle stage

People of different ages certainly require different types of products and services.

Eg. Most people like to drink milk, but the milk they consume DIFFER. Infant consume baby formula. Above 1 yr till age 12 years may consume FULL CREAM MILK POWDER. Teenagers may need LOW FAT MILK and Adult have a choice of condense milk, fresh milk or low fat powdered milk.

Those above 40 years of age may need to take milk high in CALCIUM and PROTEIN CONTENT.

Understanding of different AGES REQUIREMENTS for products, marketers would have to offer varieties of products for people in different age groups.

4-34

Cont… Age and Family Life Cycle stage

Family life cycle stages have great impact on the types of good they purchase.

As people go through the LIFE CYCLE STAGES, their needs tend to CHANGE. Eg. Single men or women usually go for simple goods and may spend more on ENTERTAINMENT. Those who are newly married and have just started a family, may spend more on HOUSING, HEALTH CARE, CLOTHING and FOOD.

People with GROWN UP CHILDREN may have more time for LEISURE, HEALTH ACTIVITIES and TRAVELING.

All the above factors gave marketers OPPORTUNITIES in offering all kinds of products and serices to fulfill different age and Life Cycle Stages

4-35

Personality

PsychoanalyticPsychoanalyticTheoryTheory

Hidden buying motives

Dreams, hopes, fantasies, fears

PsychoanalyticPsychoanalyticTheoryTheory

Hidden buying motives

Dreams, hopes, fantasies, fears

An individual’s pattern of traits that influenceAn individual’s pattern of traits that influencebehavioral responsesbehavioral responses

An individual’s pattern of traits that influenceAn individual’s pattern of traits that influencebehavioral responsesbehavioral responses

Self-conceptSelf-concept

ActualIdeal

Self-conceptSelf-concept

ActualIdeal

4-36

Cont… Personality, Self-Concept, and Life Style

Sometimes referred to as the personal pattern of living and sometimes referred too as the AIO Inventory (Activities, Interest and Opinion)

Consumers’ personality which consists of ways they behave and react to situations have impace on goods they purchase especially on the types of clothing, cars, jewelry and furniture.

Individuals self concept include attitudes, perceptions beliefs and self evaluation. Lifestyle is a mode of living and an individual personality and self-concept are reflected in their lifestyle. Eg. A person who wishes to lead a simple life style may buy goods like furniture and clothing that protrayed that image.

They may be more health conscious and consume healthy food and buy more health care products. All these characteristics make it possible for marketers to tune in to their marketing efforts to cater for all these differing needs.

4-37

4. PSYCHOLOGICAL

MotivationMotivation

PerceptionPerception

LearningLearning


AttitudeAttitude

MotivationMotivation

PerceptionPerception

LearningLearning


AttitudeAttitude

4-38

Cont… Motivation

Is the internal energizing forces that direct a person’s behavior towards a goal. Maslow’s theory of motivation states that a person has a hierarchy of needs to satisfy.

The lower order needs must be satisfied 1st followed by higher level needs. People will usually buy or obtain a product to satisfy a need. Eg. When one feels hungry, he will buy whatever convenient food available to fill up his hungry stomact. This action is fulfilling the basic human physiological needs.

Eg. Fulfilling human basic need is renting an apartment to live confortably when 1 just got a job. But as that individual obtain a better job, and is successful in managing his / her life, 10 years later, he / she may buy a BUNGLOW house and BUY a MERCEDESE COMPRESSOR to satisfy his / her self esteem being more concious of his IMAGE and STATUS

4-39

Maslow’s Hierarchy of Needs

4-40

Perception

Selective Selective PerceptionPerception

Selective Selective PerceptionPerception

SelectiveSelectiveDistortionDistortion

SelectiveSelectiveDistortionDistortion

SelectiveSelectiveRetentionRetention

SelectiveSelectiveRetentionRetention

Process of receiving, organizing, and assigningProcess of receiving, organizing, and assigningmeaning to information or stimuli detected by our five sensesmeaning to information or stimuli detected by our five senses

Process of receiving, organizing, and assigningProcess of receiving, organizing, and assigningmeaning to information or stimuli detected by our five sensesmeaning to information or stimuli detected by our five senses

SelectiveSelectiveAttentionAttention

SelectiveSelectiveAttentionAttention

4-41

Cont… Perception

Perception is the process by which an individual selects, organizes and interprets information inputs to create a meaningful picture of the world. – Kotler (1996)

Eg. If customers believe that JAPANESE CARS like Toyota is of EXCELLENT QUALITY, marketers must constantly protray this image in their advetising and sales information

In fact, SONY has been able to CONVINCE CONSUMERS around the world about its quality ELECTRICAL PRODUCTS. Their product are of the best quality and extensive promotions did the job, especially ADVERTISEMENTS and PERSONAL SELLING.

4-42

Cont… Learning

Is a change in an individual’s behavior that arises from prior experience in similar situations.

People also LEARN TO GENERALIZE and DISCRIMINATE after buying a particular brand. Eg. If a customer bought a PANASONIC refrigerator and TV set and found the experience in using it REWARDING, the next time he / she needs to buy new TV set, he / she will probably buy a PANASONIC –brand too.

