CONSUMER BEHAVIOUR

CONSUMER BEHAVIOUR

REVISE: Understanding Customers and their Behaviour

Contents Understanding Customers and Their Behavior ....................................................................................... 4

Introduction to Consumer Behaviour ................................................................................................. 4

The importance in consumer behaviour ......................................................................................... 4

The underlying principles of consumer behavior ............................................................................... 4

1. The consumer is global ............................................................................................................... 4

2. The consumer is sovereign .......................................................................................................... 5

3. Consumers are alike; consumers are different ........................................................................... 5

4. The consumer rights ................................................................................................................... 5

The origins of consumer behavior ..................................................................................................... 5

The production concept .................................................................................................................. 5

02. The product concept ................................................................................................................. 6

03. The selling concept ................................................................................................................... 6

04. The marketing concept ............................................................................................................. 6

Implementing the marketing concept ................................................................................................ 7

Segmentation, targeting and Positioning ....................................................................................... 7

Consumer behaviour ........................................................................................................................... 8

Theories related to consumer behaviour ........................................................................................... 9

Utility ............................................................................................................................................... 9

Cardinal Utility theory ..................................................................................................................... 9

Limitations of the Cardinal Theory ................................................................................................ 10

Ordinal theory ............................................................................................................................... 10

Limitations of the Indifference Curve Technique ............................................................................. 10

Nudge theory .................................................................................................................................... 11

Consumer behaviour & the marketing strategy ............................................................................... 11

Customer driven marketing strategies ......................................................................................... 11

Market driven strategies ................................................................................................................... 12

Market analysis ............................................................................................................................. 13

b. Market segmentation ............................................................................................................... 14

Marketing mix strategies .............................................................................................................. 14

Customer loyalty, satisfaction & retention strategies ...................................................................... 16

Vital elements in managing customers of an organisation .......................................................... 16

Customer value ............................................................................................................................. 16

Customer satisfaction ................................................................................................................... 16

Customer retention ....................................................................................................................... 17

The customer pyramid ...................................................................................................................... 18

Platinum tier ................................................................................................................................. 19

Gold tier ........................................................................................................................................ 19

Iron tier ......................................................................................................................................... 19

Lead tier ........................................................................................................................................ 19

Major differences between value-and-retention based marketing and traditional marketing ... 19

Global marketing strategy ................................................................................................................ 20

Consumer research & segmentation ................................................................................................ 21

The importance of consumer research ......................................................................................... 21

Consumer research paradigms ..................................................................................................... 22

Comparison between positivism and interpretivism ........................................................................ 22

Comparison between qualitative research and quantitative research ............................................ 23

Social sciences and their application to marketing .......................................................................... 25

Importance and limitations of social sciences .................................................................................. 26

The Consumer research process ................................................................................................... 26

Steps in the consumer research process ...................................................................................... 26

Market segmentation ....................................................................................................................... 32

The segmentation process ............................................................................................................ 32

Market segmentation ................................................................................................................... 33

Steps in segmentation process ......................................................................................................... 33

How market segment operates .................................................................................................... 34

Bases for segmentation .................................................................................................................... 35

Major bases for segmentation ...................................................................................................... 35

Criteria for effective targeting of market segments ......................................................................... 39

Implementing targeting strategies ................................................................................................... 39

Understanding Customers and Their Behavior

This section focuses on the skills and knowledge necessary in understanding consumers and their behavior in Business-to-Consumer (B2C) markets. It explains why studying consumer behaviour is critical to marketers and how they go through this process.

Introduction to Consumer Behaviour

Consumer behaviour involves the psychological processes that consumers go through in recognising needs and finding ways to solve these needs. This includes making purchase decisions, interpreting information, making plans, and implementing these plans.

The importance in consumer behaviour

Consumers influence organisational decisions in terms of products, prices, promotions etc as these organisations aim to cater to the customer’s exact needs and demands. By recognising this fact, organisations will try to understand how to improve their existing products, what types of products are needed in the market place and that attracts customers.

The education plays a prominent role in the life of consumers as it would enable them to gain knowledge on detecting frauds, deceptions, variety of abuses and to claim damages in vulnerable situations. On the other hand Policy Making Institutions presents higher focus on learning about the needs and behaviors of community or consumers in developing most up to date policies connecting to welfare, economics, consumers etc.

The underlying principles of consumer behavior

Following principles should be considered by the marketers when carrying out marketing and promotional activities.

1. The consumer is global

The consumer’s basic needs and decision making process identified to be universal. Hence the consumers tend to buy the same branded products that are promoted though local and global medias, from similar types of retailers.

2. The consumer is sovereign

The consumer behavior is adjusted based on their purposes and goals. Thus the demand for the products and services will depend on the degree to which consumers prefer those to be relevant to fulfill their needs.

3. Consumers are alike; consumers are different

The similarities within the customer group and the differences between the consumer groups will be mainly focused in segmentation.

4. The consumer rights

The rights of consumers are non-negotiable, inviolable and absolute. Hence the organizations should not violate the consumer rights by producing any kind of deception, any pollution, poor quality products etc.

The origins of consumer behavior

• The concept of consumer behavior is deep rooted in the marketing concept and it is a business concept that came in to the existence in 1950’s. This concept has emergedfollowing various other business concepts which were developed and modified over the years to suit the business conditions.

• A business concept implies the approach of a businessman that is carried out in undertaking the business activities and there is several key business concepts evolved over the years as follows

The production concept

The production concept mainly concerns about increasing production side of an organisation. Hence the companies, which adopted production concept, have focused more on enhancingtheir manufacturing, production and solving efficiency issues.

This concept was prominently used by the businesses subsequent to the industry revolution.

Implications of production concept

• This concept assumed that the consumers interest in the products with low prices • Cost of manufacturing and distribution were considered in pricing process • Only technical product researches were carried out • Narrow product lines • Minimal promotion and advertising were used • Packaging was developed mainly for the protection of products

02. The product concept

The organisation that adopts the product concept has a more product orientation approach where they highly focus on improving the product, its quality, features and specifications. It is because this concept works with the assumption that the customers are directed more towards buying differentiated products with high quality, updated features and unique specifications.

