Chapter 5 - Analyzing Consumer Markets
I.  Chapter Overview/Objectives/Outline
A. Overview
In addition to a company’s marketing mix and factors present in the external environment, a buyer also is influenced by personal characteristics and the process by which he or she makes decisions. A buyer’s cultural characteristics, including values, perceptions, preferences, and behavior learned through family or other key institutions, is the most fundamental determinant of a person’s wants and behavior. Consumer markets and consumer buying behavior have to be understood before sound marketing plans can be developed.
The consumer market buys goods and services for personal consumption. It is the ultimate market in the organization of economic activities. In analyzing a consumer market, one needs to know the occupants, the objects, and the buyers’ objectives, organization, operations, occasions and outlets.
The buyer’s behavior is influenced by four major factors: cultural (culture, subculture, and social class), social (reference groups, family, and roles and statuses), personal (age and life cycle state, occupation, economic circumstances, lifestyle, and personality and self-concept), and psychological (motivation, perception, learning, and beliefs and attitudes). All of these provide clues as to how to reach and serve buyers more effectively.
Before planning it’s marketing, a company needs to identify its target consumers and their decision processes. Although many buying decisions involve only one decision maker, some decisions may involve several participants, who play such roles as initiator, influencer, decider, buyer, and user. The marketer’s job is to identify the other buying participants, their buying criteria, and their influence on the buyer. The marketing program should be designed to appeal to and reach the other key participants as well as the buyer.
The amount of buying deliberateness and the number of buying participants increase with the complexity of the buying situation. Marketers must plan differently for four types of consumer buying behavior: complex buying behavior, dissonance-reducing buying behavior, habitual buying behavior, and variety-seeking buying behavior. These four types are based on whether the consumer has high or low involvement in the purchase and whether there are many or few significant differences among the brands.
In complex buying behavior, the buyer goes through a decision process consisting of need recognition, information search, evaluation of alternatives, purchase decision, and post purchase behavior. The marketer’s job is to understand the buyer’s behavior at each state and what influences are operating. This understanding allows the marketer to develop an effective and efficient program for the target market.

Opening example of LEGO illustrates how an organization changed its organization to present itself as a lifestyle brand
B. Learning Objectives
• Understand the major factors influencing consumer behavior.
• Identify the psychological processes that influence consumer responses to marketing efforts.
• Understand the stages in the buying decision process.
C. Outline
I. Introduction
II. What Influences Consumer Behavior? – Consumer Behavior is the study of how individuals, groups and organizations select, buy, use and dispose of goods and services, ideas or experiences to satisfy needs and wants.
A. Cultural factors
1. Culture - values, perceptions, and preferences that are the most fundamental determinant of a person’s wants and behavior
2. Subcultures - nationalities, religions, racial groups, and geographical regions
3. Social class - hierarchically ordered divisions in a society; members share similar values, interests, and behavior
a) Example of U.S. social class breakdown: lower lowers, upper lowers, working class, middle class, upper middles, lower uppers, upper uppers
b) Social class members can be grouped other ways;
(1) Distinct product and brand preferences
(2) Language differences
B. Social factors
1. Reference groups - all groups that have a direct or indirect  influence on a consumer’s attitudes or behavior
a) Membership groups - the most influential primary reference group (family of orientation - parents and siblings, family of procreation - spouse and children). Secondary groups may include religious, professional and trade-unions.
b) Aspirational – person hopes to join
c) Dissociative – values or behavior rejected
2. Family – most influential primary reference group
a) Family of Orientation – parents and siblings
b) Family of Protection – spouse and children
c) New pattern – increase in direct and indirect influence wielded by children and teens on family purchases
3. Roles and Status
a) Role – activities a person is expected to perform
b) Status – affected by role type (e.g. one role may provide the person with a higher status than that of a person in a different role)
C. Personal factors – characteristics that influence a buyer’s decision
1. Age and stage in the life cycle
a) People buy different goods over their lifetime 
b) Family life cycle, from independence to retirement and beyond, also shape buying habits
c) Psychological life-cycle stages and transitions (e.g., marriage, college graduation)
d) Adults experience “transformations” as they progress through life
e) Critical Life Events influence behavior (e.g. marriage, childbirth, first job, spousal death, career change)
2. Occupation and economic circumstances 
a) Blue collar versus white collar consumption considerations
b) Spending income, savings and assets, debts, borrowing power, and attitude toward spending versus saving all impact product choice
3. Personality and self-concept
a) Personality characteristics that influence buying behavior (self-confidence, sociability, etc., tie to brand personality
b) Development of brand personalities to attract consumers with the same self-concept
(1) actual self-concept – how we view ourselves
(2) ideal self-concept – how we would like to view ourselves
(3) others
4. Lifestyle and values
a)  Lifestyle - pattern of living as expressed by activities, interests, opinions. Shaped partly by whether consumer is time or money constrained
b) LOHAS segments – Acronym for lifestyles of health and sustainability. These people worry about the environment, care about sustainability and are very health conscious (e.g. organic foods) refer to table 5.1 for LOHAS segment breakdown
c) Core values – influences by the belief systems that underlie attitudes and behavior

