PAGE 46 OXIRM RESEARCH THEMES

OXIRM RESEARCH THEMES COnSUMER BEHAVIOUR OVER THE LAST 25 yEARS

Marketers and academic strive to understand and gain insights into the myriad ways in which consumers behave. The question is who is driving who? Are customers really as complicated as we make them out to be or are marketers creating the monster consumers that they are then trying to serve in innovative ways? Was consumer behaviour complicated and promiscuous when Henry Ford wrote

in his autobiography1 - "Any customer can have a car painted any colour that he wants, so long as it is black"? It was all about standardisation, and consumers appeared to be contented participants in the mass market. So, how did business marketing move from standardisation through differentiation to personalisation and individualisation to empowerment of the consumer? The answer may lie in the introduction

By MALOBI KAR, RESEARCH FELLOW, OXFORD InSTITUTE OF RETAIL MAnAGEMEnT

1. Ford, H. with Crowther, Samuel (1922) My Life and Work, New York: Garden City Publishing Company

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and gradual domination of information technology in our daily lives, in combination with the influence of macro environmental changes driving companies to serve customers efficiently in the name of personalisation, individualisation and empowerment. Empowerment and the resultant mutual benefits became a source of competitive advantage. What may not have been obvious to these newly-empowered customers was that with empowerment

came responsibility and accountability. And heres the paradox the new age customer wanted to be empowered, but was hesitant to take on the responsibility and accountability that came with it. The result was disgruntled and dejected consumers who were forever on the lookout for the best option and ruthless when it came to switching from one organisation to another. This behaviour was further exacerbated by the many choices available to consumers.

The patterns of change in consumer behaviour, the triggers of this change and the impact on organisational strategy and society in general, are traced in the following sections.

EARLY CONSUMERS
A discussion of the consumer over the last 25 years cannot ignore the consumers who came before in the 1950s, 1960s and 1970s. Consumer behaviour has changed greatly over

PAGE 48 OXIRM RESEARCH THEMES

society, the Government took on the responsibility of protecting the rights of the consumer. These included the right to safety, the right to be informed, the right to choose and the right to be heard. The market place in the US became far more diversified, segmentation strategies gained importance and the seeds were sown of customer-centricism. The Pavlovian model was based on four Manufacturers could no longer simply central concepts those of drive, cue, produce - consumer needs and wants response and reinforcement. These models went a long way towards explaining needed to be taken into account. Consumers had choice for the first time how particular responses are evoked only and were aware of it. in relation to a particular configuration of cues. For the marketer this meant However, this so-called customerdesigning advertisements to reinforce centricism was limited to a mass market the use of specific products effective advertising was seen as a cue to evoke the inundated with products manufactured along the assembly line. Fordism was drives associated with those cues. common and was accompanied by the Levittian principles of service encounters Freudian psychoanalytical models as services were systematised went a few steps further in identifying through planning, optimal processes, the motives and symbols behind a consistency, and capital intensive particular purchase. A deeper level of investments. This model was the understanding of consumer behaviour was sought using such models. Canadian foundation of the success of McDonalds and many other mass service providers marketing professor Judy Zaichkowsky in the 1970s and 1980s. comments that such theories and their application in this arena made Consumers gradually became receptive for far more interesting reading than to the idea that products and services the graphs and curves of economics2. were widely available and were therefore These earlier techniques underpinned actively searching for information about later developments. Marketers and what they bought. Zaichkowsky labels this academics became sensitised to the new thinking consumer as the problem fact that a consumers shopping list solver. The 1970s continued to see the provided valuable information. A study rise of the consumer as a problem solver by American behaviourist Franklin in a marketplace inundated with brands B. Evans3 sought to determine the and product information. However, differences in personality traits between consumer research in the 1970s also those who bought Ford and those who discovered that consumer memory was bought Chevrolet but the study did not short-lived and the consumers were yield any meaningful result. What was struggling to cope with information important though, was that mechanisms overload. Zaichkowsky observes in to understand consumer behaviour this context, that whilst the number were changing rapidly. According to of choices available to consumers was Zaichkowsky, the inability to always increasing during the 1970s, the skills understand consumer motivation also required to process and retain all this resulted in the consumer of the 1950s information was limited. and 1960s being labelled as the irrational psychotic purchaser. the last 25 years, but it has been evolutionary and the seeds of change have been apparent for generations. Marketing scholars from the 1950s used Pavlovian learning models and Freudian psychoanalytic models to understand the consumer psyche. The introduction of the US Consumer Bill of Rights in 1963 gave the consumer an elevated status: By providing a social contract between business and