Implications of product concept

Organizations:

• Highly focus towards their product quality

• Offered more differentiated products with continuous improvements in quality

• Priced the products relatively at higher price

• Faced with higher research and design cost

03. The selling concept

The selling concept mainly consider about the selling and promotion of the existing products of an organisation. Hence the organisations, who adopt this concept, primarily focus on selling their products employing variety of promotional techniques in order to achieve higher volumes of sales rather considering about the new desires of the consumers.

Selling concept can be adopted by an organization in following

Diagram – Adoption of selling concept by an organization

Implications of selling concept

A higher position for sales department in organizational structure of the company

Extensive use of promotional methods such as advertising, sales promotional

Establishing higher promotional budgets

04. The marketing concept

The marketing concept is the newest concept that primarily focuses on the needs and wants of the customers. Hence it follows a marketing philosophy and the assumption that company should identify the wants, needs and desires of the target customers and act accordingly to enhance their satisfaction in order to be successful.

Starting pointFactory

FocusProduct

MeansAggressive selling

& promotion

EndProfitability

through sales volume

The organisations have recognized that they should develop, commune and offer highest values to the customers in order to beat the intense competition. Hence more and more organisations have adopted the marketing concept to conduct the business operations in a more customer centric way following ‘sense and response strategy’ in order to cater to the wishes and desires of the customers.

The marketing concept can be adopted by an organization in following

Diagram – Adoption of marketing concept by an organization

Implementing the marketing concept

The growth and acceptance of the marketing concept around the world has created a more importance within the businessorganisations to study more about the behaviors of customers in order to discover their latest needs and wants. Thus companies engaged in variety of researches in markets to recognize the needs of the customers and to produce high quality products and services to satisfy them.

However the organisations faced difficult situations as the results of these researches concluded that the wants, priorities, desires, and needs of the consumers differ dramatically according to the consumer segments based on their psychological and social needs in addition to the basic needs. The results showed that consumers are highly complicated human beings who have other variety of needs aside from basic needs.

Hence the organisations build up the concepts, “Segmentation, Targeting and Positioning” with the purpose to solve these issues and to cater to the exact needs of most accessible target customer group for the company.

Segmentation, targeting and Positioning

The segmentation will provide an opportunity for organizations to divide the total customers in the market with similar needs/ characteristics into categories based on particular selected bases such as psychological factors.

The targeting would give an opportunity for organizations to select one or more of the markets or segment of customers to direct their products or services.

The positioning enables an organization to create a unique image for the product or services in the consumers’ minds that would differentiate them from other competitors. Organizations use

Starting PointTarget market

FocusCustomer

needs

MeansIntegrated Marketing

EndProfitability through

customer satisfaction

positioning to communicate the target market that the organizational products or services would fulfill their needs better than the other companies.

Example

The production concept

Henry Ford was the American industrialist, who founded the Ford Motor Company in 1903. He was the pioneer of the production concept where he adopted the concept when producing the Model T cars, which was his 9th automobile production and gained much popularity than his other automobiles.

Activity The importance in consumer behaviour

Q State the difference between selling and marketing concept.

A The selling concept: The selling concept mainly consider about the selling and

promotion of the existing products of an organisation. Hence the organisations, who adopt this concept, primarily focus on selling their products employing variety of promotional techniques. The marketing concept: The marketing concept primarily focuses on the needs and wants of the customers. Hence the concept follows a more customer centric approach that focuses on ‘sense and response strategy’ where the organisations cater to the wishes and desires of the customers.

Consumer behaviour

With the growing rate of competition, flooding the market and developments in technology organisations realized that in order to outperform their competitors, they must achieve the full profit potential from each and every customer. They must make the customer the core of the company’s organisational culture, across all departments and functions, and ensure that every employee views any exchange with a customer as a part of a customer relationship, not as a transaction.

Theories related to consumer behaviour

Utility

• Utility is the satisfaction that a consumer derives by consuming a commodity.

• Thus, it is that property of a commodity that satisfies the wants of the consumers.

• Utility is a subjective concept and its perception varies among different individuals. In fact, the extent of desire for a commodity by an individual depends on the utility that he associates with it.

• Utility is a relative term, it depends on time and place. Thus, the consumer may experience a higher or lesser utility for the same commodity at different times and different places. Moreover, utility has no ethical or moral consideration.

• Marketing is responsible for creating most of a product's inherent utility. When marketers put together marketing programs (i.e. marketing mixes) that succeed in creating satisfying exchanges with customers, these customers receive utility in the process.

• From the stand point of theory, however, there are 2 basic approaches to the measurement of utility namely: cardinal approach and ordinal approach

Cardinal Utility theory

• The cardinal theory of consumer behavior suggests that consumers make decisions based on the potential utility of their purchases. The theory suggests that consumers evaluate their choices, searching for the most utility that they can get from an item, with respect to the cost of the particular item.

• The Cardinal Utility Theory developed over the years with significant contributions from Gossen (1854), Jevons (1871), Walras (1874) and finally Marshall (1890). According to them utility of a commodity is quantifiable ,hence measurable numerically.

• The units of measurements are purely imaginary and the cardinal analysis termed the imaginary units of utility as ‘utils’.

The theory is constructed on the basis of the following assumptions.

The consumer is rational in the sense that given his income constraints, he would always attempt to maximize his utility.

Utility is a cardinal concept and it can be measured and expressed in quantitative terms. For convenience, it is expressed in terms of the monetary units that a consumer is willing to pay for the marginal unit of the commodity.

The law of diminishing marginal utility operates. This implies that as a consumer increases his consumption of a commodity, the utility accruing from successive units of the commodity

decreases. In other words, the marginal utility of a commodity will keep falling as a consumer goes on increasing its consumption.

