Consumer Behavior - Issues and concepts

Consumer behavior can be defined as “The decision process

and physical activity engaged in evaluating, acquiring, using
or disposing of goods and services”.

Who is a consumer?
A “consumer” is anyone who typically engages in any one of
all the activities described in the definition stated above.

The term consumer is a far wider term encompassing not

only the actual buyer or customer but all its users i.e.
consumers.

What is decision process?

We have defined consumer behavior as the ‘decision
process’ and ‘physical activity’ the individuals are engaged
in.

The physical activity refers to purchase.

It is influenced by complex and hidden variables, which

might influence the purchase activity.

Decision Process

The decision process comprises a series of steps:-

1) Problem recognition
2) Information search and Evaluation
3) Making a choice regarding which outlet to purchase
from – Purchasing process
4) Post purchase behavior

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Individual determinants

1) Motivation- Internal force which arouses or activates

some need and provides direction of behavior towards
fulfillment of the need.
2) Involvement – Returns to personal relevance or
importance of a product or service that a consumer
receives in a given situation.
High involvement leads to a highly motivated state
of mind as in case of a Professional photographer.

Attitude

Attitudes are our learned predisposition towards objects,

people and events

Attitudes are not inborn an innate in us. Rather they are

learnt from people around us.

Personality and self-concept

Personality is the sum total of the unique individual

characteristics that make each one of us what we are.

Markets also try to give a district image or personality to

their products

Hearing and Memory

Everyday we are exposed to a wide and diverse range

of information.

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 Our motives, attitudes, and personality act as filters by
letting in only relevant information and keeping all other
information out.

Information processing

This refers to the process and activities which

consumers become engaged in while gathering, assimilating
and evaluating information

External Environment

Cultural Influences

Complex, Sum total of knowledge, beliefs, traditions,

customs, art, morals, law and any other habits acquired by
people as members of the society.

Sub-Cultural Influences

Within a given culture there are many groups or segments of

people with distinct customs, tradition and behavior, which
set them a part from other people

Social class Influences

Social class is a group consisting of a number of people who

share equal position in a society. Within a social class,
people tend to share same values, beliefs and exhibit similar
patterns of behavior and consumption.

Social group Influences

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A social group is a collection of individuals who share
common attitudes and a relationship because of interaction
with each other. Social groups may be primacy where face-
to-face interactions take place frequently, such as family,
workgroups, and study groups. Examples of primary groups
are association of professional members of a political party,
and social groups as Rotary, Lions etc.

Family Influences

Family is a social group, which can be defined as a primary

group.

The first and strongest influence is a child is that of his

family, he imbibes many behavioral patterns from other
members of the family subconsciously, and they tend to stay
with him even after attaining adulthood.

Personal Influences

The family, social class, sub-cultural and cultural group

to which he belongs, and yet has his own distinct
personality, which influences this decision and behavior as a
consumer, influences each individual.

Other Influences

Any other influences not covered above are covered here.

National or regional level events, situational factors or any
other external influences are included here.

Applications of consumer behavior in Marketing.

Marketing is defined as “Human activity directed at

satisfying needs and wants through exchange processes’.

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 Application of consumer behavior in marketing is spelt
out below-

1. Analyzing market opportunity study of consumer

behavior helps in identifying needs and wants
which are unfulfilled.
2. Selecting the target market the study of
consumer trends would reveal distinct groups of
consumers with very distinct needs and wants.
3. Determining the product mix consumer behavior
guides determination of might product mix, price,
promotion and advertising.
4. Price the market has to determine the price level,
which also maximizes the sales revenue. Far doing
this he must understand the way this product is
perceived by consumer, the criticality of price as
purchase decision and that an increase or
decrease would affect the sales.

Distribution:

Having determined the product size, Shape, packaging

and price the marketer has to decide on the distribution
channel.
The marketer must develop a good understanding of
the minds of the consumed to decide the nature of outlets,
retail, wholesale, closely placed or placed at distances.