overload, the 1980s saw the advent of consumers who disengaged from high involvement decision making. The lack of discretionary time in an environment of choice triggered a consumer decision making-process based on rules of thumb to simplify the purchase process. Such rough measures typically centred around buying the cheapest products, buying the well-known brands or making purchase decisions based on recommendations from friends. The abundance of information in a cluttered environment and the lack of support in information handling all contributed to a situation where the cost of thinking was recognised as a limiting factor in processing choices, giving rise to customers Zaichkowsky terms the cognitive miser. Further factors arose from changes in socio-demographics such as the rising number of women in the workforce, an increase in single parent households and rising numbers of people working at weekends. The foundations for convenience shopping and convenience products were therefore laid down during the 1980s. The business implications were seen in the emergence of catalogue shopping, home TV shopping and direct marketing all geared towards attracting these time-pressured consumers by simplifying their decision making process. Academic thinking along customercentric businesses had progressed beyond what was being seen in practice. new york University academics Carol Surprenant and Michael Solomon published a paper4 in the Journal of Marketing that gave insights into how businesses could increasingly personalise their strategies to meet the needs of consumers.

MANY DIFFERING CONSUMERS OF THE 1990S

The 1990s saw changes in consumer behaviour and levels of engagement between consumers and businesses shift. On the socio-demographic front, western economies prepared to face the consequences of an ageing population.

TIME-POOR CONSUMERS OF THE 1980S

While the 1970s was for many the decade of making choices and coping with the difficulties of information

2. Zaichkowsky, J.L. (2001) Consumer behaviour: Yesterday, today and tomorrow, Business Horizons, May-June 1991 3. Evans, F.B. (1959) Psychological and objective factors in the prediction of brand choice: Ford vs Chevrolet, Journal of Business, October, pp. 340-369 4. Surprenant, C.F. and Solomon, M.R. (1987) Predictability and personalisation in the service encounter, Journal of Marketing, Vol. 51

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The ageing baby boomers and the rise of immigration to western countries from the developing economies saw a rapid transition in the dynamics of consumer behaviour.

The ageing baby boomers and the rise of immigration to western countries from the developing economies saw a rapid transition in the dynamics of consumer behaviour. Marketers also saw a new, potentially affluent segment of consumers within this ageing group. In the UK for example, the spending power of the pensioners (the power of the grey pound) was seen as a business opportunity, and services tailored specifically to meet the requirements of this portion of the population became a way forward in an otherwise shrinking market. However, this was more of a niche phenomenon. The baby-boomers born in the post World War II era would be at the peak of their careers by the 1990s, holding professional qualifications and stable corporate jobs. While on the one hand there was an ageing population, the market also witnessed the growth of a corporate culture with profound implications for lifestyle and attitude change amongst consumers. Increasing, job stability and rising job opportunities meant there was security in meeting the basic needs in life at which point the quality of life rather than material goods became a priority. Enjoyment of the finer aspects of life (outside of the normal work environment) became a source of satisfaction. Consumer demand was no longer limited to products and services. According to Ken Dychtwald and Greg Gable5 of communications, marketing and consulting firm Age Wave, increasingly there was a need for the experience that came with buying and consuming products and services. Consumers became more introspective and focused on the family. Househusbands became more common, and husbands also recognised the advantages of having a working wife. Dual income families became commonplace, household chores and purchasing goods and services became more of a collective decision. Women and children began to play a bigger role in the purchase decision making process. In addition to these developments,