Limitations of the Cardinal Theory

The cardinal utility theory has three basic limitations as follows:

Utility cannot be cardinally measured. Hence, the assumption that utility derived from the consumption of various commodities can be measured and expressed in quantitative terms is very unrealistic.

As income increases the marginal utility of money changes. Hence the assumption of constant marginal utility of money is not realistic.

Finally, the law of diminishing marginal utility is a psychological law, which cannot be empirically established and has to be taken for granted.

Ordinal theory

• The ordinalist school asserts that utility cannot be measured in quantitative terms. Rather, the consumer can compare the utility accruing from different commodities (as a combination of them) and rank them in accordance with the satisfaction each commodity (or combination of commodities) gives him.

• In their view utility cannot be quantified so its numerical expression is unrealistic.

• Ordinal approach contains that the theory of consumer behaviour can be explained or analyzed even without measuring utility as the cardinal approach does.

• This method of ordinal approach is also called’ indifference curve approach’.

• The indifference curve technique is based on the following assumptions. Utility can be ordinally measured: The consumer can rank various commodities or

combination of commodities in accordance with the satisfaction that he derives from them. The consumer is rational: Given the market prices and his income, a consumer will attempt

to maximize his satisfaction when he undertakes consumption. Additive Utilities: The quantities of the commodities that are consumed determine the total

utility of the consumer.

Consistency of choices

Limitations of the Indifference Curve Technique

The indifference curve technique has been crticised on the following grounds:

• It assumes that the consumer is very familiar with his entire preference schedule, which is not the case in actual life.

• The technique can be efficiently applied only to two commodities. Once more than two commodities are introduced, the analysis become very complicated to illustrate.

Nudge theory

• Nudge theory is credited mainly to American academics Richard H Thaler and Cass R Sunstein.

• Nudge theory is mainly concerned with the design of choices, which influences the decisions we

make.

• Nudge theory accepts that people have certain attitudes, knowledge, capabilities, etc., and

allows for these factors.

• Nudge theory is based on understanding and allowing for the reality of situations and human

tendencies.

• Businesses, particularly marketing departments, are stepping up the application of this

knowledge with the aim of increasing sales and profits.

• Every decision that a customer makes, whether to make a purchase, extend service or deepen

engagement is a Nudge opportunity and a chance to impact the bottom line.

• By understanding how individuals behave over time, marketers can use pattern recognition

approaches to establish fingerprints of each customer and group according to behaviors they

have in common.

• Then, by clustering people with similar fingerprints, discover what’s unique about certain groups

relative to others, which indicates desirable and undesirable traits and causes that help describe

how marketers should Nudge them.

Consumer behaviour & the marketing strategy

Since its emergence, many organisations have successfully adopted the marketing concept. This has resulted in an extremely competitive marketplace, with products and services offered to more precisely target consumer segments. Thus organisations have recognised the need for developing customer based corporate strategies. This requires a thorough understanding of consumer trends, global consumer markets, models to predict purchase and consumption patterns, and communication methods to reach target markets most effectively.

Customer driven marketing strategies

1. Market segmentation and consumer based strategies 2. Customer retention strategies 3. Global marketing and communication strategies

Market driven strategies

Organisations are required to develop very effective and successful market driven strategies to execute in the target market place to meet the expectations of the consumers and to beat the severe competition in the business world.

Characteristics of a market driven strategy

1. Establishing a clear shared vision based on the current market and on the expectations of future changes in the market

2. Deciding on the opportunities to deliver a superior value to the target customers

3. Positioning the brand and the organisation in the market using its distinctive competitive advantages.

4. Identify the importance and probable value creation from the good collaboration with suppliers, customers, internal functions, distributers, and competitors.

5. Reformulate the organisational designs to match and handle future possible strategies.

Consumer driven market strategies

Marketing strategy enables organisations to allocate their available resources effectively and efficiently to produce and sell high quality products or services that would perceived as more valuable by the consumers when compared to products or services of competitors.

There are four dimensions of “Consumer driven marketing strategy” as follows.

Market analysis

This is one of the most important elements in developing a successful consumer driven marketing strategy. Market analysis need to be carried out in considering mainly the following dimensions.

Dimension Description

Consumer insight and product development Analyzing the expressed and unexpressed realities as well as the needs of the consumers that guide their selections on different products, brands etc.

Customer environment Analyzing the changes that emerge in the customer environment in order to develop innovative products or services, packaging techniques and to modify the existing products.

Corporate strengths and resources Analyzing the strength, weaknesses and resources of the organisations with regard to their personnel, production, managerial, marketing, research and development abilities

Consumer

Market Analysis

Market segmentation

Marketing Mix Strategies

Implementation

and financial stability.

Current and potential competitors Analyzing and foresee the competitors actions such as promotions, price reductions, marketing etc.

Market environment Analyzing and evaluating about the external environment conditions in terms of economic, regulatory, government, physical, technology, infrastructure conditions.

b. Market segmentation

The process of discovering the groups in which each individual demonstrates one or more similar characteristics or behaviors to one another is known as segmentation.

The reasons of segmentation

1. To identify the individuals with similar characteristics in order to make adjustments to products, packaging, marketing and communication strategies to match with their explicit desires.

2. To categories the customers in to the particular groups so that variances would be minimized in the groups and maximized among different groups. Further, organisations can achieve an advantage from this gap as when the variance is maximized among the segments as they will be able to charge a superior price than the cost of targeting only specialized preferences of a specific segment.

3. To develop products or services those are closely matched with the desires, behaviors and needs of the selected segment.

Marketing mix strategies

There are four elements in marketing mix as follows.

Product

Anything that is offered to the market for attention of customers or for consumption is known as a product. This indicates the organisational output and the benefits that are offered to market. It can also emphasize that a product will always be associated with services.

Therefore organisations need to analyze the features of the product and its costs.

Price

This is the value of the product or service of the firm in a particular market. Hence organisations need to develop the price according to the customer preferences by researching about the customers’ reactions to prices, price cuts, and price improvement and then whether they relate the prices with the quality of the product or consider about purchasing power.