Promotion

The marketer here is concerned with finding the most

effective methods of promotion which will make the product
stand out of the clutter of so many other brands, and
products, which will help achieve the sales objective and yet
by within the budget. Consumer behavior and lifestyle
marketing

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 Lifestyle marketing is a process establishing
relationship between products offered in the market and
targeted lifestyle groups. It involves segmenting the market
on the basis of lifestyle dimensions, positioning the product
in a way that appeals to the activities, interacts and opinions
of the targeted market and understanding specific
promotional campaigns which exploit life style appeals to
enhance the market value of the offered product.

Demographics, Psychographics and lifestyle

Demographic variables help the marketers ‘locate’ their

target mar
Psychographic variables provide a marketer with more
insight about the segment. It is in
Common parlance life style analysis or A 10 approach.
The demographic and psychographic life style
approaches are highly complementary and work best
together.

Approaches to study lifestyle

AI0 inventories

Activities Interests Opinions Demographics

Work Family Themselves Age

Hobbies Home Social Education

Social events Job Politics Income

Vacation Community Business Occupation

Entertainment Recreation Economics Family size

Club member Fashion Education Geography

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Community Ford Products City size

Shopping Media Culture Life cycle

Sports Achievements

Activities indicate how a consumer /Family spends

his/her/their time

Interest is a families/consumer’s preferences or priorities

Opinion is how a consumer feels about a wide variety of

events and things.

Organizational buying behavior

What is organizational buying behavior?

It is a complex process of decision-making and

communication, which takes place over time, involving
several organizational members and relationship with other
firms and institutions.

It is important to recognize the emphasis on the

decision process; Robinson, Faris and wind have identified
the process as follows:

1. Need recognition
2. Definition of the characteristics and quantity of item
needed
3. Development of the specifications to guide the
procurement
4. Search for and qualification of potential sources
5. Acquisition and analysis of proposals
6. Evaluation of proposals and selection of suppliers
7. Selection of an order routine
8. Performance feedback and evaluation

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Major influences on organizational buying behavior

External environment Organizational

Economic Objectives
Infrastructural Policies
Social Procedures
Political Organizational Structure
Competition System
Regulatory

Interpersonal Individual

Authority Age
Status Income
Empathy Education
Persuasiveness Job Position
Risk attitude

Consumer Motivation and involvement

Introduction
Why do we buy one product or brand rather than the other?
Why do we buy from one shop than the other? Why do we
buy at all?

The basic reason is human behavior. The chief

characteristic of the human actions is that each part of it is
guided by motives, conscious or otherwise.

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 A successful marketer understands the motives and
“Shapes them”.

The Concept and typology of needs

Consumer motivation and involvement is based primarily on

the nations of consumer needs and wants.

Types of needs

People are barn with a need for certain elements

necessary to maintain life, such as food, water, air and
shelter. These are called biogenic needs; psychogenic needs
are acquired in the process of becoming a member of a
culture. There include the need for status, power, affiliation,
and soon.

Maslow’s Hierarchy of needs

Maslow’s approach is a general one originally

developed to understand personal growth and the
attainment of peak experiences.

Maslow formulated hierarchy of needs in which levels of

motives are specified.

A hierarchical approach implies that the order of

development is fixed, that is, a certain level must be reached
before the next higher one is activated.

Marketers have adapted this universal approach to

motivation because it specifies certain types of product

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benefits people might be looking for, depending upon the
different stages in their development and /or their
environmental conditions.
These levels are summarized below.

