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CHAPTER 4
CUSTOMER BEHAVIOR

OVERVIEW:
Customer behavior refers to an individual's buying habits, including social trends, frequency
patterns, and background factors influencing their decision to buy something. Businesses
study customer behavior to understand their target audience and create more-enticing
products and service offers.

Customer behavior doesn’t describe who is shopping in your stores but how they’re
shopping in your stores. It reviews factors like shopping frequency, product preferences,
and how your marketing, sales, and service offers are perceived. Understanding these
details helps businesses communicate with customers in a productive and delightful way.

OBJECTIVES:
After this lesson, you should be able to:

 Define Customer Behavior;

 Elaborate the factors that affect customer behavior;
 Explain the customer experience framework;
 Differentiate the individual consumer and business buying

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CONSUMER BEHAVIOR
Consumer behavior is the study of consumers and the processes they use to choose, use
(consume), and dispose of products and services, including consumers’ emotional, mental,
and behavioral responses.
Consumer behavior incorporates ideas from several sciences including psychology, biology,
chemistry, and economics.
In this guide, we’ll take a look at the different aspects and facets of consumer behavior, and
we’ll discuss the most effective types of customer segmentation.

Why is consumer behavior important?

Studying consumer behavior is important because it helps marketers understand what
influences consumers’ buying decisions.
By understanding how consumers decide on a product, they can fill in the gap in the market
and identify the products that are needed and the products that are obsolete.
Studying consumer behavior also helps marketers decide how to present their products in a
way that generates a maximum impact on consumers. Understanding consumer buying
behavior is the key secret to reaching and engaging your clients, and converting them to
purchase from you.
A consumer behavior analysis should reveal:

 What consumers think and how they feel about various alternatives (brands, products,
etc.);
 What influences consumers to choose between various options;
 Consumers’ behavior while researching and shopping;
 How consumers’ environment (friends, family, media, etc.) influences their behavior.
Consumer behavior is often influenced by different factors. Marketers should study
consumer purchase patterns and figure out buyer trends.
In most cases, brands influence consumer behavior only with the things they can control;
think about how IKEA seems to compel you to spend more than what you intended to every
time you walk into the store.

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There are three factors that influence customer behavior: personal, psychological, and
social. Let’s dive into each type.

FACTORS THAT AFFECT CUSTOMER BEHAVIOR

Personality Traits

A customer's behavior in your store is heavily influenced by their personality, background,

and upbringing. Some will be jovial and outgoing, others quiet and collected, and some will
fall in between. Understanding where your target audience lies in this category will be vital
to understanding customer behavior.

Psychological Responses

Psychological responses can be challenging to predict, but they play a significant role in
customer behavior because someone’s response to a situation is based on perception and
attitude, which can change daily.

For example, say you got a promotion, you’re having a celebratory dinner, and your server
accidentally spills a glass of water on your shirt. You might be more forgiving in this instance
because you’re in a great mood and having a good day. However, if you were just fired from
your job, you might be more frustrated with the situation.

Customers can be patient and satisfied one day, but the next, they’re pressing your rep on
an urgent issue. Understanding that a customer’s psychological response doesn’t represent
who they are as a person can help your team defuse stressful situations and prevent
potential churn.

Social Trends

Social trends are external influencers that customers listen to, like peer recommendations,
societal norms, or fads. Some of these influences can be temporary, but others can affect
customers permanently.

We’ve just gone over some examples of factors influencing customer behavior; now, let’s
discuss some data-backed examples of consumer behaviors that directly impact customer
service.

CUSTOMER EXPERIENCE FRAMEWORK

Many of us have had customer experience horror stories, either that of your cellphone not
working when you have a flat tire, or that of being stuck at an airport for hours or many
other such situations. After each of these situations we wonder if the company cares about
us as a customer and do they really need our business.
On the other hand, companies are trying to solve the puzzle related to delivering best-in-
class customer experience. They have leadership roles focused on “Customer Experience”

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and have it as part of their core strategy. They are hoping to solve this puzzle and become a
brand loved by customers.
So how should a company solve the customer experience puzzle in a way that is easy to
understand, some way that would help them differentiate themselves against the
competition.
Here is a “Customer Experience Framework” with nine key factors that drive that
experience. This framework is applicable across many industries as demonstrated by the
examples below

Companies should map the customer experience they deliver on these nine factors against
their competitors. Doing this will tell them if they are best-in-class, ordinary or sub-par on that
particular factor.