Promotion

This is the method through which a particular product or service is communicated to the target customer group. Therefore organisations should clearly decide on what they want to communicate, how to communicate, which form of communication would be best, what types of communication to employ in order to deliver the message successfully to reach the targeted customer groups.

Place

This demonstrates how a product is made available to the target audience. The organisations should determine the most appropriate locations to sell the products or services to customers after careful analysis. Further the place that is selected should also be convenient for the customers to reach.

Example

Positioning

Positioning enables an organisation to acquire a place in the minds of the customers. When looking at the positioning of world-class car manufacturer, Toyota, there positioning among the customers differ based on the model the car. Toyota Prius is a car that is positioned in the minds of customers as environmental friendly car whereas the Toyota Lexus positioned as high performance car.

Activity Consumer behaviour and the marketing strategy

Q State the main techniques of promotion that an organization can adopt

A

01. Advertising 02. Publicity 03. Personal selling 04. Sales promotions 05. Sponsoring

Customer loyalty, satisfaction & retention strategies

The concept of relationship marketing is one mean of highlighting the relationship between consumer behaviour and marketing. This stresses on the point that the customer should be the core of the organisation. The three elements discussed in this section plays a vital role in managing customers in an organisation.

Vital elements in managing customers of an organisation

Customer value

Customer value is the ratio between the customers’ perceived economic, functional and psychological benefits and the resources such as time, finance, effort etc put to acquire those professed benefits.

Customer satisfaction

Customer satisfaction depends on the customer’s expectation from a particular product or service and this would arise after the purchase. Customer satisfaction will vary depending on the individual, according to his/her expectations from the product or service and what he/she actually achieved from the use of the product or service.

Several types of customers can be identified based on their level of customer satisfaction and behavior afterwards.

Customer Satisfaction

Customer Retention

Customer Value

Loyalist

These are the customers that are completely satisfied and who continually purchase the product or service.

Apostles

These are the type of customers who experienced more than expectations. These customers are known to be very valuable as they spread positive word -of-mouth to others about the organisation.

Defectors

These are the customers who are just satisfied or feel neutral satisfaction. Hence these are likely to discontinue transacting with the company.

Terrorists

These are the type of customers who had a negative experience with the organisation. These customers can be very dangerous as they tend spread negative word -of-mouth to others.

Hostages

These are the customers who have to stay with the organisation irrespective of their unhappiness due to the low prices and monopoly position of the organisations or to their unfavorable financial conditions to move to another entity.

Mercenaries

This type of customers is satisfied with the company but do not have loyalty towards the company. Hence these customers can always switch from one company to another company.

Customer retention

Customer retention is the most important for an organisation and it is been accepted all over the world. This is because it is very difficult and expensive to attract new customers than retaining the existing customers loyal to the company. Therefore organisations should develop various strategies and objectives to deliver higher value to the customers with the main aim to make the customers to remain with the company.

It is been accepted that small reduction in defects can generate a major increase in profits due to following reasons.

• The loyal customers will continue buying products.

• The loyal customers do not give much importance to prices and to the advertising of competitors.

• Catering to the existing customers is cheaper as they are fully aware about the company, its process, offers, prices etc.

• The loyal customers contribute the growth and expansion of the company by spreading positive word-of-mouth

However the organisations should place much emphasize on developing customer retention programmes to the fact that each and every customers are not the alike and each hold different level of significance to the company. Hence the companies are now entered more in to developing selective relationship strategies with their customers depending on the profitability level of customers.

Example

Customer Retention

Most of the banks such as HSBC, HNB, Standard Bank, South Africa, Baiduri Bank, etc have established a separate prestigious banking unit within their bank branches to provide specialized services to high end customers who contribute to the profitability of the bank.

The customer pyramid

The customer profitability is determined based on the individual customer revenues and the marketing costs of the organisations. Then the customers will be categorized into specified tiers based on their behavior to the offering of the company. The tiers are illustrated the customer pyramid.

The customer pyramid is identified to be very useful to apply the understanding of consumer behaviors.

Platinum tier

• This category includes the high end customers who are insensitive to prices and ready to try the new offers of the company.

Gold tier

• This category of customers is the heavy users and who are more sensitive to prices. Hence this category more likely to demand for discounts.

Iron tier

• This category of customers is not subject to get special treatment from the entity for their spending and profitability aspects.

Lead tier

• This category demands more attention from the company than their merits for the spending. Thus these customers are more likely to spread negative words about the company and a factor to tie-up the resources within the company. Therefore these customers are known to be a cost to a company.

The increasing importance of the customers in the business world has transformed the organisations to place customers in a centre place in marketing. Hence today marketing is centered on customers and thus moving more towards value-and-retention based marketing than traditional marketing.

Hence following diagram presents the major differences between value-and-retention based marketing and traditional marketing.

Major differences between value-and-retention based marketing and traditional marketing

Following can be regarded as the differences that can be identified between traditional marketing and value-and-retention based marketing.

The Traditional marketing concept Value-and-Retention focused marketing

Do not focus on the product; focus on the need that it satisfies

Focus on the perceived value of the product and the need that it satisfies.

The products and services that fulfil the customer needs better than the competitor offerings are marketed

The understanding of customer needs is used in developing offerings that customers will perceive as more valuable.

Understand the purchase behaviour process and the influences on consumer behaviour

Understand consumer behaviour in relation to the company’s product

Create customer trust and loyalty to the company and high levels of customer satisfaction

Create customer intimacy and bonds with completely satisfied, delighted customers

Segment the market based on customers’ geographic, demographic, psychological and socio-cultural, product usage related characteristics

Use hybrid segmentation that combines the traditional segmentation bases with data on the customer’s purchase levels and patterns of use.

Global marketing strategy

Organizations should think globally in order to understand the markets beyond the local boundary in terms of following.

01. The sources of supply: Organizations should think on how to source the materials, management and expertise from the world.

