CHAPTER 3

FUNDAMENTAL OF MARKETING MKT243

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Chapter 3

Consumer And Business Decision Making

4-2 McGraw-Hill/Irwin
Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Goals
3.1 Importance of understanding of consumer behavior 3.2 Consumer buying behavior 3.3 Consumer decision making process 3.4 Types of consumer buying decisions 3.5 Factor influencing consumer buying decisions
4-3 McGraw-Hill/Irwin
Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

3.1 Importance 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.
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Customer Orientation
Relationships Customer Relationship Management (CRM)

Mass Customization Produce products with variety and uniqueness

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The Consumer Market

ULTIMATE CONSUMERS

Buy goods and services for their own personal or household use

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Geographic Distribution

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Consumer Demographics
Age Family Life Cycle Education, Income
Much Income and financial assets held by older group Family form over time is a major determinant of consumer behavior Majority are well-educated and prosperous while 12% live below poverty

Race, Ethnicity
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African Americans, Hispanics, Asians

Family Life Cycle Stages

Bachelor

Nine (9) stages with different buying behavior

Young Married Full Nest I Single Parents Divorced and Alone Middle-aged Married Full Nest II

Empty Nest
Older Single

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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.
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3.3 Consumer Buying-Decision Process

Need recognition Identification of alternatives

Evaluation of alternatives
Purchase and related decisions Postpurchase behavior
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Consumer Buying-Decision Process

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Consumer Buying-Decision Process

Loyalty
Involvement Impulse Buying

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Information and Purchase Decisions

Information
Commercial sources Social sources

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3.4 Types of consumer buying decisions

1. Routine response behavior 2. Limited decision making 3. Extensive decision making

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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.

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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.

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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.
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3.5 Factor influencing consumer buying decisions 4 FACTORS

1. CULTURAL FACTORS Culture, Subculture & Social class 2. SOCIAL FACTORS Reference Groups, Family & Opinion Leader 3. INDIVIDUAL FACTORS Gender, Age & family life cycle state and Personality 4. PSYCHOLOGICAL FACTORS Motivation, Perception, Learning and Beliefs & Attitudes
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1. CULTURAL
Culture Subcultures
Social class

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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.
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Cont Sub-Culture
Each culture contains SMALLER GROUPS or SUBCULTURE 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.
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Cont Social Class

Social classes are societys 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
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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.
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2. SOCIAL

Reference groups

Families
Opinion Leader

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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
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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 persons attitude and self-concept 3. Increasing brand awareness and reduced perceived risks.
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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. Initiator 2. Influencer 3. Decision maker 4. Puchaser 5. Consumer
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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 mothers 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.

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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.

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3. INDIVIDUAL
Gender

Age &
Family Life Cycle Stage

Personality

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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.

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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.

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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

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Personality
An individuals pattern of traits that influence behavioral responses Psychoanalytic Theory
Hidden buying motives Dreams, hopes, fantasies, fears

Self-concept
Actual Ideal

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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.

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4. PSYCHOLOGICAL
Motivation Perception Learning Personality Attitude
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Cont Motivation
Is the internal energizing forces that direct a persons behavior towards a goal. Maslows 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

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Maslows Hierarchy of Needs

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Perception
Process of receiving, organizing, and assigning meaning to information or stimuli detected by our five senses

Selective Perception

Selective Attention

Selective Distortion
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Selective Retention

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.

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Cont Learning Is a change in an individuals 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.
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Attitudes
Learned predisposition to respond to an object in a consistently favorable or unfavorable way Characteristics
Learned Object Direction Intensity Stable Generalizable
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Cont Beliefs and Attitudes

Attitudes describe a persons 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 companys products

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EXTRA INFORMATION

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Situational Factors
When consumers buy
Where consumers buy Why consumers buy Conditions under which consumers buy
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Situational
Surroundings Time

Consumer Moods and Motives

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Terms

Business Market
Individuals and organizations that buy goods and services to

Make other goods and services

Resell Conduct the organizations operations

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Components of the Business Market

Reseller Agricultural

Services

Government

International

Nonbusiness

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Determinants of Business Market Demand

Number and types of buyers

Inelastic Demand

Fluctuating Demand

Well-informed market
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Buying Power of Business Users

Activity indicators of purchasing power

Manufacturing

Mining

Agricultural
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Construction

Importance of Business Buying

Right product, right time, right price affects firms performance Making less and buying more

Quality and time pressure

Concentrating purchases
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Business Buying-Decision Process

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Buying Motives
Needs that direct the purchasing behavior of business users Personal Goals
protect or further ones position

Organizational Goals
further companys position

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Multiple Buying Influences

Influencers Decider User

Buyer

Gatekeeper

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Buyer-Seller Relationships
Customer Relationship Management

Relationship Marketing

Long-term

VALUE CHAIN

LOYALTY

Cost Effective

Trust

Selected Customer

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Buying Practices
Direct Purchase Frequency of Purchase Size of Order Reciprocity Agreements Service Expectation Dependability of Supply Leasing

Length of Negotiation

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Electronic Commerce
Interactions and transactions over the Internet Commodity sales

Reverse auctions
Electronic bulletin boards
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