PM-Unit-2 Consumer Behaviour and Market segmentation
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Unit-2
Consumer Behaviour & Market segmentation
Introduction
Consumer buying behaviour- refers to the buying behaviour of final consumers - individuals and households that buy goods and services for personal consumption. All of these final consumers combined make up the consumer market.
Factors influencing Consumer Behaviour
Five main factors that determine consumer behaviour are namely 1) Psychological, 2)Social, 3)Cultural, 4)Personal, and 5)Economic factors.
1. Psychological Factors
Human psychology is an integral factor that influences consumer behaviour although these factors aren’t exactly easy to measure.
A few integral psychological factors driving the behaviour of consumers are :
Motivation
Motivation becomes a defining factor influencing a person’s buying behaviour. A popular motivation theory is Maslow's theory of hierarchy of needs in which he developed a model that lays the foundation for 5 different levels of human needs.Amongst these requirements, our basic requirements and security needs are generally put above all needs.
Perception
Our perception is shaped when we gather information regarding a product and examine it to generate a relevant image regarding a certain product.
Whenever we see an advertisement, review, feedback or promotion regarding a product, we form an image of that item. As a result, our perception plays an integral role in shaping our purchasing decisions.
Learning
Every time we purchase a product we get a deeper knowledge about it through experience. This learning mainly depends on our experience, knowledge, and skills, which can be either be cognitive or conditional. While in cognitive learning, we use our knowledge for finding satisfaction and fulfilling our needs with the item we purchase, conditional learning is where we get constantly exposed to a situation, enabling us to respond towards it.
Attitudes and Beliefs
We’ve all got certain attitudes or beliefs that consciously or subconsciously prompt our purchasing decisions. For instance, while your friend who believes caffeine is adverse for one’s health may prefer tea, you who believe that caffeine energizes us, may prefer coffee. Our attitude and what we believe influence our behaviour towards a product and also play a key role in shaping the product’s brand image.
2. Social Factors
We are all social animals so our purchasing decisions are impacted to some extent by the people around. We are constantly working on imitating other human beings, longing to fit in our surroundings. As a result social factors influence our buying behaviour regarding items. Some of these factors include :
Family
Our families actually have a considerable role to play in impacting our purchasing behaviour. We form an inclination towards certain products from our childhood by observing our families use that product and persist in using those products as we grow up.
Reference Groups
Reference groups are basically groups of people with whom we associate ourselves. These include clubs, schools, professional or playgroups, churches, and even a group of friends, etc. The people in the reference groups normally have a common pattern of purchasing and an opinion leader who influences them in terms of their buying behaviour.
Roles and status
We are all influenced by the role that we hold in society. The higher position we hold, the more our status affects what and how much we purchase. For instance, the CEO of a company and a normal employee would have a varied buying pattern.
3. Cultural factors
We all have our values and ideologies that are shaped by the values and ideologies of the society we exist in and the community we belong to. Our behaviour is consciously or subconsciously driven by the culture followed by that particular community.
For instance, let’s take the example of McDonald's India. India has a massive consumer base with McDonald’s has adjusted its menu to match the tastes and preferences of the local community in whose vicinity it resides. For instance, on account of cows being sacred and widely worshipped in India, chicken has been put in place of beef.
A few significant cultural factors include :
Culture
Our cultural factors are basically basic requirements, values, wants behaviours, and preferences that are observed and absorbed by us from our close family members as well as other significant people around us.
Subculture
Amongst a cultural group, we have several subcultures. These groups share a common set of values and beliefs. They can consist of people from varied nationalities, religions, caste, and geographies. An entire customer segment is formed by this customer segment. We’ve taken an easy example of Burger King here. In their advertising strategy, the platform wished its “Ramadan Kareem” by adapting to the Muslim culture and created its advertisement in Ramadan style by showing a mostly eaten burger, presented in the shape of a crescent moon.
Social Class
Each society all over the globe is defined and known by some form of social class. This social class is determined collectively by our family backgrounds, occupation, education, and residence location.
4. Personal Factors
Alongside social, psychological, and cultural factors, we all have factors that are personal to us that influence our choices. These factors vary from person to person, introducing varied perceptions and behaviour.
Some of these personal factors include:
Age
Age is one of the primary factors that impact our preferences. The vibrant and flashy purchasing choices of a teenager would obviously differ from what an elderly person purchases.
Income
Our income definitely impacts our purchasing behaviour. The higher our income, the more purchasing power we hold and vice versa. Higher disposable income compels us to spend more on luxurious items while a lower or mediocre income makes us spend more on our basic needs like education, groceries, and clothing.
Occupation
Our occupation largely steers our purchasing decision making. We all tend to purchase the items that are relevant or suitable for our profession. For instance, a businessman would have a different clothes purchasing pattern in comparison to an artist.