02. The sources of demand: Organizations should think on how to sell the product and services to world markets globally.

03. Methods of effective marketing and management: Companies should have a learning culture in order to learn and understand the best ways to manage and market in worldwide by referring the firms around the world.

Any firm with growth orientation should focus on expanding their business beyond their local boundaries in order to achieve higher growth aspects once they penetrated in their home countries. Any firm, not only large firms, which are flexible, can adapt well to local markets.

Activity Customer loyalty, satisfaction & retention strategies

Q Explain how customer loyalty, customer satisfaction and customer retention are connected with each other.

A Customer satisfaction can be identified when the customer have achieved their desired

expectations that they wants to achieve form particular product or service. Highly stratified customers will remain with the organisations by continually buying the products, spread positive word of mouth and will not look for other competitors. Hence the satisfaction of customers will make them to trade with same organisation for years. Thus this is known as retention. Further the organisations will also undertake variety of value additions to their products to increase the customer satisfaction which leads to customer retention.

When consumers stay with one organisation for many years and when they highly satisfied with that company, they will continue to buy their products rather looking for other alternative products. Hence this is known as customer loyalty for the organisation.

Consumer research & segmentation

Consumer Research is a unique subset of marketing research, which merits the use of specialized research methods to collect customer data. Consumer Research can simply be described as the study of consumer behaviour. Consumer research enables marketers to study and understand consumer needs and wants, and how they make consumption decisions.

The importance of consumer research

Studying consumer behaviour enables marketers to predict how consumers will react to promotional messages and to understand why they make the purchase decisions that they do. As Marketers it important that market research is commissioned prior to developing a marketing strategy, product, campaign or anything to that case with regard to the business.

Why consumer research is important?

• Consumer research enables marketers to attain a comprehensive understanding about the consumers, their needs, wants, desires preferences etc.

• Consumer research will guide the organisations in taking managerial decisions as well as marketing decisions

• Consumer research allows the marketers to gain detailed information on consumer decision making process. Hence the knowledge can be used to develop new products, to set prices, to choose best distribution channels, establish appropriate promotional campaigns that would create a positive influence on the purchase decisions of the consumers.

Consumer research paradigms

In the past, the consumer researchers followed the assumption that the consumers were acted based on their rational idea of only purchasing those products that offer highest possible satisfaction at a low cost. Hence the researchers have not considered about the impact of motivation, attitude and psychological factors on the decisions of the customers.

The earliest research methodology that was adopted by consumer researchers was the Ernest Dichter – Motivational Research approach.

Based on Dichter’s motivation research work and the research designed to studythe psyche of consumers have put forth mainly two different types of research methodologies, which are mostly used at present, to understand the behavior of the consumers. They are as follows.

01. Quantitative research

02. Qualitative research

Quantitative research

• Quantitative research is a descriptive research that closely resembles and follows the positivism or modernism paradigm. This methodology enables researchers to gain a comprehensive understanding and measure the impact of various inputs (promotional inputs), views etc on the customer behavior and accordingly to predict the behavior of consumers.

• Hence quantitative research uses quantitative data and sophisticated statistical data analysis tools in analyzing those data. The findings of quantitative research are conclusive, empirical and descriptive in nature. The main objective of quantitative research is to quantify data and to generalize the findings to population.

• The main quantitative research methods are surveys, observations, experiments, and structured questionnaires.

Qualitative research

• The qualitative research methodology follows the interpretivism paradigm (post modernism). This is carried out to gain understanding of possible motivations and reasons for a course of action.

• This is used by consumer researches to gain insights of consumption practices of consumers rather than looking at buying action. Here the behavior of consumers is regarded as a division of human behavior.

Comparison between positivism and interpretivism

Following table shows the differences between positivism and interpretivism in term of purpose, methodology and assumptions.

Positivism Interpretivism

Purpose Predict the actions of consumers

Understanding the consumers’ consumption practices

Methodology Quantitative Qualitative

Assumptions: Rationality: The decisions of consumers will make after weighing all alternatives

No single, objective truth

The causes & effects of behaviour can be identified

Causes and effects cannot be isolated

Individuals are recognised as problem solvers

Each consumption exercise is identified to be unique

A single reality exists Reality is subjective

Events can be objectively measured

Researcher/respondent interactions would affect the research findings

Comparison between qualitative research and quantitative research

Following table shows the differences between qualitative research and quantitative research techniques.

Qualitative Research Quantitative Research

• Provide insights about new product ideas and positioning strategies

• Used in exploratory research

• Describes a target market – its characteristics, reactions etc.

• Results are used for strategic marketing decisions

• Open ended

• Unstructured

• Close ended with pre-defined possible responses

• Projective techniques including disguised questions

• Depth interviews and Focus groups

• Observation

• Experimentation

• Questionnaires including attitude scales

• Small

• Non probability samples

• Large

• Probability samples

• Analysed by the researchers who collected the data

• Subjective

• ‘Key words’ are searched for

• Data is coded, tabulated and entered into the database

• Statistical methods are used for data analysis

Example

The Importance of consumer research

ABC Company is a toy manufacturing company that commenced the business operations in 2000. The company is generating successful returns over the years but it has experienced a drop in sales in last two years. The internal experts have identified the reason for the drop is the changes in the customer behavior and to avoid that the company should carry out a consumer research. Hence to gain insights of consumption practice, the company has employed external research expert company to carry out a qualitative research.

Activity The importance of consumer research

Q List down the main data collection methods under qualitative and quantitative research methodology

A

Qualitative methodology: In-depth interviews, focus group, case study Quantitative methodology: surveys, observations, experiments, and structured questionnaires.

Social sciences and their application to marketing

• Social science is an academic discipline concerned with society and the relationships among individuals within a society.

• Social science is, in its broadest sense, the study of society and the manner in which people behave and influence the world around us.

• Social Sciences: include fields like sociology, economics, public health, anthropology, demography and political science

Sociology

Sociology is the scientific study of social behavior, its origins, development, organization, and institutions. It is the study of human social relationships and institutions.

