Chapter 5 - Analyzing Consumer Markets

 I.Learning Objectives


After reading this chapter, students should:
q
Know how consumer characteristics influence buying behavior
q
Know what major psychological processes influence consumer responses to the marketing program
q
Know how consumers make purchasing decisions
q
Know how marketers analyze consumer decision making
q
Know what factors affect the rate of diffusion and consumer adoption of newly launched products

II.
Chapter SummaryConsumer behavior is influenced by three factors: cultural (culture, subculture, and social class); social (reference groups, family, and social roles and statuses); and personal (age, stage in the life cycle, occupation, economic circumstances, lifestyle, personality, and self-concept).
Research into all these factors can provide marketers with clues to reach and serve consumers more effectively.

Four main psychological processes affect consumer behavior: motivation, perception, learning, and memory.

To understand how consumers actually make buying decisions, marketers must identify who makes and provides input into the buying decision. People can be initiators, influencers, deciders, buyers, or users; different marketing campaigns might be targeted to each type.

The typical buying process consists of the following sequence of events: problem recognition, information search, evaluation of alternatives, purchase decision, and postpurchase behavior. The marketers’ job is to understand the behavior at each stage. The attitudes of others, unanticipated situational factors, and perceived risk may all affect the decision to buy, as will consumers’ levels of postpurchase product satisfaction, use, and disposal and actions on the part of the company.

Consumers are constructive decision makers and subject to many contextual influences.
Consumers often exhibit low involvement in their decisions, using many heuristics as a result.
The consumer-adoption process is one by which customers learn about new products, try them, and adopt or reject them. Today many marketers target heavy users and early adopters of new products, because both groups can be reached by specific media and tend to be opinion leaders. The consumer-adoption process is influenced by many factors beyond the marketer’s control, including consumers’ and organizations’ willingness to try new products, personal influences, and the characteristics of the new product or innovation.

III.
Chapter Outline

I.
What Influences Consumer Behavior?
A.
Cultural Factors
1.
Culture - values, perceptions, and preferences that are the most fundamental determinant of a person’s wants and behavior
2.
Subculture - nationalities, religions, racial groups, and geographical regions
3.
Social class - hierarchically ordered divisions in a society; members share similar values, interests, and behavior
B.
Social Factors
1.
Reference groups - all groups that have an influence on attitudes or behaviors
2.
Family - the most influential primary reference group (family of orientation - parents and siblings; family of procreation - spouse and children). Family make-up is rapidly changing
3.
Roles and statuses - activities a person is expected to perform and the status associated with each
C.
Personal Factors
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)
2.
Occupation and economic circumstances

a)
Blue collar versus white collar consumption issues
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 (actual, ideal and others)
4.
Lifestyle and values
Lifestyle - pattern of living as expressed by activities, interests, and opinions. Shaped partly by whether consumer is constrained by time or money
D.
Key Psychological Processes
1.
Motivation - correlated to the strength of a need (Freud, Maslow, Herzberg)
a)
Freud - forces shaping people’s behavior are largely unconscious; they cannot understand their own motivations
b)
Maslow - hierarchy of needs
c)
Herzberg - two-factor theory that distinguishes satisfiers from
dissatisfiers
d)
Biogenic needs - arise from physiological states of tension (e.g. hunger, thirst)
e)
Psychogenic needs - arise from psychological states of tension (e.g. recognition)
2.
Perception - process by which an individual selects, organizes, and interprets information inputs to create a meaningful picture
a)
Selective attention - increased amount of stimuli has led to individuals ignoring them unless they appear to relate to a current need or to be outside the norm of other stimuli
b)
Selective distortion - tendency to modify input information into personal meanings and interpret in a way to fit one’s preconceptions
c)
Selective retention - retain only information that supports an attitude or belief
d)
Beliefs and attitudes - a belief is a descriptive thought a person holds about something; an attitude is a person’s enduring favorable or unfavorable evaluation, emotional feeling, and action tendency toward some object or idea
3.
Learning - changes in behavior arising from experience
a)
Drive - strong internal stimulus that impels action
b)
Cues - minor stimuli that determine when, where, and how a person responds
c)
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)
d)
Discrimination - recognize differences in sets of similar stimuli and adjust responses accordingly
4.
Memory
a)
Short-term memory (STM) - temporary repository
b)
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.
(1)
Encoding - how and where information gets into memory. Characterized by how much (quantity) a person thinks about it and the manner (quality of processing) in which a person thinks about it. Information presented should be clear and concise to optimize encoding. Repetitive presentations should be optimal
(2)
Retrieval - how information gets out of memory. Three factors impact retrieval:
(a)
Other product information in memory can produce interference effects causing one’s brand information to be overlooked or confusing
(b)
The longer the time elapsed from encoding to recall, the weaker the association
(c)
Information may be available in memory but not accessible without cues or reminders