Lifestyle
Our way of life is one of the most powerful influencer that controls our choices. Suppose we are on a diet then the products we purchase will also complement our diet, from food, weighing scale to using protein.
5. Economic Factors
The purchasing quirks and decisions of the consumer largely rely upon the market or nation’s economic circumstances. The more that a nation is prosperous and its economy stable, the larger will be the money supply of the market and the consumer’s purchasing power. A strong, healthy economy brings purchasing confidence while a weak economy reveals a strained market, marked by a weakened purchasing power and unemployment.
Some significant economic factors include:
Personal Income:Our personal income is the criteria that dictate the level of money we will spend on buying goods or services. There are primarily two kinds of personal incomes that a consumer has namely disposable income and discretionary income.
Our disposable income is mainly the income that remains in hand after removing all necessary payments such as taxes. The greater the disposable personal income the greater would be the expenditure on several products.Meanwhile, our discretionary personal income would be the income that remains after managing all the basic life necessities. This income is also used when it comes to purchasing shopping goods, durables, luxury items, etc.
Family Income:
Our family income is actually an aggregate of the sum total of the income of all our family members. This income also plays a considerable role in driving consumer behaviour. The income that remains after meeting all the basic life necessities is what is then used for buying various goods, branded items, luxuries, durables, etc.
Income Expectations:
It's not just our personal and family income that impacts our buying behaviour, our future income expectations also have a role to play. For instance, if we expect our income to rise in the future, we would naturally spend a greater amount of money in purchasing items.
Consumer Credit:The credit facilities at our behest also impact our purchasing behaviour. This credit is normally provided by sellers, either directly or indirectly via banks or financial institutions. If we have flexible credit terms as well as accessible EMI schemes, our expenditure on items is likely to increase and in less flexible credit terms would result in the opposite.
Liquid Assets:Even the liquid assets we’ve maintained influence our purchasing behaviour. These are the assets that get promptly converted into cash such as stocks, mutual funds, our savings or current accounts. If we have more liquid assets, there is a greater likelihood of us spending more on luxuries and shopping items.
Savings:The savings generated from our personal income are also regulating our buying behaviour. For instance, if we take the decision of saving more from our income for a certain period of time, our expenditure on goods and services would be lesser and for that period and if we wish to save less, our expenditure on such items would increase.
Buying Decision Process/Stages of Purchasing Process
A consumer undergoes the following stages before making a purchase decision −
Stage 1 − Need Recognition
Stage 2 − Information Search
In this stage, the consumer seeks more information. The consumer can obtain information from any of the several sources. This include personal sources (family, friends, neighbours, and acquaintances), industrial sources (advertising, sales people, dealers, packaging), public sources (mass media, consumer-rating and organization), and experiential sources (handling, examining, using the product). The relative influence of these information sources varies with the product and the buyer.
Stage 3 − Evaluation of Alternatives
In this stage, the consumer uses information to evaluate alternative brands from different alternatives. How consumers go about evaluating purchase alternatives depends on the individual consumer and the specific buying situation. In some cases, consumers use logical thinking, whereas in other cases, consumers do little or no evaluating; instead they buy on aspiration and rely on intuition.
Stage 4 − Purchase Decision
In the evaluation stage, the consumer ranks brands and forms purchase intentions. Generally, the consumer's purchase decision will be to buy the most preferred brand, but two factors, can come between the purchase intention and the purchase decision. The first factor is the attitudes of others and unexpected situational factors.The first factor i.e, the attitude of others can be explained like this. For example, if Mrs.A's husband feels strongly that she should buy the lowest-priced camera, then the chance of Mrs.A buying a more expensive camera is reduced.
Purchase intention is also influenced by unexpected situational factors. The consumer may form a purchase intention based on factors such as expected family income, expected price and expected benefits from the product.Any factor like change in job or reduced salary/income can affect the purchase intention.
Stage 5 − Post-Purchase Behaviour
In this stage, the consumers take further steps after purchase, based on their satisfaction and dissatisfaction. The satisfaction and dissatisfaction depend on the relationship between consumer’s expectations and the product’s performance. If a product is short of expectations, the consumer is disappointed. On the other hand, if it meets their expectations, the consumer is satisfied. And if it exceeds their expectations, the consumer is delighted.
The larger the gap between the consumers’ expectations and the product’s performance, the greater will be the consumer’s dissatisfaction.
Consumer satisfaction is important because the company’s sales come from two basic groups, i.e., new customers and retained customers.
Theories of Consumer Decision Making
1.Utility Theory.