Economics

Economics is the social science that studied economic activity to gain an understanding of the processes that govern the production, distribution and consumption of goods and services in an exchange economy.

Public health

Public health is "the science and art of preventing disease, prolonging life and promoting health through the organized efforts and informed choices of society, organizations, public and private, communities and individuals.“

Anthropology

Anthropology is the study of humankind through a cross-cultural, social science perspective, exploring the importance of culture in shaping human behavior and cultural relativity.

Demography

Demography is the statistical study of human populations. It encompasses the study of the size, structure, and distribution of these populations, and the temporal changes in them in response to birth, migration, aging, and death.

Political Science

Political science is a social science discipline concerned with the study of the state, nation, government, and politics and policies of government.

Importance and limitations of social sciences

• Ultimately, our ability to work meaningfully with others will determine the success of our enterprises, and that ability is honed through the humanities and social sciences.

• The physical and natural sciences are important to our understanding of the world and the use and development of technology and techniques.

• In simple words, it measures the social developments of the society and finds the emerging drawbacks too. The work of social science is to watch where the society has been heading and what more can be done to benefit the entire race. So, social science is very much present into our day-to-day life and has a pivotal role in the societal growth and development.

• Marketing has to consider social sciences when planning and conducting market researches and to understand how consumers behave.

• Limitations of the application of social sciences pertain to technical difficulties in collecting data on human activity. An important step is selecting an appropriate means of collecting data. There is always lack confidence that the results can be the expectations of the researchers.

The Consumer research process

It is important for the marketing manager and research manager to agree at the outset on the purposes and objectives of the study to ensure that the research design is appropriate. A small-scale exploratory study will help identify the critical issues needed to develop narrow and more precise research objectives.

Steps in the consumer research process

I. Defining the objectives of the research

II. Collecting and evaluating secondary data

III. Designing a primary research study

IV. Collecting primary data

V. Analysing the data

VI. Preparing a report on the findings

Defining the objectives of the research

The researcher should first decide on the purpose and objectives of the study that is expected to carry out. When there is a clearly defined research purpose and objectives, it would enable the researcher to develop the most suitable research design accordingly so that research will meet the intended expectations at the end.

Hence when the purpose and objectives are carefully decided and planned in consumer research process, it clearly sets out the level and type of information required in the research.

If the researcher faces with a difficulty in deciding what type of questions to raise, then the researcher can conduct a small exploratory or pilot study prior to carrying out the main full-scale study.

Collecting and evaluating secondary data

A researcher can collect data from primary sources or secondary sources as follows.

Secondary data Versus Primary data

Secondarydata Primarydata

The data or information that has already been generated or collected for some other purpose other than the present research objectives.

Data that is collected by the researchers solely for the purpose of achieving specific research objectives

Further a researcher can collect secondary data from integral sources or external sources as follows.

Types of Secondary Data

InternalData ExternalData

Data generated In-house Data that collected by outside organisations.

Analysis of customer files such as past transactions, sales call reports, letters from customers etc.

Includes the federal government, periodicals, newspapers, books and search engines.

Useful for calculating customer life time value profiles for various customer segments.

Commercial data is made available from market research firms.

Advantages and disadvantages of secondary data Advantages

• Secondary data are more quickly, easily and cheaply obtained when compared to primary data.

• Secondary data provides more quick solution to the research problem.

• The use of secondary data avoids researchers to undertake a comprehensive primary research.

• It would also help the researcher to redefine and clarify the objectives of the proposed

primary research.

• Secondary data provides clear indications about the types of methods need to be employed and practical difficulties that would be encountered in a full scale research study.

Disadvantages

• The information gathered from the secondary sources may be out-of-date. • The available secondary data might have collected with an aim to support a particular view,

hence it might be biased. • Secondary data may be inaccurate due to the mistakes that would have occurred in data

collection and data analysis. • The available secondary data might be different from the data that is sought by the

researcher.

Designing a primary research study

The research should be designed based on the expected purpose of the research.

Forms of research design

Quantitative research design

• This is adopted by the researchers when they need descriptive information for the study. There are three key quantitative research designs to collect data as follows.

Observations

• This method enables the researchers to easily gain comprehensive understanding about products, people and their behavior by simply watching at them. Accordingly consumer researchers would be able to observe about how much the product is important to a customer with an aim to discover their brand loyalty by employing this method.

Experimentations

• Experimentations help the researchers to investigate about the cause and effect relationships among variables such as pricing behaviors, packaging etc.

Example

Experimentations

Test marketing is an experimental strategy that is used by organisations prior to launching a new product, where the entity will use many variables and manipulate them in a controlled environment in order to predict future sales, demand etc.

Surveys

• Surveys are conducted by carrying out personal interviews through telephone, emails or online.

Quantitative research data collection instruments

Data collection instruments play a very significant role in quantitative research to collect the data systematically. Further it should be assured that the every respondentis asked the same questions in the exact order as others.

The quantitative data collection instruments are generally subjected to validity and reliability tests.

• Validity test: Validity test measures the degree to which the instrument accurately match with what it is intended to measure. Because, it is very important for the instruments to gather the most appropriate data in order to meet the objectives of the research.

• Reliability test: Reliability test measures the degree to which the instruments are consistent with what it is measuring. This indicates that the instrument should produce the same results if the same questions rose from an identical sample.

There are two main data collection instruments that are used under quantitative research in order to collect data. They are questionnaires and attitude scales.

01. Questionnaires

Questionnaires are identified as the primary data collection instrument in quantitative research. These questionnaires are developed objectively, unambiguously and in an interesting from so that researcher would be able to elicit the true responses of the participants easily.

Questionnaires are directly sent to the respondents through emails (self administrated questionnaires) or a filed interviewer will administer the questionnaires over the telephone network.

Open ended or close ended questions can be included in the questionnaires as per to the researchers discretion.

02. Attitude scales

Attitude scales are used when the researcher wants to identify the relative feelings of respondents pertaining to a product attribute, product or services.

There are four types of attitude scales that are frequently used in quantitative research design.