an entirely new segment of immigrant consumers entered the markets of western countries, especially in the US and the UK. The influence came primarily from the Southeast Asian and South Asian immigrants. They took with them their cultural values and living style, and contributed further to the changing socio-demographics in these western cultures. Within these immigrant communities, three generations would often live together it was a cohesive group and major decisions were taken jointly. This was also reflected in their shopping behaviour, which placed emphasis on collective decision making. In north America, there was also a decline in the individual purchasing power of consumers and purchase decision making became more of a collective effort. The changing decision making patterns together with reduced purchasing power had its impact on the existing retailing structure in the western economies. Bulk purchasing and category purchasing to realise economies of scale became a common phenomenon. Retailers who were quick to react began to tailor their formats, and there was a rise of hypermarkets, discount stores and supermarkets. The concept of convenience took on a different meaning as it was no longer limited to finding the right product in the right place it was about finding all the products in one place to minimise time and effort. As cost of living went up, consumers found it cheaper to move to suburbs: Retailers followed suit and this saw the beginning of out-of-town and edge-of-town retailing in western markets. The business, marketing and retail, the implications of the changing consumer profile of the 1990s were manifold. Businesses began to proclaim themselves as being customer-centric. The shifting customer base meant constant innovation in product, and service strategy became a source of competitive advantage. Customers had more and more to choose from but the decision-making process became

5. Dychtwald, K. and Gable,G. (1990) Portrait of a changing consumer, Business Horizons, Jan-Feb

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complex as the number of decision makers spread over a wider spectrum of age, gender and culture. Businesses also recognised the value of retaining consumers and appreciating the lifetime value of consumers. Customer relationship management became the new business mantra and the ability to acquire and retain existing customers became the most talked (and written) about topic for management academics and practitioners. Differentiation, personalisation and management of customer portfolios became familiar terms, and customers realised that businesses would be competing for their custom. Consequently, consumers began to demand high standards of service quality. Managing expectations, gaining customer feedback and dealing with customer complaints became integral to good business practice. With an increasing emphasis on satisfying consumers, in-store ambience, atmospherics, dcor, ease and comfort of shopping became significant in defining the entire shopping experience. The intangible element in any interaction between the buyer and seller became a crucial element in designing business strategies. Marketing and selling of services were thrust to the forefront of business processes.

purchase physically in the stores. This was the case with 60 million consumers in Europe, most of whom were shopping online for the simple, predictable products such as DVDs before graduating to more complex items. In the US, three out of four consumers were shopping for new cars online even though the final purchase was nearly always made from traditional dealers. However, the consumer was entering the store armoured with information about the products as well as best available deals. The end result of this was the emergence of the empowered, informed, sophisticated and increasingly fickle consumer. But this was only the beginning. With the advent of consumer-driven online and open source innovation, consumer empowerment was taken to a completely different level. Consumers were now actively engaged in designing products and services to meet their needs and were acting as advisors to the service providers. So how did this happen? As technological changes accelerated, competitive pressures forced companies to augment their knowledge and capabilities. Keeping the customer at the centre of the business, organisations had to identify innovative ways to provide tailored products and services to techsavvy, well-informed consumers. Some firms were able to make advantage from these sophisticated consumers by involving them in the process of innovation. Eric Von Hippel, Professor of Technological Innovation in the MIT Sloan School of Management refers to this as democratising innovation7 This process gave users (enterprises or customers) the opportunity to become involved with innovation of requisite products and services that they could then freely release, unlike in traditional innovation where the manufacturers identified user needs, developed the products and then looked to make profits from selling them. In cases of open innovation, users tended to innovate collaboratively in communities. How did consumers behave