Bernoulli developed the first formal explanation of consumer decision-making. It was later extended by Von Neumann and Morgenstern and called the Utility Theory. This theory proposed that consumers make decisions based on the expected outcomes of their decisions. In this model consumers were viewed as rational actors who were able to estimate the probabilistic outcomes of uncertain decisions and select the outcome which maximized their well-being.
However, as one might expect, consumers are typically not completely rational, or consistent, or even aware of the various elements that enter into their decision-making. In addition, though consumers are good at estimating relative frequencies of events, they typically have difficulty translating these frequencies into probabilities. This Utility model, even though it had been viewed as the dominant decision-making paradigm, had serious shortcomings that could not be explained by the model.
2. Satisficing Theory
Nobel Laureate Herbert Simon proposed an alternative, simpler model and was called Satisficing, in which consumers got approximately where they wanted to go and then stopped the decision-making process. An example of this would be in the search for a new apartment. Under the Utility Theory, consumers would evaluate every apartment in a market, form a linear equation based on all the pertinent variables, and then select the apartment that had the highest overall utility score. With Satisficing, however, consumers might just evaluate apartments within a certain distance to their desired location, stopping when they found one that was "good enough." This theory, though robust enough to encompass many of the shortcomings of Utility Theory, still left significant room for improvement in the area of prediction.
3.Prospect Theory
In the late 1970's, two leading psychologists, Daniel Kahneman and Amos Tversky, developed Prospect Theory, which expanded upon both Utility Theory and Satisficing Theory to develop a new theory that encompassed the best aspects of each, while solving many of the problems that each presented.
Two major elements that were added by Kahneman and Tversky were the concepts of value (replacing the utility found in Utility Theory) and endowment, in which an item is more precious if one owns it than if someone else owns it. Value provided a reference point and evaluated both gains and losses from that reference point.
Marketing Research
Marketing research is the function linking the consumer, customer and public to the marketer through information - information used: to identify and define marketing opportunities and problems; to generate, refine and evaluate marketing actions; to monitor marketing performance; and to improve understanding of the marketing process.
Marketing researchers specify the information needed to address marketing issues, design the method for collecting information, manage and implement the data collection process, analyze the results and communicate the findings and their implications
Marketing research involves collecting information relevant to a specific marketing problem facing the company. All marketers need marketing research and most large companies have their own marketing research departments.
Marketing research involves a four-step process.
The first step consists of the manager and researcher carefully defining the problem and setting the research objectives. The objectives may be exploratory, descriptive or causal.
The second step consists of developing die research plan for collecting data from primary and secondary sources. Primary data collection calls for choosing a research approach (observation, survey, experiment); choosing a contact method (mail, telephone, personal); designing a sampling plan (whom to survey, how many to survey and how to choose them); and developing research instruments (questionnaire, mechanical).
The third step consists of implementing the marketing research plan by collecting, processing and analyzing the information.
The fourth step consists of interpreting and reporting the findings. Further information analysis helps marketing managers to apply the information, and provides advanced statistical procedures and models to develop more rigorous findings from the information.
The Marketing Research Process
The marketing research process consists of four steps:
i)Defining the Problem and Research Objectives
ii)Developing the Research Plan
iii)Implementing the Research Plan
iv)Interpreting and Reporting the Findings
i) Defining the Problem and Research Objectives
The first step consists of the manager and researcher carefully defining the problem and setting the research objectives. The objectives may be exploratory, descriptive or causal.
The marketing manager and the researcher must work closely together to define the problem carefully and must agree on the research objectives. The manager understands the decision for which information is needed; the researcher understands marketing research and how to obtain the information.
ii)Developing the Research Plan
The second step of the marketing research process calls for determining the information needed, developing a plan for gathering it efficiently and presenting the plan to marketing management. The plan outlines sources of existing data and explains the specific research approaches, contact methods, sampling plans and instruments that researchers will use to gather new data
• Presenting the Research Plan
At this stage, the marketing researcher should summarize the plan in a written proposal. A written research plan or proposal makes sure that the marketing manager and researchers have considered all the important aspects of the research and that they agree on why and how to do the research
iii) Implementing the Research Plan
The researcher next puts the marketing research plan into action. This involves collecting, processing and analyzing the information. Data collection can be by the company's marketing research staff or by outside firms. The data collection phase of the marketing research process is generally the most expensive and the most subject to error. Researchers must process and analyze the collected data to isolate important information and findings. They need to check data from questionnaires for accuracy and completeness, and code it for computer analysis. The researchers then tabulate the results and compute averages and other statistical measures.
iv)Interpreting and Reporting the Findings
The fourth step consists of interpreting and reporting the findings. The researcher must now interpret the findings, draw conclusions and report them to management. The researcher should present important findings that are useful in the important decisions faced by management.