III. Key Psychological Processes
            A.      Motivation - correlated to the strength of a need (Freud, Maslow, Herzberg)
1. Freud - forces shaping people’s behavior are largely unconscious; they cannot understand their own motivations
2. Maslow - hierarchy of needs
3. Herzberg - two-factor theory that distinguishes satisfiers from  dissatisfiers
4. Biogenic needs - arise from physiological states of tension (e.g. hunger, thirst)
5. Psychogenic needs - arise from psychological states of tension (e.g. recognition)
B. Perception - process by which an individual selects, organizes, and interprets information inputs to create a meaningful picture
1. Selective attention - increased amount of stimuli has led to individuals ignoring stimuli unless it appears to relate to a current need or appears to be outside the norm of other stimuli
2. Selective distortion - tendency to modify input information into personal meanings and interpret in a way to fit one’s pre-conceptions
3. Selective retention - retain only that information that supports an attitude or belief
4. Beliefs and attitudes - a belief is a descriptive thought a person holds about something; an attitude is a person’s enduring favorable or unfavorable evaluations, emotional feelings, and action tendencies toward some object or idea
C.                    Learning - changes in behavior arising from experience
1. Drive - strong internal stimulus that impels action
2. Cues - minor stimuli that determine when, where, and how a person responds
3. Generalization - make assumption and generalize future response to similar stimuli source (e.g. good experience with a Dell computer may lead one to assume that they will have a similar experience with a Dell printer)
4. Discrimination - recognize differences in sets of similar stimuli and adjust responses accordingly

D.                   Emotions - response may not be rational or cognitive

E.                   Memory
1. Short term memory (STM) - temporary repository
2. Long term memory (LTM) - more permanent repository. Associative network memory model views LTM as a set of nodes (information) connected by links that vary in strength. Brand information can be in the node. Brand associations consist of all brand-related thoughts, feelings, beliefs, perceptions, images, experiences, attitudes, and so on that become linked to the Brand node. See Dole example of a mental map in figure 5.2
3. Associative Network Memory Model
a. LTM can be viewed as a set of nodes and links. Nodes are stored information connected by links that vary in strength. ,
b. Refer to Figure 5.2 for a Hypothetical Mental Map
4. Memory Processes
a. Encoding – how and where information gets into memory
b. Strength of resulting association depends upon how much of the information is processed at encoding.
5. Memory Retrieval - how information gets out of memory – Three factors impact retrieval

                 
1. Other product information in memory can produce interference effects causing one’s brand information to be overlooked or confusing
2. The longer the time elapsed from encoding to recall, the weaker the association
3. Information may be available in memory but not accessible without cues or reminders 