II.
The Buying Decision Process:
The five-stage model - the consumer may proceed sequentially through the following stages, skip one or more stages, or move forward and backward depending on the specific situation
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), and experiential (trying the good or service)
2.
Steps to gathering more information
a)
Total potential brand set
b)
Awareness set: consumer becomes aware of some, but 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 priorities are 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 the 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 unfavorable evaluation, emotional feeling, and action tendency toward some object or idea
3.
Organizations should attempt to match their product or service attributes close to the consumer’s attitude rather than trying to change the attitude
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
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 a 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.
Postpurchase Behavior
1.
Consumers may experience postpurchase dissonance. Organizations must manage this dissonance, which could be something as simple as a phone call to reassure the consumer that his or her decision was a good one
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

III.
Other Theories of Consumer Decision Making
A.
Level of Consumer Involvement
Consumer involvement can be defined in terms of the level of engagement and active processing undertaken by the consumer in responding to a marketing stimulus
1.
Elaboration Likelihood Model - describes how consumers make evaluations in both low- and high-involvement circumstances
a)
Central route
b)
Peripheral route
c)
Consumers follow the central route only if they possess sufficient motivation, ability, and opportunity. If any of these are lacking, then consumers tend to follow the peripheral route
2.
Low-Involvement Marketing Strategies - Many products are bought under conditions of low involvement and the absence of significant brand differences. Marketers use four techniques to try to convert a low-involvement product into one of higher involvement:
a)
Link the product to some involving issue
b)
Link the product to some involving personal situation
c)
Design advertising to trigger strong emotions related to personal values or ego defenses
d)
Add important features
3.
Variety-Seeking Buying Behavior - Some buying situations are characterized by low involvement but significant brand differences. Brand switching occurs for the sake of variety rather than dissatisfaction
B.
Decision Heuristics and Biases
Heuristics come into play when consumers forecast the likelihood of future outcomes or events
1.
Availability heuristic
2.
Representativeness heuristic
3.
Anchoring and adjustment heuristic
C.
Mental Accounting
1.
Mental accounting refers to the manner by which consumers code, categorize, and evaluate financial outcomes of choices. According to Richard Thaler, mental accounting is based on a set of key core principles:
a)
Consumers tend to segregate gains
b)
Consumers tend to integrate losses
c)
Consumers tend to integrate smaller losses with larger gains
d)
Consumers tend to segregate small gains from large losses
2.
Prospect theory maintains that consumers frame decision alternatives in terms of gains and losses according to a value function. Consumers are generally loss averse
D.
Profiling the Customer Buying Decision Process
How marketers can learn about the stages in the buying process for their products:
1.
Introspective method
2.
Retrospective method
3.
Prospective method
4.
Prescriptive method


IV.
The Consumer Adoption Process

A.
Adoption is an individual’s decision to become a regular user of a product
1.
The consumer-adoption process is followed by the consumer-loyalty process, which is the concern of the established producer
2.
Years ago, new-product marketers used a mass-market approach to launch new products. This process had two main drawbacks:
a)
It called for heavy marketing expenditures
b)
It involved many wasted exposures
3.
New-product marketers now target consumers who are early adopters
B.
Stages in the Adoption Process
1.
Innovation diffusion process - spread of a new idea from its source of innovation or creation to its ultimate users or adopters
2.
Adopters of new products have been observed to move through five stages:
a)
Awareness
b)
Interest
c)
Evaluation
d)
Trial
e)
Adoption
3.
The new-product marketers should facilitate movement through the above stages.
C.
Factors Influencing the Adoption Process
1.
Readiness to try new products and personal influence
a)
People can be classified into these adopter categories:
(1)
Innovators
(2)
Early adopters
(3)
Early majority
(4)
Late majority
(5)
Laggards
b)

Each of the five groups must be approached with a different type of marketing if the firm wants to move its innovation through the full product life cycle
c)