The manager will also want to check that the research project was conducted properly and that all the necessary analysis was completed.Finally, the manager is the one who must ultimately decide what action the research suggests.Thus managers and researchers must work together closely when interpreting research results and both share responsibility lor the research process and resulting decisions.
Market Segmentation
Markets consist of buyers, and buyers differ in one or more ways. They may differ in their wants, resources, locations, buying attitudes and buying practices. Through market segmentation, companies divide large, heterogeneous markets into smaller segments that can be reached more efficiently with products and services that match their unique needs.
Levels of Market Segmentation
Because buyers have unique needs and wants, each buyer is potentially a separate market. Ideally, then, a seller might design a separate marketing programme for each buyer. Thus, market segmentation can be carried out at many different levels. Companies can practise no segmentation (mass marketing), complete segmentation (micromarketing) or something in between (segment marketing or niche marketing).
Mass Marketing
Major consumer-products companies held fast to mass marketing - mass producing, mass distributing and mass promoting about the same product in about the same way to all consumers.The traditional argument for mass marketing is that it creates the largest potential market, which leads to the lowest costs, which in turn can translate into either lower prices or higher margins.
Segmenting Markets
A company that practises segment marketing recognizes that buyers differ in their needs, perceptions and buying behaviours. The company tries to isolate broad segments that make up a market and adapts its offers to match more closely the needs of one or more segments.Segment marketing offers several benefits over mass marketing. The company can market more efficiently, targeting its products or services, channels and communications programmes towards only consumers that it can serve best. The company can also market more effectively by fine-tuning its products, prices and programmes to the needs of carefully defined segments.
Niche Marketing
Market segments are normally large identifiable groups within a market . Niche marketing focuses on subgroups within these segments. A niche is a more narrowly defined group, usually identified by dividing a segment into sub segments or by defining a group with a distinctive set of traits who may seek a special combination of benefits. For example, the utility vehicles segment might include light trucks and off-the-road vehicles. And the off-the road vehicles sub segment might be further divided into the utilitarian segment (Land Rover), light sports utility vehicles (Suzuki) and luxury sports utility vehicles (Range Rover and Lexus) niches.
• Micro marketing
Segment and niche marketers tailor their offers and marketing programmes to meet the needs of various market segments. At the same time, however, they do not customize their offers to each individual customer. Thus, segment marketing and niche marketing fall between the extremes of mass marketing and micro marketing. Micro marketing is the practice of tailoring products and marketing programmes to suit the tastes of specific individuals and locations. Micro marketing includes local marketing and individual marketing
Unit 3-Product and Pricing strategy
Unit 4 Marketing channels and promotional strategy
Bases of Market segmentation
- It is the simplest form of segmentation
- It categorises customers based on geographic borders like city size of city or climate
- ZIP code
- City
- Country
- Urban or rural
- Climate
- It is the popular and the most commonly used
- It refers to the statistical data about a group of people.
- age-Consumer needs and wants change with age. Some companies use age and life-cycle segmentation, offering different products or using different marketing approaches for different age
- gender-Gender segmentation is usual in clothing, hairdressing, cosmetics and magazines.
- income-Income segmentation is often used for products and services such as •tars, boats, clothing, cosmetics and travel. Many companies target affluent consumers with luxury goods and convenience services.
- Education-People with higher levels of education tend to be more informed in general. Thus, education is a widely used variable in demographic segmentation.
- Ethnicity-increase in international business and global advertising brings an increase in segmentation based on ethnicity, race, nationality, and religion. These groups have many individual cultures that come with conflicting interests, preferences, attitudes, and beliefs.
- It categorises the customers on the basis of factors that relate to their personalities and characteristics
- These are slightly difficult to identify as they are subjective in nature.
- They are not data focused and hence require research to understand them better.
- Values-more and more retailers are moving towards sustainable values in order to appeal to their targeted customers
- attitudes-It pays to know what types of values people hold dear, and what attitudes they have toward different aspects of life.
- interests
- lifestyles-people's interest in goods is affected by their lifestyles. Reciprocally, the goods they buy express their lifestyles.
- conscious and subconscious beliefs-What someone believes, whether they’re conscious of that belief or not, influences what they buy.
- motivations-It’s important to know what motivates your customer.
- priorities etc
- This segmentation focuses on how the customer acts.
- It requires the marketer to know about the customers actions
- These actions will help to relate how a customer interacts with a brand
- Purchasing habits
- Spending habits
- User status-Some markets segment into non-users, ex-users, potential users, first-time users and regular users of a product. Potential users and regular users may require different kinds of marketing appeal
- Brand interactions
Principles of marketing
Unit 1 Introduction to marketing
Unit 3-Product and Pricing strategy
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