Self-Actualization
Self-fulfillment and enriching experiences

Ego needs
Prestige, Status
Accomplishment
Belongingness
Love, friendship
Acceptance of others

Safety
Security, Shelter
Protection

Physiological
Water, Sleep, Food

Maslow’s hierarchy and marketing strategies

Level of hierarchy Relevant Product

Self actualization Hobbies, travel, education, cars

Ego needs furniture, credit cards, stores,

Country clubs
Belongingness clothing clubs, drinks

Safety Insurance, alarm systems,

retirement
Investments

Physiological Medicine, Staple items

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 Implication of Maslow’s hierarchy

one must satisfy the basic need before progressing up the

ladder (i.e.a starving man is not interested in status
symbols, friendship or self fulfillment)

This hierarchy may not be inflexible

Same product or activity may satisfy various needs.
Maslow’s hierarchy is culture bound. Western cultures
vary widely from the oriented cultures.

The importance of Maslow’s hierarchy of needs lies of

its wide application and recognition that consumers may
have different need priorities at different times.

Motives: The basis of motivation

A motive is an underlying reason for behavior and not

something, researchers can see or easily measure. The same
behavior can be caused by a number of different motives.

The concept of motivation

Motivation refers to the processes that cause people to

behave as they do.

Figure below gives an overview of the motivation process

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Need Recognition
Personal &
Cultural
factors

Tension ____Drive strength_____ Drive Direction ____Behavior

__ want ____ goal

Alternatively, motivation has been defined as the inner drive

in individuals, which impel them to action.

Goal

The consumer recognizes a need. This need may be

utilitarian (i.e. a desire to achieve some functional or
practical benefits) or it may be hedonic (i.e. an experimental
need, improving emotional responses or fantasies) The
desired state is the consumer goal.

In either case, a discrepancy exists between the consumer’s

present state and some ideal state. This leads to a tension.
The magnitude of this tension determines the urgency to
reduce the tension. This degree of arousal is called a drive.

Want

A number of ways can satisfy a basic need, and the specific

path a person chooses is influenced by his or her unique set
of experiences, cultural upbringing, and so on, these factors
combine to create a want, which is one manifestation of a
need.

Theories of Motivation

a) Instinct theory of motivation

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 Early work on motivation ascribed behavior to
instinct____the innate patterns of behavior that are universal
in species

b) Drive theory
Drive theory focuses on biological needs.

Consumer buying behavior

Various factors affecting consumer-buying behavior

Cultural

Culture (set of basic values, perceptions, want and behavior

learned by a member of society from family and other
institutes)

Subculture-a group of people with shared value system

based on common life experience and situations.

Social class-Relatively permanent and ordered divisions in a

society where members share similar values, interest and
behavior.

Social-It refers to reference groups like club members,

groups sharing aspirations,
Opinion leaders and family.

Personal-A buyer’s decision is also influenced by his/her age,

life cycle stage, occupation, life style, personality and self-
concept.

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Psychological-Psychological factors affecting our purchase
decision include motivation, perception, learning, beliefs and
attitudes.

Consumer buying roles

There are five key buying roles in the decision-making
process

Initiator-A person who first suggests or thinks of buying.

Influencer-A Person whose views or advice carries some

weight in final buying.

Decider-The person who ultimately makes a buying decision.

Buyer-The person who makes the actual purchase.

User-The person who consumes uses a product or service

Consumer decision process stages

Need recognition

Information search

Evaluation of alternatives

Purchase decision

Post purchase behavior

Reasons for brand choice

Functional
Social imagery
Novelty

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Habit
Situational

Emotional

Cross Selling, Relationship Banking

1. How has the marketing scenario changed?

Marketing

Yesterday
Mass
Consumer is passive
One off, short term
Limited use of technology
Serve customer well
Success measured by current
market share
Success measured by current
Profits
Today
Personal
Consumer is participative
Lifetime, long term
Widespread use of
technology
Serve customer differently
Success measured by
lifetime market share
Success measured by
lifetime Profits.

2. Customer Relationship -------- Importance

It is seven times more expensive to obtain a new
customer than to retain an existing one.

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 • Strong commitment to customer care at all levels.
• Promises made must be realistic and achievable.
• Intimate knowledge of the customer leads to
excellent customer service.
• Continuous feed back from the customers.
3. Cross Selling and Relationship banking;-
Cross selling means selling more services to existing
customers.
Increased cross selling can increase sales to existing
market.