• Likert scale: This is the mostly used attitude as it can be easily developed and interpreted by the researchers. Here the respondents are simply required to select their preferences from the given series of statements as per to their level of disagreement or agreement.

• Semantic differential scale: This attitude scale can also be easily constructed. It includes a series of bipolar adjectives such as Good/bad, Hot/cold etc where the respondents are asked to present their feelings towards the attributes of a given product or service.

• The behavior intention scale: This technique is used in anticipating the likelihood of

respondents to act in a particular way.

• Rank order scale: The respondents will be asked to rank items as per to their preferences depending on criteria such as value, quality etc.

Qualitative research design

This is adopted by the researchers when they need more qualitative nature of information for the study.

Basic qualitative research designs

• In-depth interview

This is a non-structured interview between a well trained interviewer and a respondent which will last for about usually 30 minutes to 01 hour. In in-depth interviews, the respondents are encouraged to freely speak about their attitudes, activities, behaviors and interest relating to a brand or product that is considered by the study.

• Focus groups

This is an unstructured interview that is conducted in groups that consist of 8 to 10 people. Focus group is used to gather information about a service or product concepts. These interviews would last for about two hours and a moderator will be there for the interview of respondents. The moderator will encourage the respondents to converse about attitudes, motives, interests, experiences etc pertaining to a particular product or service. These interviews are generally recorded or carried out in the rooms with two way mirrors.

• Projective techniques

Projective technique is a method that is mostly designed to discover the hidden motivations and feelings of consumers. A range of disguised type of tests are used under this method which

include various ambiguous stimuli such as ink blots, word association tests, incomplete sentences, person characterizations and untitled pictures or cartoons.

• Metaphor analysis

Metaphors or symbols are identified to be the foundation of communication and expressing thoughts. Hence the metaphor analysis is used to encourage consumers to express or describe their feelings and thoughts through variety of forms in terms of music, sounds, acts, pictures or drawings.

Mostly the Zaltman Metaphor Elicitation Technique (ZMET) is a technique that is widely used to surface mental models and to construct different themes that are known to drive consumer behavior or thinking.

Collecting primary data

Researchers need to select a sample from the chosen population to collect data for the study. Hence the sample is known as a sub-set of population that estimates the characteristics of entire selected population. Therefore it is very important for the sample to present a close resemblance to the population as it would be the representative of the full scale study.

Further it is very important for researchers should develop a sampling plan which is known to be the integral element of research design.

Sample plan is developed to address following key questions.

• Whom to survey – To identify the sampling unit • How many individuals to survey – To decide on the sample size • How to pick them – To select the best sampling procedures for the selection

Types of samples

01. Probability sample

The respondents are picked randomly in a manner so that every population member has a known non-zero chance of being chosen to the sample.

02. Non probability sample

The respondent from the population are selected based on the discretion and judgment of researcher. Therefore the pre determined respondents will be selected non-randomly.

Analyzing the data

The research reports, under both quantitative and qualitative methods, must include a brief executive summary about the research findings. The recommendations on marketing action might or might not be included.

However a comprehensive description about the research methodology should be included in the report. If a questionnaire is used for the study, then a copy of questionnaire is usually attached to

the appendix. Additionally tables and graphs can be presented to support the research findings mostly in quantitative researches.

Preparing a report on the findings

• Once the data is analyzed, a report should be prepared and presented to the interested parties.

Example

The Consumer research process

TOYS 2 U is a toy manufacturer of various types of toys. It has selling outlets all over the state. They always have focus on the needs of the consumers and produce toys as per to the customer taste. As to the owner of TOYS 2 U, the success behind catering to the customers is that they monthly observe the consumer behavior in selecting toys through the use of CCTV cameras

Activity The Consumer research process

Q Explain the reason fora clearly defined research purpose and objectives is important in conducting a successful research.

A

A clearly defined research purpose and objectives will help the researcher to build up the most suited research design for the intended study. Further it will assure that the intended expectations of the researcher are achieved at the end of the study. It will clearly inform about the level and the type of information as well as data required for research.

Market segmentation

Market segmentation can be described as the process of dividing a potential market into distinct subsets of consumers with common needs or characteristics, and selecting one or more segments as a target market to be reached with a distinct marketing mix.

The segmentation process

The main benefit that marketers receive through segmentation is that they are then able to differentiate the products and services offered, and thereby create more satisfaction for their customers. The strategy of segmentation allows producers to gain a competitive edge by differentiating their products and services in all aspects, be it price, packaging, promotion and even distribution.

Market segmentation

Market segmentation is undertaken by the organisations to study consumer behavior, needs and wants of a particular group with an aim to satisfy them by building high quality specialized service and products.

It is the very important step or the first phase in forming marketing strategy as indicated in following diagram.

Three phases of marketing strategy

The marketer will then select the one or more segments as the target markets in developing marketing activities. Hence this can only be done after careful segmentation of the markets in to homogeneous clusters. The organization should decide on specific marketing mix for the selected segments: Price; Product; Promotion and; Place.

Then, in the final phase, the product should be regarded as valuable by the consumers to satisfy their needs.

Steps in segmentation process

01. Identifying segments

It is important for the marketers to segment the market based on variety of consumer characteristics in order to develop the most appropriate marketing strategies.

Bases for segmentation

• Demographics factors Psychographic factors

Phase 3Product/Brand Positioning

Phase 2Target Market and Marketing

Mix Selection

Phase 1Market Segmentation

• Geographic factors Consumption behavior of consumers • Socio-cultural factors Purchase behavior of consumers • Situational factors

02. Addressing the needs of market segments

The organisation should select the appropriate target market after the market segmentation and then cater to the needs of that specific customer segment. The needs of customers are very complicated as they their preferences, tastes, desires etc are continually changing. Hence the organisation should follow the desires of the customers to satisfy and win customers.

03. Increasing profitability of market segmentation

Organisation should work accordingly to the needs and desires of the market segment in order to achieve final goal of customer satisfaction and profitability.