Personal influence is the effect that one person has on another’s attitude or purchase probability
(1)
Its significance is greater in some situations and for some individuals than for others
(2)
Personal influence is more important in the evaluation stage of the adoption process than in the other stages
(3)
It has more influence on late adopters than early adopters
(4)
It also is more important in risky situations
d)
Companies often target innovators and early adopters with product rollouts
2.
Characteristics of the innovation
a)
Five characteristics influence the rate of adoption of an innovation:
(1)
Relative advantage - the degree to which the innovation appears superior to existing products
(2)
Compatibility - the degree to which the innovation matches the values and experiences of the individuals
(3)
Complexity - the degree to which the innovation is relatively difficult to understand or use
(4)
Divisibility - the degree to which the innovation can be tried on a limited basis
(5)
Communicability - the degree to which the beneficial results of use are observable or describable to others
b)
Other characteristics that influence the rate of adoption are:
(1)
Costs
(2)
Risk and uncertainty
(3)
Scientific credibility
(4)
Social approval
c)
The new-product marketer has to research all these factors and give the key ones maximum attention in designing the new-product and marketing programs
3.
Organizations’ readiness to adopt innovations
a)
Other forces come into play in trying to get a product adopted into organizations that receive the bulk of their funding from the government
b)
A controversial or innovative product can be “squelched” by negative public opinion

V.
Summary

IV.
Opening Thought
This chapter might be the most difficult for some students to grasp as it delves into psychological thinking and theory. However, it can be an interesting one for class discussions as it fosters student participation (as consumers) on issues such as what students buy, how they buy, and so forth.

Students new to marketing or to psychology as a science need a full review of the theories and ideas expressed in this chapter. The instructor is encouraged to spend a significant portion of class time on the four main psychological processes outlined: motivation, perception, learning, and memory. Repeated review of the key terms and definitions presented in this chapter is necessary for students to achieve thorough knowledge and understanding of these concepts.

The second challenge found in this chapter is the consumer buying process. It has proven helpful for students to talk about their buying processes for goods or services they are interested in and to then outline these processes on the board. Having the students relate how they buy to the steps in the consumer buying process seems to make these concepts easier to understand and accept. The instructor is encouraged to spend a significant portion of class time on the consumer buying process and the necessity of marketers to fully understand their consumers’ preferences and motivations as these form the basis of all marketing strategies and concepts.

The consumer-adoption process may be new to students who have not attended any consumer buying behavior classes. This section allows for the most discussion: Are you a heavy user? Or do you know someone who is an “early adopter”—he or she must have the latest gimmick? Through involving students in the examination(s) of their own lives or the lives of family and friends, the stages of the adoption process can become more meaningful.

V.
Teaching Strategy and Class OrganizationPROJECTS
1.
At this point in the semester-long marketing plan project, students should present their definitive data on the consumer for the product or service, including demographic and other pertinent information obtained for the instructor’s approval.

2.
A consumer products company “knows” its consumers—it has to in order to be competitive and to market successfully. During the course of the semester, students should choose a consumer product (one sold by mass merchants, in supermarkets or drugstores) and contact the manufacturer regarding their definitions, characteristics, demographics, etc. of their consumers. Students should identify themselves as working on a marketing research project; for this assignment, it may be necessary for the instructor to write an introduction letter using the official school letterhead. Students should be ready to present their findings during the later part of the semester.

ASSIGNMENTS
Small Group Assignments
1.
Students should be assigned to survey their local business environment (city, town, or campus area) and collect examples of how businesses are trying to capture these cultural market segments. They could collect information on the number of cultural restaurants in the area then compare it to the total amount of eating establishments and the percentage of the population which is of that ethnicity. How do the numbers compare and contrast, and what marketing strategies do they hint at?

2.
To prepare a case study based on the following materials from Chapter 5 and to present this:
•
Mini case: China Mobile

Individual Assignments
1.
Consumers often choose and use brands that have a brand personality consistent with their actual self-concept, ideal self-concept, or others’ self-concept. Have the students review their recent purchase of a car, computer, furniture, or clothing and ask them to comment on why they purchased this product, who influenced their purchase, and what this purchase says about their own self-concept. What is their definition of the “brand personality” in this recent purchase—as compared to the definitions stated in the chapter by Stanford’s Jennifer Aaker?

The consumer decision process isrationalversus The consumer decision process is emotional.

• Innovative Marketing: IKEA  

• Chapter Case: Tide in China (P&G) – Diao’s Challenge

• Marketing in China: Only-Child Generation

• Marketing in China: The Transition of Female Social Role in China

• Marketing Insight: The Numerology Effect on Chinese Behavior