3.1 Transaction Marketing vis-à-vis Relationship

Marketing;-
Relationship marketing is the attraction, maintaining
and ------ in multi service
Organization ------ enhancing customer relationships.
(Leonard Berry)
• Emphasis from transaction focus to relationship focus
• A recognition that quality, customer service and marketing
go together

Transaction Marketing Relationship Marketing

Focus on single sale
Orientation on product
features
Short time scale
Less emphasis on customer
service
Low customer commitment
Mode rate customer contact
Quality is a primary concern
of production
Focus on customer retention
Orientation on Product
benefits
Long time scale
Higher emphasis on
customer service
Higher customer
commitment
High customer contact
Quality in the concern of all

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• Relationship marketing views customers as clientele
and emphasize on their retention.
• Relationship marketing transforms single usage to
multiple service usage and indifferent customers into
loyal clientele.
• Relationship marketing involves decisions regarding
the target segments, the services offered to those
accounts and most appropriate selling approach for
each category of target account.
• Relationship marketing aims to change customers to
advocate by replacing customer satisfaction by
customer delight and offering services quality that
exceeds expectations.
Successful development of relationship marketing
rests on;
• Segmentation and targeting
• Development of a ‘core service’ that the
customers is particularly in need of
• Establishment of a liaison representative in the
financial organization whom the customer may
always approach.
• Provision of an incentive to the customer via
relationship pricing to encourage the use of services
by special clientele.
• Informing the clientele anything that might be of
use to them as special clientele.

In the 19990’s banking industry took a turn towards

liberalization, deregulation, privatization and
globalization exposing them to unprecedented
competition, for which banks found a solution in the
strategy of ‘Relationship banking’. New technologies in
information and delivery system. The opening up of the
banking system to the private and foreign banks as also
large scale disintermediation have unleashed
competitive forces which the nationalized banks have

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to live with as the sellers’ (bankers) market has been
transformed into buyers (customers) market.

Relationship Banking

3.2 Relationship Banking:-

• The emphasis here is on viewing the customer as
a long term business relationship.
• Banks plan to meet the total banking requirement
of the customers and expect repeat business.
• Relationship is based on full knowledge about the
customer needs and causing total customer
satisfaction by providing services that exceeds his
expectation.
• An understanding of exactly what the customer is
buying in critical. The basic utility he derives from
the product is the nucleus of core in the center,
surrounded by services of both tangible and
intangible attributes.

Theodore Levitt suggested four different levels

constituting a total product concept:

Core or generic-
For banking service like deposit account the core
element might be safety and return on deposits

Expected _

The customer expects warm, friendly atmosphere,

transaction to be completed without undue delay and
on going information regarding transaction.

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Augmented –

Additional facilities like loan, locker, credit card,

mutual fund, insurance, housing, investment
counseling etc.

Potential-
The banker transforms into friend, philosopher and
guide.

At the first level customer’s basic need in satisfied.

He derives greater benefit
Through second (expected) level and the third
(augmented) level. As the service extends to fourth
(potential) and final level building up of customer
relationship is complete.
Relationship management plan and a roadmap to its
implementation:

Sep I: On super-ordinate goal

Draw the vision and mission statements around the
customer value.

Customer service- IBM

Progress - GE
Innovation _ HP
New ventures - 3M

Step II : Strategy
Draw a strategy of market segmentation to focus on
a customer
Segmentation makes relationship strategy focused,
helps devise appropriate delivery system and tailors
the relationship Programme to customer needs.
Within a segment, there is further need to
calculate lifetime value. that is, net present value of
contribution of a customer over anticipated retention
period.

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Step III : On structure
Restructure the organization as a cross-functional
and process oriented one.
Relationship management requires a market
facing organization structure, which can marshal
multidisciplinary teams for customer satisfaction. In
such a structure, the relationship manager is the sole
interface with the client, and skilled product groups
support him in product delivery.