and engage in this process? They were involved in the process right from the innovation stage through to product/ service launch stage. At the idea-generation stage in e-business, firms emphasised richness over reach in their collaborative arrangements with customers: Fewer but higher quality customers became the target. Blogs and wikis were the typical examples of informal and free flow of thought within the firm. Once a viable idea was generated, it was necessary to develop the idea into a comprehensive concept that could be further tailored to meet the needs and preferences of customers. At the concept-testing stage, customers were given the option to make trade-offs among attributes of new product concepts using different web-based implementations. In order to allow customers to participate directly in the product design stage, firms created various toolkits to facilitate user-driven innovation. Such toolkits gave customers the option to make design-related changes including price, performance and appearance. At the test and launch stage, members of the virtual community took on the role of buyers and endusers, and gave the firm feedback on the product after virtual presentations and simulations. Google was one of the organisations that started to rely on user experience groups to figure out what Web surfers like and aimed to determine what changes made the service easier to use. US academic Robert Kozinets identified different kinds of users within the online community that vary depending on the types of social ties they keep and their level of involvement within the community8. They are characterised as: tourists lack strong ties but have short-lived contemporary interest in the topic; minglers maintain strong social ties but are not very involved with the topic; devotees are highly involved with the topic but not related to the community and

EMPOWERED AND TECHSAVVY CONSUMERS OF THE EARLY 2000S

By the beginning of the new millennium, the Internet profoundly changed consumer behaviour. The era of online shopping dawned: Between 2003 and 2004, online shopping in America had risen by 26 percent to USD55 billion according to statistics produced by Americas Department of Commerce, although this was still only 1.6 percent of the total retail sales in the US6 The vast majority of the people were continuing to buy things in the bricks and mortar world. A significant change was that time-poor, thrifty consumers were now investigating product prices and details online, and concluding the

6. Economist , A perfect Market Vol. 371, Issue 8375 May 2004 7. Von Hippel, E. (2005) Democratizing innovation, Available at: http://web.mit.edu/evhippel/www/democ1.htm 8. Kozinets, R. (2002) The field behind the screen: Using netnography for marketing Research in Online Communications, Journal of Marketing Research, 39(1), pps. 61-72 and Kozinets, R. (2001) Utopian Enterprise: Articulating the meanings of star treks culture of consumption, Journal of Consumer Research, 28 (June), pps. 67-88

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USA: The Economy Takes its Toll on Organics

+35% +30% +25% +20% +15% +10% +5% 0%

Monthly sales growth of organics below 4% in last five periods

4 W/E 02/25/06

4 W/E 10/06/07

4 W/E 12/29/07

4 W/E 01/27/06

4 W/E 07/14/07

4 W/E 09/06/08

4 W/E 02/21/09

4 W/E 05/20/06

4 W/E 08/12/06

4 W/E 11/04/06

4 W/E 04/21/07

4 W/E 03/22/08

Source: Scantrack and LabelTrends, Services of The Nieslen Company; (FDM ex-Walmart) % change in four week USD sales vs. YAGO

insiders who are both strongly associated with the community and highly involved in the topic.

The users particularly well suited to virtual new product development are those who are devoted, enthusiastic, actively involved and sophisticated in their interaction within the online community. They typically exhibit what is known as lead user characteristics. Their needs are usually ahead of the others in the community and they also possess in-depth technical knowledge and a general understanding of product functionalities. They share many of the characteristics of the early adopters of the innovation diffusion model. This was the case with Threadless9 a communitycentred online apparel store run by skinnyCorp, Chicago. The founder Jake nickell used his online friends from web design site Dreamless.org where he spent time in the forum, talking to his online friends and engaging in Photoshop

tennis. In Photoshop tennis, designers would pass digital photographs back and forth, and challenge one another to manipulate images in the most outrageous ways possible. Within the Dreamless.org community, Jake nickell had a ready base of actively involved dedicated designers when he decided to run the first design competition for Threadless. The innovating company would typically benefit from the insights of such users at the idea generation and concepts stage as well as in designing and engineering. To stimulate ideas from the virtual community, firms organised online idea contests and in some cases virtual stock markets to identify qualified community members. Members of the Threadless community submit t-shirt designs online. The designs are then put to a public vote. A small percentage of submitted designs are selected for printing and sold through an online store, and through two physical stores in Chicago.

