Chapter 5 - Analyzing Consumer Markets

Chapter 5 – Analyzing Consumer Markets

Summary

Consumer behavior is influenced by three factors: cultural, social, and personal.  Cultural can have three subsets of culture, subculture, and social class.  Social can be reference groups, family, social roles and statuses. Personal can be age, stage in lifecycle, occupation, economic circumstances, personality and self-concept, and lifestyle and values.   Consumers go through a buying process consisting of recognizing a need, researching or searching for information about products, evaluating the alternatives, making the decision purchase and post purchase behavior.  Behavioral decision theories help marketers understand why consumers aren’t always rational in their decision making process.  Two theories are decision heuristics and framing.

A.      What Influences Consumer Behavior?

1.       Consumer behavior is the study of how individuals, groups, and organizations select, buy, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and wants.  A consumer’s buying habits are influenced by cultural, social, and personal factors.

2.       Teens often purchase products based on what their friends say about that product or because of what a sales person tells them about the product.

3.       Consumer buying behaviors are affected by the culture in which they live and the social class in which they are in.  Other social factors such as reference groups, which have a direct or indirect influence on a consumer’s attitude, family and roles and status within a group all play a role in determining what consumers choose to buy. Other factors that play a role are the consumer’s personal characteristics such as age and stage of the life cycle, occupation and economic circumstances, personality and self-concept, and lifestyle and values. 

B.      Key Psychological Processes

1.       Key psychological processes are the way consumers process stimuli and make purchasing decisions.  There are five key psychological processes – motivation, perception, learning, emotions, and memory.

2.       A good example of advertising that is supposed to affect our psychological needs is for State Farm Insurance.  Their slogan, “Like a good neighbor, State Farm is there” encourages the consumer to think of them as safe, helpful and dependable.

3.       Consumer needs can be either biogenic (physical) or psychogenic (mental/emotional).  A need becomes a motive when it drives us to act. There are three best-known theories of human motivation – those of Sigmund Freud, Abraham Maslow, and Frederick Herzberg.  A consumer’s perception of a situation determines how they will be motivated to act.  How much they notice and remember the marketing stimuli around them depends to a degree, on what their immediate needs are.  When we act, we learn and learning induces changes in our behavior based on our experiences.  Our emotions may cause us to like or dislike a product and what we remember about the product or company also influences whether or not we purchase and what brand we purchase.

C.      The Buying Decision Process: The Five-Stage Model

1.       The five stage model is useful for companies trying to understand the buying decision process – all the experiences in learning, choosing, using, and disposing of a product.  The five stages are problem recognition, information search, and evaluation of alternatives, purchase decision and post purchase behavior.

2.       A consumer may need to purchase a new washing machine.  They research brands and models, sizes, load capacities, and prices.  After comparing features of several models, they decide on a washer and make the purchase.  Afterward, they review the performance and decide if they are satisfied or unhappy with their choice.

3.       The buying process starts long before the actual purchase.  It begins when the consumer recognizes a need in response to some internal or external stimuli.  The consumer then searches for information about the product and when the research is satisfied, he evaluates the different alternatives before making a final purchase decision.  The decision can be influenced by a couple of factors.  The first is the attitude of others.  A negative or positive attitude from a person the buyer respects, or has a high regard for their opinion, can influence whether or not he purchases the product.  The second factor is unanticipated situational factors.  The buyer may lose his job or have a sudden, unexpected expense elsewhere that will prevent him from making the intended purchase. What happens after the purchase can influence whether the buyer purchases that product again.  A good experience can cause the buyer to repurchase or a negative experience can cause the buyer to never repurchase that product.  How well the company follows up and monitors how well buyers use and dispose of the product can determine how they market it in the future.

D.      Behavioral Decision Theory and Behavioral Economics

1.       Consumers don’t always make buying decisions in a deliberate, rational manner.  In fact, they sometimes make irrational choices.  Behavioral decision theory (BDT) studies these buying decisions and reinforces that consumer behavior is very constructive and the context of decisions matter.

2.       Consumers were given a choice of purchasing a normally expensive brand of chocolate, Lindt, at great savings for a very low price or an inexpensive brand of chocolate, Hershey’s, for a penny.  Most buyers chose the Lindt brand.  When the price of Lindt was lowered to 14 cents and Hershey’s was free, they chose the free chocolate, even though the Lindt was a better bargain.

3.       There are two key areas of behavioral economics – decision heuristics and framing.  Heuristics are “mental shortcuts” that consumers take in the decision process.  Three heuristics they may use: 1) Availability – when consumers base their predictions on how quickly and easily a particular example of an outcome comes to mind. 2) Representativeness – how representative or similar the outcome is to other examples. 3) Anchoring and adjustment – consumers arrive at an initial judgment and then adjust it based on additional information. Decision framing is the manner in which choices are presented to and seen by a decision maker.