Step IV : System

Design a service delivery system on quality and

coordination.
Market facing delivery system takes a logistic
approach, as it is process based and not function
based. Logistics should be designed in such way that
gives a cost effective, yet consistent output.
Service quality should be designed into the
process There should be clear accountability for
coordination in delivery.

Step V: On skill

Cultivate skill as cutting edge.

For successful relationship management, an
organization should have three skills, i.e. marketing
skills, product skills and listening skills.

Step VI: On Style

Devise a suitable appraisal system and reinforce it

through top management intervention.

Step VII: On Staff

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Devise policies, which empower staff and encourage
open communication.

Once a relationship management plan is based on

a strategic approach as above , it will generate
customer loyalty. Loyalty is most mobile. It is never
there unless earned. Once earned, like many other
rare assets, it will be appreciate in value, as satisfied
customers become your most vocal sales persons.

Personal Selling:

Personal selling is oral presentation in a

conversation with one more prospective purchaser
for the purpose of making sells.

It is a process of informing the customers and

persuading them to purchase the product through
personal communication in an exchange situation.

Personal selling involves communications aimed at

satisfying consumer needs by matching specific
products with specific customers.

Personal selling provides one to one

communication vehicle.

Personal selling is for attracting new customer and

selling more volume/ services to the existing
customers.

It can be through calling on in person or

telephone.

An excellent tool for relation building.

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These seven steps are major in effective personal
selling:

Step I: Prospecting and qualifying

Step II: Preapproach
A will prepaid call has good chances of success.
Learning as much as possible before calling a
customer .
Setting the call objective.
Deciding the best approach
General sales strategy

Step III: Approach

Points of significance

• Caller’s appearance
• Dress
• Opening words
• Follow-up remarks
• Ability to observe
• Listening

Step IV: Presentation

• Avoid formula approach
• Adopt needs satisfaction approach

Step V: Handling objections

Step VI: Closing

Step VII: After sales service and follow-up

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Internal Marketing

Essence of internal marketing

There is need to market products to the grassroots level
people before we expect them to market this product
effectively to the customers. Treating our employee as
internal customer is essence of internal marketing.

Internal marketing is based on:

Principle of inseparability – seller and product constitute the

banking product in the eyes of the customer.

Everybody sells.

The concept aims at making the staff member of the

organization to deliver the best possible performance and
increase productivity.

The same marketing tool used to attract the customers can

also serve to attract and retain the best employees

Internal and External marketing- Comparison

Internal Marketing:

Genesis: Employee needs/ expectation

Process: Satisfy needs. Market Bank’s products /

strategies to employees

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Objectives: Achieve employee involvement and
participation

External Marketing:

Genesis: Satisfy customer needs

Process: Manage sales and delivery to the customers

Objectives: Achieve customer satisfaction

Excellence in service quality

Crumbling of barriers has made markets open to

competition

Competition has intensified

Banking reforms have removed the shackles in

opening of branches even by foreign banks

Public sector banks are facing stiff competition

from foreign and new generation
Private Banks
Technology has further complicated the situation
Customers are sophisticated, techno savvy,
knowledgeable and demanding

Now the mantra is transition from customer

satisfaction to customer delight
Banks are resorting to segmentation of customers
and are taking measures to
Continuously upgrade their services in tune with
their expectations and beyond that

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 Relationship marketing has revolutionized the
traditional marketing

Service customers attach lot of importance to the

following factors:

Reliability: Customers expect the promised service

Responsiveness: Service to be delivered promptly

Assurance: Service employees must be courteous,

knowledgeable, and assuring

Empathy: customer service should be

individualized and personalized

Tangibility: Physical evidence associated with

service facilities should be clear

Quality can improve through organization wide

commitment and support to
Quality
Building a service culture through corporate
missions, standards, reward and
Sanctions
People must be properly trained
Incorporating latest tools and technology

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