Creators of the winning designs receive a prize of cash and store credit. Community and userdriven innovation has seen the consumers engage with organisations in an advisory capacity. With this form of innovation, consumer empowerment at the start of the new millennium was no longer limited to selfhelp as we experience in the case of user friendly kiosks in airports and retail stores. This was a case of real involvement with the service provider, where the empowered consumers were actively engaging with the service provider.

GREEN AND ETHICAL CONSUMPTION IN THE MID 2000S

A notable change in consumer behaviour in the mid 2000s came from an increasing awareness of environmental issues. Environmentalism has, over the years, become deeply rooted in the consumer mind set and in public policy.

9. http://www.threadless.com/

4 W/E 06/14/08

4 W/E 11/29/08

4 W/E 05/16/09

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In terms of changing consumer behaviour, this translated into consumers embracing green products and services over the past decade. They are very often prepared to pay a premium for the chance to do good and in many cases, be seen to be doing good as Paul Flatters and Michael Willmott of the social and consumer trends consultancy Trajectory point out10. Consumers in the west realised that sustainability, recycling, organic food, bottled water, waste and the global environment as a whole are all related to the actions they chose to take today11. Ethical consumption also intersected with green consumption during this period fairly-traded products, locally-sourced produce, and eggs laid by cage free hens were often more expensive compared to traditional alternatives. The ethical western consumers would therefore gain the moral high ground by showing their loyalty to ethical and green products. The question to ask in this context would be the extent to which the ethical and green consumer represented the mass customer audience. Critics of the Fair Trade movement have labelled it as a niche concept deemed appropriate for the privileged few of our society who have the luxury of time (and money) to dwell on these issues of business marketing. Fair Trade was seen as automatically assuming a certain reflexive consumer who was also representative of a particular position in terms of class, education and/or level of existing knowledge. Or, in other words, Fair Trade was a luxury a few could afford. The criticism could be countered by suggesting that having a niche consumer base represented some advancement in the field of ethical business. However, questions still remained about the authenticity of Fair Trades link with consumer self-interest. Green consumerism was far more strongly embedded in consumer culture and self-interest. This was attributable to an increasingly health-conscious consumer, especially in the developed western markets.

The links to ethical consumerism however continued to remain suspect. The lack of transparency in the supply chain and the impact of the supposed benefits of Fair Trade on the lives of those producing the products exacerbate this problem. Furthermore, there is the question of whether consumers are fully informed about Fair Trade. The pictorial depiction of farmers on the packaging strikes the right chord with consumers to the point of enabling the decision making and contributing to the feelgood factor associated with Fair Trade purchase. Hence the risk of lack of understanding of how Fair Trade might contribute to improving the lives of the producers weakens any possible link to ethical consumerism. For all of the cynicism around green and ethical consumerism, the more pertinent question to ask would be about the future of such consumerism. AC nielsen report on the post-recession consumer points to the arrested trends vis-a-vis ethical and green consumerism, especially in the western developed world. Flatters and Willmott suggest that like most altruistic spending, ethical consumerism will take a back seat in the current recession. Their rationale for this claim is quite straightforward when people are focused on feeding their own children and keeping a roof over their heads, concern about children in other parts of the world or about animal welfare drops down the list of priorities. However, the authors do not dismiss the ethical consumer outright. They are of the opinion that post-recession, this trend will recover, albeit slowly. As consumer confidence returns, people will first attend to buying the things they had gone without only then will they return to prerecession levels of altruistic spending.