1. Requirements: Different customers have different needs and constraints.

Product/Service that meets those needs while conforming to the constraints delivers
good experience on requirements. Companies usually tend to overshoot on the
customer requirements, which enable them to serve many diverse customer
segments with one product. This is good unless there is a conflict with the constraints.
An example of customer requirements for a television is 1080p, 3D, HDMI outputs,
LED, 60″ etc…
2. Price: This is one of the key factors of customer experience, as it defines the value
that the customer is able to derive from the product. For a Wal-Mart shopper, low
prices deliver the right kind of experience. While Neiman Marcus prices deliver the
right kind of customer experience to high-end luxury shopper. So this factor varies by
the customer segment being served.
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 3. Availability: Many companies ignore this factor but this is one of the key drivers of
customer experience. This is driven by availability of your product/service when the
customer needs it the most. Your customers rely on your products/service for their
needs, and not being available drives a bad customer experience. For example,
availability of mobile network when a customer wants to make a phone call. Similarly,
availability of e-commerce websites that offer the right product when the customer is
looking to buy.
4. Convenience: This factor determines how easy it to use your product/service in
different situations is. The easier it is to get access to and use in different situations
the better is the customer experience. A good example of this would be Google
search, as it is easy to use search engine that delivers good results consistently.
5. Service/Support: Post-sale service/support, which is essential in many industries.
Different methods of delivering service/support are available and accepted for
delivering the right customer experience. But one aspect that remains key is the time
spent for initial contact and satisfactory resolution. Insurance companies carefully
measure their performance on delivering this customer experience. Many of these
companies are making it easier to file claims and the resolve claims at a fast pace.
6. Quality: Imagine your television breaks down right in middle of an important game,
quality is an essential part of customer experience and it hurts companies over a long
run when product quality is sub-par. An example of a company delivering good
experience on this dimension is BMW. With their 48K and 4-year full-service
maintenance program they have taken out quality fears from a complicated machine
which has many parts that can break.
7. Fashion: This is the “Cool factor”. This requires meeting customer requirements in a
way that amazes the customer. Apple iPhone comes to mind as an example, but I
would like to give one from semiconductor industry. NVIDIA and AMD are fierce
competitors in the graphics card market, they keep delivering cool products year after
year to amaze and capture the gamer market. Graphic image quality and the speed of
rendering keeps improving every year. I tag this as fashion as the trend keeps
changing all the time. The coolest thing today might be outdated tomorrow, as
experienced by Motorola RAZR.
8. Social Responsibility: This has to do with the social impact the company is making
either through its product/services or as a corporation. A socially responsible
company that makes a social difference in the minds of its customer base delivers
good customer experience. An example is Nike and the effect of the child labor issue
on its business. Also, Toyota’s efforts to convince the American customer that their
cars create jobs in US.
9. Brand: All companies have some brand value that gives the customer the level of
comfort required for doing business with that company, hence driving the customer
experience. This is the most important factor of all as it carries the fruits/burdens of
good/bad customer experiences across the other eight factors. For B2C focused
companies this customer experience is associated with the company, for B2B focused
companies this experience is a function of individual relationships and company
brand.

Companies that focus on just one of these nine factors seldom survive, and it is impossible
for a company to be best-in-class at all nine factors. But a good company is best-in-class on

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3 – 5 factors. The company might or might not choose to focus on the other factors.
Depending on the factors they choose, they define the customer segment they attract and
the financial benefit they derive from those customers.

INDIVIDUAL CONSUMER VERSUS BUSINESS BUYING

Buying behavior varies greatly between consumers and businesses. That’s because while
consumers purchase goods and services for personal use, businesses buy these things either
to manufacture other goods or to resell them to other businesses or consumers. The
participants, characteristics, influences and the buying process are different for both groups.

The Number of Participants

Consumer buying is usually limited to one or two participants, including the final user of the
product. For example, one person is usually involved in buying groceries and basic home
supplies.
Business buying usually involves multiple participants, such as the final users of the product,
influencers who establish the need for certain products, gatekeepers who screen potential
suppliers and purchasing managers and senior management who approve the funds for the
purchases.

Differing Behavioral Characteristics

The consumer market consists of thousands of customers located in different geographies
and with different buying habits. However, their needs are usually the same for a particular
product for example; everybody uses washing machines in the same way. The business
market usually consists of a few large buyers who are often concentrated in specific
geographic markets.
Businesses generally form close and long-term relationships with their suppliers. Different
businesses might use the same product differently. For example, a retail business might
install computers to track its inventory, while a technology company might use them for
product research.

Influencing Factors and Motivations

The influences on consumer buying behavior include basic needs, membership in groups,
family requirements, occupation, age, economic situation and lifestyle choices. The
psychological influences include perception of certain products and brands, beliefs and
attitudes. Influences on business buying behavior include environmental and organizational
factors. Competitive pressures, technological evolution and changing macroeconomic
conditions are some of the environmental influences, while corporate objectives, policies,
and procedures are some of the organizational factors.

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The Buying Process
The consumer buying process consists of five stages: need recognition, information search,
and evaluation of alternatives, purchase decision and post-purchase outcomes. Marketing
stimuli can generate need, which leads to a search for information from different sources.
Consumers evaluate alternative products based on brand name, features, quality and price.
Possible post-purchase outcomes include delight, satisfaction and dissatisfaction. Critical
success factors in the consumer market include quality, value and customer service.

The business buying process also starts with need recognition, followed by development of
product specifications. The company prepares a request for proposal to elicit expressions of
interest or bids from potential suppliers. It selects one or more suppliers; issues purchase
orders and monitor the quality of the products supplied. Critical success factors in the
business market include customization capabilities, quality, and performance, ease of use
and personal relationships.

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