IV. The Buying decision Process: The Five-Stage Model

The five-stage model - the consumer may proceed sequentially through the following stages, skip one or more stage, or move forward and backward depending on the specific situation (refer to Figure 5.3)
A. Problem recognition: internal stimuli (e.g. feeling of hunger or thirst), or external stimuli (e.g. advertisement) trigger need(s) or problem recognition, which starts the buying process
B. Information search
1. Two levels of arousal
a)        Heightened attention where consumer is open to
            more information
b)         Active information search utilizing four areas of
            resources: personal (e.g. family, friends,)
            commercial variety of channel communications),
            public (information and resources in public
            domain), experiential (trying the good or service)
2. Steps to gathering more information (see figure 5.4)
a)         Total potential brand set
b)         Awareness set: consumer becomes aware of some,
             not all brands
c)         Consideration set: some brands will meet initial
             buying criteria
d)         Choice set: more information is gathered on brands
             under consideration and a priority is set
                     e)          Consumer arrives at a decision on brand
C. Evaluation of alternatives
1. Consumers attempt to satisfy a need or resolve a problem by determining if a brand’s attributes provide the benefit(s) required to fulfill the need or resolve a problem
2. The evaluation process often reflects beliefs and attitudes
a. A belief is a descriptive thought that a person holds about something
b. An attitude is a person’s enduring favorable or un-favorable evaluation, emotional feeling, and action tendencies toward some object or idea
3. Organizations should attempt to match their product or service attributes close to the consumer’s attitudes rather than trying to change the attitudes
4. Consumers attitudes (i.e. judgments and preferences) are derived via an attribution evaluation process  
5. An expectancy-value-model can be used to identify the importance a consumer places on each attribute and the respective perception of the benefit of each attribute by brand (good example imbedded in the text in this area)
D. Purchase decision - consumers form preferences among brands in their choice set. Two factors can intervene between purchase intention and decision that reduce the accuracy of identified preferences and purchase intentions
1. Attitudes of others may impact decision depending upon:
a. Intensity of other person’s attitude toward consumer’s preferred alternative
b. Consumer’s motivation to comply with the other person’s wishes
2. Unanticipated situational factors
a. Consumer impacted by uncontrollable forces such as job loss, bad service, or opportunity costs
b. Consumer’s propensity for risk
E. Post-purchase behavior (refer to “Marketing Skills Inert: Dealing with customer defections)
1. Consumers may experience post-purchase dissonance. Organizations must manage this dissonance. This could be something as simple as a phone call to reassure the consumer that his or her decision was a good decision
2. Consumers may be satisfied or dissatisfied with the product or service. Both have an impact on customer loyalty as well as their “word-of-mouth.” Each must be managed appropriately by the organization
3. Marketing skills:  Winning back lost customers 
a. It costs more to acquire new customers than to retain existing customers or recapture lost customers
b. By applying a profile of lost customers to existing customers, an organization can attempt to prevent attrition
c. Effective post-purchase communications can reduce product returns, speed problem resolution, and better understand product use
4. 

V. Behavioral Decision Theory and Behavioral Economics – Behavioral decision Theory (BDT) identifies situations when consumers make irrational choices. Refer to Marketing Insights: Predictably Irrational”.
A. Decision Heuristics – “Mental shortcuts” or “rules-of-thumb”
            1.  Availabilty Heuristic – how quickly and easily a particular example of an
                 outcome comes to mind.B. Framing
           2.   Representative Heuristics – consumers base their predictions on how similar
                 the outcome is to other examples
           3.   Anchoring and Adjustment Heuristic – Consumers arrive at an initial 
                 judgement and then adjust it based on additional information. . 
B. Framing
           1. Decision framing – manner in which choices are presented to and seen by a
               decision maker.
           2. Consumers use “mental accounting” when handling their money as a way of
               coding and evaluating financial outcomes.
           3. Prospect Theory – Consumers fram their decision alternatives in terms of
               gains and losses according to a value function. They are loss-averse.

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