economy. However, consumers in these emerging markets, unlike their western counterparts seemed keen to put the recessionary trends behind and continue with the consumption culture that the growing economy enabled. Such consumption patterns would also tend to be ostentatious as a culture of conspicuous consumption is more common in such markets. young professional women emulate the Sex and the City way of life, and the purchase of, for example, a Louis Vuitton bag (and being seen with one) becomes the topic of conversation in social gatherings. The means and ability to emulate a western lifestyle in an otherwise traditional setting is the way forward for this section of consumers. In India for example, the general perception is that the middle class comprises the young, confident and ambitious class that earns and spends on branded products, gadgets and other forms of conspicuous consumption. They have been referred to by several names the Great Indian Middle Class, the neo Middle Class (nMC), the elite middle class, the Spendarati and even the I can and so I will spenders. This transition in attitude has also been triggered by the revolution in mass media cable and satellite television, broadband connections and increasing Internet usage, all of which has brought the latest information on products and services to a larger population. Easier access to information has also enhanced buying desire. The rising credit culture and cheap finance options have made fulfilment of these desires easy. Indian journalist and commentator Alam Srinivas, however, gives a very insightful commentary12 whilst capturing the attitude of this middle class and questions whether or not there is an element of hype around the middle class and their potential as consumers of modern Indian retailing. The common perception is that the neo Middle class spend like there is no tomorrow and live for the present in that sense their attitude is far closer to the rest of the western world. Coupled with this

CONSUMERS IN THE EMERGING MARKETS IN THE 2000S

Just as markets such as Brazil, Russia, China and India were emerging and the consumers getting exposed to western influences, the recession hit the global

10. Flatters,P. and Willmott, M.(2009) Understanding the post recession consumer, Harvard Business Review, July- August 2009 11. Nielsen (2009) Consumers in a post recession world, A Nielsen report, September 2009 12. Srinivas, A. (2008) The Indian Consumer: One billion myths one billion realities, Singapore: John Wiley & Sons

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Russian and Chinese Consumers are Utilising Spare Cash to Keep Up with the Latest Fashion Trends
Top 10 countries who spend spare cash on purchasing new clothes
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0 RU CN UA PH BR PL DE FR AR IN

Source: Nielsen Global Online Consumer Survey, June 2009; 14,029 respondents in Europe, Asia Pacific, Middle East and North America

attitude towards life is a certain amount of prudence when it comes to spending habits. Their spending is not based on identifying categories that are splurgeworthy, but based more on how it fits in with their lifestyle, adds value to their living experiences and enriches their lives in some form or another. When it comes to spending, it is related directly to their lifestyle. Whilst the lifestyle and socioeconomic status of nMCs has changed, the inherent values and overall culture may not have undergone a dramatic change. Srinivas cites an example from a study of Indian software professionals for whom caring for the older generation and the importance of maintaining their culture and values through the medium of family continues to be a priority.

carry on attitudes and behaviours they learn now throughout their lives. Some consumers would return to boom time consumption patterns in the coming decades, but millions of consumers under the age of 35 will continue to remain simplicity seeking and thrifty, yet hold companies to high standards. The trend in the emerging markets postrecession may be in sharp contrast. This is not to say that they would not tighten their belts temporarily, but the nielsen Company report suggests that consumers in the emerging markets will return to their previous spending habits and lifestyle much sooner than their western counterparts. The rationale for this is in the rising consumer confidence index that indicated that during June 2009, there was a 13 point rise in the consumer confidence index in India and an 8 point rise in Russia and Brazil.

So how would these consumers emerge from the recession? Flatters and Willmott comment that in western markets, the cohort of consumers emerging from the recession will, like their great grandparents IN SUMMARY who lived through the Great Depression, Consumer mindsets in developed and

developing economies seem to be two ends of the spectrum. More specifically, consumers in the latter economies are similar to the 1960s and 1970s consumers of the western world. However, they have the advantage of a modern hi-tech world where real time information exchange takes place. But the attitude and aspirations of these consumers are those of the newly found confidence and pride emanating from the economic progress of their respective countries and this is reflected in the nature of the consumerism that is developing in these countries. The consumers in western economies on the other hand are going back to basics. That is not to say that consumerism is fast disappearing but the excitement and enthusiasm for big names and brands is not the most popular mechanism for making a lifestyle statement. In fact, making a lifestyle statement is not the top priority for these consumers anymore. One could therefore say the wheel of retailing has turned a full circle.

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