How market segment operates

Segmentation is adopted by the organizations to discover the wants and needs of particular selected groups with an aim to produce specialized products or services targeting them.

Hence the segmentation would give an opportunity for the organizations to build up new products, guidance to reposition the existing products as well as to select the most appropriate media to carry out advertising.

Example

Market segmentation

The companies such as Rolex and Rolls Royce tend to have targeted one single segment market. Both these companies target only the high income consumers.

Activity Market segmentation

Q State five bases that can e used to segment the market

A

Demographics factors Situational factors Psychographic factors Geographic factors Consumption behavior of consumers


Selecting the bases on which to segment the market is the first step in developing a segmentation strategy. These separate bases will facilitate methodical segmentation of customers in an organisation. This section focuses on discussing how the organisation can utilise the different bases effectively.

Major bases for segmentation

There are mainly nine bases that can be considered in segmentation of customers.

Geographic segmentation

The potential market is divided in to sub groups based on selected geographic variables in the geographic segmentation as follows.

Geographic segmentation base Segmentation variables

Region Leeds, Yorkshire

City Size Metropolitan areas, small cities

Density of area Urban, Suburban, exurban, rural

Climate Temperate, hot, humid, rainy

Demographic segmentation

In demographic segmentation, the demographic variables such as sex, income, educations, occupation, age, marital status etc are used to segment the market as indicated in following table.

Demographic segmentation base Segmentation variables

Age Under 12, 12-17,18-34,35-49........

Sex Male, Female

Marital status Single, married, divorced, widowed

Income Under $10,000, $10,000-30,000......

Education High school graduate, college graduate.....

Occupation Professional, blue collar, white collar....

Psychological segmentation

In psychographic segmentation, the psychographic variables such as perception, learning, personality, attitudes, motivation etc are used to segment the market as follows.

Segmentation base Segmentation variables

Needs – motivation Shelter, safety, affection, self worth

Personality Extroverts, novelty seekers, innovators

Perception Low-risk, moderate-risk, high-risk

Learning - involvement Low, High

Attitudes Positive, Negative

Psychographic segmentation

The activities, opinions and interests of the consumers are used in the market segmentation as follows.


Lifestyle segmentation Economy minded, couch potatoes, outdoor enthusiasts, status seekers

Socio-cultural segmentation

Under socio-cultural segmentation mainly following bases will be considered.

Family life cycle

This is considered with the assumption that most of the families surpass the similar phases from their formation, growth level and final dissolution. The major five such stages are considered here as follows.

• Bachelorhood • Honeymoon • Parenthood • Post parenthood • Final dissolution

This segmentation is carried out clearly based on family and marital status but implicitly reflected income, age and the employ status as well.

Social class

Social class is also considered as a base for segmentation. Hence social class will be identified using a weighted demographic variables index which includes chosen demographic factors such as occupation, education, wealth, income etc.

Culture and sub-culture

Culture is used as a base for segmentation as the people, who follow the same culture, are identified to have similar beliefs, values and customs. Hence when the marketers choose this base they tend to stress on the cultural values which are held widely by the segmented group with an attempt to gain their attraction. International marketers tend to frequently follow this in dealing with international customers.

Use-related segmentation

In use-related segmentation, the consumers are segmented based on brand, product or service characteristics such as level of awareness, level of usage, level of brand loyalty etc as indicated in the table.


Rate of Usage Heavy users, Medium users, Light users, Non users

Awareness status Aware vs. Unaware, Interest level, readiness to buy

Brand loyalty Brand loyal vs. Brand switchers

Usage – situation segmentation

In usage-situation segmentation, the consumers are categorized based on special occasions or situations as follows.


Time Leisure, work, rush, morning, night

Objective Personal, gift, fun, achievement

Location Home, work, in-store

Person Self, family members, friends, boss

Benefit segmentation

Benefit segmentation is a process that segments the markets based on the selected meaningful and most important benefits such as luxury, reliability, after sales service, convenience, social acceptance, value for money.

Hybrid segmentation

Variety of segmentation variables are combined in the segmentation process under hybrid segmentation. Such commonly used variables are demographic, psychographic and lifestyle profiles. This type of segmentation is considered in building promotional campaigns.

Geo-demographic segmentation

This is a type of hybrid segmentation which assumes that individuals who live closer have similar lifestyles, attitudes, consumption habits and financial resources.

Criteria for effective targeting of market segments

The selected market segments should have the below characteristics to consider as an effective and successful target for the organisations.

• Identification • Stability • Accessibility • Sufficiency

Implementing targeting strategies

The organisations should select the target market and cater to them after the segmentation using appropriate marketing strategies. Accordingly following potential marketing strategies are discovered for the use of marketers.

Differentiated marketing strategy

Organisations will select to target several market segments employing specific marketing mix for each group than looking at only one segment.

Concentrated marketing strategy

Organisations will only select one market segment to cater. Hence a distinctive marketing mix, tailored product, appropriate price, promotional campaign and distribution network will be offered by the organisations.

Counter marketing strategy

Organisations will select to several market segments and combined them in to one, larger segment to offer a unique tailor made products and price through unique promotional campaign and distribution network.

Example


The bases for segmentation will vary mainly based on the nature of the company. Some examples are given as follows. 1. Gender as a base will be used by clothing companies 2. Income as a base will be used by vehicle manufacturers, wrist watch manufacturers 3. Age as a base will be used by milk powder manufacturers, insurance companies, Shoe manufacturers 4. Occupation as a base will be used by architect companies, computer manufacturers 5. Education as a base will be used by Higher education companies, banks (different accounts)

Activity Bases for segmentation

Q State the difference between “Differentiated marketing strategy” and “Counter marketing strategy”

A

In differentiated marketing strategy, organisation target several market segments and will use specific marketing mix for each selected market segment than targeting only one segment. In counter marketing strategy organisations choose two or more market segments and then will combined them in to one, larger segment. Hence the organisation offers a unique tailor made product and a marketing mix.

CONSUMER BEHAVIOUR

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