4-43

Attitudes

CharacteristicsCharacteristics

LearnedLearnedObjectObject

DirectionDirectionIntensityIntensity Stable Stable

GeneralizableGeneralizable

CharacteristicsCharacteristics

LearnedLearnedObjectObject

DirectionDirectionIntensityIntensity Stable Stable

GeneralizableGeneralizable

Learned predisposition to respond to anLearned predisposition to respond to an object in a consistently favorable object in a consistently favorable

or unfavorable wayor unfavorable way

Learned predisposition to respond to anLearned predisposition to respond to an object in a consistently favorable object in a consistently favorable

or unfavorable wayor unfavorable way

4-44

Cont… Beliefs and Attitudes

Attitudes describe a person’s relatively consistent evaluations, feelings and tendencies toward an object or idea.

A belief is a descriptive though an individual has about something.

Belifs and attitudes have impact on consumers’ buying behavior. Some people may belief that products made in China are of POOR QUALITY

Marketers of products from China must attempt to change their belief by launching a campaign that can help correct this image.

Failure to do this can end up in no sales or too little sales of the company’s products

4-45

EXTRA INFORMATION

4-46

Situational Factors

When consumers buyWhen consumers buy

Where consumers buyWhere consumers buy

Why consumers buyWhy consumers buy

Conditions under Conditions under whichwhich

consumers buyconsumers buy

When consumers buyWhen consumers buy

Where consumers buyWhere consumers buy

Why consumers buyWhy consumers buy

Conditions under Conditions under whichwhich

consumers buyconsumers buy

4-47

Situational

TimeTimeTimeTime

SurroundingsSurroundingsSurroundingsSurroundings

ConsumerConsumer Moods andMoods and

MotivesMotives

ConsumerConsumer Moods andMoods and

MotivesMotives

TermsTermsTermsTerms

4-48

Business Market

Individuals and organizations that buy goods and services to

Individuals and organizations that buy goods and services to

ResellResellResellResellMake other Make other goods and servicesgoods and services

Make other Make other goods and servicesgoods and services

Conduct the Conduct the organization’s organization’s

operationsoperations

Conduct the Conduct the organization’s organization’s

operationsoperations

4-49

Components of the Business Market

AgriculturalAgriculturalAgriculturalAgricultural

ResellerResellerResellerResellerServicesServicesServicesServices

““Nonbusiness”Nonbusiness”““Nonbusiness”Nonbusiness”GovernmentGovernmentGovernmentGovernment InternationalInternationalInternationalInternational

4-50

Determinantsof Business Market Demand

Number and typesNumber and types of buyersof buyers

Number and typesNumber and types of buyersof buyers

Inelastic DemandInelastic DemandInelastic DemandInelastic Demand

Fluctuating DemandFluctuating DemandFluctuating DemandFluctuating Demand

Well-informed marketWell-informed marketWell-informed marketWell-informed market

4-51

Buying Power of Business Users

ManufacturingManufacturingManufacturingManufacturing

Activity indicators of purchasing powerActivity indicators of purchasing powerActivity indicators of purchasing powerActivity indicators of purchasing power

ConstructionConstructionConstructionConstruction

MiningMiningMiningMining

AgriculturalAgriculturalAgriculturalAgricultural

4-52

Importance of Business Buying

Making less Making less and buying moreand buying more

Making less Making less and buying moreand buying more Quality and timeQuality and time

pressurepressureQuality and timeQuality and time

pressurepressure

ConcentratingConcentrating purchasespurchases

ConcentratingConcentrating purchasespurchases

Right product, right time, right priceRight product, right time, right price affects firm’s performanceaffects firm’s performance

Right product, right time, right priceRight product, right time, right price affects firm’s performanceaffects firm’s performance

4-53

Business Buying-Decision Process

4-54

Buying Motives Needs that direct the purchasingNeeds that direct the purchasing

behavior of business usersbehavior of business usersNeeds that direct the purchasingNeeds that direct the purchasing

behavior of business usersbehavior of business users

Organizational Organizational GoalsGoals

furtherfurther company’scompany’s

positionposition

Organizational Organizational GoalsGoals

furtherfurther company’scompany’s

positionposition

PersonalPersonal GoalsGoals

protect or protect or further one’s further one’s

positionposition

PersonalPersonal GoalsGoals

protect or protect or further one’s further one’s

positionposition

4-55

Multiple Buying Influences

InfluencersInfluencers

BuyerBuyer

DeciderDecider UserUser

GatekeeperGatekeeper

4-56

Buyer-Seller Relationships

VALUE CHAINVALUE CHAINVALUE CHAINVALUE CHAIN LOYALTYLOYALTYLOYALTYLOYALTY

Customer Relationship Management

Customer Relationship Management

TrustTrustCostEffective

CostEffective

Long-termLong-termRelationship Marketing

Relationship Marketing

SelectedCustomer Selected

Customer

4-57

Buying Practices

LeasingLeasingLeasingLeasing

DependabilityDependability of Supplyof Supply

DependabilityDependability of Supplyof Supply

Service Service ExpectationExpectation

Service Service ExpectationExpectation

ReciprocityReciprocity AgreementsAgreementsReciprocityReciprocity

AgreementsAgreements

Length ofLength of NegotiationNegotiationLength ofLength of

NegotiationNegotiation

Size of OrderSize of OrderSize of OrderSize of Order

FrequencyFrequency of Purchaseof PurchaseFrequencyFrequency

of Purchaseof Purchase

DirectDirect PurchasePurchase

DirectDirect PurchasePurchase

4-58

Electronic Commerce

Reverse auctionsReverse auctionsReverse auctionsReverse auctions

Interactions and transactions over the Internet

Interactions and transactions over the Internet

Commodity salesCommodity salesCommodity salesCommodity sales

Electronic bulletinElectronic bulletinboardsboards

Electronic bulletinElectronic bulletinboardsboards